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Pueblo Xtra International, Inc.

 


Address:
1300 NW 22nd Street
Pompano Beach, Florida 33069
U.S.A.

Telephone: (954) 977-2500
Fax: (954)979-5770
http://www.puebloxtra.com

Statistics:
Wholly Owned Subsidiary of Cisneros Group
Incorporated: 1955 as Pueblo International
Employees: 4,800
Sales: $622 million (2001 est.)
NAIC: 445110 Supermarkets and Other Grocery (Except Convenience) Stores


Company Perspectives:
Pueblo is the foremost supermarket chain in Puerto Rico and the U.S. Virgin Islands, known for its variety, quality and freshness in all its products.


Key Dates:
1955: Pueblo International is formed and opens its first supermarket in Puerto Rico.
1960: The company goes public.
1963: First Pueblo supermarket opens in the U.S. Virgin Islands.
1983: Pueblo Xtra warehouse stores are introduced.
1988: The company is taken private.
1993: Cisneros Group acquires the company.
1996: Pueblo supermarkets are closed in Florida.
1998: Hurricane Georges causes major damage to the company's operations.


Company History:

Based in Pompano Beach, Florida, Pueblo Xtra International, Inc. is a holding company for subsidiaries involved in supermarkets and video rental stores in Puerto Rico and the U.S. Virgin Islands. The company operates 42 supermarkets in Puerto Rico and six in the Virgin Islands. Through its franchise rights with Blockbuster, Inc., Pueblo Xtra operates 24 video rental stores in Puerto Rico and two in the Virgin Islands, most of which are located near its supermarkets. In addition, 15 of its Puerto Rican supermarkets feature in-store video rental outlets. Pueblo Xtra is a subsidiary of the Cisneros Group, a privately held Venezuelan conglomerate, better known for its extensive Latin American media holdings.

Origins of Pueblo Xtra

The history of Pueblo Xtra is very much the story of Harold Toppel, the son of Russian immigrant parents. He was born and raised in the back of the family's small grocery store in Franklin, New Jersey. The store was a major part of his everyday life in the 1930s and early 1940s. He worked there while growing up, to the point that by the time he was an adult he "detested the grocery business." After graduating from high school in 1941, he worked in a number of factories before leaving for the University of Delaware to study mechanical engineering, a field which he soon discovered was not as exciting as he had imagined.

After the United States entered World War II, Toppel was drafted into the military and served with General George Patton's 4th Armored Division of the Third Army in Europe. When he resumed his education at the University of Illinois following the war it was as a business major, studying marketing and business administration. There he also gained some experience working in the cigarette and candy vending machine business, and considered devoting himself to that line of work before ultimately concluding that he lacked the necessary political, and possibly underworld, connections. Instead he went to work for Lever Bros. selling soap at $65 a week, a job which introduced him to a small Rahway, New Jersey, supermarket operator, who offered him a job. Overcoming his childhood antipathy for the grocery business, he accepted the position and quickly discovered that the job actually suited him.

In 1950, Toppel and three partners pooled their resources to create the National Grocery Company. They opened their first supermarket in Metuchen, New Jersey, with Toppel serving as manager. By 1953, the company opened three more stores and two of the partners were bought off for $300,000. The following year, Toppel sold his interest for $50,000 in cash and $25,000 in deferred payments. He took a trip to San Juan, Puerto Rico, in late 1954, and rather than getting his mind off of business he soon recognized that the island was untapped territory for supermarkets. The only competition were larger stores that concentrated on canned goods. Toppel decided to invest his $50,000 in opening the first complete supermarket on the island, and in order to conduct his business he incorporated Pueblo International in Delaware in 1955. At the behest of his mother, he also allowed his older brother George, who ran a New Jersey haberdashery store, to gain an equity position for $20,000. The first unit of what became the Pueblo Supermarkets chain was located in the Puerto Nuevo section of San Juan and opened on April 25, 1955. With 5,000 square feet of retail space, it grossed $30,000 in the first week, an amount that would double within a year. In 1957, a third Toppel brother joined the business and a second supermarket was opened.

By 1960, the Pueblo chain grew to six stores and Toppel decided to take the company public at $12.50 per share. After initially selling over the counter, it soon gained a listing on the New York Stock Exchange. With Pueblo Supermarkets now well established, Toppel began to accumulate other properties, starting in 1963 when he acquired the largest commercial bakery in the Caribbean, Wholesome Bakeries of Puerto Rico. In that same year, Pueblo Supermarkets spread to the Virgin Islands, when it opened its first outlet in Charlotte Amalie, St. Thomas. In 1965, Toppel attempted to transfer his success in the Caribbean to the mainland, acquiring a 90 percent stake in the pioneering grocery chain H.C. Bohack Co. He returned to the United States to serve as Bohack's chairman, but after several months he knew that the chain was not the vehicle for expansion he had hoped for. Moreover, he came to the realization that Puerto Rico was now his home.

Doing Business in New York City in the Late 1960s

Toppel unloaded the Bohack business and looked elsewhere for a better entry into the American market, in particular New York City. In early 1967, he acquired a 50 percent stake in the ten-store Great Eastern Food Markets grocery chain. Several months later he purchased Hills-Korvette, adding its 57 supermarkets to the 20 Pueblo Supermarkets now operated in Puerto Rico and the Virgin Islands. Toppel's hope was to use his acquired supermarkets to tap into the estimated one million Puerto Ricans that lived in New York City, with the intention of becoming the nation's largest importer of Puerto Rican food products. That dream, however, was not realized. By the early 1980s, the company began to shed its New York operation in order to focus its mainland activities on southern Florida with its large Latin population.

In 1983, Pueblo introduced its Xtra warehouse-style supermarkets, opening a 70,000-square-foot unit in Hato Tejas; it was by far the largest supermarket in Puerto Rico. Xtra was also introduced in the southern Florida market where its sheer size, especially its extensive produce section, sparked a revolution in area merchandising. By now Toppel had relinquished day-to-day control of the business, although he continued to serve as chairman of the board and retained a large stake in the operation. At the end of 1984, Pueblo consisted of 44 supermarkets located in Puerto Rico, the Virgin Islands, and Florida, generating more than $475 million in annual revenues. Although the Xtra stores promised to provide economies of scale, resulting in lower prices to lure more customers, the cost of opening the large stores was so high that it took several years before they became profitable.

Late in 1987 a management group that included Toppel announced its intention to take Pueblo private through a leveraged buyout funded by investment bankers. The purpose of the move was to shelter the company from shareholder pressure for a period of time in order to improve the underlying cost structure. Afterwards, according to Toppel's plan, the company would again go public, allowing certain investors to cash out at a more lucrative price. The first step of this plan was accomplished by June 1988 when shareholders approved a $125.5 million buyout offer from First Boston Corp. and the Metropolitan Life Insurance Company. Now, as a private concern, Pueblo expanded into the video business even as management pared down operational costs. In 1990, the company won an exclusive franchise to Puerto Rico and the Virgin Islands from Blockbuster Entertainment, opening its first video store that year in Carolina, Puerto Rico. In addition to stand-alone stores, Pueblo offered in-house video stores in many of its supermarkets. In Florida, however, the company's supermarket video rentals, which began in the late 1980s, faced stiff competition and by mid-1992 were discontinued. Moreover, the Florida Xtra stores struggled in a tight market, made even more competitive by warehouse clubs that added produce to their grocery offerings.

By 1993, Pueblo's major investors were eager to realize a profit and settled on a number of options. They decided that the first choice was to sell the business and, if that proved unsuccessful, to make a public issuance of stock or to borrow money in order to pay down debt so that the company was in a position to issue dividends to shareholders. Management produced a written offering that was shared with 60 prospective buyers, resulting in several serious candidates who then studied the company's books and visited its operations. In May 1993, private auction bids were submitted, and the eventual successful bidder was the Venezuelan Cisneros Group. Its $426.5 million offer, backed by Chase Manhattan and Morgan Stanley, was the largest transaction in the history of Puerto Rico. As a result, Pueblo International became a subsidiary of Pueblo Xtra International, Inc., which in turn became a subsidiary of the Cisneros Group. Although he would remain as chairman emeritus, Toppel relinquished control of the business he founded some 40 years earlier. He remained involved in his family's investment firm as well as philanthropic endeavors.

Cisneros Brothers' 1960s Rise to Power

The Cisneros Group was a privately held conglomerate controlled by brothers Ricardo and Gustavo Cisneros. Like Toppel, theirs was a second generation immigrant success story, with the exception that their parents were immigrants to Venezuela, rather than the United States. Their father, Diego Cisneros, left Cuba for Venezuela decades before Castro's revolution of the late 1950s. Starting out as a truck driver, Diego Cisneros obtained a Pepsi bottling concession in 1940 that made him a wealthy man and led to the formation of the Cisneros Group in 1953. The entry into television came in 1961 with the launching of Venevision. Diego's sons, educated in the United States, began to chart their own course to wealth and political power in the 1960s, a time when Venezuela began to enjoy the benefits of large oil deposits. Gustavo became chairman and CEO of the Cisneros Group in 1968 and along with his brother, who became chief operating officer in 1970, built the conglomerate into a vast enterprise, owning supermarket and department store chains, a beer company, African mining interests, numerous Burger King and Pizza Hut franchises, and media interests that included part ownership of Univision, the country's largest Spanish-language television network. The Cisneros empire also included American companies Evenflo, makers of baby products, and Spalding, the 100-year-old sporting goods manufacturer.

Being owned by the Cisneros Group offered great promise for Pueblo Xtra. Management planned to improve its buying power as well as expand its Xtra warehouse supermarkets in south Florida. Moreover, the company hoped to take advantage of the Univision connection to obtain a discount, allowing Pueblo Xtra to advertise on television for the first time. These ambitious ideas, however, were shelved in the wake of a financial catastrophe in Venezuela, triggered by the failure of the country's second largest bank, Banco Latino, that led to a run on a number of other institutions. Ricardo Cisneros, who a year earlier had become Banco Latino's chairman, fled the country for Miami after arrest warrants were issued for him and 82 others, who faced charges of fraud, misappropriation, and publishing false bank balances. In addition to bad publicity that was fueled by a rival media group, the Cisneros Group suffered major losses in Venezuela, which forced it to sell off businesses in order to concentrate on its core media and entertainment interests.

Pueblo Xtra was one of the Cisneros businesses that appeared destined for the block. In August 1995, the parent company announced its intention to auction off Pueblo Xtra, but by January 1996 it changed course, opting instead to retain the business but focus on the Puerto Rican and Virgin Island operations. The eight Florida Xtra stores were put up for sale. Unable to find suitable buyers, Cisneros simply closed down the operations later in the year, thus severing Pueblo Xtra's ties to the mainland, although the company continued to maintain its corporate headquarters in Pompano Beach, Florida.

With the loss of the Florida stores, Pueblo Xtra's annual revenues dipped below $1 billion. Management concentrated on growing sales at its remaining stores, which, unlike the early days when Harold Toppel opened the first supermarket on Puerto Rico, now faced stiff competition from rival chains. To improve profitability, in 1997 the company launched its own Pueblo brand of products, which would grow to more than 300 items, ranging from canned goods to bread. Management's efforts were severely set back in September 1998 when Hurricane Georges devastated the region, causing extensive damage to most of the chain's stores. The company initiated a rebuilding program that would last well past 2000. Not only did sales suffer because so many of the supermarkets were not fully operational, but the Hurricane had an adverse effect on the economy of Puerto Rico, which further weakened revenues. Because Pueblo Xtra's stores were more extensively damaged than those of its competitors, the company also faced the prospect of winning back customers that had developed a loyalty to other supermarkets. Moreover, regional competition in groceries was growing even stiffer, with the addition of warehouse clubs, megastores, and discount stores. Although the prospects for Pueblo Xtra were far from dire, its future was certainly cloudy. Industry rumors suggested a sale of the chain to Wal-Mart, denied by all parties, was in the works. The Cisneros Group, after emerging from a rough patch in the mid-1990s, was even more of a major media player with its new ties to satellite television provider DirecTV. It was more in the news for its battles with Rupert Murdoch over the Latin American market than for its interests in the grocery business. Whether Pueblo Xtra would remain worth keeping to the Cisneros Group was undoubtedly an open question.

Principal Subsidiaries: Pueblo International, LLC; Pueblo Entertainment, Inc.; Xtra Super Food Center, Inc.

Principal Competitors: Kmart Corporation; Walgreen Co.; Wal-Mart Stores, Inc.





Further Reading:


  • De Cordoba, Jose, "Troubled Empire: A Conglomerate Reels from Bank's Failure and Caracas Politics," Wall Street Journal, November 16, 1994, p. A1.
  • Gigante, Lucienne, "Reinventing Pueblo Supermarkets," Caribbean Business, March 1, 2001, p. 18.
  • Goodman, Cindy Krischer, "Xtra CEO Gets Boost with Acquisitions by Cisneros," Miami Daily Business Review, August 6, 1993, p. 6.
  • Jaffe, Thomas, "Viva el Pueblo," Forbes, June 4, 1984, p. 42.
  • Nemy, Enid, "Grocer Boy Finds Island Treasure," New York Times, May 18, 1969, p. 18.
  • Vogel, Thomas T., Jr., "Latin Clan Scours for Media Deal," Wall Street Journal, September 18, 1996, p. A14.
  • Zwiebach, Elliot, "Pueblo Is Considering IPO, Sale," Supermarket News, January 25, 1993, p. 1.

    Source: International Directory of Company Histories, Vol. 47. St. James Press, 2002.




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