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Seaway Food Town, Inc.

 


Address:
1020 Ford Street
Maumee, Ohio 43537
U.S.A.

Telephone: (419) 893-9401
Fax: (419) 891-4214


Statistics:
Public Company
Incorporated: 1957
Employees: 4,551
Revenues: $559.24 million (1995)
Stock Exchanges: NASDAQ
SICs: 5410 Grocery Stores; 5910 Drug Stores and Proprietary Stores


Company History:

In spite of intense competition from powerful regional and national chains, Seaway Food Town, Inc. was maintaining its leading share of the metropolitan Toledo food market in the mid-1990s. The local supermarketer has held its own against regional giants by anticipating major trends, acquiring less fortunate competitors, and maintaining a consistent reputation as a low-price leader. Initially established as a cooperative and a public company since the early 1960s, Seaway has been guided from its inception into the mid-1990s by the Iott family. It appeared likely that octogenarian co-founder Wallace D. "Wally" Iott would eventually be succeeded as chairman and CEO by his son, Seaway Food Town President Richard B. Iott.

The impetus behind the creation of Seaway Food Town originated with Joseph A. Altschuller. According to a 1972 article in the Toledo Blade, Altschuller had come from a family of grocers and reluctantly entered the industry in 1940. Upon his return from World War II military service, the young entrepreneur found his small business under increasing competition from increasingly powerful national chains. In order to combat this threat, Altschuller and his wife put in long hours printing and hand-addressing advertising flyers.

Tired of the physical effort involved in this promotional process and hoping to reach greater numbers of potential customers, the independent grocer began advertising in the local newspaper. But print advertising was expensive, and Altschuller began looking for other independent grocers to form an advertising cooperative.

Wallace Iott was one of the first of Altschuller's independent competitors to sign on with the program. Iott had purchased his first grocery store, Wally's Inc., in 1939 for $3,000. His wife, Jeanette, ran the store while he served in the military during the war. Upon his return, they closed the corner grocery in favor of a new 7,500 square-foot supermarket called "Wally's Food Town."

Together, Iott and Altschuller recruited four other northwest Ohio grocers: Frank A. Ulrich, Thomas E. Swinghammer, Oscar Joseph, Sr., and Paul Pope. In 1948, the six founded a buying and advertising cooperative and named it for Iott's Food Town. Altschuller later ascribed the young co-op's early success to Wally Iott's "strength and diplomacy," and the other members' dedication to their mutual interests.

The association grew closer and stronger during the 1950s as the group inaugurated a full-time advertising and promotion staff and opened jointly-owned stores. By the mid-1950s, the members had begun to investigate their incorporation as a full-fledged chain. But the individual affiliates encountered difficulty in appraising their separate contributions to the venture. Then, in 1956, an outside entity--a Detroit supermarket chain--helped make the valuations for the members. The partners entertained the bid from the Michigan group, given that the acquirer bargained on an individual basis with each Food Town affiliate and that it buy all the Food Town units or none.

Although the Detroit company was able to reach agreements with each of the co-op members, it was unable to achieve the terms of payment. Armed with the impartial appraisals, the partners incorporated as Seaway Food Town, Inc. in 1957 with Iott as president.

Over the course of its first five years of incorporation, Seaway Food Town developed the everyday low price strategy that became its hallmark and would be adopted by supermarket chains across the country in the late 1980s and early 1990s. A 1972 Toledo Blade article by Seymour Rothman characterized the move as "the firm's greatest gamble." Food Town became its own perishables supplier with the acquisition of West Toledo Wholesale Produce Distributors and joined Staff Supermarket Associates, a cooperative distributor of private label groceries. Food Town's combination of wholesaling and warehousing generated enough cost savings to allow it to lower retail prices. Rothman characterized Food Town as "a penny-pinching operation with its success based entirely on volume."

This strategy proved so successful that Altschuller was ready to retire in 1958, at the age of 43. He asked his fellow Food Town affiliates to buy out his stock five years later, but the remaining members weren't liquid enough to purchase his whole stake. Nevertheless, Altschuller's proposition sowed the seed of an idea--an initial public offering--in the minds of his partners. In 1962, the company offered Altschuller's stake "and a small amount of the others' holdings" to the public in a $1.4 million flotation. By this time, Seaway Food Town had opened nine company stores.

The chain used the proceeds of its initial public offering to finance a period of growth and diversification through acquisition that would continue through the mid-1980s. Seaway supplemented its retail operations with the purchase of four stores from National Tea in 1963 and seven Gruber's Food Stores in southeastern Michigan in 1968. The company boosted the wholesale side of its business with the acquisition of Portion Control Meats, Inc. in 1966 and the purchase of Vlasic Foods of Ohio and Snow Maid Frozen Food, Inc. in 1968. Seaway also formed Toledo Milk Processing, Inc. as a joint venture with Driggs Dairy. By 1971, when annual sales volume topped $100 million, the company boasted a wide array of businesses, including 42 retail outlets, a dairy, a bakery, a portion meat control firm, a restaurant and institutional supply business, a produce firm, a frozen food firm, and various other businesses.

Food Town continued to grow via acquisition in the 1970s and 1980s. The company bought Buckeye Specialties Co., a non-food wholesaler that had been established in 1922 and boasted sales of $5.5 million by 1977. By the end of the decade, Seaway acquired six Toledo-area Joseph's Supermarkets, six Columbus, Ohio, Fisher Foods stores, and ten T&A Thrif-T-Marts in north central Ohio. Food Town also established northwest Ohio's first warehouse-style supermarket, dubbed the Kash 'n' Karry Warehouse Market. This move presaged the incursion of alternative format retailers on supermarketers, and to a certain degree insulated Seaway Food Town from that trend.

Acquisitions helped fuel dramatic increases in sales and profits. Annual revenues more than doubled from $128 million in 1972 to $325.8 million and net income grew even faster, from $1.5 million to $4.7 million, during the same period.

The late 1970s and early 1980s brought an unprecedented level of competition to the low-growth, store-saturated, Toledo-area food market. The primary aggressor during this period was Cincinnati-based Kroger Co., which invested $50 million in the construction of several full-service, multi-department, "Sav-On" stores over the course of the 1980s. Seaway countered the threat with a variety of strategies, perhaps the most fundamental of which was the discontinuation of the company's wholesaling operations in order to shift managerial concentration to the retail side. The company invested more than $20 million in store remodels from 1978 to 1983 and developed the Food Town Plus store concept in the later years of the 1980s. These large format (48,000 to 60,000 square feet) units featured video rental areas, diverse general merchandise departments, prepared foods, photofinishing, and other one-stop shopping elements.

Seaway also covered more of its competitive bases with a foray into deep discounting. In 1988, the company transformed a supermarket into a W.D.'s Deep Discount store, with a heavy concentration on health and beauty aids, over-the-counter drugs, and general merchandise. Before the year was out, Seaway added several Pharm Deep Discount Drugstores to the roster. These had operated as the Westhaven Drug Stores until 1982, when President Bill Fox changed to the deep discount warehouse format. The Pharm model would become the linchpin of Seaway Food Town's continuing strategy. By 1994, nearly one-third of its stores operated under the deep discount banner. Seaway also acquired four traditional supermarkets in the metro Toledo area before the end of the decade.

Kroger's northwest Ohio push helped it nearly double its share of the metropolitan Toledo market, from 15.5 percent in 1983 to about 32 percent by the early 1990s. Food Town was able to retain its near-30 percent share of the area's supermarket sales, as its annual revenues increased from $428.5 million in 1981 to $512.4 million in 1989. But price wars and other competitive factors squeezed its net income from $5.2 million to $3.8 million during the same period.

In the midst of this competitive environment, Seaway also withstood a takeover threat from Sun Equities Corporation and the Sussex Group. These two companies acquired over five percent of Seaway Food Town's common stock before the company tendered an offer to repurchase it for more than $1 million.

The 1990s brought a new competitive push, this time from Grand Rapids, Michigan-based Meijer, Inc. The non-union Meijer entered the market with its supercenters and promptly launched a price war. The encroachment of Super Kmarts, Cub Foods, and other combination grocery/general merchandise discounters added fuel to the intense rivalries. While Food Town's annual sales continued to rise, albeit erratically, from $512.4 million in 1989 to $566.9 million in 1993, competitive pressures reduced the company's yearly profits from $3.8 million to $1.1 million during the same period. The retailer continued to hold onto its leading share of the Toledo area market through 1994, but its 29.8 percent share was closely shadowed by Kroger's 27.2 percent. Moreover, Meijer had become more than just an irritant, with 11.5 percent of the market.

Under the continuing leadership of Wally Iott into the mid-1990s, Food Town began to rebound. Sales stayed relatively flat, around $555 million, but net income quadrupled from $1.1 million in 1993 to $4.5 million in 1995. The company's 1995 annual report credited ongoing capital investment programs, the introduction of debit card capabilities, productivity enhancements, and new products and services with the improving results. But Seaway Food Town's status as one of Toledo's few remaining hometown chains cannot be discounted. The company maintained a strong commitment to the community through sponsorship of charity, social, educational, and cultural events and efforts. While Seaway gave no indication that Wally Iott was prepared to step aside, it seemed clear that his son, 43-year-old company President Richard Iott, was poised to assume the duties of chairman and chief executive officer. No matter which Iott was to lead Seaway Food Town into the 20th century, the company had its work cut out for it, with net income lagging around the level of the early 1980s and no respite from competition in sight.

Principal Subsidiaries: Northern Distributing Co.; Gruber's Food Town, Inc.; Tracy & Avery Food Town, Inc.; Fjord Properties, Inc.; Second Fjord Properties, Inc.; Third Fjord Properties, Inc.; Third Fjord Properties Community Urban Redevelopment Corp.; Fifth Fjord Properties, Inc.; Fifth Fjord Properties Of Ohio, Inc.; Seaway Properties, Inc.; Custer Pharmacy, Inc. (75 percent); Buckeye Discount, Inc.; Toledo Milk Processing, Inc.; Monroe Acquisition Corp.





Further Reading:


Baessler, Jack, "Employees Could Kill Centre Sale," The Toledo Blade, April 14, 1989.
------, "Food Town Sets Sales Record, But its Profits Drop," The Toledo Blade, January 7, 1994.
Barger, Melvin D., Toledo: Focused For the Future: A Contemporary Portrait, Windsor Publications, 1991, pp. 118-119.
"Beat 'Em By Joining 'Em," Progressive Grocer, February 1994, p. 82.
Bell, Ned, "Back in Black, Chain Planning Expansion," The Toledo Blade, January 6, 1995.
Braknis, Greg, "Seaway Food Town Reports Increase in Profits, Drop in Sales for Fiscal Year," The Toledo Blade, October 21, 1994.
DeSanta, Richard, "Unusual Drawing Cards: Never Say Never," Progressive Grocer, February 1987, p. 20.
Kisiel, Ralph, "Food Town Pact Approved 2-1; Strike Averted," The Toledo Blade, November 23, 1994, p. 21.
------, "Food Town Workers Reject New Contract, But Head Off Strike," The Toledo Blade, November 11, 1994.
Linsen, Mary Ann, "Following a Low Price Leader," Progressive Grocer, July 1988, p. 35.
McLauglin, Mary-Beth, and Ralph Kisiel, "Food Town Talks Delayed; Union Head to Attend Conference," The Toledo Blade, November 12, 1994.
Rothman, Seymour, "How a Little Co-Op Grew Up to $100 Million Gross," The Toledo Blade, January 23, 1972, p. B6.
Weber, Ann, "Supermarkets Battling For Market Share," The Toledo Blade, October 9, 1983.

Source: International Directory of Company Histories, Vol. 15. St. James Press, 1996.




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