THE TIMES 100 : The Best Performing Companies in California : THE GIANTS : Industrial-Size Rewards for Grocer Smart & Final : Retailing: The chain has secured a place for itself by selling food-service supplies in bulk. Shoppers like it.
It’s 9 a.m. and Joan Rahtz is piloting a couple of stuffed shopping carts through the crowded aisles of a Smart & Final store in Pasadena. As administrator of a law office, she’s loading up on staples such as a three-pound bag of Super Snax Mix and a 24-can case of Diet Coke, to be kept on hand for visiting clients.
“We probably come here once a month for things like napkins, cleaning supplies, soda and juices,” she says. “It’s a convenient location, there’s a discount for buying in bulk, and the quality is good.”
Rahtz is one of the millions of customers passing through the 110 Smart & Final stores in California, the forerunner of the grocery discount retail chains and one of the oldest businesses in the state. Smart & Final Inc.’s 1991 performance ranked it 88th on The Times’ latest Sales 100 list of California firms with the most revenue.
In a market now dominated by big players such as Price Club, Costco and Wal-Mart, Smart & Final has carved out a place for itself as a “cash and carry” discounter, primarily by selling bulk supplies to local restaurants, cafeterias and others in the food-service industry.
In recent years the 118-store chain also has found its business growing among ordinary consumers looking to buy food and other household items at substantial discounts from what they would pay at a regular supermarket or grocery store.
“One of the reasons we’ve done well during the recession is because we’re seen as a big value provider for discount food to the public, which has helped offset some of the weakness in restaurant sales,” says Robert J. Emmons, a former USC marketing professor who is now chief executive.
About 65% of Smart & Final’s business comes from the food-service trade, such as restaurants. The other 35% comes from everyday shoppers willing to accept the awkwardness of stocking their kitchen shelves with the likes of a six-pound, 12-ounce can of Table Queen yellow cling sliced peaches (for just $3.29).
Smart & Final, which was acquired by the French supermarket operator Groupe Casino in 1984, went public last year and raised $95 million--much of which went to pay a special dividend to Groupe Casino’s American subsidiary. About $27 million was earmarked for expansion and remodeling of the Smart & Final chain.
Groupe Casino, which owned 80% of what was Smart & Final Iris before its initial public offering, now owns 50.1%, while Emmons owns 10%. The other 39.9% is held by the public.
The Santa Barbara-based chain plans to open 40 more stores over the next couple of years. Last month, it began keeping all its stores open on Sundays to compete for the weekend trade with membership club stores in the Southland.
Despite a slight recession among its primary customer base of local restaurants and the like, Smart & Final’s revenue increased 17.5% last year, to $663.1 million. Earnings, excluding a one-time charge relating to settling employment contracts, rose 26% to $8.7 million. Emmons estimates that 1992 revenue will reach $740 million.
Unlike Price Club and other competitors, Smart & Final charges no membership fee--anybody can walk in and buy. Moreover, where most membership clubs pride themselves on running outlets that seem to rival jet hangars in size, the typical Smart & Final store occupies just 14,000 square feet.
“They are in smaller centers, closer to their customers--unlike the other membership clubs, which frequently must be located in outer areas,” says Eric Appell, a retail analyst with Crottenden & Co., an Irvine brokerage firm.
Smaller stores add convenience, and also make for a more neighborly atmosphere. Each Smart & Final outlet has only about 16 employees, and an aggressive bonus pool--9% of each store’s pretax profits--is shared by the staff at the end of the month. The bonus can account for 25% of a manager’s annual salary.
Emmons said the recession in Southern California has not had much impact on discount club business and, if anything, has made people more aware of stretching their dollars. Nor has the growth of bigger chains such as Price Club had a negative effect, he said.
“Our No. 1 growth market is San Diego, which is the home of Price Club,” he said. “We are a niche operator that focuses on a different aspect. We have over 10,000 different items in our stores, but only 800 are in common with the clubs.”
