Growth Market : Smart & Final Celebrates 125 Years in a Big Way
Smart & Final has a funny name.
And its products are a little on the gigantic side--9 pounds of potato salad with a 1-gallon fruit-punch-concentrate chaser, anyone?
But the Vernon-based warehouse-style grocer has done extremely well over the years--125 years, in fact, of selling really big stuff to local businesses and consumers in one of the nation’s most competitive retailing markets. J.S. “Jim” Smart and H.D. “Phil” Final were in the business long before Price even thought of a club or Sam of his warehouse. The corporation has been celebrating its origins with cake, punch and special discounts.
But the future is what really concerns Roger M. Laverty III, who fills the chief executive job occupied by his father and grandfather before him, both of them Rogers as well. During the last few years, Smart & Final Inc. has been busy remaking itself, expanding into new markets and revitalizing its stores.
“We have taken a company that’s 125 years old and evolved it,” Laverty said. “We like to say that we’re 125 years old but 5 or 10 years young. We want to always be 5 or 10 years young.”
Smart & Final has gouged out a special niche catering to small restaurants, schools, hotels, institutions, organizations and the stray consumer. In 1995, Smart & Final surpassed $1 billion in sales with nearly 160 stores. The momentum has been such that the recession barely registered, other than to provide some keen real estate opportunities.
For Laverty, known to employees as Rocky, this success comes from embracing change, taking risks, investing in employees and trying to nurture a small-company-like culture that even the customers can feel. And when you make a mistake, and Laverty admits to a few doozies, you don’t start assigning blame, you begin learning.
Smart & Final traces one set of its roots to 1871, when Herman Hellman, Bernard Cohn and brothers Abraham and Jacob Haas opened a grocery business in a two-story brick building on Los Angeles Street. Hellman, Haas Grocery Co. was a wholesaler of groceries, gunpowder and sheepherder supplies to the denizens of the dusty little town. The name changed to Haas, Baruch & Co. in 1889, and the company’s Iris brand made its debut in 1895.
On a separate track, J.S. Smart and H.D. Final came together in 1915 to form Smart & Final Wholesale grocers. In the 1920s, Final took a trip to the Midwest and witnessed the strange new phenomenon of letting customers actually pick out their own groceries instead of having the store clerk round everything up. In 1923, Smart & Final became the first “cash-and-carry” wholesaler in the West.
Smart & Final bought Haas Baruch in 1953, and the name became Smart & Final Iris Co. Two years later, Smart & Final was purchased by the Thriftimart supermarket chain, which was founded by the first Roger M. Laverty.
In 1984, the company was purchased by the U.S. arm of a large French food processor and retailer, Casino, Guichard-Perrachon & Cie., which liquidated the Thriftimart stores and began aggressively expanding and modernizing the Smart & Final stores. Smart & Final went public in 1991, and Casino USA still owns about 53% of the chain.
Smart & Final now is a hybrid, part store operator and part food service distributor. It overlaps with supermarkets and membership warehouse clubs, “but we’re not directly competitive with any of them,” Laverty said. Supermarkets learned from the success of warehouse clubs and began carrying institutional sizes, but usually only 100 to 200 items. Warehouse clubs are bigger, but that means there are fewer locations and lines are long.
“We are using a retail-like environment to sell institutional items to whoever wants to buy them,” Laverty said.
Retail analyst Jonathan Ziegler likes Smart & Final’s formula.
“They’re able to provide value by listening to the customer and keeping their costs down,” said Ziegler, of Salomon Bros. in New York. “Not only did they get through the California recession all right, but now they’re expanding into Florida in a well-considered fashion.”
Laverty said his philosophy boils down to thinking big, taking risks, embracing change and investing in the work force.
Smart & Final has been aggressively expanding in the last few years, first into Northern California and Arizona, then into Mexico (it operates three stores through a joint venture) and, last month, into Florida. The company is also eyeing Texas, the Midwest and the Pacific Northwest.
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At the same time, the company remains committed to opening stores in lower-income areas and to charging the same prices there as in more affluent areas, Laverty said. The company hires from the surrounding neighborhoods and maintains close ties with the community, he said.
“We do it because it’s good business,” he said. Since the 1992 riots, Smart & Final has opened 11 stores in neglected areas of Los Angeles, and “they’ve been 11 winners.”
Smart & Final has been remodeling and redesigning its once small, dark and dreary stores, frequently incorporating customer suggestions. The stores will never look like fashionable food boutiques, but they are bigger and brighter than they used to be, and some, at the behest of customers, feature wider aisles.
But they aren’t too big, either: The stores average 14,000 square feet, with 11,000 items in stock, much smaller than warehouse clubs and many supermarkets.
“In the retail industry today, everyone is seduced by size. But I’ve never talked to one customer who says, ‘Oh, wow, I love big stores.’ We’re trying to create an environment that the customer feels comfortable with,” Laverty said.
Liberal use of technology at the stores and in warehouses helps with cost containment, which keeps prices low, he said.
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But Smart & Final’s most important investment, Laverty said, is in its employees. The company continually runs training courses for its own and other companies’ workers at an old warehouse--dubbed Smart University--across from company headquarters. Laverty said more than 3,000 of the company’s 4,300 employees took a class there in computers, time management, managing diversity or another subject last year.
Smart & Final also has an unusual profit-sharing plan that distributes a portion of pretax profit to each store 13 times a year. The payment is based on each store’s profitability, and the money is distributed to full-time employees at the store manager’s discretion.
“It’s an important part of our compensation package, and it helps keep our turnover low,” spokeswoman Leanne Reynolds said.
Laverty takes pride in maintaining a familial corporate culture even as the company is mushrooming. He said he welcomes suggestions and criticism from employees, many of whom have worked for the company for years and followed parents or even grandparents into the fold.
That made a bitter labor strike in 1989 even more difficult, Laverty said. The strike was settled after a few months.
“It was incredibly painful,” he said. “I knew all of those guys personally. . . . But everybody who wanted to come back did come back. And we’ve come together closer since then.”
Laverty acknowledges some inevitable stumbles.
The company last year opened with high expectations for a new state-of-the-art warehouse that would function as a food distributor and also serve Smart & Final stores. The highly mechanized warehouse developed unexpected problems in integrating information systems and other functions, generating higher-than-expected start-up costs, Laverty said. But executives analyzed and fixed the problems, and the lessons learned made opening a similar warehouse to serve Smart & Final’s first stores in Florida last month a snap, he said.
Another expensive lesson was provided by Smart & Final’s stores in Baja California. When they opened in 1993, they were tremendously successful as Mexican shoppers flocked to purchase the primarily U.S. goods sold at reasonable prices. But the 1994 peso devaluation turned Smart & Final into the region’s most expensive store overnight. The operators remerchandised, and now less than two-thirds of the products those stores stock is from the United States. Despite Mexico’s continuing economic problems, the stores remain moneymakers, Laverty said.
“If you take risks, you make mistakes,” he said. “You just learn from them and move on.”
