Type: Wholly Owned Subsidiary of Apollo Management L.P.
Address: 600 Citadel Drive, City of Commerce, California, 90040, U.S.A.
Telephone: (323) 869-7500
Fax: (323) 869-7858
Web: http://www.smartandfinal.com
Employees: 5,910
Sales: $2.1 billion (2006)
Incorporated: 1871 as Hellman-Haas Grocery Company
NAIC: 445110 Supermarkets and Other Grocery; 424410 General Line Grocery Merchant Wholesalers; 452910 Warehouse Clubs and Supercenters
SIC: 5411 Grocery Stores; 5141 Groceries - General Line; 5399 Miscellaneous General Merchandise Store
Smart & Final LLC operates the largest warehouse grocery store chain in the United States with 282 retail locations, serving both the commercial wholesale and retail markets. Originating in California in 1871, the company expanded into neighboring states in the 1980s and eventually into the international market. Smart & Final operates 247 stores under the Smart & Final and Smart Foodservice banners, with stores in California, Oregon, Washington, Nevada, Arizona, Idaho, and Northern Mexico and also operates 35 farmers market stores in Southern California and Texas under the Henry's Farmers Markets and Sun Farmers Markets banners.
Unlike many so-called members markets, which offer wholesale products in a variety of categories, Smart & Final stores do not charge a membership fee and focus primarily on restaurant-quality food and supplies, averaging between 7,000 to 9,000 items in stock. The company's goal is to serve both as a public grocery and as an outlet for restaurants, catering companies, and other food-related businesses. In 2007, Smart & Final was acquired by Apollo Management L.P., Smart & Final declared sales in excess of $2 billion and the company employed more than 10,000 full-time employees at its various outlets.
Grocery Pioneers
Los Angeles was a dusty town of unpaved streets and wood or adobe buildings when Hellman, Haas & Co. opened as a wholesale grocer in 1871. Founded by Abraham Haas, who had arrived from Bavaria at the age of 16, along with brother Jacob Haas and partners Bernard Cohn and Herman Hellman, the two-story brick building provided bulk staple items such as flour, brown sugar, salt, rope, chewing tobacco, gunpowder, patent medicines, and shepherding supplies to the town's 6,000 residents.
The small store played an important role in the early growth of Los Angeles, adding items catering to the town's many ethnic populations, including Native and Mexican Americans, and a growing Chinese community. As the town grew, Hellman, Haas & Co. grew with it; in 1880, the store was listed among the seven names in Los Angeles's first phone directory. The partners played a role in the area's growth as well. Herman Hellman would later head the Farmers and Merchants Bank and join in the founding of the University of Southern California. Abraham Haas branched out into the flour milling and cold storage businesses and was among the founders of Southern California's first gas and electric companies.
In 1889, Jacob Baruch bought Hellman's interest in the company, and the company's name changed to Haas, Baruch & Co. The store continued to prosper and, in 1895, began selling canned tomatoes under its own Iris brand name. Sales by that year had reached an impressive $2 million. By the dawn of the 20th century, Haas, Baruch was the leading grocer in a town that, over the next two decades, would swell to a population of nearly one million. Abraham Haas left Los Angeles during this period, opening a successful wholesale operation in San Francisco. Haas's son, Walter, worked in the family business, but later left to join a small clothing company, Levi Strauss, where he would serve as president for the next 30 years. Haas, Baruch continued to thrive; in 1948 the company opened its own 3.5-acre warehouse in Vernon, California.
Cash-and-Carry Grocery Market in the 20th Century
Meanwhile, J. S. Smart, a banker from Saginaw, Michigan, arrived in California in 1914, where he purchased a small feed and grain supplier, the Santa Ana Wholesale Company, which had been founded two years earlier. Smart was soon joined by H. D. Final, and the partners moved their business to San Pedro, renaming the company Smart & Final Wholesale Grocers. By the end of the decade, the company's sales reached $10 million.
Competition among the area's wholesalers intensified over the next decade. The grocery industry itself was changing, as more and more retailers began purchasing directly from the manufacturers, bypassing the wholesalers altogether. However, on a trip to Ohio, Smart discovered the latest trend in grocery sales--that of allowing customers to choose their purchases, rather than having the grocery's clerks gather the items. In 1923, Smart brought this innovation to the West Coast, and Smart & Final became the first in the area to offer the "cash-and-carry" concept. Another key to the company's survival and success was its practice of locating its stores close to the businesses they served, instead of requiring customers to travel to remotely located warehouses.
Smart & Final was helped by the outbreak of World War II, winning supply contracts to support the military effort. After the war, the company expanded its customer base to include churches and local clubs and organizations and, by the beginning of the 1950s, had grown to a chain of 65 stores. Changes were occurring in the grocery industry, as improved cold storage and refrigeration techniques were making possible an expanding assortment of foods. A new type of store, the supermarket, became popular during this time, placing still more pressure on the wholesalers. In 1953, Smart & Final acquired Haas, Baruch, adding the latter's popular Iris brand to the Smart & Final name. The new company, Smart & Final Iris Co., moved its headquarters to Haas, Baruch's Vernon warehouse site. In 1955, however, Smart & Final was bought by the Thriftimart supermarket chain, founded by Roger M. Laverty.
Laverty had been active in the grocery trade since 1930, when he bought the small, Los Angeles-based chain Fitzsimmons Stores Inc. In 1947, Laverty acquired Thriftimart Inc., also based in Los Angeles, merging the two chains under the Thriftimart name. The addition of Smart & Final's warehouse stores boosted Thriftimart's sales to $168 million by 1960. When Laverty died in 1969, he was succeeded by his son, Roger Laverty II.
Decades of Growth and Expansion
Under Thriftimart, the Iris brand name was expanded to include hundreds of frozen food products, paper and canned goods, and janitorial supplies. The chain of Smart & Final cash-and-carry stores, which averaged from 4,000 to 10,000 square feet, grew to 86 stores by the 1980s. Together with Thriftimart's 41 supermarkets, sales passed $250 million by the early 1970s and climbed to $500 million by the early 1980s.
Despite this growth, however, Thriftimart struggled for profitability. After posting an $822,000 loss on sales of $260 million in 1972, the company climbed back into the black, only to post a $5.4 million loss on $343 million sales in 1976. Thriftimart fared better in the second half of that decade, rebuilding its bottom line to a $4.5 million net income on sales of $368 million in 1979. The following year, net income rose to a high of $7.2 million, with sales climbing to $431 million. Nevertheless, the growth of warehouse clubs such as Price Club and Costco began to pressure the supermarket industry. By 1982, when Thriftimart's sales peaked at $506 million, its net income fell to $4.8 million. Thriftimart moved to divest its struggling supermarket division, selling 23 California supermarkets to Safeway Stores, Inc., in 1983. By 1984, with sales just under $500 million, net income had dropped to $1.5 million.
In that year, Roger Laverty II, his brother Robert, and their sister Nancy Harris, who together owned 85 percent of Thriftimart's stock, sold their interest in the company to Casino USA and its parent, Établissements Economiques du Casino Guichard-Perrachon et Cie (later known as Groupe Casino), a $3 billion French-based operator of supermarkets, convenience stores, restaurants, and food production and processing facilities. Laverty II retired after the sale of the company, and Robert Emmons was named chairman, president, and CEO in 1984.
Thriftimart's 17 remaining supermarkets were liquidated after the Casino acquisition, and the focus was shifted to Smart & Final's 86-store cash-and-carry operations, which had remained profitable throughout the Thriftimart period. As Smart & Final, Inc., the company moved to refocus, modernize, and expand the chain. The new management, which included Roger Laverty III, developed the strategy that would take the company into the next decade. This strategy targeted smaller, independent foodservice and related businesses with a redesigned store concept offering a product assortment adapted to this market's needs. At the same time, the company moved to modernize its stores, closing a number of its aging stores while relocating dozens more stores to locations featuring parking, convenient access to customers, and larger size. Over the next ten years, store size would more than double to an average 17,000 square feet.
Moving into a National Market
By 1988, the Smart & Final chain had been pared down to 72 modern stores. Until then, the chain had served the Southern California market exclusively. In the late 1980s, however, Smart & Final began an aggressive expansion into Northern California, Nevada, and Arizona. Sales, which dropped to $335 million in 1986, rose to $498 million by 1989. One year later, sales neared $560 million, generating a net income of $9.4 million.
As the country slipped into the recession of the early 1990s, Smart & Final's growth continued. The drop in real estate prices in its core California market proved a boon to the expanding company, which numbered 99 stores by 1989 and 135 stores by 1993. In 1991, with sales of $663 million, Smart & Final went public again, offering a minority stake on the New York Stock Exchange, with Casino maintaining a 53 percent share of the company's stock.
In that year, Smart & Final expanded into foodservice distribution with the purchase of Northern California-based Port Stockton Food Distributors, Inc. The company next launched its Casino Frozen Foods, Inc., subsidiary as distributor both to its own stores and to independent customers. By 1993, that business expanded beyond frozen foods to supply delicatessen and other products as well. In that year, Roger Laverty III was named the company's president and CEO.
While Smart & Final continued to increase its presence in California, growing to 140 stores in 20 counties by the end of 1995, the company began to eye other markets. Encouraged by the passage of the North American Free Trade Agreement, and joining a growing trend among U.S. retailers, in 1993 the company formed a joint venture with Central Detallista S.A. de C.V. to bring Smart & Final stores into Mexico. The first stores opened in Baja, Mexico, and the company made plans for nine stores by 1995 and as many as 50 stores in the near future.
Smart & Final next prepared to enter the Florida market, which, with its large Hispanic population, fit well with its Californian customer base. In 1994, Smart & Final added the Henry Lee Company, which served the Florida, Central and South American, and Caribbean markets, to its distribution business. The acquisition of Henry Lee, which ranked among the largest foodservice distributors in the country, paved the way for the expansion of Smart & Final's cash-and-carry operations into Florida. In early 1996 the company opened its first six Dade and Broward county stores. In Florida, Smart & Final continued its policy of opening stores in inner-city areas typically shunned by other grocers (after the 1992 riots, for example, Smart & Final opened 11 stores in Los Angeles) while providing a product assortment geared to its customers' cultures and needs.
After expanding its geographic scope, however, Smart & Final began feeling the impact of increased competition and a slowed economy in the late 1990s. Sales slumped in 1997 and 1998, with a loss of over $16 million reported for the 1998 fiscal period. In 1999, Ross Roeder was named CEO of Smart & Final and initiated a restructuring program to help the company return to profitability. Over the course of the next year, Smart & Final posted increased earnings and profits for the 1999 fiscal year with a 14 percent increase in sales. "Our same store sales growth was the best we've seen in the past five years," Roeder said in a press releases, "and we hope to build on that growth with the marketing, merchandising, and margin improvements we've introduced. We look to the future with great confidence."
Surviving As an Industry Pioneer
In the fall of 2000, Smart & Final opened the company's first e-commerce site at www.smartandfinal.com, where private and commercial customers could purchase over 5,000 of the company's products for delivery. Geared more toward the professional market, Smart & Final's e-commerce site offered cooking and food preparation equipment, bulk ingredients, and janitorial supplies. "Our site is truly unique," said Roeder in the company's December press release, "offering easy browsing, competitive pricing and quick fulfillment, while encouraging direct customer communication with customer service specialists who can respond promptly to all queries."
In December 2000, the company's Henry Lee branch won a lucrative three-year contract to serve as a supplier to the Miami-based Royal Caribbean Cruise Lines. By the end of the year, Smart & Final's average sales had increased by more than 5 percent and the company posted earnings in excess of $30 million, a significant improvement over the company's $26 million for the previous year. In 2000, Smart & Final opened four new branches and had developed plans for an additional 15 stores, drawing on the company's increased revenues to fuel a major expansion program.
In 2003, Smart & Final's board of directors decided to sell the company's properties in Florida to an alternate vendor. While the company's Florida operations were initially profitable, poor performance and market changes in 2001 and 2002 resulted in an overall loss of revenue. In 2003, Smart & Final representatives began negotiations with Michigan-based Gordon Food Service (GFS) to sell all distribution and retail locations in Florida. In a press release Roeder said of the sale, "Progress is seldom achieved without cost. Although the bold steps we are taking to reposition Smart & Final for future growth and success required some financial pain, I am confident that we are taking the right actions to put Smart & Final on course for industry-leading performance."
That same year, Smart & Final sold some of its locations in Northern California to competitor SYSCO Corporation. Together with the sale of the company's Florida operations, Smart & Final's comprehensive divestiture program raised over $59 million in revenues. Through negotiations with both SYSCO and GFS, Smart & Final secured continued employment for more than 700 former employees. Roeder cited nationwide changes in the warehouse market as key to the company's divestiture strategies. "All of Smart & Final's resources now are focused on our most profitable and fastest-growing operations," Roeder said, adding, "We believe we have effectively repositioned our company for strong future performance."
Roeder and the board of directors conducted a management restructuring, including hiring industry veteran Etienne Snollaerts as president and chief operating officer, to serve directly under Roeder. Snollaerts previously served as an executive for Groupe Casino. Snollaerts replaced Roeder as CEO in May 2004, while Roeder remained chairman of the board of directors.
The company's financial performance improved some in 2003 and 2004, with fourth-quarter sales in 2004 of over $470 million, after the corporate restructuring and the sale of some of the company's less-profitable divisions. The company opened three new locations in 2004, including two in California, one in Arizona, and one in Baja California, Mexico. Expansion continued in 2005 with 13 new store openings in California, Arizona, and Washington and two additional stores opened in Mexico.
In 2006, Groupe Casino, the majority shareholder of Smart & Final, announced that it would be selling some of its core assets, although it was initially unclear whether Smart & Final would be sold as part of the company's divestitures. In 2007, Groupe Casino sold the company to Apollo Management L.P., a private-equity investment firm with an estimated $16 billion in investments in various businesses. The sale was completed in May 2007 for approximately $812 million. The company was subsequently delisted from the New York Stock Exchange and shareholders were paid $22 per share of common stock.
Snollaerts remained company CEO after the management shift and the transition to the Apollo board. Even as the company readjusted, growth continued and the company's total number of stores grew to 282 locations by the end of 2007. In October 2007, the company made a major acquisition of 27 Henry's Markets in Southern California and eight Sun Harvest stores in Texas. With the purchase, Smart & Final entered the thriving farmers market industry and gained a stronger foothold in Texas.
With estimated sales of over $2 billion in 2007, Smart & Final had become one of the fastest-growing wholesale chains in the United States. With the company's interest in the growing farmers market industry, Smart & Final has diversified its operations in an effort to stay ahead of the market.
Principal Subsidiaries
Port Stockton Food Distributors, Inc.; Smart Foodservice; Sun Harvest Markets; Henry Harvest Markets.
Principal Competitors
Sam's Club; SYSCO Corporation; Costco Wholesale Corporation.
Further Reading
Berry, Kate, "Missteps, Competitors Take Toll on Aging Smart & Final Chain," Los Angeles Times, February 24, 2003.
Brooks, Nancy Rivera, "Growth Market: Smart & Final Celebrates 125 Years in a Big Way," Los Angeles Times, March 4, 1996, p. D1.
Cassano, Erik, "Retail Key Ingredients: Etienne Snollaerts Shares His Recipe for Making Smart and Final a Food Service Force," Smart Business Los Angeles, December 2006.
Coupe, Kevin, "Smart & Focused (& Growing Fast)," Progressive Grocer, September 1994, p. 44.
Goodman, Cindy Krischer, "Smart & Final Bulk Grocery Chain Targets Florida Inner Cities," Miami Herald, December 14, 1994.
"Smart & Final Reports 1999 Return to Profitability," Business Wire, February 22, 2000.
Taylor, John H., "Niche Guys Finish First," Forbes, October 26, 1992, p. 128.
York, Emily Bryson, "Smart & Final Stock Rises as Majority Owner Considers Sale," Los Angeles Business Journal, November 27, 2006.
— M. L. Cohen; Updated by Micah L. Issitt
