Farmer Jack Supermarkets

views updated

Farmer Jack Supermarkets

18718 Borman Avenue
Detroit, Michigan 48228
U.S.A.
Telephone: (313) 270-1000
Toll Free: (877) 327-5225
Fax: (313) 270-1333
Web site: http://www.farmerjack.com

Wholly Owned Subsidiary of The Great Atlantic & Pacific Tea Company, Inc.
Incorporated: 1955 as Borman Food Stores, Inc.
Employees: 6,000
Sales: $1.1 billion (2005 est.)
NAIC: 445110 Supermarkets and Other Grocery (Except Convenience) Stores

Farmer Jack Supermarkets operates one of the leading grocery store chains in the Detroit, Michigan area, with nearly 70 outlets that emphasize low prices and fresh food products. The company is a unit of The Great Atlantic & Pacific Tea Company, Inc. (A&P), which has struggled to operate it profitably in a highly-competitive marketplace.

BEGINNINGS

The origins of Farmer Jack date to 1924, when a Russian Jewish immigrant named Tom Borman opened a small grocery store called Tom's Quality Meats in Detroit, Michigan. Three years later his brother Abraham "Al" Borman opened a similar store on the east side of the city, and they subsequently formed a business partnership which lasted until 1945, when Tom founded a chain of markets called Lucky Stores and Al started another called Food Fair.

In 1955 the brothers once again combined operations, creating a single entity called Borman Food Stores, Inc. Their outlets were consolidated into the 33-store Food Fair grocery chain, all located in the Detroit metropolitan area.

In early 1959 the company went public with the sale of 404,900 shares of stock for $6.8 million. The funds were used to buy several smaller area chains including State Super Markets, American Stores, and Lipson-Gourwitz Co., which boosted the Bormans' total holdings to 56 stores by mid-1960. For the fiscal year ended in June, the company reported sales of $98.4 million and net earnings of $1.75 million.

Growth continued over the next several years as more stores were opened in the Detroit area and in outlying cities like Ann Arbor and Jackson. For 1962 sales grew to $134.2 million, with net earnings of $4.3 million. In 1963 the company began operating a number of groceries inside or near Kmart stores in Michigan, Indiana, and Illinois, which helped boost the total number of outlets to 77.

In early 1965 Borman Food Stores paid more than $2 million to buy Arnold Drugs, Inc., which operated 13 Arnold and Pay Less discount drug stores in the Detroit area. The company also named Abraham Borman's 32-year old son Paul to succeed his uncle Tom Borman as president, with the latter moving into the role of chairman.

Not long afterward the firm acquired Yankee Distributors, Inc. in a stock swap worth $5.8 million. Yankee operated a discount department store chain in the Detroit area which had annual sales of approximately $30 million. By early 1966 the Bormans' company had 81 supermarkets, 16 drug stores, 18 Yankee discount stores, and a dairy plant, the Detroit Pure Milk Co.

CONVERSION TO FARMER JACK IN 1967

In 1967 the firm rebranded its Food Fair stores as Farmer Jack supermarkets, with a logo that featured a cartoon farmer character. The Bormans also secured new financing during the year to fund expansion, and opened two large shopping centers which combined Farmer Jack, Yankee, and Arnold Drug stores under one roof. Meanwhile, Tom Borman sold his stake in the firm to brother Abraham and turned over the chairmanship to Joseph Kron.

In 1968 Borman Food Stores raised nearly $5 million to fund expansion by issuing an additional 200,000 shares of stock, and the following year the company shortened its name to Borman's, Inc. and became a Delaware-registered corporation. For 1970 the firm reported sales of $412 million and earnings of $4.6 million.

Sales at Yankee stores had been declining for several years, and after first announcing that they would be closed, Borman's found buyers in Hartfield-Zodys, Inc. and Mangel Stores Corp. The grocery industry was now facing hard times as well, and the decision by segment leader A&P to offer deep discounts on food prices via the new "Where Economy Originates" campaign had an immediate impact on the company, with Paul Borman telling shareholders in the summer of 1972 that A&P's strategy had "pretty much destroyed the supermarket industry."

By 1973 the Farmer Jack chain had shrunk from more than 90 outlets to 88, and it recorded a loss of $603,000 for the year. In 1975 the firm was unexpectedly forced to take on an additional financial burden when the owners of its former Yankee stores both filed for bankruptcy, leaving it liable for payments on property they had sub-leased. As a result the company posted a net loss of $3.8 million on the year's sales of $499 million.

The late 1970s saw renewed expansion, and in 1979 revenues hit $789 million and the firm earned a profit of $5.8 million. In 1981 Borman's sold 10 unprofitable Arnold's drug stores to Revco Discount Drug Centers, Inc.

The company continued to open additional Farmer Jack stores, and by 1984 revenues had grown to $996 million. A&P, now with 55 stores in the area, was aggressively seeking to unseat Farmer Jack from its position as market leader with a massive ad campaign touting "warehouse prices." The company slashed its own prices in order to keep up, resulting in a loss of $10.9 million during the year. Farmer Jack now had an estimated 20 percent share of the Detroit-area grocery market and A&P 12 percent.

In 1985 the company sold its dairy subsidiary, and sales topped $1 billion for the first time, with an improved loss of $1.1 million recorded. The following year Borman's acquired five Detroit-area Chatham stores and converted them to Farmer Jacks, while also shutting down five of its smaller outlets. Competition remained intense, with area supermarket chains now giving customers double the face value of manufacturers' coupons, which wreaked further havoc on the firm's bottom line. By year's end the Farmer Jack chain had shrunk to 83 stores.

In early 1987 the company paid $75 million to buy 61 Safeway Stores in five western states, after which it converted them to Farmer Jacks and sold an affiliated dairy operation to Borden, Inc. In August 5,400 members of the United Food and Commercial Worker's Union went on strike. The company later agreed to buy out 800 employees' contracts for $12.9 million, and at the start of 1988 Borman's sold its newly-acquired Safe-way stores, citing the difficulty of running them from a long distance and their unexpectedly high operating costs.

COMPANY PERSPECTIVES

Farmer Jack's mission is to be the "Supermarket of Choice"… the place where people choose to shop, choose to work, and choose to invest. We will provide goods and services to our targeted customers through the concerted efforts of motivated and dedicated employees. As a result of our sustained effort to successfully achieve our mission, we will become the "supermarket of choice" for our customers to shop, for our employees to work, for our suppliers to partner with, and for our communities to be served.

SALE TO A&P IN 1988

Stung by all of these developments, in December 1988 Borman's sold the Farmer Jack chain to Montvale, New Jersey-based A&P for $76 million and the assumption of $105 million in debt. Afterwards the stores would continue to bear the Farmer Jack name, and Paul Borman would become chairman of A&P's Midwest division, which also oversaw the Kohl's supermarket chain in Wisconsin. After making the acquisition, A&P sold four Farmer Jack stores and three of its own markets to Meadowdale Foods, Inc.

Though A&P had initially planned to convert its 40 remaining area stores into Farmer Jacks, sales dropped at the first ones completed, and the process was quickly halted. The firms' distribution operations had also been combined to cut costs, but the two corporate cultures were dissimilar and problems with product flow soon appeared. In the months after the purchase combined market share of the two chains fell from 34 to 30 percent, and in October 1989 Paul Borman was reinstated as head of Farmer Jack to try to get it back on track. He quickly restored the more aggressive advertising that had been successfully used in the past, and in 1990 A&P replaced many of the unit's executives with ones imported from corporate headquarters in New Jersey. The early 1990s saw Farmer Jack begin accepting credit and debit cards, and in 1992 the company became the first Michigan grocer to offer an automated self-checkout lane. Six were installed in the firm's newly-renovated West Bloomfield store, which had been expanded from 35,000 to 60,000 square feet with the addition of a flower shop, pharmacy, kosher food department, and bakery. By this time Paul Borman had been replaced by Craig Sturken as company president.

In 1993 A&P shut down five underperforming Farmer Jacks and three A&Ps in an effort to boost profits, causing the loss of 500 jobs. The combined market share of the two chains had now fallen to 28 percent, with slices going to arch-rival Kroger and growing regional chain Meijer, whose massive outlets combined food and department stores under a single roof. As the A&P name continued to lose its luster, the parent company decided to convert many of its Detroit area locations to Farmer Jacks and close the remainder, leaving a total of 93 Farmer Jack stores by the fall of 1994. The firm was now rolling out a frequent shopper program called the Farmer Jack Bonus Savings Club, in which patrons received discounts after buying a certain amount of goods.

In 1995 A&P announced that Farmer Jack was now its most profitable division, giving credit to a $130 million campaign to improve stores and upgrade warehousing facilities throughout the state. Like competing Meijer stores, some Farmer Jacks were now open 24 hours per day, and this policy was later adopted chain-wide.

In 1996 the 100th Farmer Jack store opened in Chesterfield Township, Michigan. The firm's newest outlets were larger, ranging from 45,000 to 73,000 square feet. Advertisements now bore the tagline, "It's Savings Time at Farmer Jack," emphasizing the chain's low prices.

In 1998 the company unveiled the new Farmer Jack Food Emporium on the site of an older store in the affluent Detroit suburb of Grosse Pointe Woods. The upscale market featured a sushi bar, a selection of organic vegetables, and a wine steward. Similar outlets were opened in other well-to-do suburbs over the next several years.

KEY DATES

1924:: Tom and Abraham Borman begin opening food stores in Detroit.
1945:: The Borman brothers separately found Lucky and Food Fair grocery stores.
1955:: The Bormans combine operations into a single Food Fair chain.
1959:: Food Fair makes a public stock offering and begins acquiring more area groceries.
1965:: The Bormans buy the Arnold Drug and Yankee Discount chains.
1967:: Food Fair stores begin conversion to the new Farmer Jack name; Tom Borman leaves the company.
1981:: Unprofitable Arnold's drug stores are sold.
1987:: An August strike ends with a $12.9 million worker buyout; 61 Safeway stores are acquired.
1988:: The Safeway stores are sold early in the year, and in December the Farmer Jack chain is sold to A&P for $76 million.
1996:: The 100th Farmer Jack store is opened.
2000:: The company expands into Ohio with the purchase of three Churchill's Super Markets in Toledo.
2003:: More than a dozen Farmer Jack stores in Michigan and Ohio are shuttered or slated to close.
2004:: Parent company A&P reopens 13 former Farmer Jack locations as Food Basics outlets.
2005:: Numerous Farmer Jack and Food Basics stores are closed; A&P puts chain up for sale.

The year 1999 saw Farmer Jack begin to offer its customers one Northwest Airlines WorldPerks Bonus Mile for each dollar spent, and in late fall the firm opened six new stores in six weeks, bringing it up to a total of 105 outlets. In 2000 the company also bought three Felice Food Markets and three Churchill's Super Markets. The latter were located in Toledo, Ohio, and marked Farmer Jack's first venture into that state. The firm spent some $75 million to open a total of eight new stores during the year, which also included the first in Michigan's state capital of Lansing.

In 2001 Farmer Jack built a new store in downtown Toledo, as well as a new $43 million distribution center in the Detroit suburb of Livonia, which employed 300. The company now had a 27.2 percent share of the Detroit grocery market, followed closely by Kroger at 22.7 per cent and Meijer with 10.7 percent, according to industry publication Market Scope.

MANAGEMENT CHANGES IN 2002

As A&P was struggling with losses in all of its divisions in 2002, accounting problems were discovered in the Detroit area which required it to restate earnings for the three previous fiscal years. In July 2002 Midwest division head Dennis Eidson and several other top Farmer Jack executives resigned, and the CEO job was taken over by Michael Carter, who had run A&P's Super Fresh chain. Farmer Jack was doing especially poorly as competition intensified and unemployment in the auto industry-dominated area began to climb, which helped push parent A&P's losses to $193 million for the year. There were now 110 Farmer Jacks among A&P's shrinking national total of just over 700 stores.

In early 2003 more executives departed and the company announced it was closing four stores and buying out 400 workers, while also preparing to open or upgrade five groceries at a cost of $20 million. A recent attempt to shift away from the chain's long-time emphasis on low prices had failed miserably, and in June the company closed its stores for 37 hours to prepare them for a new focus on daily low prices and fresher meats and produce. The "We're Thinking Fresh" campaign also offered free samples of produce on demand, and later added a guarantee of a free fresh item if an outdated one was found in the store. The firm's customers also would no longer need their Farmer Jack Bonus Savings Club card to get lower advertised prices.

A week later the company opened a new 64,000 square foot outlet on Detroit's east side, the city's largest to date. Farmer Jack continued to struggle, however, and in October construction of a new store in Dearborn Heights was halted, and not long afterward a third of its stores reduced their operating hours. The firm was now reportedly losing $1 million per week.

In December 2003 Farmer Jack renegotiated its contract with the United Food and Commercial Workers' union to cut wages by 5 percent in a bid to stem losses and save jobs. Shortly afterward the company announced it was closing its two Lansing stores and 16 others in the Detroit metro area and Toledo. In the spring parent A&P reopened 13 of them as Food Basics outlets, which had found some success in the East and in Canada. The deep-discount concept was similar to a warehouse club (though no membership fee was charged). Food Basics stores offered only the best-selling products at very low prices, with no fresh meat department, bakery, or deli, and limited service including no bagging assistance.

In April 2004 the first new Farmer Jack in almost a year opened in the Detroit suburb of Waterford Township, and in November the firm launched a program called Wine and Dine, in which wines were relocated next to produce and information was added to the firm's Web site offering advice on pairing wine and food.

In late April 2005 A&P closed 12 of its 13 Food Basics stores in Detroit and Toledo as well as two Detroit-area Farmer Jacks. Several weeks later the company announced plans to sell the rest, and over the next month nearly 20 stores were closed or sold to independent grocers. In the fall, as a sale of the remaining 70 to Michigan-based Spartan Stores neared completion, Farmer Jack renegotiated its union workers' contract to win a 10 percent pay cut for the prospective new owner. Talks broke off shortly afterward, however, and company president Mike Carter quickly resigned.

In October, after realizing $919 million from the sale of its Canadian operations, A&P announced that it was reconsidering selling Farmer Jack, which had now slimmed down to 67 stores and was starting to break even. The company's union workers subsequently agreed to take the pay cuts they had earlier ratified for the prospective Spartan sale, and the chain ended its free replacement guarantee for outdated items to save additional money.

More than 80 years after Tom Borman entered the grocery business, Farmer Jack Supermarkets had undergone much growth and change. Long the market leader in the Detroit area, the firm was struggling to become profitable under the ownership of A&P, and its future prospects were growing increasingly cloudy.