Houchens Industries Inc.

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Houchens Industries Inc.

900 Church Street
Bowling Green, Kentucky 42101
U.S.A.
Telephone: (270) 843-3252
Fax: (270) 781-6377

Private Company
Founded: 1917
Employees: 5,200
Sales: $820 million (2001 est.)
NAIC: 445110 Supermarkets and Other Grocery (Except Convenience) Stores; 445120 Convenience Stores

Houchens Industries Inc. is an employee-owned company based in Bowling Green, Kentucky, and is the fourth largest grocery store operator in Kentucky. Houchens operates 31 Houchens Markets and 199 Save-A-Lot stores, competing with rival megastores by intentionally staying smaller and limiting selection. Houchens also owns seven Foodland/Piggly Wiggly/IGA stores, 41 Jr. Food Stores, 23 Tobacco Shoppes (located within Save-A-Lot stores), and one The Orchard. Units are spread across 13 states, including Alabama, Georgia, Illinois, Indiana, New York, North Carolina, Ohio, South Carolina, Tennessee, Texas, Virginia, and West Virginia. In addition, Houchens has diversified in recent years, acquiring Southern Recycling Inc., Stewart and Richey Construction Co., Center of Insurance, and the tobacco company Commonwealth Brands.

Ervin G. Houchens Founds Company in 1917

The founding of Houchens Industries by Ervin G. Houchens is a quintessential American success story. One of ten children, Houchens grew up in a three-room log cabin. In 1917, at the age of 19, he opened his first grocery store in rural Barren County, Kentucky, where he grew up. It was a modest enterprise, housed in a 12-foot by 20-foot shed. Less than three years later he was able to relocate his business to Cross Roads, Kentucky, growing into a general merchandise store. The rise of the Houchens’ grocery chain began in 1931 when the now-seasoned businessman opened three stores in Glasgow, Kentucky. Despite operating during the lean years of the Depression, Houchens was able to significantly expand his operations during the 1930s, branching out to other Kentucky communities. After opening stores in Munfordville and Scottsville, he entered Horse Cave, Cave City, Elizabethtown, and Vine Grove in 1937, followed by Bowling Green and Franklin in 1939.

Until the early decades of the twentieth century, grocery stores were full service operations, primarily offering dry goods, with clerks filling customers’ orders one by one. Even early chains such as the A&P stores followed this model. Then, in 1916, Clarence Saunders introduced self-service grocery stores when he opened his first Piggly Wiggly in Memphis, Tennessee. The concept proved popular, and by the 1930s grocery chains and independents alike began switching over to self-service, which led to the rise of modern supermarkets offering a wide range of products. The first Houchens’ store to follow the new model was one of the Bowling Green outlets in 1939. This store was progressive in other ways as well. It was the first grocery store in the city to host a live radio broadcast, and it also offered frozen food lockers for rent, a concept that proved successful until the introduction of affordable home freezers.

Houchens moved into six new Kentucky communities after World War II: Russell ville, Auburn, Fountain Run, Gamaliel, Tompkinsville, and Hodgenville. Following a fire in November 1945 that destroyed the company’s Glasgow warehouse and a nearby store, the company relocated its headquarters to Bowling Green, where it took over the wholesale grocery warehouse business of J.D. Reynolds Company, and Houchens reorganized the business as Bowling Green Wholesale, Inc. He later added a slaughter house and meat processing plant to his growing enterprises. To give back to the community, Houchens also established the Houchens Foundation, a non-profit corporation that since 1945 has contributed millions of dollars to civic and religious organizations.

In the 1950s, Houchens further expanded his operations in Kentucky, and in 1952 ventured beyond the state for the first time when he opened a store in Lafayette, Tennessee. Altogether, the company added stores in eight new communities during the decade and another seven in the ten years that followed. In 1960, the company was active on a number of fronts. It became involved in investing in real estate used for strip shopping centers. The company also attempted to diversify by moving into the variety store industry. It created a number of Houchens Family Centers and Ben Franklin Family Variety Stores, but the venture never proved overly successful, and 20 years later the company began to close down these operations. Of more long-term importance was the debut of Houchens’ first full-service supermarket, located in Bowling Green. All of the company’s stores would soon adopt the larger format. Moreover, in 1960 Houchens created an Employee Profit Sharing Plan, which began the process of employees taking a vested interest in the business.

Name Change in 1972

In 1972, the growing company changed its name to Houchens Industries Inc. The 1970s brought even greater growth for the company and represented a high-water mark in terms of profitability for Houchens Markets. Eight new communities were entered during the decade, five in Kentucky and three in Tennessee. At its peak, Houchens had 55 supermarkets in operation. In the following decade, the company adjusted the mix and engaged in remodeling efforts to meet the challenge of a changing environment in the grocery business. In addition to building larger new stores, some older units were sold off in the early 1980s, while others were remodeled and expanded. Of significance during this period was the Schnucks Company’s introduction of a super warehouse-style store to the region, prompting a price war with major rival Kroger and adversely affecting about half of Houchens stores as well. The war led to the practice of honoring manufacturer’s coupons at twice their stated value.

Now over 80 years old and nearing retirement, Ervin Houchens looked to secure the future of the company and its employees. In 1981, he signed a letter of intent to sell Houchens Industries to the Memphis food distribution company of Malone and Hyde Inc. for $58 million. In addition to ten food distribution centers serving a wide swath of the Southeast, Malone and Hyde also owned 45 supermarkets and 165 drugstores, as well as a number of sporting goods and auto parts stores. In the end, however, both parties backed away from the deal. Houchens retired in September 1983 at the age of 85, remaining on as chairman emeritus but devoting the bulk of his time to the activities of his foundation. Before turning over control of the business, he completed the sale of Houchens’ Industries to Red Food of Chattanooga, Tennessee. His nephew, Ruel Houchens, became president of the subsidiary, having worked for the company since 1942 when as a 13-year-old boy he was employed by a Houchens store in Glasgow. Under Ruel Houchens’ leadership and new corporate ownership, the company continued to remodel and expand its stores in the mid-1980s. Volume grew so high for the chain that the company’s warehouse was no longer able to adequately supply its stores and an outside supplier had to be contracted.

After five years of operating under Red Food and its French parent company, food wholesaler-retailer Promodes, the employees of Houchens’ Industries reached a deal to buy the company. The proceeds would allow Promodes to invest in Red Food and other operations in Chicago. However, according to Supermarket News, the corporate parent saw little prospect for growing Houchens, noting that “an industry observer in the region said, The speculation is that Houchens turned out to be impervious to being converted to Red Food’s methods of operation.’ “Another trade source commented, “Since Red Food took over Houchens five years a ago, there has hardly been any change in the way Houchens operates. It was a family-owned business for many years and is still run very much like a mom-and-pop, even with all its stores.” Ruel Houchens lined up investors to finance the employee buyout and subsequently became the company’s CEO and chairman when the transaction was culminated in November 1988. But it would not be until October 1996 that company made the final payment on the bank note that made an employee buyout possible.

Independent once more, Houchens began to again grow its business. In 1989, after it acquired the Dave and Steve Super-Key stores in the Bowling Green area, the total number in the chain returned to 47. As the economy slowed in the early 1990s, Houchens turned to a discount, limited-selection format to fuel further expansion. In January 1990, the company opened its first Save-A-Lot store in Hardinsburg, Kentucky. Houchens quickly rolled out other stores, and picked up 30 Save-A-Lots in a 1994 acquisition of 30 outlets located in Alabama and Kentucky. Total outlets numbered 86 by the middle of the decade and nearly 140 by the year 2000, spread across 11 states. In the early 1990s, Save-A-Lot became Mor-For-Less, but less than a year later it returned to its original name.

Founder Dies in 1992

Ervin Houchens died on August 17, 1992. The top leadership position then passed out of the hands of the Houchens’ family in February 1993 when Jimmie Gipson, who had been with the company since 1965, was elected to the posts of president and chief executive officer. A few months later, he succeeded Ruel Houchens as chairman of the board. During this transition period, the board toyed with the idea of taking the company public, going so far as to draw up a prospectus, but in the end the elected to shelve the idea. Under new management, Houchens now made a concerted effort to expand its private-label line, an industry growth area in which the company lagged behind its competition. Immediate plans were launched to double the number of items it currently offered to 300, with a further goal of increasing to 800 products in five years. Moreover, Houchens initiated plans to offer 300 to 400 health and beauty care products under the Home Best label.

Company Perspectives:

Our Values: Listening and reacting to customers; fair and honest dealings with all; operating profitably to enhance our future; innovation and action without fear of failure; open communications with all employee/owners.

Late in the 1990s, Houchens faced a challenge from well-financed grocery chains that began to open megastores in excess of 200,000 square feet in size. In order to compete, Houchens began to pursue a counter-strategy of opening smaller Save-A-Lot stores, in the 10,000-square-foot range, many of which were located in the shadow of the retail giants. Other Houchens stores, because of their smaller size, were able to open inside neighborhoods rather than in the fringe areas that megastores targeted because of real estate limitations. The company found that no matter where their units were located they were able to find a niche with customers who felt that the megastores were simply too big and preferred shopping at a smaller supermarket for certain everyday products. As a result, Houchens saved money on a number of levels. Fewer employees were needed to run the stores, and real estate costs were lower because the company was often able to take advantage of abandoned retail centers. Houchens also began to diversify beyond its core holdings of Houchens Markets and Save-A-Lot outlets. The Tobacco Shoppe discount cigarette venture, operating out of Save-A-Lot stores, was launched in 1997. In May 1998, Houchens acquired the 42-unit convenience store chain Jr. Food Stores, Inc. Less than a year later, Houchens acquired Southern Recycling, Inc., a Bowling Green company that had a long history with Houchens. Its founder, David Bradford, originally operated a parking lot sweeping business, and one of his major customers was Houchens. Bradford realized he could make extra money from the discarded corrugated boxes he found in the park lots by baling them and selling them to a local paper mill. In 1981, he started Southern Recycling, and over the years expanded his operation to the recycling of iron products and other metals, as well as a curbside recycling operation.

In the year 2000, Houchens became involved in the construction industry when it acquired Stewart and Richey Construction Company, a 200-employee, 14-division full-service business operating in Kentucky and Tennessee. Like Southern Recycling, it too became a wholly owned subsidiary of Houchens, as did Center of Insurance, acquired in September 2000. Center of Insurance, in operation since 1948, was a full-service insurer, offering business, personal, life, and health insurance, as well as surety bonds to customers in central Kentucky and Tennessee. Furthermore, in 2000, Houchens remained active in growing its main business, acquiring two Foodland Stores in Kentucky, as well as opening two new Save-A-Lot stores in New York and Virginia and acquiring nine other Save-A-Lots in Alabama and Georgia.

Houchens continued to add to its supermarket chains in 2001, when it opened a new Save-A-Lot store in Niagara Falls, New York, and acquired seven existing operations in West Virginia and Georgia. The company also took over a Piggly Wiggly Store in Tompkinsville, Kentucky, and subsequently converted it to the IGA brand. Several months later Houchens’ IGA operation expanded to four other Kentucky communities, and additional IGA stores were purchased in 2002. In the meantime, the company acquired another 35 Save-A-Lot stores, adding two new states, Texas and Illinois, to its area of operation. Houchens’ effort at diversification also took a major step forward with the August 2001 acquisition of Commonwealth Brands, the fifth largest American cigarette manufacturer in terms of sales volume. It produced cigarettes under such brand names as USA Gold, Montclair, Malibu, Natural Blend, Riveria, and Sonoma. For Houchens, Commonwealth Brands served as an ideal complement to its Tobacco Shoppe operations. A year later, in August 2002, Houchens took a step that might prove a key to future diversification when it entered into a partnership agreement with Remington Capital LLC, a boutique investment banking firm. The two parties agreed to jointly acquire manufacturing businesses which would then be managed by the principals of Remington Capital.

Principal Subsidiaries

Center of Insurance; Commonwealth Brands, Inc.; Houchens Properties; Southern Recycling Inc.; Stewart and Richey Construction Co.

Principal Competitors

The Kroger Co.; K-VA-T Food Stores, Inc.; Winn-Dixie Stores, Inc.

key Dates:

1917:: Ervin G. Houchens opens his first store.
1931:: The grocery chain begins with the opening of three stores in Glasgow, Kentucky.
1945:: Bowling Green Wholesale, Inc. is formed as a parent corporation.
1960:: The first Houchens supermarket opens.
1972:: The company’s name is changed to Houchens Industries.
1983:: Ervin Houchens retires at age 85.
1988:: The business becomes employee owned.
1990:: Houchens opens its first Save-A-Lot store.
1992:: Ervin Houchens dies.
2001:: Commonwealth Brands, Inc. is acquired.