Ingles Markets, Inc.

Post Office Box 6676
Asheville, North Carolina 28816
U.S.A.
(704)-669-2941
Fax: (704)-669-3668

Public Company
Incorporated: 1963
Employees: 11,000
Sales: $1.473 billion (fiscal 1996, ended September 28)
Stock exchanges: NASDAQ
SICs: 5411 Grocery Stores; 6512 Nonresidential Building Operators; 2026 Fluid Milk

Ingles Markets, Inc. is a regional supermarket chain with 188 stores in North Carolina, South Carolina, Georgia, Virginia, Tennessee, and Alabama. Most stores are located in rural areas, small towns, or suburban communities within 250 miles of the firm’s headquarters/distribution center in Asheville, North Carolina. Ingles Markets also owns a milk processing plant which makes dairy products for sale in Ingles stores and other outlets. In addition, the firm owns 74 shopping centers and also 30 other properties, almost all of which contain an Ingles supermarket. Like its competitors, Ingles Markets in the 1990s offers much more than just canned, fresh, and frozen food. To provide one-stop convenience for busy consumers, Ingles also sells numerous nonfood items, from office supplies to cooking utensils, and includes services such as sit-down cafes, check cashing, takeout meals and deli items, floral shops, and video rentals. Ingles Markets sells national brands and also its generally lower-priced Laura Lynn private label items. All stores are open seven days a week and many operate 24 hours a day.

Origins

After working in the grocery business with his parents in Asheville, North Carolina, Robert P. Ingle started his first store in 1963 in his hometown. In that same year, the company began buying a significant part of its merchandise from Merchant Distributors, Inc. (MDI), a wholesale grocery distributor based in Hickory, North Carolina. MDI continued into the 1990s to provide mainly frozen foods, produce, and slow selling items not stockpiled by Ingles.

Gradually Ingles opened new stores in the 1960s and 1970s. To support its expanded operations, Ingles Markets in 1978 built a new warehouse/distribution center in Asheville, North Carolina. From this 450,000-square-foot facility, the company shipped various items to its retail stores in North Carolina and neighboring states.

Growth in the 1980s

In September 1982 Ingles Markets acquired its own milk plant. Purchased from Sealtest, the plant operated as a wholly-owned Ingles subsidiary called Milkco, Inc. By 1996 it was North Carolina’s second largest milk processing and packaging plant. Milkco supplied 90 percent of the fluid milk for Ingles supermarkets. It also sold citrus, dairy, and bottled water items to various customers such as other grocery stores and food distributors. These non-Ingles buyers represented about 58 percent of Milkco’s business by 1996.

Milkco’s corrugated boxes for shipping milk and other products were another important aspect of its business. They protected the bottled goods from damage and kept them cold. According to Ingles’s 1996 annual report, Milkco was “the only dairy processing plant in the Southeast with this capability.” Milkco also was committed to using packaging that could be completely recycled.

In 1982 Ingles gained a new president and chief operating officer. Landy B. Laney had been an executive officer and director of Ingles since 1972. He would serve in his new capacity until 1996.

In the late 1980s Ingles Markets took some important steps to expand its operations. In December 1986 it sold 23 shopping centers to Atlanta’s IRT Property Company for $50 million, although the book value on those properties was only $33 million. In turn, Ingles leased the same centers from IRT and continued to operate them. At the same time, Ingles maintained ownership of 38 other shopping centers, a result of Robert Ingle’s personal involvement in choosing properties.

The following year Ingles used another method to raise money for its expansion. In September 1987 Ingles became a public corporation by selling its stock under the symbol IMKTA on the NASDAQ exchange for $13 per share. Only Class A stock was offered to the public. Robert Ingle maintained control over the company by holding almost 75 percent of its Class B stock, which controlled company voting rights.

Using funds from the sale of its shopping centers and its stock offering, Ingles Markets opened new stores in the late 1980s. In 1989, for example, it opened 17 new stores to reach a total of 156 in North and South Carolina, Georgia, Tennessee, and Virginia.

According to Food People magazine, by 1990 Ingles enjoyed 45 percent of the grocery market in its Asheville, North Carolina base but had only 8 percent of the market in the state. All Ingles stores were west of Greensboro, leaving the eastern part of the state for other chains.

Food Lion, one of Ingles’s main rivals, was a bigger chain. For example, it planned to open about 100 new stores in 1990, several times the number planned by Ingles. Jack Ferguson, Ingles’s chief financial officer, said in the March 1990 Business North Carolina, ”We try to find our niche in the market. We don’t go head to head with Food Lion or Bi-Lo or Winn-Dixie or Kroger where they’ve got the market share. We say we’re price competitive, but we don’t say we’re a price leader.”

To avoid directly confronting such bigger chains, Ingles Markets concentrated on rural areas or small towns and suburbia, where there were fewer stores and thus less competition. In the late 1980s the company built its first stores in Atlanta’s remote suburbs. Analysts pointed out that this strategy resulted in modest but consistent growth.

To differentiate itself from some of its competitors, Ingles used ads to remind consumers that it was owned entirely by Americans. Two competitors based in North Carolina, Food King and Bi-Lo, were owned largely by Europeans. Those ads probably were ineffective, since Food King and Bi-Lo gained more of the state’s market share than did Ingles.

In any case, Ingles stock performance in the late 1980s reflected its relatively slow growth compared to its competitors. Its stock reached a high of $13.38 by the end of 1987 but then declined to about $9 per share by the end of the decade.

The 1990s

In early 1990 a persistent rumor concerning Ingles Markets surfaced again. Wall Street speculation that Ingles would be acquired by Publix Super Markets of Lakeland, Florida, resulted in Ingles’s stock increasing to its highest point in 52 weeks. However, both Publix and Ingles representatives and analysts familiar with those firms discounted the rumor.

By the end of fiscal 1990, at the end of September, Ingles reached a new landmark in its history. For the first time in its 27-year history, the company had over $1 billion in annual sales. An increase of 11.4 percent from 1989 sales of $903.8 million resulted in 1990 sales of $1.007 billion. However, net income declined 37 percent from $15.9 million to $10 million due mainly to the firm’s sale of marketable equity securities.

Corporate sales continued to increase in fiscal year 1991, reaching a company record of $1.044 billion; net income was $10.7 million. Based on that performance, one of Ingles’s stock holders demonstrated its confidence in the grocery chain by buying more stock. Merchant Distributors, Inc. in November and December 1991 purchased 122,500 shares of Ingles Class A shares, giving it a total of 270,000 shares, 6.3 percent of all Class A stock. In addition, Merchants owned 150,150 shares of Ingles Class B stock.

In January 1992 Lloyd Kanev, the author of Smith Barney’s Inefficient Market Series, raised his rating of Ingles’s stock from “Hold” to “Buy.” Kanev stated in The Insiders’ Chronicle of January 27,1992, “As a potential strategic acquisition by another supermarket chain, the company ... would be worth a fair premium to book value.”

Ingles Markets in 1992 took several steps to improve its competitiveness and appeal to its customers. It tried a new ad campaign pushing what it called the “Ingles Challenge,” which encouraged customers to do their own price comparisons, instead of the company printing comparative price lists in the newspaper. The chain also added in 1992 the increasingly popular 12-pack option to its private-label sodas previously available only in 6-pack, two-, and three-liter sizes. Available by the Fourth of July weekend, the 12-pack was introduced to compete with discount and club stores.

By August 1992, 75 percent of the company’s 160 in-store bakeries had changed their methods of preparing and presenting their baked goods. Instead of using premade frozen goods, it began using scratch/mix formulas for several items, including cookies and cakes. The frozen items were easy to order and then thaw at the store, but the quality improved when the store’s own personnel prepared those items. To emphasize customers’ desire to serve themselves, Ingles took its baked items from behind glass displays and placed them on flat tables.

Jim Owens, Ingles’s new vice president over bakery-deli operations, began in 1992 special cake promotions which he had learned at his previous position at Safeway. By cutting prices during these sales, Ingles was able to increase its cake sales by as much as 30 percent.

In October 1992 Ingles announced it would reverse its 1986 deal with IRT by buying back the 23 shopping center properties it sold and then leased in 1986. It paid IRT $55.6 million for the 22 centers in North Carolina and one in Georgia.

In fiscal year 1992 Ingles’s sales increased to $1.06 billion, but its net income dropped to $5.5 million, the lowest in several years. And the chain reduced the number of its stores to 170.

After a successful test in two stores, Ingles Markets in March 1993 announced it would introduce new drinkware sections in all of its 170 stores. It featured plastic glasses, tumblers, and bowls from April through September and then glass items from October through March. Prices on this merchandise were low enough to compete with the discount chains, particularly Kmart and Wal-Mart.

Also in March the company was fined $10,000 by the Georgia Department of Agriculture for repeated violations at 13 stores, including the presence of rodents and insects, outdated goods, and unsanitary equipment. State officials placed the 13 stores on probation for six months and said they would work with the firm to overcome those defects.

In fiscal year 1994 Ingles opened its first store in the state of Alabama. The Jackson, Georgia store, one of the chain’s first to feature new video releases, began operations in October 1994. The following month the firm added a new store in Black Mountain, North Carolina, just a few miles east of the corporate headquarters in Asheville.

The opening of the Morristown, Tennessee store in summer 1995 illustrated an interesting trait of Ingles corporate culture. To gain firsthand knowledge of customers’ opinions, Laney was there posing as a bagger. “The customer doesn’t know me from you or anybody else,” said Laney in the July 1995 Progressive Grocer.” So I know they’re not trying to butter me up... The customers like the wide aisles in that store. I heard that more than anything.” Chairman Robert Ingle also liked to participate in such store openings, a custom that employees liked because it gave them a sense of closeness to their leaders.

To deal with the challenge of growth, in 1995 Ingles created two new positions. Ed Kolodzieski, formerly with Tampa, Florida’s Kash n’ Karry for 18 years, became Ingles’s first vice president of strategic planning. The company also created the new title of director of frozen foods.

The company took a major step forward in October 1995 when it opened its new produce warehouse in Asheville. In the December 11, 1995 Supermarket News, Robert Ingle stated, “We need this kind of facility to handle the needs imposed by our substantial and continuing growth.” Vice president Ed Kolodzieski added, “We now have 100% control of the buying, warehousing and distributing process.” Previously Ingles had purchased its fresh produce from Merchants Distributors. The new facility increased the company’s ability to upgrade its quality control.

The new produce warehouse was part of an overall expansion of Ingles’s warehouse/distribution center. The new 310,000-square-foot addition also contained sections for dry goods, meat, poultry, deli, and dairy products. The new warehouse sections brought the total size of the Asheville facility up to 760,000 square feet.

The Asheville warehouse/distribution center was managed and run by the Asheville firm of Thomas & Howard Company. Ingles used its fleet of 103 tractors and 438 trailers to ship merchandise to its retail stores, using truck drivers employed by Thomas & Howard.

In the 1990s many Americans emphasized eating more nutritious foods. Ingles Markets responded in several ways, including 1996 ads and special sales to encourage customers to eat frozen fruits and vegetables five times a day. In 1991 the Produce for Better Health Foundation, the National Cancer Institute, and the National Institutes of Health had started the Five-a-Day program. Following the suggestions of the American Frozen Food Institute, Ingles decided to stress the value of frozen foods which retain most of their vitamins and other nutrients. Ingles used quotes from the sponsors and the Five-a-Day logo in its promotionals.

The grocery chain in 1996 also used the National Frozen Foods Month of March to promote the consumption of all kinds of frozen foods. Ingles continued its past practice of running TV ads in the six states with at least one of its stores and also radio ads in North and South Carolina. The company also tried innovations such as a school sampling program and a kitchen-appliance sweepstakes to increase sales of frozen foods. The frozen-food hoopla even included inflated penguins floating in the air and little airplanes pulling balloons reminding consumers of Frozen Foods Month.

To provide more space for its goods and services, Ingles Markets on June 30, 1996, opened its first MegaStore, a 59,000-square-foot facility in the Atlanta suburb of Dacula. Soon other MegaStores were opened, including ones in Forsyth, Griffin, and Cleveland, Georgia; Hendersonville and Waynesville, North Carolina; Kingsport and Knoxville, Tennessee; and Boiling Springs, South Carolina.

Unlike the 42,000- and 52,000-square-foot stores opened several years earlier with two entrances, the new 54,000- and 59,000-square-foot MegaStores featured one major entrance to lead customers into a preferred shopping route. The first section they came to was a fresh foods section with three new Ingles offerings: freshly made pizzas, self-service rotisserie chicken, and chilled ready-to-eat prepackaged meals. Each new MegaStore also included a two-story sit-down cafe, a full-size bakery, a video section, a floral division, and various customer services such as check cashing, photocopying, gift certificates, and UPS and fax assistance.

The difference between these new stores and the older smaller format was “like night and day,” said Neal Polaske, Ingles labor director in the September 2, 1996 Supermarket News. Robert Ingle added: “We are confident that our new look and schedule fits our program of continued growth and progressive changes to our stores. The go-ahead for any program is the response of our customers, and based on continuing sales increases, it is evident that our stores are being very well-received.” The company’s financial record for fiscal year 1996 confirmed Ingles’s comment. Annual sales and income reached record highs of $1.473 billion and $20.7 million.

On December 28, 1996, president and COO Landy Laney voluntarily retired at age 65. He was replaced by Vaughn C. Fisher, the company’s former vice-president for sales and marketing who had worked for Ingles for 24 years.

In 1997 Robert P. Ingle remained board chairman and CEO. His son Robert P. Ingle II served as vice-president of operations. As the chain approached the new millennium, it continued to focus on serving its customers in the Southeast. As Ingle stated in the July 1995 Progressive Grocer, ”We’re going to enhance our concentration where we already are,” instead of moving into new areas.

Ingles Market’s prospects in 1997 appeared positive. With modern stores featuring computerized inventory, checkout, and even computerized work scheduling, the firm appeared to have made the necessary investments to remain on the cutting edge of the grocery business. In April 1997 the chain received the “Retailer of the Year” award from McNeil Consumer Products, which gave it even more confidence in a bright future.

Principal Subsidiaries

Milkco, Inc.

Ingles Markets, Inc.

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Ingles Markets, Inc.

Post Office Box 6676
Asheville, North Carolina 28816
U.S.A.
(704)-669-2941
Fax: (704)-669-3668

Origins

Growth in the 1980s

In 1982 Ingles gained a new president and chief operating officer. Landy B. Laney had been an executive officer and director of Ingles since 1972. He would serve in his new capacity until 1996.

The 1990s

In fiscal year 1992 Ingles’s sales increased to $1.06 billion, but its net income dropped to $5.5 million, the lowest in several years. And the chain reduced the number of its stores to 170.