Lund Food Holdings, Inc.

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Lund Food Holdings, Inc.

4100 W. 50th Street
Second Floor
Edina, Minnesota 55424
U.S.A.
(612) 927-3663
Fax: (612) 915-2600
Web site: http://www.byerlys.com

Private Company
Incorporated: 1964 as Lunds, Inc.
Employees: 4,300
Sales: $400 million (1997 est.)
SICs: 5411 Grocery Stores

Lund Food Holdings, Inc. is the parent company of Minnesota-based retail grocery stores Lunds, Inc. and Byerly’s, Inc. The two high-quality grocers, which had been competitors in the Twin Cities for nearly 30 years, were merged in 1997 to form a 19-store chain with annual sales estimated at $400 million.

Lund’s Roots: The 1920s Through the 1960s

Russell T. Lund moved to Minneapolis, Minnesota, from Amery, Wisconsin, in the 1920s with the intention of going to college, but a summer job changed his career plans. Lund’s employer, Tom Cordalis, the operator of the cheese and cracker department of Move’s grocery store, offered him full-time employment and the opportunity to buy into the business.

In 1937, armed with retail grocery experience and plans to sell popped popcorn to Los Angeles grocers, Lund moved his family to California. His product was a hit. When Lund returned to Minneapolis and Hove’s in 1939, he used profits from the venture for real estate. Lund leased his Lake Street and Henne-pin Avenue building to Hove’s and built a second store in the Minneapolis suburb of Edina, where Hove’s opened a second store in 1942.

Lund had established himself in oil and gas exploration as well as real estate by the 1960s, but he continued to hold an interest in Hove’s though his partnership in Cordalis and Lund, which operated the meat, dairy, and produce areas of the store. A dispute between Lund and Hove’s regarding control of the business ended a 40-year business relationship. When Hove’s’ leases on the two stores expired, Lund chose not to renew them. In 1964, Lund established his own stores at the sites and opened a bakery to serve them.

Growing Reputation for Quality: 1970s and 1980s

Lunds, Inc. earned a reputation as a top quality grocer in the Twin Cities. Five Lunds stores held about four percent of the market and generated $48 million in annual revenues by 1978. In addition to setting standards for freshness and variety, Lund built a loyal clientele through exceptional customer service. Personal greetings by employees, complementary coffee, free use of the telephone, and pride in filling special orders contributed to an atmosphere that kept bringing customers back. Only about one-half of one percent of total revenues was spent on advertising which sold Lunds rather than specific products.

Russell Lund, Sr., was followed by nephew H. Ted Lund as head of the company beginning in 1973. Frank Gleeson, a longtime Lunds employee, became the first non-family president of the seven-store chain in 1986, when revenues were approaching the $100 million mark. Family leadership of Lunds was resumed in 1991 when Gleeson retired and was succeeded by Russell T. (Tres) Lund III.

While he was still in high school, Tres Lund was coached by his grandfather in the workings of the retail grocery business. The younger Lund had planned to gain some work experience on Wall Street after graduating with a degree in business in 1985, but with Ted Lund and Frank Gleeson nearing retirement, Tres Lund returned to Minnesota. He gained a working knowledge of Lunds before stepping in as vice-president of operations and later as president and CEO.

The 1990s: Times of Change for Lunds, Inc

Founder Russell Lund, Sr., who had remained active in the store well into his 70s, died in 1992. The Lund family and Lunds, Inc. had to weather more death and intense media coverage later-that year when Russell Lund, Jr.—father to Tres, son of Russell, Sr., and holder of 36 percent interest in Lunds, Inc.—was charged with a double homicide and later committed suicide. Tres Lund, 30 years old at the time, had been at the helm of the company for only about a year.

The company celebrated 55 years in the retail grocery business in 1994. Annual sales had climbed to about $118 million. Gillian Judge, in a March 1994 Twin Cities Business Monthly article, estimated earnings to be about $2.1 million. The eight-store chain continued to hold its own in an industry which had become dominated by huge no-frill food stores during the 1980s. Piper Jaffray analyst Brooks O’Neill said in the Judge article,’ They have managed to tailor the stores to the needs and desires of the neighborhoods in which they operate, they have excellent locations, they knock you over with [personalized] service—these big stores clearly cannot come close to that.”

In addition to breathing new life into Lunds, Inc. with plans for store renovation, expansion of the catering business, and the purchase of prepared dinner business name and concept, Tres Lund brought in a new leadership style. Judge wrote, “Lund revitalized the board of directors, sought more advice from senior managers, and gave greater autonomy and responsibility to the stores’ department managers. Supermarket analysts— who admit to knowing little about this very privately held company—say that Lund seems to have surrounded himself with good people.” Day-to-day operations were handled by Lunds Vice-President Frank Worrell while Lund split his time between Lunds, Inc., the real estate, and the oil and gas concerns, which each held about one third of the family’s fortune.

Early in 1996, Lunds closed the doors of one of its stores. Mike Kaszuba wrote in January 1996, “This wasn’t just any grocery store. This was Lunds, a marble-floored, gourmet coffee-selling symbol of every thing upscale in one of the Twin Cities’ most affluent suburbs. Lunds, an institution of sorts in the Twin Cities, in fact had never before been forced to close a store.” Lunds attributed the cause of the closing to the number of financially stretched consumers in the market, while Kaszuba noted Lunds’ staple product prices were often higher than other area stores.

In March 1996, the company announced renovation plans for the oldest and smallest of the stores. The urban Minneapolis store was switched to a “marketplace” venue with a separate entrance for its expanded deli and convenience food section and the addition of a mezzanine-level seating area. In April 1997, Lunds merged with its primary Twin Cities competitor, Byerly’s, Inc.

Byerly’s Brightens the Twin Cities Food Market: 1960s-80s

Donald D. Byerly opened his first store in 1968 as Byerly Foods. His father, Russell Byerly, former chairman of the board of Minnesota-based grocery wholesaler Supervalu Inc., was a partner in the business until his death in 1977. The luxury supermarket did $5 million in business in 1969, its first full year of operation.

Beginning with a commitment to providing quality products and steering away from traditional advertising and pricing techniques, Byerly’s offered customers a first class shopping environment. Carpeted floors, chandeliers, soft lighting, wall papering, and solid oak trim, plus gift shops, restaurants, postal service, and resident home economists complemented the full service meat, fish, and produce departments, in-store bakeries, and delicatessens. Byerly’s four stores reached $50 million in sales by the end of its first decade.

The grocery business had been a lifelong passion for Byerly. He began with weekend inventories alongside his father, went on to earn a degree in food marketing, and worked in the retail end of the food industry for other operators. The opening of his $4 million, 92,000-square-foot flagship store in the Minneapolis suburb of St. Louis Park drew national interest, including a front page article in the Wall Street Journal.

In that article, Lawrence Ingrassia wrote, “The furnishings and specialty shops set Byerly’s apart from its chief competitor for upper-class Twin Cities shoppers, Lunds, an independent chain of six supermarkets. Lunds also carries a wide selection— about 13,000 items—and is known for top quality food. But the comparisons end there.” Ingrassia called Byerly’s “the Bloomingdale’s of the supermarket world.”

Sales for the seven-store Byerly’s chain were between $130 and $150 million in the mid-1980s. And the upscale supermarkets were well-known tourist attractions. Byerly’s held about five percent of the Twin Cities market, compared with four percent for Lunds, and 20 percent for Supervalu-owned Cub Foods, a super-warehouse store. On a low note, Byerly’s failed to turn around two Atlanta supermarkets purchased from the bankrupt independent owner.

Big Changes at Byerly’s: 1990s

Founder and sole owner Don Byerly began to phase himself out of the daily operation of the stores in the late 1980s. Tom Harberts, who came on board in 1970 and guided the building and opening of several of the stores and the Byerly’s frozen soup manufacturing plant, was named president in 1989. In mid-1990, Byerly sold controlling interest of the $200 million chain. Minneapolis-based Goldner Hawn Johnson & Morrison, and M.H. Equity Corp, an affiliate of Manufacturers Hanover Trust Company of New York, became equity partners. Harberts was named CEO and also shared in the ownership along with other senior managers.

When Harberts suddenly resigned in May 1994, Dale Riley, a Byerly’s veteran and chief operating officer, and Jack Morrison, chairman of the board and partner at Goldner Hawn Johnson & Morrison, assumed leadership of the Byerly’s stores. The company cited management philosophy differences as the reason for Harberts’s departure. In a Minneapolis/St. Paul City-Business article by Jennifer Waters, Morrison said, “We had a tendency to be a little reactive to industry changes. We were very conscious of protecting what we had, but we weren’t moving forward.” Plans to expand outside Minnesota had been simmering since the late 1980s while in the meantime no-frills grocers began offering more services, and discounters such as Target, Wal-Mart, and Kmart were building grocery-carrying supercenters.

The new management introduced changes in the Byerly’s style: traditional chandeliers were dropped from the newest (10th) store and replaced by a huge mural, and the company set its first image advertising campaign in motion. In 1995, restaurant service was cut back or eliminated from some stores, and the lineup of third party convenience foods vendors located within the stores was expanded.

Byerly’s opened three stores in 1996 and thus gained a 30 percent increase in size in one year. The Chicago stores, located in the suburbs of Highland Park and Schaumburg, were the first of 10 stores the company planned for the area by the year 2000. The new Minnesota store dedicated about 30 percent of its space, or three times the industry average, to products in the convenience foods category. Ready-to-eat items ranging from Chinese take-out and chicken to Atlantic cod and sushi enticed shoppers to stay and eat in the 60-seat dining area with a fireplace and stuffed furniture. The company also developed a line of ready-to-cook food.

A New Partnership for the Future

The majority-owner investment firms, wishing to cash out of the company, began seeking a buyer in 1996: Lunds purchased the chain. According to Ann Merrill, “By making the purchase, Lund eliminated the possibility of a new, deep-pocketed competitor arriving on the scene.” The purchase price was estimated to be $90 million. Lunds stores switched to the longtime Byerly’s wholesaler as part of the deal.

Lunds chose not to purchase the two Chicago stores. As Mary Ellen Podmolik reported, “Despite its devout following in Minnesota, where it has 11 stores, Byerly’s has had problems here, analysts say. The expensively decorated stores attracted customers for the strong selection of prepared foods, but shoppers bought basic items elsewhere.” Chicago food retailer Dominick’s Finer Foods purchased the two stores.

The Lunds and Byerly’s stores were combined under Lund Food Holdings, Inc. in April 1997. Byerly’s retained its name and continued to operate its two production plants in addition to the Minnesota stores. Former Byerly’s president, Dale Riley, was named executive vice-president and chief operating officer, and an executive team with four members from each company was set in place. Tres Lund served as president and CEO of the new $400 million company. Crossovers of popular products, store remodeling, and expansion plans were on the table, as well as strategies to meet the increased competition from giant retailers on one side and convenience food outlets on the other.