23000 Roundy Drive
Roundy's Inc. is the sixth-largest U.S. food wholesaler, supplying more than 1,800 supermarkets across the Midwest. Roundy's serves primarily independent grocers and also operates its own franchise, Pick 'n Save. The company is structured as a cooperative, owned primarily by the retailers it serves. Its member stores range from 5,000-square-foot "superettes" to giant warehouse stores. Roundy's pioneered the warehouse store concept with its successful Milwaukee Pick 'n Save chain. These stores range from 24,000 to 100,000 square feet, and stock from 4,000 to 5,000 items. Warehouse stores compete to offer the lowest prices in each market area by cutting costs in a variety of ways.
Roundy's founder, Judson A. Roundy, came to Milwaukee from Rhode Island. In 1872 he and two partners, Sidney Hauxhurst and William A. Smith, founded a wholesale grocery company called Smith, Roundy & Co. Smith went on to become governor of Wisconsin six years later. The company grew out of its first quarters and moved to a larger building at Milwaukee's Broadway and Buffalo Streets in 1885. This building was destroyed by a famous Milwaukee fire--the 3rd Ward Fire--in 1892. By 1895, the company completed new quarters at the same location.
The firm took on new partners and incorporated in 1902 as Roundy, Peckham & Dexter Co. Its president was Charles Dexter, who had been a partner since 1880 and who continued as president and chairman until his death in 1939. Roundy's began to offer its own private Roundy's brand beginning in 1922, when it introduced Roundy's Salt. The company expanded in the first half of this century until its stockholders numbered about 60, most of whom had inherited their holdings.
In 1953 the firm reorganized as a grocery cooperative, with only independent retailers allowed to hold Roundy's stock. Even the president and other top executives were required to sell their stock and assets unless they were themselves retailers. After this change, Roundy's management set out to offer services to independent grocers that would allow them to compete with large chains. Roundy's retailer-stockholders were offered bookkeeping and payroll services at low cost, and the company held seminars on grocery-related business topics, such as store security and job training.
Roundy's opened a grocery distribution center in Wauwatosa, Wisconsin, in 1955, which grew into a 450,000-square-foot complex on 10 acres of land. The company began to expand rapidly around this time, becoming one of the largest grocery distributors in Wisconsin. Sales reached $50 million in 1962 and then doubled to $100 million in the next nine years. The huge Wauwatosa warehouse stocked close to 9,700 items, including both Roundy's private label and national brand foods. Using rail sidings and over 40 truck loading docks in the early 1970s, the company moved more than 5,000 tons of merchandise a week. Roundy's private label had grown to include about 800 items, and sales in 1972 were close to $115 million. As early as 1972, Roundy's ordering was controlled by computer, and its processing system was also mechanized. Roundy's believed in using the most modern technology available to run its business and was often at the forefront of grocery innovation, particularly in its landmark warehouse stores.
In the recession that began in 1974, the warehouse stores became important. Roundy's management detected changing consumer attitudes as the economy worsened and decided to experiment with a new type of store that would appeal to the budget-conscious. Roundy's rented a vacant discount store in Milwaukee on a short-term lease and opened Pick 'n Save Warehouse Foods in March 1975. The store had minimal decoration and very few perishable items, including no fresh meat and very little produce. The store stood in sharp contrast to the traditional supermarket: packing crates and cases served as the main decor, and untiled floors and plywood walls emphasized the cost-cutting environment. Unique at the time, Pick 'n Save at first drew customers curious to shop in this innovative establishment. Customers used crayons to mark prices on items because the store saved labor by not price-marking, and customers also did their own bagging. The store catered to people doing large-volume shopping, stocking up for a week or two. Pick 'n Save became quite popular, and the store at times had long lines of customers waiting to get in. The warehouse concept proved so successful that Roundy's opened almost 20 more in the next five years, spreading from metropolitan Milwaukee across southern Wisconsin and northern Illinois. Other grocers imitated the warehouse concept as well.
Roundy's sales expanded in the late 1970s even as the economy pulled out of its slump, proving that the warehouse was not just a fad. However, the company's warehouse stores evolved to include more produce and a more finished decor. They began to have brightly painted walls and tiled floors, bringing the look closer to that of the traditional supermarket. But low price remained the essential difference that set the warehouse stores apart. The stores flourished by moving large volumes of stock, most of which was bought at "deal" prices. Low-priced merchandise coupled with the low overhead and inexpensive fixtures of the warehouse kept prices below competitors'. Labor costs were also kept very low. To avoid running a labor-intensive fresh meat counter, most stores offered smoked meats only, and stockwork was simple and fast because much merchandise was displayed on pallets at the ends of aisles. Sales per man hour at Pick 'n Save were said to be almost triple the average at traditional supermarkets, and one Roundy's executive claimed Pick 'n Save could sell 100 cases of groceries for the same labor cost a traditional store would take to sell only 10. Use of electronic scanner technology also allowed Roundy's warehouse stores to control costs. Information from scanners was used to determine exactly which brands and sizes sold best, which was crucial for management to know when buying deal merchandise. By keeping costs down, Roundy's warehouse stores offered consumers consistently low prices, and by 1980 a survey of Milwaukee-area stores found all Roundy's major competitors losing market share, while Roundy's Pick 'n Save chain gained.
Roundy's had 27 Pick 'n Save stores in Wisconsin by 1983. With four stores in the Chicago area, Roundy's strengthened its position in the Chicago market by purchasing Wayco Foods, a suburban grocery. The Wayco acquisition gained Roundy's a 218,000-square-foot warehouse near Chicago's O'Hare airport. Now with a base from which to service its Chicago stores, Roundy's made plans to open 10 to 15 more Pick 'n Saves in the area. This move put Roundy's in competition with other established warehouse-type chains, such as Cub Foods, owned by Super Valu Stores Inc. of Minnesota.
Roundy's continued to expand in the 1980s, with somewhat mixed success. Returns on sales began to slip in 1982, and in 1984 and 1985, revenues were stagnant. Profits fell, and in those two years Roundy's did not pay rebates (equivalent to stockholder dividends) to its member retailers. The company spent $40 million in 1984 to buy Scot Lad Foods, a grocery distributor in Lansing, Illinois. Although this acquisition doubled Roundy's sales, it also increased Roundy's debt. Sales by 1986 were $1.8 billion, coming from the Pick 'n Save chain, wholesale distribution, and stores Roundy's operated under the names Roundy's, Shop-Rite, and United Foods. However, the four Chicago Pick 'n Save stores were not doing well, and Roundy's decided to sell them off. Another venture, a gourmet food retailer, was also not doing well. Roundy's had spent between $1 and $2.5 million to open the gourmet store, called V. Richards, but the store did not quickly turn a profit.
Roundy's chairman and chief executive officer, Vincent R. Little, took early retirement in 1986 after 12 years at the post. After Little's exit, the new C.E.O. appointed two outside directors to Roundy's board and added two new trustees as well. The new directors and trustees came from outside the grocery business and so brought new perspectives on running a firm as large as Roundy's. After this management shift, Roundy's continued to expand through acquisitions. In 1988, the company bought Cardinal Foods Inc., an Ohio-based food distributor, and another Ohio firm, a health and beauty aid distributor called American Merchandising Associates Inc. A year later, Roundy's spent an undisclosed amount of cash on Viking Foods, Inc. This food distributor based in Muskegon, Michigan, had 1988 sales of $100 million. Roundy's sales had increased significantly by 1988, up to $2.4 billion.
As Roundy's grew, it required more warehouse space to service its retailers. The company leased a new warehouse in Mazomanie, Wisconsin, in 1989, as it ran out of space in its old Wauwatosa facility. Roundy's grew by more than 20 percent between 1988 and 1991, and warehouse space continued to be a problem. In January 1991, the company announced plans to replace its 30-year-old Wauwatosa plant with a 1-million-square-foot warehouse center it would build in Waterloo, Wisconsin. Roundy's wanted to spend $50 million building a state-of-the-art warehouse facility to service more than 170 stores in Wisconsin and Illinois. However, this decision set off a storm of protest from the company's Wauwatosa workers, who were represented by the Teamsters Union. The company would not say whether its 900 employees at the Wauwatosa plant would be offered jobs at the new warehouse, which was about an hour's drive away. Because the Waterloo plant would also be in a different county from Wauwatosa, it would be outside the jurisdiction of the existing union contract. When the Teamster's Union contract expired in July 1991, negotiations on a new contract quickly broke down. Workers objected to Roundy's insistence on its right to relocate its entire warehouse operation at any time. To pre-empt a strike, Roundy's management decided to lock-out its workers. Workers picketed and called for a consumer boycott of stores supplied by Roundy's.
During the bitter contract dispute, another issue surfaced. Roundy's warehouse--like that of its major competitors in the area--was run by a computer, which filed orders from customer stores electronically and then calculated how long it should take human workers to fill each order. The computer set a productivity standard, and Roundy's workers were required under the old contract to achieve 85% of that standard. In its new contract negotiations, Roundy's demanded that workers achieve 100% of the computer's productivity standard. Workers complained that such a goal was impossible and that Roundy's was trying to gain an advantage over its competitors at their expense. Roundy's ended its lock-out after three weeks, then announced that it was changing its plans to build a new warehouse in Waterloo. The company would instead relocate the work done at the Wauwatosa warehouse even farther away, to Westville, Indiana. The company already had a warehouse in Westville, a small town between Gary and South Bend. Though drivers would have to go through Chicago to service Wisconsin stores, Roundy's claimed it had excess capacity in Westville, and the move was reasonable.
Roundy's and the Teamsters Union finally signed a five-year contract in late September 1991. The company abandoned its plans to move either to Westville or to Waterloo, and workers gained a small wage increase and a new productivity standard of 95 percent. Then in April 1992 Roundy's announced plans to add capacity at its Wauwatosa plant and move some work from a Fort Wayne, Indiana, warehouse to its other Wisconsin warehouse in Mazomanie. Without actually adding jobs in Wisconsin, this move did seem to emphasize Roundy's commitment to keeping work in its home state.
By 1994, Roundy's supplied more than 1,800 grocery stores, with distribution centers in Wisconsin, Illinois, Michigan, Indiana, and Ohio. Its Pick 'n Save chain continued to grow in the Milwaukee area. Roundy's had 42 in metropolitan Milwaukee in 1994, with a growing market share said to be between 39 and 47 percent. The newest stores were quite different from the original warehouse stores, though Pick 'n Save continued to be distinguished by low price. Whereas the early stores had no fresh meat and unadorned walls, one newer store boasted an $18,000 imported Italian cappuccino machine in its coffee bar and a reputation as a fine meat market. The stores were tailored to individual neighborhoods and to the owner's taste, and, except for sheer size, there was little to tie them to the bare bones warehouses of the 1970s.
Roundy's suggested in 1994 that it might make a public offering in order to fund future expansion. Then in October 1994, the company announced it would merge with Spartan Stores, another grocery wholesale cooperative based in Grand Rapids, Michigan. The merger of Roundy's, the nation's sixth-largest food wholesaler, and Spartan, the seventh largest, would have made the new combined corporation the third largest in the United States. However, the merger was called off a month later. The companies announced that they would pursue separate growth strategies, and a Roundy's vice president declared that the time was not right for the merger. Nonetheless, Roundy's did seem interested in further expansion, according to a statement by its president in the June 1994 Progressive Grocer. Whether that took the form of a different merger, a public offering, or more acquisitions, remained to be seen.
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