The Food Emporium History

Company Perspectives:

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Key Dates:

1955:

Daitch Crystal Dairies acquires Shopwell Foods supermarket chain.

1962:

The supermarket chain reaches 103 stores.

1973:

Daitch changes its name to Shopwell Inc.

1979:

Shopwell launches its Food Emporium format.

1986:

A&P acquires Shopwell.

1997:

The company opens its first New Jersey store.

Company History:

Based in Dobbs Ferry, New York, The Food Emporium is a subsidiary of The Great Atlantic & Pacific Tea Company (A&P), operating approximately 36 upscale supermarkets located in New York, New Jersey, and Connecticut, with almost half found in Manhattan and all within the greater New York City area. Food Emporium stocks a wide variety of gourmet and other expensive grocery item, as well as staples, and features such specialty shops as its Corner Deli, Seafood Cove, Corner Bakery, and Floral Shoppe. The chain also employs in-house chefs to perform cooking demonstrations. An innovative format when launched in the late 1970s, Food Emporium has since found its niche populated by many others. The brand is associated with high quality among consumers in its market, but perhaps the chain's greatest strength lies in its choice Manhattan locations.

1919 Origins

Food Emporium's history can be traced to 1919, when Louis Daitch founded a dairy. Over the years, he opened shops in the New York City area selling butter and eggs. Following World War II, his Daitch Crystal Dairies, a public company trading on the American Stock Exchange, enjoyed tremendous growth in the new supermarket format, emerging in the 1950s as a significant chain. In 1955, Daitch and its 34 stores located in New York City, Long Island, and Connecticut merged with Shopwell Foods' chain of 18 Westchester County supermarkets. Shopwell was founded by Sigmund Rosengarten, who came to the supermarket business as a butcher. Along with other shareholders of the private company, he received stock in the merged company. The supermarket chain, known under variations of the Daitch and Shopwell names, underwent a period of significant expansion. Within a year, seven new stores were opened and nine more were added by acquiring the Diamond K chain.

Daitch's supermarket chain peaked in 1962 with 103 stores, but the company's growth was not focused. It attempted to launch a chain of convenience stores called Shop-Quik and in 1970 opened Shopwell Plaza in Westport, Connecticut, a shopping center that included Daitch's attempt at running a package liquor store. In 1973, Daitch changed its name to Shopwell Inc., now headed by Rosengarten's son Martin Rosengarten, who was aided by his own sons, Jay and Glenn. A year later, the company entered the Vermont and Massachusetts markets, where it opened seven stores. The venture did not work out, however, and in 1976 the company sold off these units, taking a $800,000 loss.

Following their failure in New England, the Rosengartens took stock of their situation. First, they concluded that for Shopwell to succeed it needed to focus on being a regional chain. The company reached a turning point during a 1979 management meeting. The participants made a chart with the names of the three Rosengartens at the top and 33 vice-presidents listed below them. When asked to whom they reported, the vice-presidents pointed at one another, but no one pointed to the three in charge. The chart became known in company lore as the "spaghetti chart." Shopwell was clearly in need of massive reorganization. The number of vice-presidents was reduced to just 12, and Martin Rosengarten turned over active control of the chain to his sons, who were both in their thirties. They began to close stores located in unprofitable areas and allowed other leases to expire, so that the chain was reduced to 65 units. The company also conducted some market research, which revealed the unpleasant truth that Shopwell stores had no discernable image. Their customers patronized Shopwell stores simply because of their convenient locations.

Food Emporium Format Launched in 1979

During the course of trimming the size of the chain, the Rosengartens noticed that the remaining stores were mostly located in upper income neighborhoods, such as Manhattan's Upper East Side and in Westchester County. Not only did it make sense to cater to the higher-income customer, the Rosengartens also recognized that no supermarkets in the area were doing much upscale marketing, leaving the business to smaller shops like Zabar's and Balducci's. From these insights came the idea of the Food Emporium format, which would mix regular and specialty items on the same shelves, rather than following the lead of other supermarkets, which at best offered a small gourmet corner. Elsewhere in the country the concept was already being refined, pioneered by Byerly Foods in Minneapolis in 1973. Grand Union was already in the process of developing specialty supermarkets in the New York market, making Shopwell's decision to launch the Food Emporium format in 1979 a timely one.

According to press reports, Martin Rosengarten did not support the Food Emporium idea. Nevertheless, his sons pressed on, converting six Shopwell stores to the new format. The transition was not without difficulty, however. Making the switch was more than just putting ties on clerks. The Rosengartens had to change the way they bought for the store, eschewing bulk buying to receive the best price in favor of scouring the country for specific products that their customers might want. As a result, the brothers had to educate themselves about food and then educate their employees. The stores also needed more workers than the average supermarket, driving up labor costs, but this was offset by the higher margins the stores received on specialty items. While typical supermarkets devoted about 72 percent of shelf space to dairy goods, frozen food, bakery items, and canned and packaged goods, Food Emporium allocated just 60 percent, reserving the rest of its stock for the higher-margin specialty items. Although many of the converted stores were smaller than typical supermarkets, the significant increase in traffic resulted in margins three times the norm.

By the end of 1983, Shopwell had converted 17 of its 55 stores to the Food Emporium format. Another seven would be converted over the next two years, but the conversions proved costly. It took about 18 months for a Food Emporium to attain profitability, rather than the industry average of around eight months. Shopwell also tried moving into the economy sector of the supermarket trade, an effort that failed. A One Stop Shop cash-and-carry store opened in 1984 and closed that same year. As a result of these and other factors, Shopwell lost $3.4 million in 1985 on sales of $464 million, and the Rosengarten brothers in 1986 (their father retired the year before) announced they were looking to sell the company. Insiders and their families, along with other major shareholders, accounted for 38 percent of Shopwell's stock; this group agreed not buy or sell shares or to enter into any voting arrangements until June 30, 1986, allowing management to locate a suitable buyer, which according to press accounts was far from certain. Crain's New York Business quoted John A. Catsimatidis, CEO of the Red Apple supermarket chain, as saying, "We looked at it and walked away. ... They've got beautiful stores, but there's too much debt." According to Crain's, Shopwell had $38.7 million in current liabilities, $40.5 million in long-term debt, and assets of $39.8 million. While the Food Emporium stores may have been expensive to start and required some outlay of cash before they turned profitable, the older Shopwell stores were a serious burden. According to Crain's, "One industry consultant [said], 'The Shopwell stores are just sad, small stores,' while the industry trend even in urban markets is toward relatively large, new stores." Moreover, the Shopwell stores faced the expiration of 30- and 40-year leases and an increase in rents from $5 a square foot to over $50. Although margins were slim and the cost of doing business in New York City was higher, in the words of Crain's, "Still, a few in the supermarket business think the Rosengartens' Shopwell sale isn't sincere. 'They really don't want to sell,' says Mr. Catsimatidis of Red Apple. 'It's a horse and pony show to satisfy the bank'."

New Ownership in the Mid-1980s

Despite the skepticism of rival supermarket executives, the Rosengarten did negotiate a sale of Shopwell, agreeing to accept $64 million from the Great Atlantic & Pacific Tea Company, which acquired 91.5 percent of Shopwell's common shares in 1986. A&P picked up 25 Shopwell stores, three Value Center Stores, two distribution centers, and a dairy, but clearly the reason why it acquired the company was to add the Food Emporium format to its portfolio. A&P had been in business since 1859, when George Huntington Hartford and George Gilman opened their first retail tea shop in Manhattan. In 1912, A&P launched a chain of cash-and-carry "economy" grocery stores, out of which grew a massive supermarket chain by the 1950s. Nevertheless, the company endured some difficult times adjusting to changing conditions, especially during the 1970s when the chain became too spread out and lost some $500 million. A&P mounted a comeback during the 1980s, closing more than 2,500 stores and choosing to concentrate its efforts in the East. The company expanded its Super Fresh chain and in 1985 acquired Dominion Foods to strengthen its position in Canada. A&P was in the process of developing a format similar to Food Emporium called Food Bazaar but elected instead to scrap that idea in favor of buying Shopwell and growing the Food Emporium chain.

Glen Rosengarten went to work for A&P at its Montvale, New Jersey, headquarters but did not stay long, as the relationship between the Rosengartens and A&P quickly soured. Early in 1987, A&P filed a lawsuit accusing the Rosengarten brothers and ten other Shopwell executives of overstating the value of the company, which it said led A&P to overpay by $9.4 million. Shopwell executives countered by suing A&P for $8 million in damages resulting from the breach of employment contracts and consulting agreements. Neither suit amounted to much, and each side went its own way.

The Food Emporium chain was tucked into A&P's Metro New York division. In the year following the purchase of Shopwell, A&P opened two Food Emporium stores, one of which was a Food Bazaar that was under development and reconfigured and another that Shopwell was developing. The first Food Emporium built from scratch by A&P, as part of a $450 million capital spending program to expand all of its formats, opened in New Canaan, Connecticut, in the fall of 1987. A handful of other stores located in New York City and Connecticut would follow over the next few years. In 1990, A&P attempted to transfer the Food Emporium format outside the New York City area, opening two stores in Canada under the Dominion Food Emporium banner and two in Milwaukee as Kohl's Food Emporium. There was some talk at the time of exporting the Food Emporium name to upscale neighborhoods in other major cities, such as Chicago, Philadelphia, and Washington, D.C., but nothing ever materialized, and the Food Emporium format remained focused in New York City.

The size of the Food Emporium chain grew by just a dozen units over the next 20 years. In 1997, Food Emporium moved across the Hudson River to Fort Lee, New Jersey, but no more New Jersey units would follow. The excitement that accompanied the launch of the Food Emporium chain had long since waned. The stores had carved out a local customer base, but there was no reason to believe that the Food Emporium concept was original enough to warrant large scale expansion, nor was it likely that the chain's corporate parent would commit the kind of money necessary to fund such growth. By the turn of the 21st century, A&P was once again struggling and even turned to an industry outsider, Elizabeth Culligan, a Nabisco veteran with experience in the pharmaceutical industry, to serve as president and chief operating officer and help turn it around. Although she was able to return the company to profitability within 15 months, A&P suffered a severe setback, and less than two years after taking the job she resigned "to pursue other interests." Her successors struggled to return the company to health and were forced to close stores and retreat from several markets. As a result, the future of the Food Emporium chain was somewhat uncertain.

Principal Competitors: D'Agostino Supermarkets, Inc.; Gristede's Foods, Inc.; Pathmark.

Further Reading:

• Alson, Amy, "Shopwell Faces Big Task Selling Debt-Laden Stores," Crain's New York Business, May 5, 1986, p. 3.
• Bernstein, Aaron, "Truffles, Anyone?" Forbes, April 25, 1983, p. 132.
• "Daitch Crystal Dairies, Inc. to Ring up Large Profits," Barron's National Business and Fiancial Weekly, January 28, 1957, p. 23.
• Hollie, Pamela G., "The New Gourmet Shopwell," New York Times, October 16, 1983.

Source: International Directory of Company Histories, Vol.64. St. James Press, 2004.

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