Waldbaum, Inc. History

Address:

Hemlock Street and Boulevard Avenue
Central Islip, New York 11722
U.S.A.

Telephone: (516) 582-9300

Website: www.waldbaums.com

Wholly Owned Subsidiary of the Great Atlantic & Pacific Tea Co.
Incorporated: 1921
Employees: 12,000
Sales: $1.4-$1.7 billion (1995 est.)
SICs: 5411 Grocery Stores

Company History:

Waldbaum, Inc. is one of the leading supermarket chains in New York City and Long Island, with 98 stores in the Waldbaum network in 1996. After 82 years of control and management by the founding Waldbaum family, the company was sold to the Great Atlantic & Pacific Tea Co. in 1986 and became a subsidiary of this supermarket chain.

Private Enterprise, 1904-1961

Waldbaum's had its start in 1904, when Israel (Izzy) Waldbaum, an immigrant from Austria, began selling butter and eggs at 911 DeKalb Street in Brooklyn. "People used to stand three abreast to get into that little store," his widow recalled to New York Times reporter Judy Klemsrud in 1967. By 1938 there was a second Waldbaum's in Brooklyn's Coney Island section. In that year George and Ernest Brown, identical twins working as stock boys, were promoted to checkers. "It was unheard of then for a colored checker to be in a white neighborhood," Ernest Brown said three decades later. "It was even unheard of for a colored checker to be in a colored neighborhood." Both Browns later became store managers and, eventually, Waldbaum vice-presidents.

By the time Izzy Waldheim died in 1947 or 1948 at age 55, there were six or seven stores, all in Brooklyn. His son, Ira, left his studies at New York University to run the two appetizer stores and subsequently became president of the chain. The first Waldbaum's supermarket was opened in 1951 in Flushing, Queens. Net retail sales reached $55.2 million in 1960 and net income amounted to $660,000. The following year Waldbaum's went public by selling shares of common stock, mostly for the company's own account, at $14 a share, but the Waldbaum family retained 81 percent of the stock. At the time the company and its subsidiaries were operating 35 supermarkets in Brooklyn, Queens, and adjacent Nassau County, Long Island. It was also conducting wholesale food operations.

Expansion in the 1960s and 1970s

Waldbaum's acquired Michael's Fair-Mart Food Stores, Inc., a 13-unit chain with annual sales of more than $15 million, in 1962 for cash and stock. The company moved its headquarters from Brooklyn to Garden City, Long Island, in 1964 and the following year was operating 60 stores, including units in the borough of Staten Island and in Westchester County, north of New York City. Sales reached $197.4 million and net income totaled $2 million in 1967. By 1971 there were Waldbaum's in all of the New York City boroughs except Manhattan, in Nassau and Suffolk counties on Long Island, in four counties north of the city (as far away as Kingston, New York), and in northern New Jersey.

Manhattan remained unrepresented in the Waldbaum empire because of an unsuccessful eight-month venture in the early 1960s during which, Ira Waldbaum later said, "I heard people asking for a banana, an apple, a lamb chop. I knew that kind of volume wouldn't work for us, so I got out." New Jersey did not work out either, in part because the company could not compete on price with ShopRite and Pathmark. After only three years, Waldbaum's pulled out of the state in 1971.

Julia Waldbaum, Izzy's widow, remained active in management. Bearing the title of company secretary, she made surprise inspections of about 30 stores a month as self-appointed watchdog of the supermarket chain. Many of the customers recognized her because her picture appeared on almost all of the 400 food products sold under the Waldbaum label, although "they left me off the dog food and the bathroom tissue," she told a reporter in a tone hinting at disappointment. To the consternation of her family, she kept her telephone number listed in the book. "I like to have the customers to call me," she said, "because a lot of them think Julia Waldbaum is an imaginary person like Betty Crocker." She continued her inspections to an advanced age and died in 1996 at the age of 99.

In 1969 Waldbaum's acquired Holyoke Food Mart Inc., a privately held chain of 14 supermarkets in Connecticut and western Massachusetts with annual sales of $38 million. Most of these outlets continued to bear the Food Mart rather than Waldbaum name. Company sales quadrupled between 1960 and 1968, a period during which annual earnings declined only in 1965, when the company dropped trading stamps to reduce costs. Waldbaum's introduced a line of private-label foods and nonfood items in 1964. By the end of the decade the company was deriving about 20 percent of its grocery revenues from private-label merchandising. The establishment of stores as large as 30,000 square feet enabled Waldbaum's to stock a variety of nonfood merchandise, such as cosmetics, clothing, housewares, books, and magazines. Two stores had pharmacies. Waldbaum's also was participating in discount food merchandising through the operation of leased departments in six large discount stores on Long Island. These departments did not carry the Waldbaum name.

Waldbaum's moved its headquarters and distribution center farther east in 1974, to Central Islip, Long Island. Almost half of the 118 units that year were in Brooklyn and Queens. During 1978-1979 the company bought ten former Pantry Price/Hills Stores from the bankrupt Food Fair chain, bringing the total number of outlets to 138, compared with 80 in 1970. Net sales reached $1.1 billion in the last year of the decade, compared with $281 million in 1969, and net income was $7.8 million, compared with $2.7 million in 1969. By the end of the 1970s Waldbaum's was the second largest company in sales on Long Island and the third largest employer.

The Waldbaum's of the 1970s continued to gear its merchandising and advertising to its long-time base, the upper-middle-income Jewish customer. Many sources considered it to be the best appetizer and deli operation in the East. Its deli cases were being remerchandised to take advantage of the Italian, Greek, and Spanish trade in marketing areas where the population was not primarily Jewish. Waldbaum's seemed to be just as successful catering to these ethnic groups. Adhering to his mother's habits, Ira Waldbaum spent a great deal of time on the road, often visiting ten stores a day. "I don't like them [the employees] to think I'm sneaking around, but I never let them know in advance that I'm coming," he told a New York Times interviewer.

Challenges of the 1980s

In 1983 Waldbaum's opened its first "Megamart," a 55,000-square-foot store in Greenfield, Massachusetts. This was a significant departure because the extra space was filled with general merchandise--goods that the chain had generally avoided even though nonfood items yielded a higher profit margin. Another megamart was the remodeled, 52,000-square-foot outlet in Vails Gate, New York, which carried four to five times the amount of general merchandise it did previously, including everything from cosmetics to a large selection of boxed toys.

The pace of movement toward megastores was a point of contention between the conservative Ira Waldbaum on one hand and his impatient-to-expand sons and son-in-law Aaron Malinksy, the company's executive vice-president, on the other. Technology was another sticking point. "It's hard to get the older people to use the computer data instead of just shooting from the hip," Martin Waldbaum told a New York Times reporter. "They are still in the butter-and-eggs philosophy."

Now the nation's twelfth largest supermarket chain, Waldbaum's earned a record $17.1 million on $1.76 billion in sales during 1985, its last year of independent operation. The enterprise was not without its problems, however. Profits had fallen in both 1983 and 1984. In the latter year Waldbaum's, along with three other supermarket chains, pleaded no-contest to a charge of conspiracy to fix prices by eliminating double-value coupons. It eventually paid $700,000 in fines and distributed $7.5 million worth of redeemable coupons to settle litigation. Early in 1986 a presidential commission charged that Waldbaum's and other supermarket chains were involved with organized crime in paying for various operating services.

A&P Subsidiary from 1986

In 1986 Waldbaum's was sold to the Great Atlantic & Pacific Tea Co. (A&P) for $50 a share, or $287.1 million. The Waldbaum family's stake in the company was more than 60 percent at this time. The family subsequently suffered embarrassment because Robert Chestman, a stockbroker who heard about the pending deal through a son-in-law of Ira Waldbaum, reaped profits of $250,000 in trades based on this information, part of which he shared with the son-in-law. Chestman was convicted on ten counts of insider trading.

Under A&P, Waldbaum's experienced a slide in market share in both New York City and Long Island (its New England stores having been turned over to Waldbaum's Foodmart, another A&P subsidiary). Despite initial promises that the chain would continue to be run as an independent unit, Ira Waldbaum was soon gone. Malinsky, who succeeded as president, eventually departed to run another A&P chain, leaving Ira's son Arthur the only family member remaining in management. Many other key employees also left and, according to a Crain's New York Business article, the chain's "low prices and ethnic merchandising savvy evaporated."

In 1993 one food broker described Waldbaum under A&P as "a typical story of taking a racehorse and turning it into a camel. While there was some off-the-cuff disorganized thinking at Waldbaum before A&P bought it, at least it had some spice." Three years later a supermarket competitor echoed the assessment that Waldbaum had lost its focus on ethnic foods, telling Crain's, "This was a traditionally Jewish chain and they brought in some guys from Detroit to run it."

Waldbaum's also was being faulted on other grounds. According to a New York state agency, the company failed 47 percent of its store inspections for sanitation in 1990, compared with an average of 26 percent for nine other major supermarket chains. During one inspection of a Brooklyn store two dead mice were found on the packaged-goods shelves. And in 1994 a federal court awarded 224 Waldbaum's employees more than $1.8 million in back wages due to violations of recordkeeping and overtime labor laws.

Waldbaum's, which dealt with 16 unions, had other labor problems in the 1990s. In 1992 a Teamsters local, representing the company's warehouse workers, urged a consumer boycott to win a contract. A union official said Waldbaum's pay scales were lower than other supermarket chains in the region because of "sweetheart" deals cut by an organized crime figure eventually forced to quit his Teamsters job by a court-appointed investigator. Subsequently hired by Waldbaum's as a labor contractor, this man lost his contract after Waldbaum's workers complained to federal authorities and the media. He was later found shot to death.

A&P attempted to improve Waldbaum's operations by relinquishing its responsibility for the chain's buying in 1995. This allowed Waldbaum's to establish better relations with its vendors. And A&P continued Waldbaum's policy of gradually replacing some of the older, smaller stores with superstores, such as the 52,000-square-foot Levittown unit, which included three aisles of health and beauty aids, a pharmacy, a flower shop, a bakery, a custom butcher, and a fresh fish counter. In 1991 a 60,000-square-foot Waldbaum's had opened in the South Bronx, only a few blocks from Yankee Stadium. A&P also provided Waldbaum's with capital to expand and upgrade its computer systems, thereby enabling the chain to track inventory and sales more swiftly.

A 1994 survey found that Waldbaum's 27 stores in New York City had 12 percent of the city's market share in its field and ranked first in the borough of Queens. It retained its No. 1 standing on Long Island (excluding the city), but was being hard pressed by King Kullen and Pathmark as well as warehouse clubs, discounters, convenience stores, and even drugstores. "Waldbaum's trades on its Jewish roots," an industry analyst told Newsday. "They have a higher-than-average proportion of different types of foods that would appeal to the Jewish market." He also noted that Waldbaum's was catering heavily to communities with large Italian-American populations, perhaps more than other big chains. Waldbaum'a also was marketing A&P's private-label food products, sold under the America's Choice and Master Choice brands. Nevertheless, the subsidiary was still said to be a drag on A&P's profits in 1996.

Waldbaum, Inc. History

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