Carr-Gottstein Foods Co. History

Address:

6411 A Street
Anchorage, Alaska 99518
U.S.A.

Telephone: (907) 561-1944
Fax: (907) 564-2580

Public Company
Incorporated: 1990
Employees: 3,600
Sales: $601.3 million (1995)
Stock Exchanges: New York
SICs: 5411 Grocery Stores; 5912 Drug Stores & Proprietary Stores

Company Perspectives:

We are focused on delivering value, service and excitement to our customers.

Company History:

The leading food and drug retailer in Alaska, Carr-Gottstein Foods Co. operates a chain of food, drug, and general merchandise stores under the name "Carrs Quality Centers"; a chain of wine of wine and liquor stores operating under the name "Oaken Keg Spirit Shops"; and a chain of stores designed to serve more rural communities known collectively as "Eagle Quality Centers." During the mid-1990s, Carr-Gottstein operated a total of 39 stores: 15 outlets were Carrs Quality Centers stores; 16 outlets were Oaken Keg Spirit Shops; and eight outlets were Eagle Quality Centers. In addition to the retail stores operated by Carr-Gottstein, the company also owned freight operations, which included a 105,000 square foot warehouse and cross-docking facility in Tacoma, Washington, a real estate development company named CGF Properties, Inc., and a warehouse and distribution center in Anchorage, the only facility of its kind in Alaska. The company's Carrs Quality Centers ranged in size from 28,000 square feet to 73,000 square feet. The Eagle Quality Centers stores ranged from 16,300 square feet to 43,900 square feet. The Oaken Keg stores, 14 of which were situated adjacent to Carrs Quality Centers stores, ranged from 900 square feet to 5,300 square feet. Nine of the company's 15 Carrs Quality Centers were located in Anchorage, where nine of the 16 Oaken Keg stores also were located.

In 1986, two companies with decades of experience in Alaska merged together to form what would become the largest Alaska-owned, Alaska-based company in the state, Carr-Gottstein Foods. The elder of the two companies was J.B. Gottstein & Co., a retail grocery and wholesale grocery distributor founded in 1915, but the heart of the company created through the merger was Carrs Quality Centers, an Alaska grocery store company founded 35 years after J.B. Gottstein began business. The founder of Carrs Quality Centers also became the principal personality behind the merged company, a man who served as Carr-Gottstein Foods' chief architect during its first four years of business. His name was Larry J. Carr, a California-raised businessman who spent his adulthood in Alaska, where his professional career was devoted to creating one of the most innovative and successful supermarket chains in the country. Under Carrs' guiding hand, Carrs Quality Centers developed into the leading supermarket chain in Alaska, an enterprise that drew accolades from industry observers in the Lower 48 for its exceptional combination of customer service and innovative marketing strategies. These two attributes represented the chief ingredients of Carrs Quality Centers' success, and in turn, predicated the success of the company's successor, Carr-Gottstein Foods. Though Larry Carr relinquished control over the company in 1990, the legacy of his 40-year tenure at the company was carried on through his disciples as Carr-Gottstein competed during the mid-1990s.

Origins of Carr-Gottstein's Predecessor

Born in Albuquerque, New Mexico in 1929, Carr developed an early interest in food retailing. For as long as he could remember, he later reflected to a reporter from Alaska Business Monthly, he had possessed "the desire to own a grocery store," but before store ownership came his way Carr worked as a grocery store employee in his hometown of San Bernardino, California. In California, where his family relocated when he was still a toddler, Carr worked for two grocery stores while attending high school, and during these two short stints was introduced to the important role innovative marketing played in the operation of a grocery store. "Those merchants," Carr later remarked about his high school employers, "were always finding ways to make shopping more interesting. I knew that if I ever had the opportunity to own a store, change would be a constant challenge."

Convinced that the key to success lay in marketing innovation, Carr was less convinced about the opportunity to apply his newfound knowledge in California, where the labor pool was saturated by wave after wave of returning World War II veterans during Carr's late teenage years. Returning soldiers, Carr quickly discovered, were given preference for employment over adolescents, so he decided to move elsewhere and settled on Anchorage, Alaska, as his land of opportunity. Carr arrived in Anchorage in 1947 at age 19 and immediately set himself to the task of fulfilling his childhood dream, a dream he was three years away from turning into reality.

After devoting his days and nights to working two jobs during his first several years in Alaska, Carr was able to save enough money to start out on his own and open his own grocery store. In 1950, at the age of 21, Carr and his brother, B.J. Carr, opened their own corner market in Anchorage, a modest business aptly named "Carr Brothers." The trappings of the first Carr Brothers store were quintessentially meager and entirely unlike the expansive, gleaming supermarkets that later bore the Carr name. The first store was a Quonset structure, a prefabricated portable hut bounded by a corrugated metal roof that curved down to form the store's walls. But it was not long before the business began to grow and Carr began to demonstrate his earnest intent to develop a successful and innovative grocery store chain.

After his first year of business, Larry Carr bought out his brother's stake in the business and by the following year was also able to replace the dilapidated Quonset hut with a genuine building. Two years after leaving the spartan surroundings of his portable, metal hut, Carr moved into the mainstream of the business world by completing his first acquisition, a grocery store in Fairbanks that operated under the "Foodland" banner. Further acquisitions followed in the decades ahead, with each site meticulously selected in what Carr later remembered as "a methodical, analytical process."

Despite the cautious attention given to selecting sites for additional stores, which was guided by careful examination of demographics and based on research conducted by a Harvard professor, there was a sense of urgency in the expansion of the business. During the 1950s, as Carr was developing what eventually would become a retail empire, he was aware of the imminent arrival of supermarket giant Safeway, a California-based chain with deep financial pockets that was eyeing the largely untapped Alaska market as its next territory. As a result, Carr was looking over his shoulder, aware that once a major chain moved into Alaska his chances for securing credit and seizing the best locations would diminish. Accordingly, Carr set out to capture the prize retail locations in and around Anchorage with a mixture of conservative prudence and pressing urgency pushing him forward.

Thus real estate became crucial to the success of Carr's company. "We chose to develop our own properties and retain control," Carr explained, describing the general theory behind his decision to anchor his grocery stores in shopping malls owned and developed by his company. By obtaining sizeable parcels of real estate when prices were low, Carr created a firm foundation for his chain of Carrs Quality Centers and gained ideal locations for a second retail chain of wine and liquor stores he started, called Oaken Keg Spirit Shops. Both of these chains became the dominant players in their respective markets, with the growth of the Oaken Keg stores driven by the success and popularity of the Carrs Quality Centers supermarkets, which thrived under Carr's business philosophy of providing superior customer service and consistently tinkering with new marketing programs. Since beginning his business, Carr had attended to the particular needs of his Alaskan customers in ways his competitors had not. Carr kept his stores open during the sunny nights of Alaskan summers. He offered customers fresher produce, eggs, and meat than could be typically purchased by shipping perishable foods via chartered plans. He launched the first salad bar service offered by a supermarket on the West Coast and became one of the few retailers to register success early on in selling natural foods and gourmet food selections.

Along the way, as he orchestrated the development of a supermarket chain renowned for its extensive selection of prepared foods, vast produce departments, and general merchandise, Carr earned the esteem of retailers throughout the country. In 1959, he was selected as Retailer of the Year by the National Brand Names Foundation. In 1970, he was awarded first prize for food store advertising by the Women's Day Super Market Institute. Praise was also given to Carr for the working environment he created for his employees, the positive qualities of which cultivated strong employee loyalty.

However, Carr's chain of supermarkets was not the leading retail operation in Anchorage. As expected, Safeway entered Carr's home turf, making its entry into Alaskan markets roughly a decade after Carr opened his first store. For the ensuing 20 years, Safeway reigned as the leading supermarket retailer in Anchorage, its financial resources proving too great for Carr and his collection of stores to outmatch.

1980s: Market Dominance and Gottstein Merger

The tide began to turn, however, in 1980 when Carrs Quality Centers joined Topco Associates, the second-largest food-buying organization in the United States. The affiliation enabled to Carr to discount his prices and compete seriously with major chains such as Safeway. "We bought better, lowered prices," Carr remembered, "and instantly took command of the market." The company's market strength, which was fortified throughout the first half of the 1980s, was made significantly stronger by the 1986 merger with J.B. Gottstein & Co., a retail grocery and wholesale grocery distributor led by Bernard Gottstein. Like Carr, Gottstein had secured prime real estate in Alaska when prices were low, creating a powerful ally for the flourishing enterprise stewarded by Carr. The combined entity was renamed Carr-Gottstein Foods Co., a company that ranked as Alaska's largest food and drug retailer and was supported by the chain of Oaken Keg liquor stores, a real estate subsidiary, a wholesale grocery business, and freight operations.

Under the management of Gottstein and Carr, Carr-Gottstein Foods benefitted from the same business philosophy that had made Carrs Quality Centers one of the remarkable supermarket chains in the nation. "Doing things the way you did them yesterday will eventually make you obsolete," Carr noted several years after the merger. Harkening back to the strategy he had learned during his grocery store apprenticeship in San Bernardino, Carr added, "To be successful over a long period of time, you have to change to fit the needs of tomorrow, not concentrate on what happened yesterday." Despite Carr's focus on the future and his disregard, at least in terms of marketing, for what worked in the past, Carr-Gottstein Foods owed its stature during the late 1980s to the legacy of Carrs Quality Centers' past. Acknowledging the importance of what Carr-Gottstein Foods inherited upon formation, Carr declared, "For the past 30 years, we've probably maintained better demographic information in Anchorage than anybody. We've kept track of neighborhoods and highway patterns. This enabled us, in many cases, to buy sites ahead of growth."

1990 Leveraged Buyout

Major, national chains enjoyed the luxury of vast financial resources, but a locally-owned and locally-operated chain such as Carr-Gottstein benefitted from something perhaps more valuable than overflowing corporate coffers: an intimate, historical knowledge of the markets it served. To retain this advantage over rival, out-of-state supermarket chains, both Carr and Gottstein hoped to pass control of their company to fellow Alaskans as they began to contemplate their withdrawal from overseeing the daily operations of Carr-Gottstein. Out-of-state parties interested in acquiring the chain had made several offers during the late 1980s, but Carr and Gottstein brushed their offers aside. When two senior executives of Carr-Gottstein, John Cairns, the company's general manager, and Mark Williams, Carr-Gottstein's vice-president of operations, tendered an offer buy the company in 1990, Larry Carr and Bernard Gottstein accepted, offering to retain some of the operations composing the Carr-Gottstein enterprise and then lease them back to Cairns and Williams in order to make the price more affordable. In October 1990, when annual sales reached $500 million, the deal was finalized, ceding Cairns and Williams control over Alaska's largest and most profitable supermarket chain.

The financing for the leveraged buyout, the sale price of which was estimated at between $250 million and $300 million, was secured by Leonard Green & Partners, a Los Angeles-based investment banking firm specializing in leveraged buyouts. What specifically Cairns and Williams received for the purchase price gave outside observers a clear picture of the range of businesses developed by both Carr and Gottstein. Included within the new Carr-Gottstein were 13 Carrs Quality Centers, roughly half of which were the anchor tenants in shopping centers developed and owned by the company, and 15 Oaken Keg liquor stores which were situated adjacent to or near each Carrs Quality Center (Alaska law prohibits the sale of alcoholic beverages in grocery stores). Included as well were three modestly-sized stores operating as Eagle Quality Centers, a conventional-store retail format developed for smaller communities. Rounding out the operations that Cairns and Williams found themselves heading in 1990 were Gottstein Co., a wholesale food business, freight operations, and Carr-Gottstein Properties, a real estate development firm.

Once control of the company was passed to new management, Cairns was named president and chief executive officer, and Williams was selected as executive vice-president and chief operating officer. Under their management, the company continued to benefit from innovative marketing programs and an emphasis on customer service, as Cairns and Williams adopted the business strategy used by their predecessors, Carr and Gottstein. "We're always trying something new," Williams declared, echoing the philosophy embraced by Carr. "In this business, you can't stand still and be successful." For Cairns and Williams, "trying something new" during the 1990s generally meant responding to competitive pressures placed on their company by rival retailers. During the early 1990s, wholesale clubs became popular shopping destinations for Anchorage residents, prompting Cairns and Williams to institute a bulk packaging program for meats in late 1991. Several years later, the expansion of several major chains led to what the business press described as the "The Alaska Invasion of 1994," but before Carr-Gottstein found itself facing the stiff competition presented by new Wal-Mart, Kmart, and Fred Meyer retail outlets the company made a move that added new vigor to its growth during the 1990s.

1993 Public Offering

In May 1993, the company announced it was intending to sell 8.8 million shares of stock in an initial public offering (IPO) that would give outside investors a 56.9 percent stake in Carr-Gottstein. Expected to yield $69.2 million, the IPO raised $83.5 million when its was completed in July and Carr-Gottstein began trading on the New York Stock Exchange. With the proceeds from the stock offering, the company reduced some of the debt incurred from the 1990 leveraged buyout and earmarked funds for expansion, taking a fresh look at the opportunities available in Alaska and elsewhere. "With the offering behind us," Williams noted, "we've begun to take a longer view to position this company for the next 10 to 15 years rather than just the next two or three." As Williams looked ahead, he saw his company expanding at a robust pace, a vision that he shared with the public one month after the IPO. In August, Williams announced plans to strengthen Carr-Gottstein's stores base in Alaska by expanding southeast into Juneau and west to the Aleutian Islands, but the most startling news was the announcement that Carr-Gottstein would extend its retail presence beyond Alaska's borders for the first time in its history by expanding into the Pacific Northwest. Slated to begin sometime after 1996, the foray into the Pacific Northwest represented a bold move, but "The Alaska Invasion of 1994" put an end to the optimistic dreams of 1993.

During a nine-month span in 1994, 12 massive stores were opened in Alaska by Fred Meyer, Kmart, Wal-Mart, and Toys "R" Us, creating a fiercely competitive environment for Carr-Gottstein as it plotted its ambitious expansion plans. In total, 1.5 million square feet of new retail space was opened in 1994, quickly eclipsing the 900,000 square feet operated by Carr-Gottstein's. The spate of stores openings during the year began to take its toll on Carr-Gottstein in 1995. Once a stalwart retailer of non-food merchandise in its retail stores, the company watched that segment of its business diminish dramatically in the wake of the 1994 Alaska Invasion. In response, the company heightened its focus on perishable products, specifically prepared foods and bakery products, installed an new bagel program, and in June 1995 began streamlining its financial and wholesale operations with the hope of saving as much as $500,000.

Future Growth

As Carr-Gottstein laid out plans for the late 1990s, its expansion plans were cut back, including its entry into Pacific Northwest markets, which was cancelled in the fall of 1995. Looking ahead, the company planned to bring in more perishable and specialty departments in order to maintain market share in the face of new competition from mass merchandisers, and also to devote resources to the development of a new cigarette and cigar retail chain launched in April 1996, the Great Alaska Tobacco Co. Growth in the future was expected to come from the expansion of the company's Eagle Quality Centers chain rather than from the establishment of additional Carrs Quality Centers, which required a much heavier investment. As the company headed into the late 1990s, a new leader was selected to steward the company's fortunes in the years ahead. In August 1996, Lawrence H. Hayward was named president and chief executive officer of Carr-Gottstein, succeeding Williams, who remained with the company as vice chairman. Hayward's twin goals of accelerating growth and trimming debt promised to describe Carr-Gottstein's activities as the company moved toward the 21st century.

Principal Subsidiaries: AOL Express; APR Forwarders; J.B. Gottstein; YES Foods; CGF Properties, Inc.

Carr-Gottstein Foods Co. History

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Company History:

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