Super Food Services, Inc. History

Address:

3233 Newmark Drive
Miamisburg, Ohio 45342
U.S.A.

Telephone: (513) 439-7500
Fax: (513) 439-7514

Public Company
Incorporated: 1957
Employees: 1,451
Sales: $1.13 billion (1995)
Stock Exchanges: New York
SICs: 5141 Groceries, General Line

Company History:

Although its operations were limited to six midwestern states, Super Food Services Inc. ranked as one of the largest food distributors in the United States in the mid-1990s. In addition to its core wholesale services, the company offered its retailing customers advertising and promotions, private label products, data processing, accounting and data processing services, and even store development advice. The wholesaler's clients were fairly evenly split among Independent Grocers Alliance Distribution Co. (IGA) stores (284), contract stores (326), and convenience marts (265). Under the leadership of Chairman and CEO Jack Twyman since the early 1970s, the company struggled in the mid-1990s to maintain both its profitability and its independence in an increasingly competitive environment.

Super Food Service was founded in Chicago in 1957 as a distributor for the Independent Grocers Alliance Distributing Co.'s New York City franchise area, serving about 41 IGA affiliates in the metropolitan region. Chicago-based IGA had pioneered the wholesale industry when it was founded by J. Frank Grimes in 1926 to buttress independent supermarketers against the rise of chain groceries. In 1958, Super Food acquired virtually all the stock of Dayton, Ohio, wholesaler F.N. Johnson Co. and began providing management, planning, warehousing and delivery to the area's fast-growing group of independents. Super Food helped IGA associates expand their share of the Dayton-area market from nothing in 1950 to over 25 percent by the end of the decade. In the face of well-entrenched competition from established chain stores, this performance was considered a major achievement for IGA and Super Food. This success probably influenced Super Food's 1963 move from Chicago to Dayton.

A combination of internal growth and acquisitions propelled Super Food's rapid sales increase and geographic expansion in the late 1950s and 1960s. Over the course of its first decade, the company purchased wholesaling operations in Orlando, Detroit, and Syracuse. By 1963, the company served about 1,000 IGA and unaffiliated stores in Ohio, Florida, New York, and Michigan. Annual sales multiplied from $25.4 million in 1957 to $236.9 million in 1967, and net income blossomed from $206,000 to $1.2 million over the same period.

W.H. Tegtmeyer led Super Food Service from its inception in 1957 to 1968, when D.L. Fox succeeded him. But Fox only held his office for a few years. In 1972 John "Jack" Twyman, the hand-picked designate of top shareholder Loren M. Berry, supplanted Fox as the wholesaler's top executive. During Super Food's formative years, Twyman had been a standout player on the NBA's now-defunct Cincinnati Royals. (Although the team didn't last, Twyman was elected to the NBA Hall of Fame in 1982.) After retiring from professional sports, Twyman became a sportscaster and insurance agent. The insurance business brought him into close contact with Loren Berry, who was quickly impressed with Twyman and advocated the 35-year-old as a candidate for leadership in Super Food. Berry's son, John, later told Forbes that "There were others with more experience in the food business, but my father was struck by Jack's determination." Twyman was elected to the board of directors in 1970 and advanced to chairman and CEO in 1972 at the age of 36.

In spite of his lack of experience in the grocery industry, Twyman proved himself up to the challenge during the difficult 1970s. High inflation, intense competition, and consolidation distinguished the wholesale grocery industry during this decade. Consolidation alone shrunk Super Food's roster of 1,000 grocery customers down to 560 supermarkets. A major industry shakeout reduced the number of supermarket wholesalers in the United States from 1,000 in 1974 to 400 in 1984. Twyman met the challenges of the era in part by broadening Super Food's product line. In 1973, for example, he formed General Merchandise Services, Inc. to add high-margin non-food items to the wholesale offerings. Super Food not only survived, but thrived during this period. From 1972 to 1982, sales and profits nearly tripled, from $289.9 million to over $1 billion and from $1.2 million to $3.6 million, respectively.

This period of phenomenal growth hit a major snag in 1981. That year, Super Food's net profit margin dipped to what William Cahill of Barron's called "an embarrassing .22 percent," compared to an industry average of about .8 percent. Difficulties continued in 1982, when L.M. Berry's estate sold its controlling 24 percent stake in Super Food back to the company. The sale precipitated an unexpected shareholder mutiny led by American Pacific, a California-based real estate company. Twyman guided a difficult, but ultimately successful fight for the company's independence, before launching a multi-year growth program.

The CEO would later ascribe his company's progress in the 1980s to three primary factors: capital investment in a consolidation of the company's distribution centers; adoption of productivity standards; and perhaps most significantly, computerization. Twyman later told U.S. Distribution Journal that "We are moving from the archaic manual conduct of our business to dependency and utilization of technology, which has resulted in efficiencies that were inconceivable ten years ago." The company's use of electronic data interchange helped streamline customer ordering and internal inventory control, while simultaneously reinforcing its relationships with both producers and retailers.

While Super Food had been minimally involved in retailing in the early 1970s, Twyman made it clear that the company would concentrate exclusively on wholesaling under his administration. This policy did not preclude diversification within wholesaling, however. Over the course of the 1980s, Super Food broadened its product offerings to include a wider variety of perishable foods, branched out into photo finishing and video rental, and expanded its client base from independents to include convenience stores and even some chain supermarkets. By 1990, the wholesaler had close to 900 clients.

Super Food's sales increased by 90 percent from $891 million to $1.69 billion and net income quadrupled from $3.4 million to $15.9 million from 1979 to 1989. In 1990, Forbes ranked Super Food as the most productive of the United States' eight largest publicly-held food wholesalers. The company rounded out the 1980s by moving its stock from the American Stock Exchange to the New York Stock Exchange in December 1989. Twyman said that Super Food's strong financial performance would enable it to begin growing through acquisition in the early 1990s, but cautioned that "Our criteria is not to be the biggest, it's to be the best." He hoped to connect the "corridor" between the company's Midwest locus and its Florida operations. In 1991 the company made its first move toward that goal with the acquisition of Affiliated Foods of Kentucky for $150 million. Affiliated Foods serviced 100 clients in its namesake state as well as Virginia and Tennessee.

But several underlying problems, some endemic to the wholesale industry and others specific to Super Food, converged in 1992 to thwart Twyman's plans for expansion. The wholesale food industry in general was impacted by the difficulties of its retail customers, including anemic growth and competition from nationwide chains and deep discounters. The decline of Super Food's core constituency of independent grocers also had a negative impact. In 1992, Progressive Grocer reported that the independents' share of U.S. retail supermarket revenues had declined from 65 percent in 1952 to 42 percent by 1972 and to less than 30 percent in 1992. Traditional wholesalers also felt the squeeze from food producers, many of whom eliminated deals and promotions in favor of "everyday low prices" (EDLP).

Many of Super Food Service's wholesaling competitors had combated these trends by acquiring retail operations and expanding nationwide, but Twyman remained staunchly dedicated to wholesaling. He felt that avoiding direct competition with Super Food's retailing clients would engender their loyalty. But a major customer in Florida debunked that theory in 1992. By the early 1990s, Albertson's, a leading grocery retailer headquartered in Idaho, constituted about 85 percent of Super Food's Florida division's sales and over one-third of the company's total annual revenues. Albertson's had been developing its own regional wholesale operations and methodically phasing out its traditional suppliers in an industry trend known as "self-distribution." Twyman's strong personal relationship with Albertson's Chairman and CEO Warren McCain had cemented the two companies' 18-year relationship. But when McCain retired in 1991, his successor, Gary Michael, wasn't bound by those personal ties.

The two parties started negotiating the sale of Super Food's Florida distribution center to Albertson's in 1991, but the retailer backed out of the deal in January 1992, forcing Super Food to close its 800,000 square foot facility, and take a $23 million charge against earnings as well as a $5.5 million loss on the year. Super Foods brought charges of breach of contract against its longtime customer and sued for restitution, but its lawsuit and subsequent appeals were repeatedly dismissed.

In the aftermath of the loss of Albertson's, several industry observers questioned Super Food's continuing viability as an independent player in the wholesale industry. In mid-1992, Gary Vinceberg, an analyst with Dean Witter (New York) told U.S. Distribution Journal that the loss of Albertson's would be "very devastating to Super Foods." In February 1993 Toddi Gutner of Forbes agreed, writing that the company was "threatened with extinction." Others suggested consolidation. George A. Niemond, an analyst with Value Line, for example, predicted that Super Foods would acquire or be acquired in the consolidation trend that continued to distinguish the wholesale industry of the mid-1990s. David Katz of Matrix Asset Advisors (New York) concurred, telling Jim Bohman of the Dayton Daily News that a merger "makes strategic sense." But these forecasts of imminent doom had not yet materialized by early 1996. Annual sales, which had risen to $1.77 billion in 1990, dropped by 28 percent and flattened out at $1.2 billion from 1993 to 1995. Net income declined 47 percent during that same period, from $17.2 million to around $9 million. Twyman told shareholders at the company's 1995 annual meeting that "Our sales are considerably stronger as we go into 1996, [and] any incremental increase in sales will flow right to the bottom line."

Principal Subsidiaries: General Merchandise Services Inc.; Kentucky Food Stores Inc.

Principal Divisions: General Merchandise Services Division; Bellefontaine, Ohio Division; Cincinnati, Ohio Division; Bridgeport, Michigan Division.

Super Food Services, Inc. History

Company History:

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