Schnucks is making moves. The namesake family behind the locally-based grocer just launched a new parent company, 1939 Group, and immediately kicked things off with a big acquisition: buying the 51-store Festival Foods and Hometown Grocers chain in Wisconsin.
Is this the beginning of a growth strategy based on geography and scale?
Chairman and CEO Todd Schnuck called the KMOX newsroom to talk with our Michael Calhoun about the deal, the strategy behind the new holding company, and what this means for the future of family-owned grocers.
Q: Why was this deal right for Schnucks, and what do you take away from it as being the biggest boost for you?
A: "It's 51 stores and 8,000 associates coming into the company. Whenever we can add that kind of talent to our organization, we think it's a great thing. What really excites us about this opportunity is: it is a company that is very much very similar to Schnucks. It has a great family legacy. They've been in business for almost 80 years; we've been 86 years. And both started out with a one-store family operation that grew from there. Our cultures are very similar, our values are incredibly similar. So, we just think it's a great match."
Related
Q: Can you talk about the creation of this holding company, 1939 Group? Is Schnuck Markets, Inc. contained within 1939 now? Is this acquisition the first major move for it?
A: "We just recently formed 1939 Group and you're exactly right, that Schnuck Markets will be part of that holding company, and then the Festival Foods Hometown Grocers operation will be nestled under the holding company, and they'll operate as sister companies. This is not Schnucks acquiring the Festival operation, it's the Schnuck family purchasing those stores. It's a big move for our family. We think it's a big move for St. Louis because it's a situation where a Midwestern retailer who many people would say isn't supposed to be growing, well, here's a case where we are growing. And that's good for St. Louis, it's good for our customers, it's good for our teammates. So we're really excited about it."
Q: Why continue to use the local brands instead of converting them to the Schnucks banner? (There are two schools of thought on this — Macy's wiping out Famous-Barr or Marshall Fields versus Kroger retaining Ralphs or King Soopers local brands.) And why keep the operations separate behind the scenes too?
A: "I'm a little bit of a student of the history of the industry, and there are too many examples of when a big company came in and bought another company and frankly ruined the equity of the business. They tried to standardize it too much and took away what the customers really appreciated. So it's very important for us that we don't do anything that would discourage the customer from continuing to shop in these stores. The quality of this operation is just really high, and we want to keep that going.
If we can take some of the things that we're doing, a lot of it on the technology side — you know, with Tally the robot and our electronic shelf labels — and leverage the investments that we've made and bring that to the Festival stores, we think there's a real opportunity. We also think that there's a real opportunity for us to learn from Festival. They operate very good stores and they have some departments that are really strong. We think that we can make ourselves a better operation by listening and learning."
Q: Can you say anything about the financial structure of this deal? Is it all cash or is equity involved? Does the Skogen family or the other company's ESOP (Employee Stock Ownership Plan) take equity in 1939 Group?
A: "No, it was a straight cash purchase. 1939 Group is buying all of the shares that were held by Mark Skogen, who was their CEO, and then the remainder of the shares were owned by an ESOP trust. At closing, which will be probably mid to late April, all of those shares will be purchased for cash, and 1939 Group will be the 100% owner of all of the equity in that operation, just as it's 100% owner of Schnuck Markets."
Q: Is there a need for family-owned and locally-focused grocers to team up?
A: "We frankly see it as an opportunity. Not all companies have been as willing to make investments in technology as we have. To compete successfully in our industry going forward, you have to have some of the efficiencies that can only be gained through those kind of investments. So when companies look and say, 'I am behind here and I don't know how I can catch up,' they may say, 'Maybe we need to talk to somebody else'. And if it's a family-owned company... we see it that we could be somebody that they would look towards because they want to continue that family-owned legacy and that family-owned feel. With this new structure, we think that we've created something where people might say, 'Okay, here's an option we ought to be thinking about.'"
Q: In terms of mergers and acquisitions, it sounds like the Schnuck family is looking to be a buyer in this market, not a seller.
A: "That would be the indication from this kind of a purchase. We're increasing our store count by almost 50% here. We're adding 8,000 people, so we'll have a total of 19,000 people in our organization after this. We think it's a stepping stone and a way that we can continue to grow."
Q: Does Festival Foods self-distribute or outsource that to a partner? Will customers in Wisconsin start seeing Schnucks' 'red dot' private-label brands on Festival shelves?
A: "That's not our intent initially. We're not looking to create a lot of change in these stores up front. Any change will probably be in the background as it relates to the customer experience. They are supplied by UNFI. There are some things... we think our Culinaria products could be something that we could introduce to these stores. They don't have an ultra-premium product like Culinaria is."
Q: The ultimate headquarters for this entire operation remains here in the St. Louis area. How important is that?
A: "I think this is a great thing for St. Louis. Here's a locally-owned, family-owned company that is doubling down and is trying to grow their business. We're all Missouri residents, my family, and we believe in our community, we believe in our state, and we want to do what we can to keep things going and make it a better place for everybody to live."
Q: Well, when you've got a deal to acquire, like, Raley's or Hy-Vee, give us a call and we'll break it on KMOX!
A: "Hahaha! That sounds good! I like the way you think."
Todd Schnuck is Chairman and CEO of Schnuck Markets and The 1939 Group. Michael Calhoun covers business and innovation and anchors the hourly news at KMOX.
This interview has been edited for length and clarity.