Steinberg Incorporated

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Steinberg Incorporated

2 Place Alexis Nihon
3500 de Maisonneuve West
Montreal, Quebec H3Z 1Y3
(514) 931-9131

Public Company
1930 as Steinbergs Service Stores Limited
Employees: 26,000
Sales: C$4.58 billion (US$3.84 billion)
Stock Index: Montreal Toronto

In 1917, Ida Steinberg opened a small grocery store in Montreal, determined to give customers a little more than they expect. From this modest beginning the Steinberg family created the empire of food stores, department stores, restaurants, and real estate that Steinberg, Inc. is today.

Idas son Sam rented an adjacent store in 1919, and seven years later, the second independent store opened in Montreal. By 1930 Sam was operating four stores. He decided to incorporate the company under the name Steinbergs Service Stores Limited that year, and became president.

Like many grocers of that time, the stores were full-service grocery stores that offered delivery services. But in 1933, Steinberg opened a tenth store that was its first self-service one. Self service was a new idea at the time, but as this was during the Great Depression it quickly became a very popular one: at this cash-and-carry operation, prices were as much as 20% lower. Steinberg continued to be a trendsetter in the industry when, in 1937, it opened its first two supermarkets, the first in Canada equipped with separate coolers for meat, dairy products, and produce. At these stores Steinberg was also a pioneer in the use of cellophane packaging, as well as in providing parking lots for each store. Six years later, Steinberg installed its first self-service meat counters, where customers could select their own cuts of meat without the help of a butcher.

In 1953, Steinberg entered the real estate market when it established a subsidiary called Ivanhoe, Inc., a real estate-development company. Meanwhile, Steinbergs core grocery division began to experiment with the sale of small nonfood items such as toiletries, cosmetics, house wares, and hardware.

Steinberg became a public company in 1958, and the next year it doubled its outlets when it acquired the 38 Grand Union food stores in Ontario; Ottawa Fruit Supply Ltd.; and Allied Food Markets. In 1961 Steinberg established a general merchandising division called Miracle Mart to enter the general retail industry. In 1962, Steinbergs Shopping Centres was formed to build and acquire shopping centers in Ontario and Quebec, and that year Steinberg opened its first restaurants.

Two years later, the company tallied record sales and net profits due to the steady progress of its food stores and the fortunate beginnings of its eight Miracle Mart department stores. Steinberg expanded from the selling of food to its actual production in 1963, and the companys food stores now had their own private brands of dairy products, fruits and juices, baked goods, and nonfood items.

The company continued its vertical expansion with a 1966 investment of C$8 million in a new Montreal bakery and better manufacturing facilities, and food-production operations were incorporated as Steinberg Foods Limited. The bakery was the largest of its type in Canada, with completely automated assembly and shipping areas, high-speed bread wrappers, an electronic cake line, an automatic pie line, and equipment that produced 2,460 dozen doughnuts an hour.

About this time, chain operations of small milk and grocery stores in urban areas began to spring up, offering new competition for supermarkets. One important advantage convenience stores had was that they were permitted later closing hours in the evening by law. Meanwhile, because of rising prices, the supermarket industry in general came under severe consumer attack. While profits at most supermarket companies suffered, however, Steinbergs finances remained stable, and in the years between 1958 and 1967, it was able to maintain a higher-than-average growth rate.

In 1966, the company bought a substantial interest in Cartier Refined Sugars Limited, a sugar refinery which it later acquired, and that year Steinberg also opened a new chain of drive-in restaurants under the name Pik-Nik.

When industries in Quebec and France began to strengthen their ties, Sam Steinberg joined a group of French businessmen in building a chain of supermarkets in Parisian suburbs; Steinberg retained a 49% interest in the company. The first of these Supermarchés Montréal stores was the largest in the Steinberg chain.

In 1967, Steinbergs 50th anniversary, the company was operating 171 food stores and 15 Miracle Mart department stores. That year it acquired a 30% interest in Phenix Mills Ltd., one of the largest flour mills in Canada.

Investors watched the company closely as, in the midst of its expansion, major changes occurred in the Steinberg family. Leo Goldfarb, an executive vice president and a son-in-law of Sam Steinbergs, left the company to begin his own business in real estate. This left only one other executive vice president, another son-in-law, Melvyn Dobrin.

The company had discontinued its trading stamps in 1967, and two years later had stopped weekend specials, in an attempt to lower pricesits advertisements now claimed the lowest prices in eastern Canada. Arnold Steinberg, a vice president and Sam Steinbergs nephew, told The Financial Post in 1969 that the customer who shops at Steinbergs week in, week out, can always buy her order cheaper with no strings attached. To combat consumer skepticism, Steinberg began a clever advertising campaign. Randomly picking shoppers who had finished buying their food for the week, it asked them to duplicate their purchases at the companys expense at a competitors store. The shoppers story and photograph were then used in Steinberg ads. Steinberg hoped for a big jump in sales in the midst of heavy competition, although at first it took a profit loss after cutting prices as much as 15% on some items.

In 1969, Melvyn Dobrin became president. His first challenge was to bring profits up, while preserving the new miracle prices. By 1970, profit margins had recovered a bit and sales continued to show a sharp increase over the next four yearsSteinbergs share of the Ontario market doubled. The companys recently organized subsidiary, Intercity Food Services, Inc., was also doing well, operating restaurants, snack bars, and doughnut kiosks in Steinbergs and others shopping centers. But the firm was struggling with its 28 Miracle Mart department stores, which were not as successful.

In 1972, the company made arrangements with Pre-misteres S.A. to sell its 49% interest in Supermarchés Montreal. The profits of the French concern had not kept pace with sales increases, and Steinberg found it difficult to provide adequate operating controls.

In 1973, the Miracle Food Mart division made a revolutionary move to abolish its general-image advertising and to mount a give-em-the-facts consumer-oriented campaign. The program included a formal Consumer Bill of Rights, nutrition booklets, a key to the codes used to mark perishables, and clearly labeled price tags. Fierce competition continued in the supermarket industry. Although other stores began to revert to using coupon and game promotions, Steinberg concentrated on maintaining its low prices. In general, stores began to get bigger, including bakeries and delicatessens to encourage one-stop shopping, and where the law permitted it, they began to keep late-night hours.

Steinberg showed almost a 30% decline in 1975 earnings as a result of losses suffered by Cartier Sugar Limited, which had been unprotected against wide price fluctuations in the world sugar market.

In 1978 Sam Steinberg died, and Jack Levine became president. Steinberg left his voting shares to his family. Melvyn Dobrin stayed on as CEO. The company adopted its present name, Steinberg Inc., and opened a chain of small, limited-assortment grocery stores in Ontario in 1979 under the Valdi name. A year later it purchased three Hypermarches stores in Toronto.

The company began to withdraw from food production and distribution in 1981, closing its Cartier Sugar Plant and its specialty bakery and delicatessen operations. It also sold its nonfood retail companies, Cardinal Distributors Limited, and its 50% interest in Pharmaprix Ltd. In 1983, it also sold its flour mill, Phenix Flour Ltd. Steinberg began to focus less on Quebec as it diversified geographically with the 1981 purchase of Smittys Super Valu, Inc., a food-store chain in Phoenix, Arizona, and a 1,000-acre parcel of land in Austin, Texas. The company also took steps toward franchising, opening its first La Maisonnée convenience store.

After Jack Levines retirement in 1982, Peter McGoldrick, a U.S. citizen, took over as president and CEO. He had previously been connected to major supermarket companies in Chicago and Philadelphia. The 18 months he led Steinberg were tumultuous ones.

As the industry leader in Quebec, with mostly unionized employees, Steinberg had been a union target for several years. In October, 1982, the company managed to avert a 5,000-worker strike in its Miracle Food Mart division by reaching a tentative two-year contract with the United Food and Commercial Workers Union. That year, market conditions caused the company to lay off about 800 workers in its Quebec division supermarket, food-manufacturing, and warehousing units. The company sought to renegotiate its labor contract, calling for a two-year wage freeze; the union sought an increase of 11% over two years. In early November, Steinberg was forced to close its Montreal-area supermarkets when the union struck. As a result, almost half of the 835 workers at the warehouse were laid off, and the company lost an estimated C$40 million in sales during the two weeks of the strike. By the end of the month, the companys Montreal-area Miracle Mart employees had also gone on strike. The company warned that unless workers accepted its offer within a week, Christmas sales would plummet and it would be necessary to close stores for about five months. After five days, the union accepted Steinbergs new two-year contract, which included raised wages.

Before the strikes, Steinberg was already losing its number-one spot in the Montreal food market, partly due to labor-connected losses and partly due to a strong competition from cooperative-type supermarkets, which, because they were independently owned, were allowed to sell beer and wine, unlike Steinberg stores. (The Quebec Liquor Permit Board prohibited chains like Steinberg from selling beer or wine to compensate small grocers for the chains power in food pricing.) It wasnt until 1984 that the board allowed Steinberg stores located in shopping centers to sell beer and wine.

In March of that year, McGoldrick resigned in order to return to the United States. In April, Irving Ludmer became president and CEO. Ludmer had worked for the company between 1957 and 1971, when he left to begin his own real estate firm. He had just rejoined the company in May, 1983.

Ludmer faced the task of turning around profits in a flat market. He reasoned that stores should be adapted to consumer needs, which varied according to environment. Almost immediately, Ludmer brought about major management changes, hiring a team of consultants to offer suggestions. By 1985, store managers were put on an incentive program based on their stores performances and were given more authority to make changes.

Ludmer made other changes too. In Laval, Quebec, the company opened it first giant supermarket, Marche du Jour, hoping to remedy its ailing sales in Quebec. The store included a traditional supermarket, a discount warehouse store, and various boutiques. The company also began to update its larger supermarkets, widen the appeal of its convenience stores, and develop its warehouse outlets in Quebec. Steinberg had to make the decision either to pull out of Ontario or to try to gain share rapidly in its slow-growing market; in 1985, Ludmer began to concentrate on Ontario. The company opened several large combination food-and-drug stores and revamped its conventional supermarkets, emphasizing specialty departments. Steinberg also opened a chain of neighborhood perishable-food stores under the name Les 5 Saisons, and its Multi Restaurants subsidiary opened several new fast-food places. Steinberg and the Price Company of San Diego, California also formed a joint venture to open a maximum of 20 wholesale outlets in Canada by 1990. The Valdi limited-assortment stores in the western provinces were scheduled to be closed in the next two years, and several of the lagging Miracle Mart department stores were to be regional mass-merchandise stores called simply M. In the meantime, Steinberg also set up a real estate subsidiary in the United States.

In 1987, Steinberg began a new strategy to change from a mostly retail organization into a wholesale-retail organization that made use of the synergies between the two. The company acquired Aligro, a large food wholesaler in Quebec, which continued to operate under its original name and management. The company had already acquired in 1986 a 60% interest in Legault and Masse, a Montreal-based wholesaler, to support its La Maisonnée stores.

In October that year the company closed several unconverted Miracle Mart department stores and the Jadis warehouse stores. In the reorganization, Steinberg created a new wholesale division called Steinberg Distribution, a centralized wholesaler, and the company continued to franchise, offering individual grocers the option to join the Steinberg chain.

The company spent C$30 million in improvements for its Miracle Food Marts, creating several large 24-hour food-and-drug stores called Miracle Ultra-Marts. The stores offered fresh fish and deli departments, party-planning services, kitchen centers selling microwave ovens, and hardware and electronic centers.

In August, 1987 an informal takeover bid was made for the company, but it was rejected by most of the Steinberg family members, who now held 90% of the voting shares. This prompted a feud among Steinbergs three daughters and their husbands over whether or not the company should be sold. Mitzi Steinberg Dobrin, the wife of former president Melvyn Dobrin, filed suit against her two sisters, Marilyn Cobrin and Evelyn Alexander, for control of the familys stake in Steinberg.

Early in 1988, several offers were made for the company. In February, the company changed it strategy and began to negotiate for the sale of just its wholesale division and supermarkets, which had suffered chronic losses in recent years. The sale would leave Steinberg with its real estate holdings, its Smittys supermarket chain in Arizona, and a 50% stake in Lantic Industries, Inc., a large Canadian sugar refinery. In February, a union representing 8,000 of the companys employees offered Steinberg a five-year no-strike contract if it agreed not to sell its supermarkets.

In March, Mitzi Dobrin dropped the lawsuit against her sisters, but that did not halt Steinbergs plans to sell its core supermarkets. In May, the company announced ten supermarket closings. Steinberg had offered its employees a package of wage concessions, but they rejected it.

Soon after, Steinbergs 8,000 unionized employees came to an agreement with the company for less-severe wage concessions and five years without strikes. Because the company had achieved long-term labor peace with its major unions, it agreed not to sell its core of supermarkets in the Montreal area for the next three years.

In November, the Steinberg sisters also came to an agreement. Mitzi Dobrin resigned as a director and Marilyn and Evelyn joined the board. The following year, one sister would step down and allow Mitzi a place on the board, beginning a cycle of rotating membership that insured that two of the sisters would always be on the board.

The company put Smittys Super Valu, Inc. up for sale and planned to reinvest the proceeds within the company. That same year, the company sold its chain of franchised La Maisonnée convenience stores. In March, 1989, Oxdon Investments made an offer to acquire Steinberg for C$1.1 billion, but the board rejected the bid, sayings its financial viability was questionable. The acquisition would have left Steinberg restructured as a real estate firm. The board decided that it was in Steinbergs best interests to continue its store operations, despite its previous year, which Ludmer called the most difficult in the companys history.

Soon after, Oxdon came back with another offer; meanwhile, a second purchase offer was made by the Corporation dacquisition Socanav-Caisse Inc., representing Socanav Inc. and the Caisse de dépôt et placement du Quebec. The Steinberg sisters had entered into an agreement with Socanav-Caisse whereby they would not sell to anyone else. Socanav, Canadas leading marine carrier of bulk liquids, is owned by Montreal entrepreneur Michel Gaucher.

After a battle to win the shareholders favor, Oxdon withdrew its bid and, on August 22, 1989, Steinberg Inc. was sold to Socanav-Caisse Inc. for C$1.8 billion.

In their agreement to purchase Steinberg, Socanav and the Caisse de dépôt had decided that the real estate subsidiary, Ivanhoe Inc., would be sold immediately to the Caisse de dépôt, leaving Socanav with the retailing and wholesaling end of the business. Soon after, the new president and CEO of Steinberg Inc., Michel Gaucher, announced his intention to sell Smittys Super Valu, Inc., the companys 50% equity in Lantic Sugar Limited, and its restaurant group, in addition to stepping up the store franchising progam. In January, 1990 Lantic was sold to B.C. Sugar.

Since Ida Steinberg opened the first Steinberg store, the company has continued to anticipate the customers expectations, diversifying in order to meet them. Steinbergs future now rests on its new multi-format wholesale and retail ventures, as well as on its new owners ability to maintain peace with its employees.

Principal Subsidiaries:

Aligro Inc.; Franchise 5-16-11 (1987) Inc.; Valdi Foods (1987) Inc.; Invanhoe Inc.; M Stores Inc.; Oak Pharmacies Ltd.; Smittys Super Valu, Inc.; Steinberg B.V.