Furr's Supermarkets, Inc.

1904–1992

Furr's Supermarkets, Inc. operates 68 grocery stores in New Mexico and west Texas under the names Furr's, Furr's Emporium, Bag 'n Save, and So:Lo. All boast "everyday low prices"; some stores also offer a video rental department, pharmacy, bank, or post office in addition to a full range of food items. Windward Capital Partners is the majority owner of the company in which grocery supplier Fleming Cos., Inc. has a 30 percent stake and management has six percent.

Foreign Ownership in the 1980s and Sellout in 1990--91

When West German-based Rewe-Liebbrand invested in Furr's, Inc. in 1979, it was one of several German companies seeking to find a safe haven for its money. The Texas-based chain, originally founded in 1904, had been on the brink of bankruptcy, but under its new ownership, it purchased an additional 13 stores from Safeway in 1987, bringing its total number of units to approximately 140. Of these, 55 were among the first supermarkets to have video departments, 15 were superstores known as Furr's Emporiums, and seven were Bag 'n Save warehouses.

When new opportunities opened up in Europe after the reunification of East and West Germany in 1990, Rewe-Leibbrand decided to move its investments back home. It began to liquidate its Furr's stores in the Texas panhandle and sought a buyer for the remainder of its operations in New Mexico and west Texas. Jan Friederich and Stuart Rosenthal, U.S.-based Liebbrand executives, seized upon the opportunity to orchestrate a management-led leveraged buyout. In March 1991 Furr's managers, led by Friederich and Rosenthal--and backed by Lubbock-based Fleming Cos., Inc., wholesalers--purchased about 75 stores, including the 13 former Safeways, and split off from Furr's, Inc. to become the new Furr's Supermarkets. Ibero American Bank of Hamburg, Germany, still owned 54 percent of the company and Fleming owned 40 percent, with management now in charge of the remaining six percent.

Chairman and CEO Friederich and President and COO Rosenthal immediately moved the company's headquarters from Lubbock, Texas, to Albuquerque, New Mexico, and began to change the focus and the look of the new chain's stores, emphasizing growth throughout existing locations via aggressive merchandising. Furr's, Inc. already enjoyed strong market penetration; historically, however, it had had fewer customers per store and fewer sales per square foot than its major competitors, Albertson's and Smith's. The late 1980s, during which an economic depression hit west Texas, had been a period of stagnation for the old Furr's. The company had continued nonetheless to use the same unsuccessful ad formats and display programs on which it had long relied. It also had been slow to carry new items. The new Furr's merchandising effort and look were thus part of an overall plan to update the store. In leaving the legacy of the old company behind, Rosenthal and Friederich set out to convince consumers to shop Furr's Supermarkets as their primary store and thereby to increase its same-store sales.

As part of this effort, Furr's began to remodel its stores. By mid-December 1991 the management team had completed 11 major and 24 minor remodels of units and plans were afoot to remodel 15 more units in 1992. There were also chainwide attempts to promote new items via in-store television monitors, newspaper ads, and shelf signage as well as through "Smart-Buy" in-store circulars in which products appeared at a deep discount for a two-week period. After finding out that customers' had an unfavorable perception of the chain's pricing, management opted to lower prices across the board and institute an "everyday low price program," which put it in more direct competition with other supermarkets. The chain also undertook merchandising changes to upgrade the quality and variety of goods and to create the impression of abundance. As one example, produce was displayed in open shipping crates in an attempt to create the feeling of a bustling farmers' market. In addition, it placed greater emphasis on volume-oriented merchandising, expanded grocery assortments, and switched from self-distribution to outside suppliers--Fleming for grocery and nonfood products and R.C. Taylor for tobacco and candy items.

Estimates for 1992 revenue were in the $900 million range.

1992–1993

Taking on the Competition in the Early 1990s

Repackaging itself continued to be a way of life for Furr's Supermarkets throughout 1992. After the successful farmers' market approach helped sales of fresh produce to rise, Furr's introduced its Kitchen Cupboard, a 48-square-foot boutique section located in a high traffic area of several stores, as a bid to cash in on the impulse-driven, high-margin kitchenware market. The chain's intent behind the introduction was to "group the [kitchenware] category into a cohesive presentation that says to shoppers this is where they can expect to find all these items, along with realistic price points," according to Jay Goble, vice-president of Furr's Supermarkets nonfood and pharmacy. Soon after the boutique was in place in the first few stores, initial reports showed "dramatic sales increases" in kitchenware sales and led to its incorporation chainwide. The chain also piloted 200 private-label items in categories such as baby care, feminine hygiene, oral hygiene, vitamins, and cough and cold care, which contributed to an increase in chainwide sales. In fact, sales of Furr's' own cough and cold products and analgesics increased during the 1993 nationwide slowdown in such items.

However, the nation's 73rd largest chain was not content to compete only with other supermarkets in its class. In 1992 Furr's Supermarkets opened So:Lo Fresh Mart, a new warehouse-type banner positioned against club stores, such as Wal-Mart's Sam's Clubs. The So:Lo format, which featured an expanded assortment of perishables and a wide variety of institutional-sized packaged goods and club-style packs, debuted in a 40,000-square-foot space that had previously housed a Furr's Bag 'n Save unit.

The chain also deepened its assault against the service sector with its 1993 introduction of 49-cent rentals on videos and the development of its in-store bakeries. Its "every video, everyday" low pricing on rentals was accompanied by the revamping and enlargement of five of its 27 existing video rental departments and the construction of seven new, larger video sections in selected stores. These new, self-enclosed, security protected departments housed up to 5,000 tapes as well as other value-added services including a micro lab to provide one-hour photo finishing, the sale of film and batteries, steam cleaner rentals, money orders, and lottery tickets. During the months following the changes in its video departments, Furr's video rentals increased fourfold, leading local video specialty retailers to picket the stores, claiming Furr's' pricing strategy was unfair and anticompetitive.

In Furr's bakery departments, changes also came in the direction of providing more service, although here the strategy was to eliminate items that did not meet the desired gross profit level in favor of those that did. The chain installed cookie depositors in each of its bakeries, and the percentage of store sales derived from bakery sales rose to well above three percent. Spurred on by the success of its bakery, Furr's next moved to expand its hot food program, taking on the fast-food industry and responding to the increasing trend in the United States toward buying prepared meals for consumption at home.

An Emphasis on Small, Neighborhood-Based Stores in the Early 1990s

1988–1995

Furr's Supermarkets were doing well across the board. Having sold two stores and purchased three since the 1990 buyout, Furr's' typical store began to see more customers. Although units' average transaction size continued to run several dollars below the company's big chain competition, Furr's saw real growth overall. According to Friederich, as early as 1992 Furr's Supermarkets were outperforming the industry, with sales gains in the double digits. Estimates for 1992 revenue were in the $900 million range.

Management attributed much of Furr's Supermarkets' success to its strategic plan, which called for responsiveness to consumers' needs. Viewing the relative smallness of Furr's stores when coupled with the fact that there were more Furr's per major market areas as a source of strength, the chain seized upon the opportunity to become a neighborhood convenience store as well as a primary store to customers. The chain began a concerted effort to serve its Mexican-American shoppers better by installing tortillerias in its larger Emporium stores and offering a range of Hispanic products in all stores in the early 1990s. Beginning in October 1991, Furr's began its "Education First" initiative in an effort to get involved in the communities it served, pledging more than $1 million in aid to schools in New Mexico and west Texas. It arranged to donate computers to schools that saved its cash register receipts on an ongoing basis; sponsored an afterschool "Homework Hotline" that provided free study assistance to New Mexico students; organized a "Stay-in-School" program encouraging Albuquerque youth to complete high school; and, in association with the American Heart Association, sponsored a health education program, "The Heart Treasure Chest."

In an unusual and highly successful move to incorporate consumers' preferences into its planning efforts in 1993, management of the Furr's Albuquerque store solicited area resident input prior to beginning its remodeling effort. It sent out a series of three letters mailed to about 8,000 households in which it asked what departments, products, and changes shoppers wanted to see in the remodeled 33,500-square-foot store. Drawing upon the 2,000 responses it received, Furr's Albuquerque added a scratch-and-mix bakery and a deli department and also expanded its seafood selection. Sales at the remodeled unit almost doubled after a block party was thrown for neighborhood residents. Although these sales figures later dropped to a 48 percent increase, Furr's attributed the continued increase to its efforts.

Changes in Management and FTC Woes in the Mid-1990s

It thus came as a surprise in July 1993 when Rosenthal resigned as the company's president, announcing as the reason for his resignation his desire to pursue other business plans. Furr's' concurrent act of excising five corporate staff positions and closing four stores in west Texas led to speculation that Rosenthal's departure was, in fact, part of a company move to reduce administrative costs. W.R. Buz Doyle, who assumed the position of president and chief operating officer eight months later in March 1994, immediately undertook the job of searching out new sources of revenue and new routes to expand the chain that was then enjoying annual sales of more than $1 billion.

Shortly before Doyle came on board, Furr's paid $400,000 in civil penalties to the FTC for violation--when it purchased a store it had formerly leased--of a 1988 order that required it to seek FTC approval prior to making any new acquisitions. The order levied against the old Furr's after it obtained the 13 Safeways had been intended to protect against any anticompetitive effects that would result from Furr's' increased presence in El Paso. As part of this ruling, Furr's was required to seek FTC approval prior to making any new acquisitions. If Furr's was to grow as planned, however, management felt that it needed to be able to add to its number of stores. Thus in April 1994 Furr's sought and was granted FTC approval for the purchase of four new stores and the retroactive purchase of one additional property. In April 1995 Furr's asked and was granted FTC approval to release it from restrictions requiring that it seek agency approval before buying any of the 57 stores it leased.

1997–1999

That July, Furr's received the financial resources it required to end foreign involvement in its business and increase the stake of the company held by its senior executives. Windward Capital Partners, a privately owned New York investment firm, acquired a majority interest in Furr's from a German investor, and proceeds of the deal went to provide capital to fund the chain's future growth plans: around $1 million to be spent during the next five years to remodel the majority of stores and accelerate the growth rate of new stores. Plans for expansion were accompanied by plans for computerizing services: training cashiers at CD-Rom workstations, installing electronic shelf labels, and selling online by 1999.

Computerization of operations also reached into the supply side of the business in late 1998. Following settlement of the 1997 dispute between Furr's and Fleming, whereby Furr's accused its distributor of fraud and unfair trade practices--failure to pass along discounts from manufacturers and breaking the agreed-upon markup terms of its ten-year supply contract--the company settled out of court for the right to purchase Fleming's El Paso-based distribution center. This move meant building the chain's buying department and making changes in its accounting and warehousing systems; it began the process of implementing supply-chain software to handle its warehouse operations as well as its buying functions and billing and reconciliation processes. The system, which used radio frequency control on the forklifts, updated inventory levels and order status in real time; the buying system allowed buyers to see all available items as well as what deals were ahead or being terminated. The billing and reconciliation systems helped reduce use of paper and improved accuracy.

As Furr's headed into 1999, it launched an aggressive growth plan that included both continued remodels and new store development. It completed a six-month exploration of strategic alternatives and a review of prospective new investors with plans to open a Hispanic-format group of stores under the name La Feria.