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Carr-Gottstein Foods Co.: supermarket giant stays on course.


One year ago, in October 1990, employees of Alaska's largest, most profitable grocery chain acquired the business in a leveraged buyout from the families of two long-time Alaskans who had jointly built the enterprise. Under new ownership -- but largely the same management -- Carrs Quality Centers continues to be aggressively innovative.

Yet from the public eye, nothing really changed. "We wanted this to be a transparent buyout so that our customers and associates wouldn't be affected by the sale," says John Cairns, the new president and chief executive officer. He and Mark Williams, the new executive vice president and chief operating officer, say they intend to continue the company's history of trend-setting customer service started by its previous owners, Larry Carr and Barney Gottstein, more than 40 years ago.

The firm built by Carr and Gottstein had grown to become second only to Arco Alaska in employment by private firms in the state, with 2,815 workers in 1990. Carr-Gottstein Inc. also was the largest revenue producer among Alaskan-owned, Alaska-based businesses from 1984 through 1988. In 1989, the company was unseated by Veco International Inc., whose role as general contractor for the cleanup following the Exxon Valdez oil spill catapulted it to the top.

In 1990, Carrs Quality Centers and other businesses acquired from Carr-Gottstein and now operated as Carr-Gottstein Foods Co. grossed an estimated $500 million in revenues. The business once again was the largest Alaskan-owned, Alaska-based company -- New 49er No. 1.

Outside agents had made offers to buy the grocery business before, but company founders Carr and Gottstein hoped to keep their business in the hands of Alaskans. When two Carrs executives -- Cairns, then general manager, and Williams, then vice president of operations -- tendered an offer last year, Carr and Gottstein helped make the purchase price more affordable by retaining some of the properties and leasing them to the new operators.

Financing for the buyout was secured from Leonard Green & Partners, a Los Angeles-based investment banking firm that specializes in leveraged buyouts. The Anchorage Times reported on Oct. 17 last year that the investment company's financing relied in part on a $225 million investment pool made up of contributions from three institutional investors.

The sale price, estimated at $250 to $300 million, included 16 grocery stores (13 Carrs Quality Centers and 3 Eagle Quality Centers), 15 Oaken Keg Liquor stores, the Gottstein Co. wholesale foods business, freight operations, and roughly half of the shopping centers developed in conjunction with the supermarket outlets as anchor tenants. Forty-two individual Alaskan investors, described as members of the Carrs management team, contributed to the purchase.

Founders Carr and Gottstein retained an interest in Carr-Gottstein Foods Co. and hold seats on its governing board. With their families, the two men continue to own seven shopping centers where Carrs stores are located, office buildings, undeveloped land and a South Anchorage housing development. Since the sale, Carr-Gottstein Properties formed Denali Commercial Management to manage its commercial properties, including sites leased to the food company.

Though incorporated in Delaware, Carr-Gottstein Foods Co. is an Alaskan-operated concern with the same customer-service vision that the founders pioneered for the first 40 years. "Though we've made a few internal changes to help the company run more efficiently, we've kept the same basic policies that our customers appreciate," says Cairns.

"Our managers have always worked hard to please our customers, but now they have an additional incentive as owners," he adds. Management team members typically started in the grocery business as part-time workers while attending high school. "We have all come up through the business the same way, and that helps us run the business better," says Cairns.

One major internal change made at the company consolidates retail and wholesale functions in the same administrative office building. Sophisticated technical innovations also are transforming operations of the grocery business. "We spend more money on the technical side of our business than do stores Outside," says Williams.

Jeff Barber, vice president of operations, explains that a new state-of-the-art carousel system enables the company to warehouse 7,000 items in a 10,000-square-foot space and handle more cases per hour at lower cost than traditional methods. Old-fashioned warehouses need 20,000 square feet to handle 7,000 items, he notes.

Carrs also recently purchased a computerized inventory control system that will tie together the three largest inventory centers in the company: a 120,000-square-foot facility in Tacoma, the 250,000-square-foot wholesale distribution center in Anchorage, and a 40,000-square-foot building on Post Road, also in Anchorage. The system streamlines ordering, shipping, receiving and stocking operations.

"These programs can save us close to $1 million a year just in the warehouse alone," Barber says. "Our customers will benefit from these technical additions as well because our new computer system will work four times faster than the old one, enabling us to place our orders faster." Overall, the new systems will allow Carrs to expand warehouse operations by up to 25 percent.

Cairns feels that one ingredient necessary to maintain growth is keeping communication between management and employees a high priority. "We work very hard at treating our people right, listening to them and answering questions. We are a very informal company. Our corporate philosophy is built from our associates up," he says.

Of the current 3,100 total employees, 35 percent work part time and the balance full time. More than 1,700 workers belong to Local 1496 of the United Food and Commercial Workers, which in June 1991 renewed its Carrs contract.

"It was a very fair contract," says Dennis Doughty, Local 1496 president. "We asked for a lot of changes because our people hadn't received raises in five years."

New hourly wage increases amounted to $1.50 over the next three years for all classifications. "We improved the contract in other areas. We spent a lot of time adding benefits to the work and the break environments," Doughty adds.

"We had greater numbers of people voting and participating in this contract than we ever did in our history. Most of our members are very happy with Carrs. They're a very demanding employer, but seem to be good. They offer good benefits and good security."

Pace Setting. To maintain its lead in the Alaska grocery market, Carrs relies on an ever-expanding line of customer-pleasing innovations. "We're always trying something new. In this business, you can't stand still and be successful," says Williams.

In 1976, Carrs became one of the first stores west of the Rockies to install scanners for checkout. Now, the stores' computerized abilities include Tix counters that sell tickets to concerts and sporting events. "This project is unique to supermarkets," says Williams.

Other computerized innovations include the on-line debit card system at checkout counters, Western Union services at select stores, a pharmacy program that connects all the Carrs' pharmacies, and a courtesy card system that includes the state's largest database of 220,000 names.

A visit to the company's flagship store -- the Huffman store in South Anchorage -- reveals the entire range of Carrs' innovations. Built in 1983, the Huffman store was expanded in 1988 with dozens of changes, many a first for Alaska.

A floral department offers custom arrangements and telefloral services. Produce department innovations include packages of fresh vegetable shish kabobs, chocolate-covered strawberries and a juice station stocking fresh-squeezed fruit and vegetable juices.

A seafood bar offers sushi or fresh-caught Alaska fish. At the specialty meat department, customers can order rare items such as African antelope or New Zealand deer, talk to a chef about preparing their unusual foods and place catering orders. A smokehouse sells homemade sausages and smoked meats. The store also includes an Oriental deli, bakery, an espresso coffee bar, a diaper changing room, a 59-minute photo center and a customer-operated machine for making personal photo enlargements.

The new management team has outlined an expansion program that will carry many of the Huffman store's innovations to thousands of customers and create hundreds of additional jobs around the state. In Valdez, a several-million-dollar remodel is scheduled for completion this month.

In Kenai, the present Carrs store is being replaced with a new prototype 72,000-square-foot store, slightly larger than the Huffman store. Funding for the new superstore comes from a $6.25 million total loan package shared by two sources: the Alaska Industrial Development and Export Authority for $5 million and the National Bank of Alaska for $1.25 million.

A new Carrs store is slated for Fairbanks, and the stores in Eagle River and at Muldoon and Northern Lights in Anchorage are being expanded from 40,000 to 70,000 square feet. In addition, many other Anchorage stores are adding seafood bars, in-store eating areas, Western Union services and floral departments.

"We brought salad bars and natural food centers to Alaska before anyone else did," Cairns says. "And our other services are innovative for the state -- such as fresh sushi, espresso and juice bars, and pastry chefs."

Seeking Advice. This wealth of new ideas comes from many sources. "We listen to our customers and associates," Williams says. "You can never assume you know better than they know."

Carrs receives as many as 100 letters a week from customers. "My favorite letter," Cairns says, "came from a lady who lived in Los Angeles. She said, 'I live down here where they grow the produce, and I wonder why I can't buy it like you offer it for sale in Anchorage. Going to your Huffman store is just like going to Disneyland."

Some customer ideas, such as the diaper changing room installed at the Huffman store, work; others fail to catch on. Employees and managers also suggest innovations -- the sushi bar, for example. "We tried it, and it's been a remarkable success," says Cairns.

At the same time, members of the management team travel to gather new ideas. "When Outside store owners discover we're from Alaska, they're not afraid to share ideas with us," Cairns adds.

This synthesis of ideas from associates, customers and Outside firms, by a management willing and able to seize opportunities, appears to work. Sales for 1991 -- projected to be more than $500 million -- should establish another record year.

The supermarket's success in the competitive and low-margin grocery business attracts industry interest. "We've had a number of grocery chains come to look at our stores," says Cairns. "That's a real compliment."

Staying on top will continue to challenge the managers of the largest Alaskan-owned, Alaska-based firm. Says Cairns, "Alaska has a great future. I think there's going to be a lot of opportunity here, and we want to be ready for it."
COPYRIGHT 1991 Alaska Business Publishing Company, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Title Annotation:The New 49ers; Alaska's top ranking 1990 revenue producer
Author:Woodring, Jeannie
Publication:Alaska Business Monthly
Article Type:Cover Story
Date:Oct 1, 1991
Previous Article:Eight that soared.
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