RPCS
cation: Springfield, Mo.
Operations: 22 Price Cutter stores, six Ramey and three Smitty's, plus six convenience stores.
ESOP status: 100% employee-owned since Jan. 1 following a leveraged buyout of the company.
Erick Taylor, president and CEO, said the company is looking forward to achieving significant benefits as employees become more aware of what their ownership stake actually amounts to. "The stock won't be valued until mid-year, so people don't have a firm idea yet what their ownership is worth. But once they have an idea of the value, it will have a greater impact on how they think about their jobs."
After only five months, the ESOP is still a new experience for the company, Taylor pointed out, "and employees are still going through an education process."
He said store directors conduct one-on-one meetings with department heads and store employees to better inform them about the new ownership structure. The company intends to begin publishing a newsletter "to let people know this is their company and how much their daily activities will impact our collective pocketbook," Taylor indicated.
Harp's Food Stores
Location: Little Rock, Ark.
Operations: 47 supermarkets.
ESOP status: Became an ESOP in 1988, and 100% employee-owned in a leveraged buyout in 2001.
Harp's became an ESOP company to improve employee performance, Roger Collins, chairman, president and CEO, told SN.
"Our initial reason was to see if we could get a benefit from employees having a stake in the company. We were looking for a way to get our employees to have the same goals as the company, and we felt an ESOP would help us do that. Plus, we knew other companies that had ESOPs and were successful."
The employees' stake in the company started at 3%, "and that helped [their attitudes] a bit," Collins said. "But having such a small stake really didn't make much difference in terms of motivating them to stay with the company, though it did help our corporate culture and cut down on turnover."
By 2001, the employees' stake had risen to 6%. When Gerald Harp opted to retire that year and put the company on the block, the ESOP acquired it in a leveraged buyout. "Since then, people have been more responsive to what we're doing," Collins said, with turnover falling more than 25%.
"An ESOP is a great motivator to get people to stay, and we work hard to communicate what that means to new employees. We tell them they can become owners, but it's a process that takes place over time, and it requires constant communication to help people understand their vital interest in all of this. We encourage associates to understand how important it is for them to share in the success of a company, and with an opportunity like that, why should they go somewhere else? But we also tell them that, if they want to work somewhere else, they should find a place that gives them an ownership stake."
According to Collins, Harp's stock price has risen from $10 a share in 1988 to $99 in 2001, just prior to the LBO. "But with the debt we took on, the stock value fell immediately after the LBO to $27 a share. It's now back up to just under $60."
K-VA-T Food Stores
Location: Abingdon, Va.
Operations: 90-store Food City chain.
ESOP status: An ESOP company since late 1983. Now, employees own 16.5% of the shares.
Steve Smith, president and CEO, told SN that becoming an ESOP was seen as a means to grow the company. "We realized an ESOP was one way to finance our growth initially and to make our associates partners in the process," he said.
Employees initially owned only about 2% of the company, when the ESOP was launched in 1983. Then, it had only 11 stores.
When K-VA-T began to grow its store base, it was still borrowing money from banks, he recalled, "but the ESOP gave us extra tax-deferred capital that we were able to use.
"Over the years, the ESOP has really generated a lot of momentum. Early on, people didn't really understand the potential. But in the last seven or eight years, as the company has really grown, people have come to realize the value more and more. As they understand that value, it has helped us retain our associates and attract new ones.
"In addition, it gives our folks a sense of pride of ownership and caring about customers. They know that the more customers we have, the more business we do, and the greater the value of the ESOP is."
K-VA-T holds meetings annually to help employees understand the ESOP and the value of their stock, Smith said. He noted the stock's value has increased every year -- from $2.49 per share in 1983 to $52.41 this year -- based on assessments by a certified appraiser.
Houchens Industries
Location: Bowling Green, Ky.
Operations: 90 Food Giant and Piggly Wiggly stores in the Southeast, 45 IGA stores and 45 convenience stores in Kentucky, and 200 Save-A-Lot stores in 13 Southeastern and Mid-Atlantic states.
ESOP status: 100% employee ownership since 1988.
The reason for becoming an ESOP was to finance a management buyout of the company, Jimmy Gipson, president and CEO, told SN.
Houchens had a profit-sharing plan from its founding in 1917 until it was sold to Red Foods in 1983. "But when we did a management buyout in 1988 involving about 50 of the Houchens Markets, we used a portion of the money in our profit-sharing plan to make a down payment, then replaced profit-sharing with an ESOP and borrowed the balance of money from the bank," Gipson said. "Using an ESOP made it easier to acquire the company."
An ESOP gets people motivated, he pointed out. "It helps raise morale and reduce turnover from store managers up, and it's a selling tool to attract employees and offer them tax-deferred income," he explained, citing the example of a woman who worked for Houchens for 40 years, ultimately attaining the position of office manager at store level. "She never earned more than $9.03 an hour. Yet, when she retired, she received $287,000. We're very proud that woman was able to get such great benefits as a result of the ESOP, though the company also had to do well for that to happen."
Niemann Foods
Location: Quincy, Ill.
Operations: 64-store chain.
ESOP status: It has been an ESOP company since 1997, when management decided to diversify retirement benefits it offered to employees, Chris Niemann, chief financial officer, told SN.
The company opted for an ESOP "because we felt, from a competitive standpoint, we could operate better stores that were more responsive to customers and give more attention to bottom-line results if we had employee ownership," Niemann explained.
The company encourages employees to share ideas on how to increase sales, decrease shrink, and control expenses, "and we've been getting a better response in those areas. People know they can submit ideas and that those ideas help the stock price. We believe having an ESOP has been a positive experience for us."
Niemann's had a profit-sharing plan for 25 years before it introduced the ESOP, "and that allowed us to split our contributions 50-50 between the profit-sharing plan and the ESOP, though the ESOP has made people more aware." The company decided to maintain both plans "because we felt it was important for people not to have all their retirement funds tied up in the company's stock. So, now they have half the funds in cash through the profit-sharing and half in stock through the ESOP," he said.
Dahl's Food Stores
Location: Des Moines, Iowa
Operations: 11 stores.
ESOP status: An ESOP since 1975.
Dahl's decision to become an ESOP was prompted by the sale of the company by W.T. Dahl, Ross Nixon, president and chief operating officer, told SN.
"Originally, Dahl sold part of the company to six department heads and salaried employees, then to six more, then 12 more. By 1975, he was no longer the majority owner," Nixon said. "It was at that point that the owners, including Dahl, decided to go to an ESOP format."
In the last few years, Dahl's has added a 401(k) plan for employees to enable them to diversify their holdings. Although the total amount the company contributes to employees' retirement has not changed, 75% now goes to the 401(k) and 25% to the ESOP, Nixon noted. "We haven't abandoned the ESOP, but we added the 401(k) so employees would have more control over their destiny, rather than putting all their money in one place."
Carter's Food Centers
Location: Charlotte, Mich.
Operations: 16-store chain.
ESOP status: An ESOP since 1981, and 100% employee-owned since 2000.
Becoming an ESOP company was seen as a way to enable employees to keep the company and their jobs intact, Tom Robinson, co-president of Carter's, told SN.
"When the founder retired in 1981, he saw an ESOP as a way for him to cash in some of his shares. So, he converted the company's profit-sharing plan to an ESOP and sold 24% of the company to the ESOP."
By 2000, Carter's was at a crossroads, Robinson recalled. "The company was going to be sold, probably in bits and pieces. We decided as a group that we would not survive if it were sold to a third party, and that it made more sense for us to buy it."
Accordingly, the company loaned money to the ESOP to make the transaction and became 100% employee-owned, "and that really had an impact on associates. Before, the ESOP was just there. But becoming 100% employee-owned changed people's attitudes."
Yoke's Washington Foods
Location: Spokane, Wash.
Operations: 12-store chain.
ESOP status: An ESOP company since 1990. The ESOP now owns 72% of the company.
When the founder sold out, Yoke's became an ESOP "to maintain local ownership," said John Bole, president and CEO.
"This is a good, viable business that provides food to families. That's something people want to be part of," he told SN. "As employees here have shared in the success of the company the last few years, there's a realization that we're all in this together -- myself, the checkers at the stores and everyone else -- and we're all working toward a common goal.
"When the company does well, our shares go up and everyone's ESOP balance increases. Everyone realizes there are things we have to do that are in the best interests of the company because what we do and what we stand for are part of the core values we all share."
The ESOP at Yoke's owns 72% of the company; management owns 1%; and the company's wholesaler, URM, Spokane, owns the other 27%.
B&R Foods
Location: Lincoln, Neb.
Operations: 20 stores under the Russ's Markets, Super Saver and ALPS banners.
ESOP status: Became an ESOP in 1977. Employees own 36% of the stock.
B&R became an ESOP company to hold onto its good employees and attract others, Pat Raybould, president, told SN.
"Our founder, Russ Raybould, saw an ESOP as a good way to maintain talented associates, attract quality people and offer a benefit competitors didn't offer, Pat Raybould explained.
The company has been particularly successful retaining people, he noted, improving turnover every year for the past eight years.
Merle Faubel, the company's just-retired controller, said 36% of the company's stock belongs to employees, with the balance belonging to the Raybould family. B&R puts between 3% and 5% of employees' salaries into the plan each year, he pointed out.
Tidyman's
Location: Greenacres, Wash.
Operations: 17-store chain.
ESOP status: An ESOP company since 1979; 100% employee-owned since 1986.
Mike Davis, president and CEO, said the ESOP evolved out of a desire by the chain's founder to sell.
Initially, employees owned 10% of the company. "That gave them a sense and pride of ownership in the business," Davis noted. "While it's hard to quantify what impact that attitude had, I would say morale and attitude seemed a notch better."
When the owner decided to sell the rest of his stock in 1986, the company borrowed money to finance the buyout, which reduced the value of the ESOP until the debt was repaid, Davis said. "But during that time, we remodeled nine of the 10 stores we were operating, which gave the employees a real sense of success."
In the last decade, the company has instituted a 401(k) plan in addition to the ESOP. However, all contributions to that plan come from employees, with no contributions from the company, Davis pointed out.
Riesbeck Food Markets
Location: St. Clairsville, Ohio
Operations: 13-store chain.
ESOP status: Became an ESOP company in 1986. The ESOP now has 51% of the stock.
Edward Schmitt, treasurer and chief financial officer, told SN that Riesbeck has a long history of employee involvement."Since our incorporation in 1936, Riesbeck has always been a strong advocate of participative management in terms of giving associates a voice in the way stores are run, bonus programs and benefits. It seemed like a good idea to give them an ownership stake through an ESOP."
The matriarch of the company is Margaret Riesbeck, affectionately called Grandma Riesbeck, "who still has a strong presence in the company, though she's no longer active on a day-to-day basis." But with members of the third, fourth and fifth generation of Riesbeck involved in the business, "there's a real family feeling here among all associates. That sense of family grows through the ESOP," Schmitt said.
Starting with 10% of the company's stock, the ESOP has grown gradually to 51% -- "to a greater degree some years, to a lesser degree in others, depending on the amount of associates moving in and out of the plan in any given year."
The 49% of stock not in the ESOP is held by members of the Riesbeck family and by senior management employees who have been given the opportunity to buy stock over the years, Schmitt said. It's likely the amount of employee ownership in the ESOP will increase going forward, he added.
ESOPS BY THE NUMBERS
Name of Company: No. of Stores; No. of Employees; No. Employees in ESOP; % of Employee Ownership; Year ESOP Started; Reason for ESOP
Publix Super Markets; Lakeland, Fla.: 850; 123,500; 99,000; 31.5%; 1975; To involve employees in business.
Houchens Industries; Bowling Green, Ky.: 400; 11,000; 5,000; 100.0%; 1988; To facilitate leveraged buyout.
K-VA-T Food Stores; Abingdon, Va: 90; 10,500; 5,500; 16.5%; 1984; To finance corporate growth.
Niemann Foods; Quincy, Ill.: 64; 3,300; 1,100; 33.0%; 1997; To diversify retirement benefits.
Harp's Food Stores; Little Rock, Ark.: 47; 2,500; 1,100; 100.0%; 1988; To improve employee performance.
RPCS; Springfield, Mo.: 32; 2,000; 1,400; 100.0%; 2005; To facilitate leveraged buyout.
B&R Foods; Lincoln, Neb.: 20; 2,000; 980; 36.0%; 1977; To enable company to retain good employees.
Dahl's Food Stores; Des Moines, Iowa: 11; 1,500; 750; 78.0%; 1975; To facilitate sale of the company.
Riesbeck Food Mkts; St. Clairsville, Ohio: 13; 1,300; 600; 51.0%; 1986; To strengthen philosophy of participative management.
Yoke's Washington Foods; Spokane, Wash.: 12; 1,050; 800; 72.0%; 1990; To maintain local ownership.
Tidyman's; Greenacres, Wash.: 17; 1,100; 650; 100.0%; 1979; To enable owner to sell his interest.
Carter's Food Centers; Charlotte, Mich.: 16; 499; 329; 100.0%; 1981; To enable employees to keep company intact.
Other companies with ESOPs that declined comment or didn't return SN calls are Brookshire Bros., Lufkin, Texas; G&R Felpausch Co., Hastings, Mich.; Harris Teeter, Matthews, N.C., a division of Ruddick Corp., Charlotte, N.C.; Redner's Markets, Reading, Pa.; Remke's Markets, Covington, Ky.; WinCo Foods, Boise, Idaho; and Woodman's Food Markets, Janesville, Wis.
