Hannaford's Winding Road to Retailing

ELLIOT ZWIEBACH

SCARBOROUGH, Maine — As it marks its 125th year in business, Hannaford Bros. Co. here can look back on a history significantly different from that of most of its retail peers.

Unlike most of them, it was strictly a wholesaler in its earliest days, primarily a produce wholesaler. Starting with its founding in 1883, it would be 44 years before the company added other wholesale categories, and another 17 years after that before it began operating its own retail stores.

Hannaford Bros. made its debut in 1883 when Arthur Hannaford left the family farm in Cape Elizabeth, Maine, with a cart loaded with fresh fruits and vegetables and made his way six miles east to a spot on the Casco Bay waterfront in Portland.

Within a couple of years he was joined by his brother Howard, and in 1894 by another brother, Edward. Their motto, according to a company history, was: “Deliver the highest quality products at the fairest prices.”

By 1898, with the brothers selling more produce than the family farm in Cape Elizabeth could grow by itself, they added poultry, butter and eggs to their assortment.

When Arthur Hannaford decided to pursue other interests, Howard and Edward kept the business going, and in 1902 they incorporated as Hannaford Bros. Co., with Howard as the company's first president, succeeded in 1906 by Edward, who held that position until 1939.

As the company continued to grow, it began shipping products by rail car and steamboat north to Bangor and south to Boston. But it remained essentially a southern Maine business.

In 1927, a competing wholesaler — D.W. True Co. — went out of business, and many of its employees came to work for Hannaford, where they helped establish the company's first grocery department.

Hannaford's wholesale business continued to prosper during the Great Depression, with the company boosting its customer base in 1935 by joining the Clover Farm Group, a national organization of independent grocers — and then again in 1939 by acquiring H.S. Melcher Co., a grocery wholesaler in Portland that franchised Red & White stores in Maine.

In 1939, Edward Hannaford sold the company to Stewart Taylor, a corporate vice president. However, because Taylor, a produce salesman, realized his business experience was limited, he brought in a minority partner — Walter Whittier, the banker who helped finance the deal.

In 1949, Hannaford consolidated the Clover Farm and Red & White store groups under the Red & White banner. It also expanded its retail services to include advertising, sign-making, displays and retail accounting.

It dipped its toe into corporate retailing for the first time in 1944 when it helped finance its first supermarket under its “51-49” plan, in which it held 51% ownership in a retail store that was run by an operator who owned the other 49% — a concept that served as the company's primary growth vehicle for the next 30 years.

With an eye toward expanding beyond southern Maine, Hannaford merged in 1955 with T.R. Savage Co., a wholesaler in the northern part of the state.

Over the next few years, Hannaford came to believe that because it was taking the bigger risk in its partnerships with retailers — by helping to finance the stores and provide the equipment and inventory — it ought to control more than 51%.

Accordingly, it recast the 51-49 plan into an equity partnership program in which its ownership stake often extended as high as 80%.

“In essence, Hannaford became a retail operator by degrees,” James Moody, who retired as Hannaford chairman in 1992, told SN.

In 1960, Whittier, the company's minority owner, succeeded Taylor, the majority owner, as president.

Six years later, Hannaford made its largest purchase to date when it acquired Sampson's, a 31-store supermarket operator with locations all over Maine.

The following year the company made its first move outside Maine when it opened a store in Burlington, Vt. — the first unit in a division that would later be headed by future Chief Executive Officer Hugh Farrington.

In 1971, Hannaford became a public company, with Whittier becoming chairman and Moody moving up to president. Two years later, Hannaford got into the drug store business with the opening of Wellby Drug Stores. Within seven years, the company was operating 23 freestanding Wellby locations.

By the end of the 1970s, Hannaford had a majority ownership in 51 supermarkets; operated 20 wholly owned Shop 'n Save and Sampson's supermarkets; and had the 23 drug stores.

Faced with further incursions by retail competitors in its operating area, Hannaford realized the time had come to operate retail stores on its own. Accordingly, it began buying out its equity partners — a task that was not completed until 1990.

During the 1980s, Hannaford became intrigued by the combination stores springing up around the country, but it was restricted from operating that format in Maine because of state laws that prohibited supermarkets and pharmacies from sharing a common entrance.

To get around this limitation, Hannaford began to open side-by-side stores with a wall in between that could be taken out if the law changed — which it did, in 1984.

That year, Moody moved up to chairman and was succeeded as president by Farrington.

The combination store turned out to be the format that would enable Hannaford to expand its operations beyond the confines of New England.

According to Roger Hoyt, who was executive vice president of retail operations at the time, “The company had been thinking about the next growth strategy. We knew we had to grow, or someone was going to gobble us up.

“In the early 1980s, we explored [different] areas and determined that upstate New York was the most logical place for us to expand. It was an area contiguous with New England, with similar demographics — and it lacked any combination food-and-drug stores.”

Hannaford's first combo store outside New England opened in Glens Falls, N.Y., in 1987. The company also opened its first store in Massachusetts, in Lowell, the same year — the year Hannaford's sales passed $1 billion.

By the time the company had bought out its last equity partner in 1990, it owned 72 supermarkets in Maine, New Hampshire, Massachusetts, Vermont and New York. Two years later it sold the Wellby drug chain to Rite Aid. Corporate sales that year exceeded $2 billion.

In 1991, Hannaford acquired Alexander's, an 11-unit chain with stores in southern New Hampshire and northeastern Massachusetts.

Always an innovator in using technology, Hannaford installed several systems in the 1990s that attracted interest from the rest of the industry: direct store delivery; a centralized purchasing system; direct product profitability; a computerized system that measured the profitability of products based on their total cost, including handling, space allocation and delivery; and an electronic payment system, which allowed customers to pay for groceries with debit cards.

Later in the decade, Hannaford developed a computerized strategic information system for grocery and perishables based on sales to customers rather than on inventory coming into the stores, which helped it reduce shrink, increase profits and make better merchandising and marketing decisions.

In the mid-1990s, the chain developed a home shopping service called Hannaford's HomeRuns in the Boston/Brookline markets, which would wind up selling $250,000 in product per week by the end of the decade.

In mid-1994, Hannaford ventured outside the Northeast with the acquisition of 20 Wilson's Supermarkets in North and South Carolina. Within 18 months it added eight new stores, acquired six additional stores and expanded into Virginia.

It was the move into the Southeast that led Hannaford to decide to use its corporate name on all its stores. Until then it had used the Shop 'n Save banner on most stores so that consumers would not see a Hannaford delivery truck dropping products off to an independent operator as well as to stores bearing a Hannaford logo.

But the Shop 'n Save name was not available for use in the Southeast, so the company began using the Hannaford name on private-label products there first, then on all its stores.

Hannaford's total sales topped $3.5 billion in 1999, the year it opted to merge with Delhaize America.

That move was precipitated by the decision at Canadian-based Sobeys — which had a 25% ownership stake in Hannaford — not to renew its standstill agreement.

Delhaize paid a whopping $3.6 billion for the 154 stores Hannaford was operating — a deal that allowed Hannaford to continue to operate as an independent company.