Down on the Farm

JON SPRINGER

Stew Leonard's, the small dairy store that grew into a unique chain of destination supermarkets, has reached its 40th birthday and, as the animatronic bovines shoppers encounter at the store might say, things are moo-ving right along.

The Leonard family celebrates, left to right: Beth Leonard Hollis, Stew Leonard Jr., Stew Leonard, Marianne Leonard and Jill Leonard Tavello.

The first of 13 grandchildren of the founder and namesake of Stew Leonard's have joined the company on a full-time basis, as the chain welcomes a fifth decade and prepares for a third generation of family ownership. It's a business that saw its first two generations achieve levels of customer acclaim and productivity that were virtually unheard of in the supermarket industry until they came along, even as they endured personal and professional setbacks in doing so.

At a recent event marking the chain's 40th birthday at its Norwalk, Conn., flagship, Stew Leonard Jr., 55 and now the chief executive officer of Stew Leonard's, reflected on the company's growth while his father, Stew Leonard Sr., who turns 80 this week, signed copies of a newly released biography. Other Leonard family members including Stew Sr.'s wife Marianne and daughters Jill and Beth, who also are company executives, mingled with shoppers, local dignitaries, and mascots dressed as a cow and a duck. Employees (referred to as team members at Stew Leonard's) in the meantime were showing off a 5,000-square-foot addition to its original store — the 27th such addition since it was founded in 1969, officials said.

“I don't think there was ever a moment where we thought we could grow into something like this,” Stew Leonard Jr. told SN while observing the scene. “It was more of a matter of adding things slowly and doing what our customers wanted.”

Forty years ago, the site of this activity was a small, quiet farm belonging to a farmer's widow, and Stew Leonard Sr. was a young milkman presiding over a business in crisis.

Leonard was only 21 when he, along with his brothers and his mother, took over the Clover Farms dairy route his father Charles founded in the 1920s, when Charles died of a sudden heart attack. Leonard had passion for his father's profession, but by the late 1960s the rise of self-service supermarkets and large commercial dairies was slowly killing off his business. The state of Connecticut in the meantime was planning to run a new highway through the middle of his dairy, and something had to be done.

Even then, Leonard was a bit of a showman, he said. His early attempts to sustain Clover Farms' business included taking over routes of a competitor; adding horns that “moo-ed” onto delivery trucks; and hiring a former Madison Avenue ad executive, Joe Shaw, to help with advertising and branding. Now his idea was to create a dairy plant and store at the site of the farm, which he was able to buy as long as he also agreed to care for the goats and chickens that also lived there.

Like many of the events in Stew Sr.'s life, the idea to open a dairy store wasn't his alone, but came to him as a result of passionately pursuing inspiration where he found it. As Stew Leonard's grew, the pattern would be exhibited in his devotion to business management gurus like Dale Carnegie, Tom Peters and Leon Danco, and his admiration for, and desire to learn from, successful organizations and the people behind them, including Walt Disney, the Rev. Robert Schuller, Frank Purdue and Sam Walton.

The dairy store, he said, was an idea he borrowed from a friend, another milkman on Long Island, N.Y., whose business was facing similar erosion.

Stew Jr. was 15 when the 7,000-square-foot store opened, Nov. 30, 1969. It featured a silo and picture window offering views into the on-site milk plant.

“It was just a small store with milk and bread — six or eight items,” he recalled. “I worked stocking the shelves, repacking cracked eggs, filling bread racks, driving the fork trucks, running the register.”

According to Stew Sr., the store was a success almost from the start in part because children enjoyed visiting the store to see the plant in action and the animals on the farm. “Parents quickly found they were making a trip to Clover Farms Dairy Store not only because we had the freshest, best-priced milk in town, but also because their children loved the store,” he wrote in his new biography, co-written with Scotty Reiss. “I soon learned that where children want to go, mothers follow.”

Expanding Selection

A chance encounter with a watermelon hauler in the summer of 1970 helped spark the store to expand its offerings. According to Stew Sr., the driver had a trailer full of watermelons but his local order had fallen though. Although the watermelons retailed for $5 and wholesaled for $2, he agreed to sell them to Stew Sr. for $1 each — the same price at which Stew then offered them to shoppers, directly off the truck.

“True, we lost money on the watermelons, but we sold lots of milk, bread and ice cream,” Stew Sr. wrote. “By having a great deal on something customers wanted we increased our sales on everything else.”

This early lesson in loss-leaders prompted similar trailer-truckload deals with local producers and bolstered the store's emerging image for fresh products at sharp prices, Stew Sr. said. Buying in bulk, keeping selections tight, and selling low is a strategy the company still pursues to this day.

The success of the fledgling store soon attracted attention from other retailers — including one who sought advice from Stew Sr. and then went and re-created the store in detail at a site just 20 miles away — including using the Clover Farms name, which the company had not trademarked. That event, in 1972, prompted Stew Leonard to rechristen his store with a name that was truly unique and wouldn't be copied — his own. Stew Leonard's it was.

Crafting a unique retail offering continued in the coming years. Shaw, the ad advisor, encouraged the company “to think in pictures” and develop the iconic displays — wagons, carved wood signs and hay bales — the store became known for. Stew Sr. in the meantime recognized a value in sharing the benefits he'd gained from Dale Carnegie seminars, and a culture of employee engagement blossomed.

“[Growth] kind of happened spontaneously,” explained Stew Jr. “You'd drive down to the fish market and see something and be like, ‘Wow, that's a great fish. Our customers would like that fish.’ And that's how you end up with a fish department. When a couple farmers say, ‘Hey, I've got some good apples,’ you wind up bringing them in. We never really opened the produce department. We never opened the bakery. They all started small with a few items and went from there.”

But the fits and starts with which the company grew would eventually lead it to trouble.

In 1991, a team of agents from the Internal Revenue Service with search warrants arrived at Stew Leonard's Norwalk store. Their investigation would eventually reveal that the company had been under-reporting its income for years.

In his book, Stew Sr. said the fraud stemmed from a “building fund” that began when a contractor working on repaving the Stew Leonard's parking lot suggested his fee could be reduced if Stew Sr. paid in cash. A loan from a store cash register paid for the job. Stew Sr. said he later employed the technique to pay for a store expansion, and a pattern was established.

“I had always intended that the building fund be a temporary stopgap measure to just help me get past my early growing pains,” he wrote. “I would discontinue it as soon as I finished this one last addition. As I think back on it now, I am amazed at how shortsighted and naive I was.”

By the time federal agents caught up to him, around $17 million had gone to the fund — a scheme more complex and widespread than as described in the biography. The government charged Leonard used proprietary software to systematically skim profits and that several associates had also played a role. Stew Sr. said his guilty plea was made in part to keep prosecutors from pursuing charges against other family members who may also have been shown to have been involved.

“What I did was dumb — really dumb — and I never have regretted anything more in my life,” Stew Sr. wrote. He eventually served 42 months in federal prisons in Minnesota and Pennsylvania and was released in 1997.

The scandal damaged equity in the Stew Leonard's brand, and left a challenging job of cleaning up to Stew Leonard's children. Their eventual success, Stew Sr. maintained, was the silver lining in his ordeal.

Son Stew Jr. possessed an analytical mind and an eye on the big picture that helped him steer the ship; he was the natural choice to take over. Daughter Beth developed an interest in the local cuisine while studying in France; she later was instrumental in developing the bakery and specialty food departments at Stew Leonard's. Son Tom provided energy: It was his idea to add the audio-animatronic displays that have become one of Stew Leonard's signature touches. Daughter Jill found a place in human resources and set about institutionalizing training and employee benefit programs. Her efforts have won the company national recognition as a great place to work.

New Locations

In 1991, the company opened a second location in Danbury, Conn., run by son Tom. (Tom, who would also experience tax troubles, eventually left the company and relocated to Richmond, Va., where he founded and currently runs Tom Leonard's Farmer's Market, a small-scale replica of his father's business). Stew's opened new stores in Yonkers, N.Y., in 1999, and in Newington, Conn., in 2007, but planned stores in Farmingdale, N.Y., and Orange, Conn., never got off the drawing board.

“You have to provide opportunity, and that's why we want to grow,” Stew Jr. told SN. “On the other hand, we want to have well-managed growth and always make quality the priority.” While there are no announced plans for additional locations, he added, “we always have a lot of irons in the fire.”

Like his father, Stew Jr. is given to anecdotes and aphorisms, and he provides both when asked how the company has weathered the current economy.

“I was talking to a real estate agent who's a customer, and when I asked her how her business was she told me it's been all right. I said, ‘How is that in this economy?’ And she said, ‘It's not the direction of the wind, instead it's how you set your sails.’ To me it said that retailers who are agile and ready to change really quickly are better off than those that can't,” Stew Jr. explained. “We've been able to make adjustments as we've gone.”

As an example, he provides a story not unlike his father's experience with the watermelon hauler.

“We were $6.99 for pumpkins last year, three for $18,” he began, “and this year we were nervous. You don't want to take 18 bucks out of someone's pocket in this economy. So we decided to go $5.99 for a pumpkin.

“We went back to our farmer and explained to him, let's roll the dice and see if we can't sell more pumpkins, so we both pitched in a little and went $5.99, two for $10 this year,” he continued. “Now you're only taking a $10 bill out of your pocket. Some people said we were taking a chance, but we had a record pumpkin season, selling almost 100,000 pumpkins. It was a big adjustment, but we made it work.”

Stew Jr. said the company is working with its suppliers on other ways to get retail prices down, particularly on items like cheese that can shoot above the thresholds of today's cost-conscious shopper. The company is also keeping a close eye on food trends, with the recent renovation in Norwalk making room for new wrinkles to its bakery program (“People are just crazy for cupcakes right now,” Stew Jr. observed), and bringing back a fresh popcorn department because it detected a consumer taste for that offering had returned.

As the next generation of company leaders comes of age, Stew's has paid particular attention to a succession plan as advocated by the consultant Leon Danco, a specialist in family businesses. According to Stew Sr., the school-age kids are required to work hourly store jobs, although those desiring to continue with the company after college are encouraged to work for an outside firm first to gain a real-world perspective.

“I admire companies like Wegmans and Ukrop's that have no desire to go public or grow too fast,” Stew Jr. said. “I'd love for my kids to be involved in something like this some day, but what I really hope is that they can really love this business, to love food and retailing like I do. It's exciting. I hope between my sisters, my brother and I, we can translate the passion on. That's our main goal. If you're passionate, your customers will be passionate.”