FAMILY AFFAIR

CHRISTINA VEIDERS

Michael A. Bozzuto likes to fly his food distribution company, as a privately held family-run wholesaler, under the radar screen.

In doing so throughout the last decade, the chairman, president and chief executive officer of Bozzuto's, Cheshire, Conn., quietly and consistently built sales threefold.

The full-service grocery wholesaler isn't the biggest, but observers say the house is well run and efficient, and has earned a solid reputation among its independent customers for quality services and supply.

The wholesaler has been quick to jump on opportunities in a turbulent marketplace. While others were focused on getting big, Bozzuto's was focused on building its business through small independents who have community roots.

The company's ability to react quickly and aggressively to new opportunities will remain the foundation of the wholesaler's growth going forward, company executives said, especially as Supervalu returns to New England with Shaw's and Star Markets as a result of the Albertsons' acquisition, and takes over Acme Markets in New Jersey, Pennsylvania, Delaware and Maryland.

Interviewed at his central Connecticut

headquarters, Bozzuto said his philosophy hasn't changed in the 10 years since SN last profiled the wholesaler in 1996.

It boils down to two words, Bozzuto said. "We care. It's a statement we don't take lightly.

"A lot of effort has been put on being 'big.' The emphasis should be on what needs to be done in order to understand and grow the markets," he told SN.

In 1996, Bozzuto's sales were reported to be $400 million with distribution to more than 350 stores in New York, Connecticut, Pennsylvania, New Jersey, Massachusetts, Rhode Island and Vermont. Today, sales are reported to be $1.1 billion, according to SN's listing of Top 75 North American Food Retailers. Bozzuto shied away from providing specific figures on distribution volume or sales.

The wholesaler has grown its customer base of single- and multiple-store retailers, who reach to the northern corner of Maine in the Northeast and southward to Maryland in the mid-Atlantic, by empowering and inspiring them.

Bozzuto's Excellence Awards dinner, held this spring at Foxwoods Resort Casino in Ledyard, Conn., is one example of the high esteem Bozzuto's holds for its customers and supply partners.

Held in conjunction with Bozzuto's spring

retail conference, this marked the third year for the gala that drew a capacity crowd of 1,200 retailers, suppliers and friends to honor 22 retailers, store managers and suppliers for their exceptional performance and hard work.

Joe Ancona, who owns Ancona's Market with his brother, John, in Ridgefield, Conn., was honored with Bozzuto's first Lifetime Achievement Award. In business 86 years, Ancona's is a 50-year Bozzuto's customer, the longest of any of the wholesaler's customers.

Ancona's longtime and close relationship with Bozzuto's is typical of the close-knit ties the wholesaler has cultivated with many independents. Bozzuto said that caring and understanding how his customers compete, and being flexible enough to meet their marketplace needs, enable him to grow his customer base.

Sharing experiences and mentoring also are integral to Bozzuto's supply relationships.

Bozzuto said Joe Ancona was "instrumental in making sure I came into the business." He learned to bake at Ancona's and showed up at 5 a.m. to do it, Joe Ancona said. In turn, when Ancona opened a new store and moved to a new location in 1980, Bozzuto was there to do the store set-up work.

"It's a real honest house," Ancona told SN. "We hope the next generation can do business with them as long as we have."

The confidence Bozzuto's has in its retailers is illustrated by the fact that very few sign contract supply agreements.

This made Steve Heggelke, Bozzuto's senior vice president of merchandising, advertising and procurement, very nervous when he first came to work for Bozzuto's, he said.

"The majority of our business is voluntary. We are a customer-centric organization and we earn our business every day. Our customers are here because they want to be. It's not about a contract," he said.

"There's still a few pockets in this country where someone's word still means something, and New England is unique in that respect," said Anthony Caraluzzi, a longtime Bozzuto's customer and owner of Caraluzzi's in Bethel and Georgetown, Conn.

GLOBAL CONNECTION

Founded in 1945 by Michael Bozzuto's late father, Adam, Bozzuto's has been a licensed IGA distributor for nearly half a century. IGA retailers represent 90% of the wholesaler's volume. The company has won numerous IGA service awards, including IGA's annual President's Cup Award the last three years.

Those deserving of the award have increased IGA-supplied retailers' net sales and square footage, added new IGA retailers to the alliance, helped retailers achieve high scores on their operational assessment ratings, supported IGA brands and promoted Hometown Proud activities.

"Their real focus is IGA," said Thomas S. Haggai, chairman and chief executive officer, IGA, Chicago.

"The company was founded on everything people say about 'local,'" he said. "That is their nature. They stay in touch with their retailers as well as it can be done."

For a wholesaler that has focused on increasing its specialty food business and sourcing regional items such as Dinosaur Bar-b-que products from Syracuse, N.Y., to Jordan Red Hots from Maine, and ethnic items from Cuban mojo sauce to Japanese panko, belonging to the IGA alliance is an advantage, said Bozzuto executives.

Heggelke said IGA creates and fosters a "share group environment" on a global basis.

"It's our job to be there to support our customers and make them feel they are a part of a bigger unit," he said. "There are people who care about them and want to see them grow. It's similar to how we bring our retailers together for our awards dinner. IGA gives us that same opportunity to interact with all retailers from China to Australia. Having a worldwide presence, I think, is extremely important."

"The global reach of IGA is making it a small world for our retailers," Bozzuto said. "For our customers with the group support of more than 40 countries, it will be important to understand world products in retail."

Bozzuto's has witnessed dramatic shifts in food distribution and consolidation among all distribution tiers in the markets it serves. Over the decade, some distributors disintegrated, while others got much bigger. Smaller and weaker retailers were swallowed up or went out of business, while the multi-market chains consolidated and grew.

One of the biggest disruptions on the supply side came when C&S Wholesale Grocers, based in Keene, N.H., a Bozzuto's competitor, bought the assets of bankrupt Fleming Cos. in 2003. This resulted in an asset swap with Supervalu, Minneapolis, which left C&S with Supervalu's New England business, and Supervalu departing the area to take over the distribution of Fleming's former Midwestern business. At the time, C&S said it would service smaller, independent New England retailers, particularly those affiliated with IGA, Bozzuto's core customers.

"While C&S was fully subscribed with a national transition plan [focused at servicing bigger chain operators], Bozzuto's was able to capitalize with many regional [independent] retailers that were Supervalu customers who switched to Bozzuto's rather than stay with C&S in the swap," said Burt P. Flickinger III, managing director of Strategic Resource Group, New York.

One of those retailers was Guy LaPerle, IGA Plus, Colbrook, N.H. "We were traded by Supervalu and tried to do business with C&S. It was too difficult," he said. "They weren't prepared for the transition. Out-of-stocks was a big issue."

LaPerle said he was the second retailer to go with Bozzuto's when the wholesaler expanded into New Hampshire and Maine in 2004. "Retailers here gave them a chance to prove themselves and they have done that with consistent deliveries, quality product and variety," he said.

Bozzuto said the company expected it would take five years to grow the market in Maine - instead, it took two. "Our customers there have shown huge gains," he said. "We work together. Their outlook has changed because of it."

Eddie's of Roland Park, a two-store independent in Baltimore, went with Bozzuto's last year after being serviced by Supervalu for over six years. Previously, the gourmet-specialty retailer was supplied by B. Green & Co., which was acquired by Richfood Holdings in 1993. In turn, Supervalu acquired Richfood in 1999.

"It has to do with economies of scale for Supervalu," said Eddie's owner Nancy Cohen. "They are used to dealing with larger chains, and we are not [a large chain]. We are an independent and we can be quickly responsive to our customers, so we need a supplier that can be as quick and responsive to our needs. We are a family-owned business and felt it would be more advantageous to work with a family-owned wholesaler."

Jim Shook, owner of Lake Region IGA, Hawley, Pa., went with Bozzuto's six years ago because Supervalu switched the retailer to the Richfood label. So for two years out of its 19-year history, the retailer operated without an IGA affiliation. "It just wasn't working for us. Our sales suffered," Shook said. "I believe IGA is the only label and brand focused on community and the people rather than on pricing."

"Bozzuto's doesn't play games," said Gary Giblen, senior vice president and director of research for Brean Murray, Carret & Co., New York. "Their interests are truly aligned with the retailer to try to make them successful."

Bozzuto's strengths are said to be in its full-service distribution capabilities with warehouse capacity of nearly 1 million square feet; a highly professional, well-trained staff; a growing specialty food business that now consists of 5,000 SKUs; a strong private-label program with IGA and Hy-Top labels; and a full menu of retail support services, including management, sales, advertising and marketing, accounting, technology and in-store design.

"Sometimes an independent is out there like a pioneer for the latest systems and equipment," Caraluzzi said. "I am looking for help to run my supermarkets. Exclusive of just buying groceries, Bozzuto's is my first phone call. They recognize the competitive world that we face. As an independent they have helped us grow and we've helped them."

Bozzuto said his goal is to provide the infrastructure for retailers to grow. This means supporting an individual customer's needs whether it's unique product selection, competitive pricing or a customized ad.

Current projects in the works include a gift card program for its retailers, and creation of a virtual store that small-store operators can utilize to deliver unique items to their customers, supplied within 24 hours from Bozzuto's distribution center. Bozzuto's also is looking into in-store broadcasting to eventually partner with manufacturers to deliver their product messages at the store level.

Bozzuto said the services his house offers are an investment in his customers rather than a source of revenue for the company. "I am in business to grow customers. I can't emphasize that enough," he said. "If you are in it for the long haul, is it the dollar I make on the case I sell, or is it the fact that you [the retailer] will do better and grow?"

Bozzuto's resisted union pressure, and has remained a non-union house. As such, the wholesaler has flexibility and a cost advantage, observers said. The company employs 1,200 people. Employees own approximately a 16% stake in the company, Bozzuto said.

Bozzuto operates the company with his sister, Jayne, who is vice president. Both are unmarried with no family heirs apparent at the moment. Asked about the possibility of selling out, Bozzuto said everyone is having too much fun and it wouldn't make sense. "We have no desire to be acquired," he said. "My philosophy is to keep it close and at home."

In the coming decade, Bozzuto said the company would concentrate on growing its base of retailers in the markets where it already does business. However, he did not rule out looking elsewhere if the right opportunity arose.

Pennsylvania is being eyed as ripe for further growth. "We are looking for good, strong regional independents and a good base in that market," Bozzuto said.

One source said it would make sense for Bozzuto's to have a drop station or warehouse in Pennsylvania or an arrangement with another house to be more competitive locally, pick up more stores and grow farther west.

The high cost of diesel fuel has hurt the wholesaler, which delivers small orders to small-volume retailers in the Adirondack region, and central and western New York, Bozzuto said. However, company officials said they have tried to address that situation through backhauling arrangements.

"In western New York there are still a lot of manufacturers where we can backhaul product," Heggelke said.

Bozzuto said he believes it is more efficient to have a large, high-volume facility and do extra miles rather than maintaining a few different facilities.

Flickinger noted that Bozzuto's invested heavily 10 years ago to build one of the largest warehouse facilities in the East. He said it therefore remains critical for Bozzuto's to keep volume levels up by growing its store base with midsized retailers and to keep serving large regional independents like King Kullen, Bethpage, N.Y.

He also sees Bozzuto's concentrating on Long Island, N.Y., independents even more than it already has done, particularly those independents on the north shore and in the Hamptons, which Bozzuto's can reach via ferry. "A&P's Waldbaum's operation in the Hamptons is A&P's weak link," and the IGA group on the island has capitalized on that, Flickinger said.

Bozzuto said he hopes to see the birth of a few good regional independents in the next decade. "There are some second-generation people - given the right opportunity, the right changes and great locations - who can develop great independent chains," he said.

Bozzuto said he is in it for the long haul, and will patiently watch and wait for future opportunities. Referring to the investment banking money being poured into acquisitions of grocery chains these days, Bozzuto said, "There is only so much you can take away in the marketplace. That is what we are seeing. We pulled everything away from the local market, and there will be drive to push it back."

GIVING BACK

Just as IGA and other independent retailers have their roots in the community, Bozzuto's is highly respected within the industry and community for its fund-raising activities. It has established a Hometown Foundation that totaled about $500,000 last year. For every IGA product sold by its retailers,

Bozzuto's contributes 2 cents to the foundation for charitable contributions.

Calvin J. Miller, president and CEO of Associated Grocers, Miami, who used to compete with Bozzuto's in Connecticut and is a longtime friend, said, "I always believed that as an industry, we should work for the greater good of everybody. The whole Bozzuto family has a heart of gold and always gives."

Haggai concluded by saying that what's been happening at Bozzuto's is just a preamble of what will be. "It's the right company, the right time with the right customer base," he said. "Only they could stunt their own growth, and with the team Bozzuto has in place, just the opposite of that will happen."

Bozzuto's Decade Of Change

As consolidation took place in the region, Bozzuto's has stayed focused on growing its independent customer base and expanding its services.

1996:

Netherlands-based Ahold buys Stop & Shop for $2.9 billion and divests 31 stores in New England.

Bozzuto's buys five stores from Ahold, bringing Bozzuto's corporate-owned stores to 13.

Bozzuto's begins operating new 475,000-square-foot distribution center.

Begins Electronic Data Interchange/Efficient Consumer Response initiatives.

Begins growing natural/organic, specialty and ethnic foods.

1997:

Bozzuto's begins supplying King Kullen, a 46-store chain based in Long Island that closed its union warehouse to become more competitive.

1998:

Ahold acquires Giant Food, Landover, Md., for $2.6 billion.

Cooperative Twin County Grocer, Edison, N.J., files Chapter 11, and proceeds to liquidate its assets.

Bozzuto's goes live with warehouse management systems, uses radio frequency technology.

1999:

J Sainsbury buys 53 Star Markets, Cambridge, Mass., for $490 million.

Penn Traffic, Syracuse, N.Y., emerges from Chapter 11.

Bozzuto's offers electronic shelf labels.

2000:

Delhaize America acquires New England-based Hannaford Bros. for $3.6 billion.

Grand Union files Chapter 11 for third time in five years.

C&S buys 185 Grand Union stores.

Big V Supermarkets, Florida, N.Y., files Chapter 11.

2002:

Safeway buys Genuardi's Family Markets, a 39-store chain in the Philadelphia area, for $550 million.

Wakefern Corp. in New Jersey acquires Big V, its largest customer.

C&S begins supplying Ahold's Tops Markets in Buffalo, N.Y.

Bozzuto's founder Adam J. Bozzuto dies. Michael A. Bozzuto named chairman, president and chief executive officer.

2003:

Grocery wholesaler Fleming goes out of business, representing $20 billion in wholesale volume.

C&S buys Fleming for $400 million and acquires Supervalu retail distribution assets in New England in asset swap.

Penn Traffic files second Chapter 11 bankruptcy.

Bozzuto's reorganizes sales force into three geographic regions to better respond to growth in mid-Atlantic and New England.

Offers frame relay to process debit/credit card transactions.

Bozzuto's adds 177 new accounts, including National Wholesale Liquidators, Westbury, N.Y., a 41-store close-out retailer; Roche Bros Supermarkets, Wellesley, Mass.; and Geissler's, East Windsor, Conn.

Introduces category management program.

2004:

Albertsons purchases Shaw's/Star Markets from J Sainsbury for $2.4 billion.

Hannaford Bros. purchases 19 Victory Super Markets in New England.

Bozzuto's hosts first retail excellence awards dinner to instill competition among its retailers.

Receives IGA President's Cup for greatest IGA development.

2005:

Penn Traffic emerges from Chapter 11 bankruptcy.

Bozzuto's receives IGA President's Cup for greatest IGA development

2006:

Supervalu returns to New England with Shaw's/Star Markets as a result of Albertsons acquisition.

Bozzuto's receives IGA President's Cup for greatest IGA brand development.

Bozzuto's Decade Of Change

As consolidation took place in the region, Bozzuto's has stayed focused on growing its independent customer base and expanding its services.

1996:

Netherlands-based Ahold buys Stop & Shop for $2.9 billion and divests 31 stores in New England.

Bozzuto's buys five stores from Ahold, bringing Bozzuto's corporate-owned stores to 13.

Bozzuto's begins operating new 475,000-square-foot distribution center.

Begins Electronic Data Interchange/Efficient Consumer Response initiatives.

Begins growing natural/organic, specialty and ethnic foods.

1997:

Bozzuto's begins supplying King Kullen, a 46-store chain based in Long Island that closed its union warehouse to become more competitive.

1998:

Ahold acquires Giant Food, Landover, Md., for $2.6 billion.

Cooperative Twin County Grocer, Edison, N.J., files Chapter 11, and proceeds to liquidate its assets.

Bozzuto's goes live with warehouse management systems, uses radio frequency technology.

1999:

J Sainsbury buys 53 Star Markets, Cambridge, Mass., for $490 million.

Penn Traffic, Syracuse, N.Y., emerges from Chapter 11.

Bozzuto's offers electronic shelf labels.

2000:

Delhaize America acquires New England-based Hannaford Bros. for $3.6 billion.

Grand Union files Chapter 11 for third time in five years.

C&S buys 185 Grand Union stores.

Big V Supermarkets, Florida, N.Y., files Chapter 11.

2002:

Safeway buys Genuardi's Family Markets, a 39-store chain in the Philadelphia area, for $550 million.

Wakefern Corp. in New Jersey acquires Big V, its largest customer.

C&S begins supplying Ahold's Tops Markets in Buffalo, N.Y.

Bozzuto's founder Adam J. Bozzuto dies. Michael A. Bozzuto named chairman, president and chief executive officer.

2003:

Grocery wholesaler Fleming goes out of business, representing $20 billion in wholesale volume.

C&S buys Fleming for $400 million and acquires Supervalu retail distribution assets in New England in asset swap.

Penn Traffic files second Chapter 11 bankruptcy.

Bozzuto's reorganizes sales force into three geographic regions to better respond to growth in mid-Atlantic and New England.

Offers frame relay to process debit/credit card transactions.

Bozzuto's adds 177 new accounts, including National Wholesale Liquidators, Westbury, N.Y., a 41-store close-out retailer; Roche Bros Supermarkets, Wellesley, Mass.; and Geissler's, East Windsor, Conn.

Introduces category management program.

2004:

Albertsons purchases Shaw's/Star Markets from J Sainsbury for $2.4 billion.

Hannaford Bros. purchases 19 Victory Super Markets in New England.

Bozzuto's hosts first retail excellence awards dinner to instill competition among its retailers.

Receives IGA President's Cup for greatest IGA development.

2005:

Penn Traffic emerges from Chapter 11 bankruptcy.

Bozzuto's receives IGA President's Cup for greatest IGA development

2006:

Supervalu returns to New England with Shaw's/Star Markets as a result of Albertsons acquisition.

Bozzuto's receives IGA President's Cup for greatest IGA brand development.