Grocery’s Greatest Stories, Part 2

In the late 1980s, Safeway found itself in danger of closing, as it was carrying billions of dollars in debt. A relatively new New York investment firm called Kohlberg, Kravis, Roberts & Co. moved to acquire the chain using leveraged capital. While the process helped Safeway accelerate its restructuring process and become profitable again, some observers criticized the move, in part because of the large number of workers who lost their jobs after the buyout.

Still, after the leveraged buyout, a number of additional private-equity firms followed suit and pursued grocery chains. Kohlberg Kravis acquired Stop & Shop Cos. in 1988, and then made a $5.03 billion bid for Kroger, which was America’s second-largest grocery operator at the time. After Kroger rejected the bid, some feared that Kohlberg Kravis would attempt a hostile takeover. Pursuing its own path, however, Kroger moved ahead with a $4.6 billion corporate restructuring plan.

Leveraged buyouts declined in popularity after the 2008 financial crisis, but several regional grocery chains that have filed for bankruptcy in more recent years were owned by private-equity firms, including Fairway and Southeastern Grocers. Meanwhile, some modern-day financial analysts speculate that leveraged buyouts are just starting to gain in popularity once again.

1987: Cullum Cos. and WalMart Join to Open Hypermarket

Hypermart USA was the United States’ answer to the successful hypermarket concept that had become so popular in European markets. In a joint venture, Walmart Stores and Cullum Co. opened five acres’ worth of a supermarket/discount store in Dallas in 1987. Known as a “mall without walls,” the 220,000-square-foot store featured 70,000 products. At the time of its opening, the store was drawing more than 60,000 shoppers a week who wanted to experience the combination of a supermarket, discount store, pharmacy, auto service center and mini-mall under one roof.

After Hypermart USA’s initial success, European companies started bringing their hypermarkets to the United States, starting with French retailer Carrefour, which opened a hypermarket in Philadelphia in 1998, and then French retailer Auchan, which opened a sprawling 250,000-square-foot store in Houston later that year.

While the concept proved a little too large to become profitable for Walmart and other companies, the idea of mixing grocery and general merchandise on such a large scale lived on in the Walmart Supercenter (Walmart’s first Supercenter opened later in 1988, in Washington, Mo.).

1993: Costco Merges with Price Co. to Form Largest Warehouse Club

In a deal that created the nation’s largest warehouse club, Price Co. and Costco Wholesale Corp. merged in a stock swap valued at more than $2 billion. Price Club was the original warehouse membership club, launched in 1976 by Sol and Robert E. Price, while Costco, which was founded in 1983 by Jim Sinegal and largely based on the Price Club model, took the concept a step further in the grocery arena by offering fresh meat and seafood, as well as a large produce department.

Walmart entered the warehouse club business in 1983 with Sam’s Club, and another player, BJ’s Warehouse Club, first opened its doors in 1984. Even though some analysts have questioned the potential longevity of membership clubs, especially in modern times since Amazon has disrupted retailing, the concept remains alive and well today, with Costco, Sam’s Club and BJ’s all operating successfully.

1996: Webvan Launches Online Grocery

While it has been reported that The Kroger Co. became the first supermarket to take online grocery orders for home delivery in 1995, several tech companies came onto the scene toward the end of the decade to capitalize on high-spending customers looking for more convenience. Webvan, founded in 1996, launched its operations in California and then pursued aggressive expansion plans, with a goal to operate in 26 major cities around the United States. 

Another tech player that followed suit was, which got its start in Washington state in 1997. One of the biggest challenges for these well-meaning startups was the lack of infrastructure — including warehouses — to support their grocery business. But their ideas led to the start of an e-commerce grocery business that has been gaining significant ground in recent years, especially as seasoned grocery operators combine their business savvy with new logistics methods.