Discuss Marketing Strategy of Bozzutos, Inc. within the Marketing Management forums, part of the PUBLISH / UPLOAD PROJECT OR DOWNLOAD REFERENCE PROJECT category; Statistics: Public Company Incorporated: 1945 as John Bozzuto & Sons, Inc. Sales: $319.13 million Employees: 400 Stock Exchanges: NASDAQ OTC ...
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Marketing Strategy of Bozzutos, Inc.
Marketing Strategy of Bozzutos, Inc. - December 13th, 2010
Incorporated: 1945 as John Bozzuto & Sons, Inc.
Sales: $319.13 million
Stock Exchanges: NASDAQ OTC
SICs: 5122 Drugs, Drug Proprietaries and Druggists Sundries; 5141 Groceries, General Line; 6159 Miscellaneous Business Credit Institutions; 7358 Equipment Rental and Leasing; 8721 Accounting, Auditing and Bookkeeping Services
Bozzuto's, Inc. is a wholesale distributor of groceries and nonfood items to independent retail supermarkets and grocery and convenience stores in northern New Jersey, southeastern New York (including Long Island), and southern New England. A subsidiary, AB Small Business Investment Co., Inc., offers secured business loans to qualified independent small businesses; in many cases, loans are granted to Bozzuto's retail grocery-store customers so that they can open new stores or expand existing facilities. Another subsidiary, A.B. Leasing Corp., leases data-processing and delivery equipment. Under the direction of Adam M. Bozzuto, its founder, Bozzuto's, Inc. celebrated its 50th anniversary in 1995.
A native of Waterbury, Connecticut, Bozzuto founded his wholesale company in 1945. However, Bozzuto's remained relatively obscure until 1970, when 190,000 shares of the company's common stock (about one-third of the total) were offered to the public. By 1970, there were some 1,930 grocery wholesalers in the United States, of which 469 were of the type called "voluntaries"--food jobbers selling largely to affiliated retailers. Voluntary grocery wholesaling began in the 1920s as a means of meeting competition from chain stores. Such wholesalers were usually privately owned, and they sold their wares to a select group of independent supermarket owners with whom they had developed close relationships. Typically, voluntary wholesalers also provided additional services on a fee basis such as site selection, financing, training, advertising, and accounting. Voluntaries accounted for nearly half of all wholesale grocery sales in 1970.
Voluntary wholesale grocers provided retailers with goods at warehouse cost plus a small fee, based on volume, freight charges, and other relevant service fees. In addition, they received a two percent discount from their suppliers for prompt payment. Often they provided financial aid to retailers as well. While the profit margin for voluntaries usually was less than one percent of volume, the return on volume could be augmented in a number of ways, such as by packaging and manufacturing. The sale of nonfood items also helped boost revenue so that by the end of 1966 voluntary wholesale grocers were carrying as many as 7,205 different items.
Like many other wholesalers, Bozzuto's established an affiliation with IGA (Independent Grocers' Alliance), a group of about 4,000 retailers, in 1970. Through this alliance, food and other products were typically sold to affiliated retailers on a cost-plus-commission basis. By entering this association, Bozzuto's began serving as many as 184 stores, and its sales and revenues increased from $17 million in 1965 to $46.8 million in 1970. Furthermore, net income rose from $104,503 to $620,131 over this period, while long-term debt shrank from $299,909 to $42,765.
During this period of prosperity, Bozzuto's bought leases on six supermarket locations which it in turn subleased to retailers for a profit; in addition, the company rented a 183,860-square-foot warehouse in Cheshire, Connecticut, which provided customers with 45 percent of their product requirements. Bozzuto's then went on to construct a 42,000-square-foot distribution center for perishable food products in 1971, enabling the company to expand service to its customers in frozen foods, meats, ice cream, fruits and vegetables, and dairy products. Ultimately, this investment markedly increased Bozzuto's capacity to provide the product requirements of its customers to the level of 61 percent. During this period, Bozzuto's also employed a lucrative method of distributing its nonfood items; called dropshipping, this practice gave customers the option of purchasing products for delivery directly from Bozzuto's suppliers rather than from Bozzuto's own warehouses. Drop shipments represented 30 percent of company sales in 1970. By early 1972, Bozzuto's managed a group of 196 customers, 62 of which were affiliated with IGA and accounted for about two-thirds of the company's total sales and revenues.
This period of strong financial growth also afforded Bozzuto's the opportunity to acquire other businesses. In 1971, the company bought Gordon Fruit and Produce Co., a wholesaler, to provide an entry into the produce business. That same year, Bozzuto's purchased another wholesaler, J. Daren and Sons, Inc. of Norwich, Connecticut, for $757,500 in cash and notes. This acquisition brought Bozzuto's into the institutional-food field for the first time. In 1973, Bozzuto's bought Wayco Foods of Elk Grove Village, Illinois, but sold its controlling interest three years later. The company then sold J. Daren and Sons in 1978. These acquisitions helped raise Bozzuto's consolidated sales to $132 million in 1974, while net earnings rose to $612,494. In addition to its food-service operations, Bozzuto's had by this time developed 10 new supermarkets and remodeled many others for its customers. Moreover, it was engaged in advising independent businessmen in all phases of investing in a supermarket, from raw site analysis to store planning, equipment, and labor supply. This venture led to the creation of a department of advertising and sales promotion in 1974; two years later, Bozzuto established a loan subsidiary called AB Small Business Investment.
Net sales rose from $86.9 million in 1974 to $116.4 million the following year, but dipped slightly during the next three years due to the sales of Wayco and Daren. Similarly, net earnings rose from $612,494 to $942,596 in 1977 during this period, before falling to $528,258 in 1978, largely due to a $133,438 loss posted by Daren. By 1981, Bozzuto's had become the exclusive distributor of products under the IGA label in its marketing area, even though its number of retail grocery customers had fallen to about 150. The company continued to expand operations by buying food and nonfood items from hundreds of suppliers, some of them manufacturers and processors and others food brokers. Furthermore, in 1980 Bozzuto's opened an experimental warehouse-style retail grocery store in New York called Buy-N-Save Cash & Carry.
Bozzuto's also continued to expand its existing operations. Additions to the Cheshire warehouse had brought its capacity up to 245,000 square feet by 1981. In addition, the company's fleet of vehicles now consisted of 45 cargo trailers, 27 refrigerated trailers, 39 tractors, and 27 automobiles. Continuing its rise in profitability, Bozzuto's posted net sales which rose from $148.4 million in 1979 to $179.5 million in 1983. Net income, $717,000 in 1979, dipped as low as $434,000 in 1981 but recovered to $702,000 in 1982 and $757,000 in 1983.
By 1988, Bozzuto's was distributing products to about 245 supermarkets and superettes and 500 convenience stores, although the latter represented only 4 percent of sales. The majority of Bozzuto's customers remained in small- or medium-sized cities. Food products distributed included canned goods, cereals, dairy products, delicatessen items, meats, poultry, seafood, fresh fruits and vegetables, and frozen foods. Nonfood items included cigarettes and tobacco products, health and beauty aids, paper products, cleaning supplies, and small household items. Most products distributed bore the brands of the manufacturers or processors from which Bozzuto's purchased the products, including many nationally advertised brands.
Also during this period, Bozzuto's convenience-store distribution warehouse was moved into a separate facility for greater flexibility and increased production. The fleet of tractors and trailers was being continuously upgraded to preserve the company's record for on-time deliveries. In addition, the company invested in a computerized purchasing system, which was specifically designed to balance inventories and included a "forward buy" feature to maximize the return on investments. Bozzuto's also offered a complement of advertising, merchandising, accounting, and store-design and development services to independent retail grocery operations. Promotional aids included a "Monopoly" game intended to raise spending by retail customers.
In late 1986, Bozzuto's acquired a new subsidiary called A.B. Leasing Corp. for about $1.2 million. This company leased data-processing and delivery equipment. During this period, the company enjoyed steady growth from $220.8 million in 1984 to $233.9 million in 1988; but net earnings fell every year, from $852,000 in 1984 to $450,000 in 1988. Furthermore, long-term debt amounted to about $2.8 million at the end of 1986. However, Bozzuto's fortunes began turning around in 1989, when revenues rose to $259.8 million and net income to $511,000. Two years later, net income passed the $1 million mark for the first time and revenues totalled $260.7 million. 1992 proved even more successful, with $1.65 million earned on revenues of $289.5 million.
In 1993, revenues reached a record $319.13 million and net income a record $1.84 million. Long-term debt was about $13.5 million at the end of the fiscal year. By that time, Bozzuto's offerings included its own Shur Valu private-label line. About 20 Shur Valu items were being offered in bulk to warehouse clubs, as well as nationally branded club packs like 20-pound Meow Mix from Ralston Purina, 35-ounce Cheerios twin pack, 12-pack Scott paper towels, and 256-ounce Tide detergent. Joel Sebastian, Bozzuto's vice president of merchandising and advertising, told Progressive Grocer that the company priced club items to make an 8 to 14 percent profit margin. In 1994, Bozzuto's was conducting quarterly IGA-brand promotions. Brian McColgan, a private-label buyer for Bozzuto's, told Progressive Grocer that in a single promotion the company "moved close to 50,000 cases, including 6,000 cases of apple juice, 4,000 of paper towels, and 4,000 of bleach."
The 1970 public offering of Bozzuto's stock was priced at $9.75 a share. By 1986, shares were trading over-the-counter at a range between $14 and $22 on the NASDAQ exchange. In subsequent years, the value of the stock fell, although trading was always thin; in 1990 and 1991, for example, there were no bids at all. In 1992, Bozzuto's stock traded in a range of only $8 to $10 a share, well below its book value of $24.50. Interviewed by a reporter for Barron's in 1993, Ed McLaughin, an investor in closely held and inactively traded securities, said the stock was grossly undervalued. As of 1994, there were only 210 stockholders. Adam Bozzuto controlled about 44 percent of the stock, his son Michael A. Bozzuto about 10 percent, and his daughter Jayne A. Bozzuto about 10 percent.
Michael Bozzuto, who had been serving as executive vice-president and treasurer of the company since 1981, was named president and chief executive officer in 1994. He also continued in his former posts. Adam Bozzuto, who had been president and chief executive officer, remained chairman of the company at the age of 78, and his son continued to report to him. Jayne Bozzuto continued to serve as a vice-president, a position she assumed in 1982.
Principal Subsidiaries: A.B. Leasing Corp; AB Small Business Investment Co., Inc.; Boz-White Hills, Inc.; Fresh-Line Distributors, Inc.; Tolland Supermarket, Inc.
Last edited by anjalicutek; December 13th, 2010 at 05:43 PM..
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