Publix Super Markets, Inc., 2013

akeland, Florida, Publix operates grocery stores in Florida, Tennessee, Georgia, and South Carolina. More than two-thirds of Publix’s 1,069 stores are in Florida. With 158,000 employees, Publix is the largest employee owned supermarket in the USA. Publix’s employees today own about 31 percent of the company, which is still run by the George Jenkins family as an employee stock ownership plan (ESOP) company. Free Wi-Fi is available in all Publix grocery stores, both for customers and employees. Publix emphasizes service and a family-friendly image rather than low price. Publix’s slogan is “Where Shopping Is a Pleasure.”

Publix’s sales for the second quarter of 2013 were $7 billion, a 3.8 percent increase from last year’s $6.8 billion. Comparable-store sales for Q2 of 2013 increased 2.1 percent, while net earnings were $400.9 million, compared to $381.6 million in 2012, an increase of 5 percent. On August 1, 2013, Publix’s board of directors increased the company’s stock price from $26.90 per share to $27.55 per share. Publix stock is not publicly traded and is made available for sale only to current Publix associates (employees), members of its board of directors, and founders of the company.

Like its rivals, Publix stores sell dairy, produce, deli, bakery, traditional food items, meats as well as typical health, beauty products that can be found in a grocery store. Many Publix stores also have pharmacy, sushi bars, cafes, a bank, and floral segments. Currently ranked number 67 on Fortune magazine’s list of 100 Best Companies to Work For and is ranked number 6 on Forbes’ list of America’s Largest Private Companies, Publix is the largest private company in Florida ranks number 106 among all Fortune 500 companies. Publix is the fourteenth-largest U.S. retailer.

Publix rival Supervalu reported sales down 4.3 percent in the third quarter of 2012, and rival Safeway also reported falling sales, as those companies (and Publix) struggle to compete with dollar stores, drugstores, and mass-market retailers, such as Walmart, all of whom are expanding their grocery departments and offering lower prices than conventional supermarkets. Supervalu, with its network of 4,400 supermarkets, reported a third-quarter 2012 loss of $111 million compared to a year-earlier profit of $60 million.

Copyright by Fred David Books LLC. (Written by Forest R. David)

History

In 1930, George Jenkins left a secure job in the middle of the Great Depression to open the first Publix Foods grocery store in Winter Haven, Florida. Mr. George, as everyone called him, understood the need for high morale in the workplace and initiated a profit-sharing plan and ESOP that is still present in Publix today. Chairman and founder, Mr. George began offering stock to Publix employees the same year he opened the first store.

By 1940, Publix stores were revolutionary in the sense they had air-conditioning, florescent lights, eight-foot wide isles, pumped in music, cold cases for frozen foods, donut and flower shops, and even electric doors. Other dècor included glass, marble, and stucco. People would travel for many miles to shop at the Publix “food palace.” In 1945, Publix purchased 19 All American food stores and subsequently converted them into Publix stores to meet rising demand. In the 1950s, Publix moved their headquarters to Lakeland, Florida, and built a large distribution warehouse there as well.

Throughout the 1960s, Publix expanded over the entire state of Florida and by 1974 had reached $1 billion in sales and then $5 billion by 1989. In 1991, Publix opened a supermarket in Savannah, Georgia, and a distribution center in Lawrenceville, Georgia. Publix soon expanded into South Carolina and Alabama, and in 2002 opened the first Publix grocery store in Tennessee. In 2009, Publix opened its 1,000th store becoming only one of five U.S. grocery retailers to operate more than 1,000 stores.

In its history, Publix has never had a layoff of employees. The company has a tuition employee reimbursement program originally designed for degree-seeking students. This benefit has recently become available to Publix employees taking individual courses or technical training, including online courses. The program is available to all Publix employees who work an average of 10 hours per week for six months.

Internal Issues

Vision and Mission

Publix’s vision is “to become the premier provider of quality grocery items for American families.” The company’s mission statement is:

· Our Mission at Publix is to be the premier quality food retailer in the world. To that end we commit to be:

· • Passionately focused on Customer Value,

· • Intolerant of Waste,

· • Dedicated to the Dignity, Value and Employment Security of our Associates,

· • Devoted to the highest standards of stewardship for our Stockholders, and

· • Involved as Responsible Citizens in our Communities.

In contrast, Kroger’s mission is as follows:

· Our mission is to be a leader in the distribution and merchandising of food, pharmacy, health and personal care items, seasonal merchandise, and related products and services.

Supervalu is a major competitor to Publix. Supervalu’s mission is:

· We will provide America’s Neighborhoods with a superior grocery shopping experience enhanced by local expertise, national strength and a passion for our customers.

Organizational Structure

As illustrated in Exhibit 1 , it appears that Publix operates from a functional organizational structure. Note there are no regional presidents by state or region or type of store. Some analysts contend that Publix is too large an organization to still be operating from a centralized, functional design. Although executive titles in Exhibit 1 do not reflect a divisional structure, some researchers say Publix is organized into four divisions: Miami, Atlanta, Lakeland, and Jacksonville.

EXHIBIT 1 Publix’s Organizational Chart

Facilities Location

Publix has leases to open new supermarkets in North Carolina in 2014. Exhibit 2 reveals where Publix’s facilities and stores are located. In total, Publix operates more than 48-million square feet of supermarket space with supermarkets varying in size from 28,000 to 61,000 square feet. Typically Publix supermarkets are located in strip shopping areas, and most of these stores are leased but the company has some standalone stores. Publix operates 1,069 supermarkets, eight distribution centers, and six manufacturing facilities. Almost all their distribution and manufacturing facilities are located in Florida and a few in Georgia. Among the six manufacturing plants are three dairy plants, two bakeries, and one deli plant. To aid in control and cost reduction, Publix is backward integrated with more than 72 percent of all products (based on cost) being delivered through Publix distribution centers. Publix is not dependent on any one or few suppliers for any meaningful amount of total sales. Publix is more backward integrated than most grocery chains with their private label items such as dairy and bakery being manufactured solely by and for Publix.

Sustainability

Publix is building more energy-efficient stores, minimizing water use, offering reusable shopping bags, and working with suppliers on more environmentally friendly packaging options. Publix emphasizes for employees to pack more items per bag and this program has helped reduce the total bags used per day by one million. Publix sold more than 21 million reusable bags priced at $0.99 each between 2007 and 2012. Publix offers customers options for bagging groceries: choosing paper, plastic, or reusable bags. Publix’s annual total recycling rate is about 50 percent with 221,900 tons of cardboard, 8,800 tons of plastic, and 3,200 tons of mixed paper being recycled annually. Publix Pharmacy customers return more than 2.8 million vials for recycling annually.

Awards

Publix has won many local, regional, and national industry and philanthropic awards. Some recent awards are:

· • One of the “100 Best Companies to Work For” (1998-2012), Fortune

· • One of the “Best Places to Work in IT” (2005-2010), Computerworld

· • One of the “Best Companies to Work for in Florida” (2009), Florida Trend

· • Sustainability Excellence Award (2009), Supermarket News

· • One of the “Most Admired Companies” (1994-2009), Fortune

· • “Green Grocer” Award (2008), Progressive Grocer magazine

Advertising

In 2012, 2011, and 2010, Publix spent $208 million, $202 million, and $192 million respectively on advertising.

EXHIBIT 2 Where Are Publix Stores Located?

Source: Company documents.

Segments

Publix’s Form 10K does not provide a by-segment breakdown of revenues or profits by any division or region, except to say that their (a) grocery segment contributes 85 percent of revenue and its (b) other segment provides 15 percent, and those percentages have not changed much in recent years. Although not disclosed in the Form 10K, Publix actually has segments and regions as described in this section.

Apron’s Cooking School

Publix operates seven Apron’s cooking schools, located in Boca Raton, Jacksonville, Plantation, Sarasota, Tampa, Tallahassee, Florida, and Alpharetta, Georgia. Classes are geared toward all cooks wanting to expand their repertoire and feature renowned chefs, authors, and cooking celebrities, as well as experienced cooking instructors. The classes are designed to teach skills including basic techniques and wine pairing. Publix also offers classes for children ages 8 to 12, with separate classes for 13- to 18-year olds and adults.

Publix GreenWise Markets

Publix GreenWise Markets is a concept the company introduced in response to the increase in the number and profitability of health food stores. GreenWise Markets were created to increase awareness of nutrition and focus on organic and natural items. These stores are similar to the Whole Food Market chain. Most regular Publix stores have a GreenWise section, but the first standalone GreenWise Market grocery store opened in 2007 in Palm Beach Gardens. These stores include salad and hot bars.

Publix Sabor

Publix operates six stores, branded “Publix Sabor” (sabor is Spanish for “flavor”), which cater to Hispanic Americans living in Florida and offer products for Hispanics. Four Publix Sabor locations are in the Miami area, one is in Orlando, and a sixth in Palm Beach opened in the summer of 2012. Publix Sabor locations have bilingual English-Spanish employees, open seating cafès, and a wide selection of hot foods. Publix offers cafes and hot foods because many Hispanic Americans grew up in foreign cities, which had open public squares where people socialize and eat.

Pharmacy

Publix’s first in-store pharmacy was opened in 1986 in Altamonte Springs, Florida. By 1995, one-third of Publix stores had a pharmacy and today, approximately 81 percent of Publix stores include a pharmacy. Publix Pharmacies consistently ranked number one for customer satisfaction among supermarket pharmacies in several surveys conducted by independent research companies.

Publix offers several types of free antibiotics to its customers. Customers must have a prescription; they are given a maximum of a two-week supply. These medications include amoxicillin and ampicillin and even penicillin. Publix also offers another free prescription, metformin, for Type II Diabetes, the generic of Glucophage. In August 2011, Publix began offering Lisinopril, a angiotensin-converting enzyme inhibitor that is used to prevent, treat, or improve symptoms of high blood pressure, certain heart conditions, diabetes, and certain chronic kidney conditions, as another free prescription. Customers can get a 30-day supply of this vital prescription for free at any Publix Pharmacy. Publix also offers free flu shots to associates (employees) and shots for $20 for their family member(s).

DVD Kiosks

In September 2009, Publix reported it started adding Blockbuster DVD rental kiosks to its stores, with the movie rentals starting at $1 per day. In 2010, Publix completed its rollout of Blockbuster Express kiosks to its stores.

Publix Pix and Publix Liquors

Publix operates 11 Publix Pix gasoline-convenience stores. Locations are limited during the trial basis of the concept. In addition is Publix Liquors, a stand-alone liquor store. The liquor sales will be in an area accessed via an entrance separated from the supermarket, as required by local laws. The company is modeling this after many other grocery chains. Currently, all Publix Pix locations are adjacent to a Publix Super Market. Publix opened its first stand-alone liquor store in 2009 in Orlando.

Finance

Publix’s Stock

As an ESOP, Publix’s common stock is not traded on any of the established securities exchange markets. As of February 5, 2013, there were 7.7 million shares of Publix stock outstanding. With no open market providing daily stock transactions there is no clear market value for the stock so the board sets the stock price based on several factors including (a) state of the economy, (b) comparisons of similarly publically traded companies, and (c) after an analysis of Publix’s own financial statements. Publix paid a cash dividend on common stock of $0.89 in 2012, $0.53 in 2011, and $0.46 in 2010. Although not obligated to pay dividends, the board foresees paying comparable cash dividends in the future, on June 1 of each year.

Publix offers stock to its associates through three programs: Profit plan (ESOP), purchase plan, and 401(k) plan. The profit plan generally gives an associate who has worked 1,000 hours in an anniversary 7 to 10 percent of the regularly pay earned in the form of free stock the following March 1. An associate must work three years to be vested in the plan. The plan is at no cost to the associate. Publix associates may buy the stock outright in the purchase plan, however there is a six-month restriction on buying stock once it is sold. Publix matches 50 percent of 3 percent of eligible wages through the 401(k) plan, up to $750 per year in matched contributions. Publix offers stock to its board of directors through a separate plan.

Income Statements

Publix’s recent income statements are provided in Exhibit 3 . Note that the company’s revenues increased 1.9 percent in 2012 to $27.5 billion whereas net income increased 4.0 percent to $1.55 billion.

Balance Sheets

Publix’s recent balance sheets are provided in Exhibit 4 . Note that the company has zero goodwill, which is good, and overall is in excellent financial condition.

EXHIBIT 3

Source: 2012 Form 10K, p. 24.

EXHIBIT 4 Publix’s Balance Sheets (000 Omitted)

Source: 2012 Form 10K, p. 23.

Competition

Amazon is getting more and more into the online grocery business, initially in California but now moving east rapidly towards Publix’s territory. The grocery store business has low margins given the intense price competition, high food inflation, and high spoilage of inventory. Competitors include national and regional grocery stores, super centers, drugstores, specialty stores, convenience stores, and even restaurants. Most firms attempt to compete on either price, or selection of high-end goods. Location also is a driving factor in competition but usually after price for most customers. Publix competes with national chains Kroger, Supervalu, Safeway, Costco, and Walmart. In addition, regional competitors include BI-LO, Winn-Dixie, Ingles, Piggy Wiggly, and Fresh Market. Food Lion recently closed 113 underperforming stores, including all its Florida and Kentucky stores, and rebranding some others as part of their new market strategy.

Publix has grown faster and been more profitable than Winn-Dixie Stores and BI-LO, two major rival grocery store chains that are also headquartered in Florida. In March 2012, Winn-Dixie became a wholly owned subsidiary of BI-LO Holdings. At that time, BI-LO moved its headquarters from Greenville, South Carolina, to Winn-Dixie’s headquarters site in Jacksonville, Florida. Together, Winn-Dixie and BI-LO operate 690 grocery stores in eight southeastern states, with heavy emphasis in Florida.

Exhibit 5 reveals comparative competitive information for Publix versus several rival grocery chains. Note that Publix trails the three rivals in revenue per employee, which is not good, but Publix’s earnings per share leads all rivals, which is good.

Kroger

Kroger is a major competitor to Publix and is doing great. The company increased its dividend payout by 30 percent in late 2012. Kroger operates 2,435 grocery stores in 31 states, with half of these having fuel centers. Founded in 1883 and headquartered in Cincinnati, Ohio, Kroger has more than 330,000 employees. Kroger also operates department stores, drugstores, jewelry stores, convenience stores, and service stores. Kroger manufactures certain food items for their grocery store business. Kroger is a well-diversified company, offering 15 different branded grocery stores, two “price-impact warehouse” food stores, Fred Meyer department stores, four market place stores, six convenience stores, four jewelry stores, and three service stores that include Kroger finance, and The Little Clinic.

One of the world’s largest retailers, Kroger’s banner name businesses include City Market, Dillons, Jay C, Food 4 Less, Fry’s, King Soopers, QFC, Ralphs, and Smith’s. Kroger owns and operates 789 convenience stores, 337 fine jewelry stores, 1,109 supermarket fuel centers, and 38 food-processing plants in the USA. Recognized by Forbes as the most generous company in the USA, Kroger supports hunger relief, breast cancer awareness, the military and their families, and more than 30,000 schools and grassroots organizations in the communities it serves. Kroger contributes food and funds equal to 160 million meals a year through more than 80 Feeding America food bank partners.

EXHIBIT 5 Comparative Information Among Grocery Chain Firms

EPS, earnings per share.

Source: Company documents.

Kroger has self-use health screening kiosks in almost all locations nationwide. Assessments include blood pressure, weight, body composition, BMI, color vision, and the ability to upload blood glucose numbers and other biometric results. “Our customers tell us they want to make healthy choices but don’t always know where to start,” said Matthew Feltman, Kroger’s health strategy coordinator. “We’re pleased to expand the availability of Kroger HealthCENTERs to help customers take their first steps toward overall health and wellness.” Kroger customers will be able to create personal health record accounts, which they can access at any time at Kroger.com , to chart their progress. They will also have access to health information and solutions designed to help them in their personal health and fitness goals.

Supervalu

Supervalu is a major rival to Publix, but it is not doing so well. In late 2012, Supervalu initiated a cost-reduction program, reduction of capital expenditures, and also suspended its quarterly dividend. In addition, Supervalu closed 60 underperforming stores, including 38 in its retail food reporting segment and 22 Save-A-Lot locations. The largest cuts will come from the Albertsons chain, which will shut 27 locations. Supervalu had revenue of $36.1 billion in its fiscal 2012, but it has endured three consecutive years of declining revenues.

Supervalu operates under the brand names Acme, Albertsons, Farm Fresh, Save-A-Lot, and several others. Supervalu has more than 4,000 stores with more than 1,300 being hard discount stores. Approximately 1,900 stores were independently owned and 798 had an in-store pharmacy. Supervalu’s footprint stretches across the USA including Alaska, but the bulk of all stores are in the Eastern USA. Founded in 1871 and headquartered in Eden Prairie, Minnesota, Supervalu has 130,000 employees.

Supervalu has been struggling since 2007 when their stock price was an all-time high of just under $50. In the fall 2012, the stock price was near $2. Much of the decline can be attributed to a failed acquisition strategy when the firm acquired Albertsons grocery store and a logistics company during the height of the stock market run-up in 2005 and 2007. Goodwill for Supervalu totaled $6.9 billion in 2008 and $3.7 billion in 2010 but dropped to $800M in 2012. However, Supervalu paid way over fair value for their acquisitions and today is a highly leveraged company with debt to equity ratio of 98 compared to 1 for the industry average. Also, inventory turnover, an extremely important ratio when dealing with perishable goods, is 12 for Supervalu compared to 18 for the industry and 19.8 for Publix.