The Birth & Death Of A Consumer Franchise: Waldbaum’s

In Business Blunder, Intelligent Fanatic by Sean Iddings0 Comments

Readers who grew up in the boroughs of New York City or in some areas of New England, prior to the mid 1980s, might be somewhat familiar with our next case. Waldbaum’s was a supermarket chain that started from humble beginnings and grew to dominate their markets.

The story behind the company is extremely interesting for numerous reasons. Namely, the founder died young. Similar to Simon Marks, of Marks & Spencer, the founder’s twenty year old son and widowed wife, at forty-eight, grew the chain from seven stores to one hundred and forty at its peak thirty-three years later. The store was doing $1.37 billion in revenues, $17 million in profits and was the 12th largest supermarket chain in the United States.

Equally as important to the growth and success of Waldbaum’s was what led to its downfall after the family sold the business to The Great Atlantic & Pacific Tea Company (A&P).

Throughout, we’ll point out where Waldbaum’s fell on the intelligent fanatic spectrum. We’ll also point out the patterns between other failures and A&P’s missteps after the purchase.

Founding — 1904–1947

Waldbaum’s was founded in 1904 by twelve year old Israel “Izzy” Waldbaum. Izzy, an Austrian immigrant, began selling butter and eggs in a little store located at 911 DeKalb Avenue in Brooklyn.

After successfully selling butter and eggs, Izzy started selling other goods. Like Michael Marks of Marks & Spencer, Izzy attracted customers with his low prices, store cleanliness and attention to service. Julia Waldbaum, who started shopping at the store at twelve years old and would later marry Izzy, later reminisced that “people used to stand three abreast to get into that little store.”

Izzy expanded Waldbaum’s with new locations, although he was extremely patient in growing the business. His wife Julia tended many store functions after their marriage, and their three children started behind the counter “before birth.”

Upon Izzy’s sudden death in 1947, at age fifty five, son Ira dropped out of his second year at NYU to run the store with his mother, who was secretary and cultural leader of the business. Izzy and his wife Julia were shrewd, smart business dealers that instilled many intelligent fanatic qualities into the business. Ira and Julia, like Sam Walton of Walmart, ran Waldbaum’s just as effectively when it had more than a hundred stores just as they did when they had seven.

screen-shot-2016-12-15-at-10-16-40-am

Significant Growth — 1947–1986

Growing a business from seven stores to one hundred and forty by itself is significant. Doing it with minimal debt and achieving industry leading profits, in a low margin business, takes business skill.

Unwavering focus is a common theme among intelligent fanatics. Ira and Julia focused on markets within their circle of competence. When Waldbaum’s opened a store in Manhattan, they quickly learned their mistake. Ira described that customers were seeking individual items and “that kind of volume wouldn’t work for us, so I got out.” Julia described Manhattan as an area with too many single people, hight rents, and no space for parking lots. Waldbaum’s knew their core customer and stuck to them like fly on paper.

“This is Waldbaum’s. [Pointed to tower of canned beets priced at three for $1.] Pile it high and sell it cheap. Do you know these are pre-World War II prices? But to have low prices and make a profit I have to get a fair crack at a large weekly family order. That’s why we can’t make it in Manhattan.” — Ira Waldbaum

Ira and Julia kept their eyes and ears wide open to find new locations. When customers at one of their Brooklyn stores wanted cartons for moving, Ira asked where they were going. When those customers mentioned Kew Gardens, Ira knew where Waldbaum’s was opening a new store. He said, “That’s my kind of market research.”

screen-shot-2016-12-15-at-10-12-25-am

                                        Julia Waldbaum Checking Fruit In a Surprise Store Visit (1967 New York Times)

Both Ira and Julia were obsessed with maintaining Waldbaum’s qualities of excellence as the company grew. There were no compromises. Customers expected excellence. The mother son duo did everything they could to maintain their excellence. Both spent many hours a day checking on stores with surprise inspections to help maintain a never satisfied culture within the company.

In 1967, at the age of sixty eight, Julia could be found inspecting 30 stores per month. Waldbaum’s had 74 stores at the time. In a New York Times article, Julia was followed on an inspection at the Waldbaum’s on 2892 Ocean Avenue in Brooklyn.

No detail went overlooked. Julia pointed out some dented grapefruits in the produce section, dusted the kidney beans, pointed out the deli line as too long and could be found talking with employees and customers. Both employees and customers respected the founder’s widow for her personal touch and drive. They also liked that they could talk with the lady who’s face adorned roughly four hundred products found at their stores.

screen-shot-2016-12-15-at-10-10-00-am

By 1982, when the company had over one hundred and thirty eight stores, Ira spent nearly all his time checking stores. He was chauffeured to up to ten different stores daily, spending travel time on the telephone and conducting business. What could be learned and transmitted during these surprise inspections was extremely valuable.

***

Simon Marks, of Marks & Spencer, and Sam Walton, of Walmart, were two intelligent fanatic retailers with the same customer obsessions as the Waldbaum’s. Simon made numerous surprise store inspections. At each stop he could reinforce the Marks & Spencer culture and maintain the company’s excellence.

In 1941, Marks made a surprise visit to the Staines store. He often could be found entering the back of the store and at this time was smoking. A warehouseman, unaware who was smoking, accosted Marks and threw him out saying, “Can’t you read, the sign says ‘No Smoking’!” Not too long after the manager introduced Simon to the warehouseman who thought he’d get fired. On the contrary, Marks gave the warehouseman a significant raise for standing up to the company’s majority owner and CEO.

Sam Walton often flew to his Walmart stores unannounced for surprise visits. Walton made sure managers were living up to his high standards of excellence. A one time Walmart employee learned:

“Always be Sam Walton ready, from the corners of your garden center to the roof of your store. Don’t give customers a reason to contact HQ to dispute a transaction. Handle it yourself. Create magic for your customers, surprise them in any way you can. If you get the chance… mow their lawn.”

***

Unlike other stores that sold a nearly identical assortment of goods, Ira and Julia knew that to stand out they had to cater to each market’s unique customer demographics. Ira described that in the Italian neighborhoods in Brooklyn Waldbaum’s stocked Italian sausage made by hand and “kept plenty of wrapped, cut wedges of Italian cheeses in the dairy section, so the place had the right smell.”

Waldbaum’s took small calculated risks and cut their losses fast. When Orthodox Jews on 13th Avenue in Brooklyn complained Waldbaum’s meats weren’t kosher enough, Ira closed those stores’ meat departments. Ira experimented with a fish store in a Brooklyn location. When his mother was found shopping at a competitor’s fish store, he quickly cut his losses. “If my fish wasn’t good enough for my mother, it wouldn’t be accepted by my customers,” he later said.

A leader’s personal spending philosophy directly transfers into their business. Personal frugality is a good indicator of the true cost culture at their business, regardless of what a CEO might tell you. Ira Waldbaum was a great example. Personally, Ira hated wasting money on little things like paper products.

“My wife once bought paper cups. Every time one of the kids threw a cup into the wastebasket I saw pennies going in there.” — Ira Waldbaum

Waldbaum’s was able to sell at low prices by achieving scale and pinching pennies wherever possible. On surprise inspections, Ira and Julia could be found quizzing store managers on where they could cut costs.

Businesses get repeat customers and positive word of mouth by building trust. That trust turns into a consumer franchise. I would argue that a consumer franchise does not come out of thin air. Quality leadership needs to build and maintain that trust. Intelligent fanatics possess the traits to build a consumer franchise.

Companies that lose their focus on building and maintaining trust with customers is the death of a consumer franchise.

Waldbaum’s never satisfied leadership, low cost and focus on superior service successfully created a consumer franchise. Waldbaum’s held a special place in customer’s minds. In response to an article on Ira Waldbaum in the New York Times, a customer wrote to the paper stating:

“I’ve been a fan of Waldie’s, as it is affectionately called in my household, for about 15 years. While I now live in Manhattan, I still look forward to pilgrimages to Waldie’s… I wish there was a branch opening in my neighborhood, but alas and alack, I’ll just have to reserve my enthusiasm for return visits to the old neighborhood.”

ap-2

A&P Acquisition (Super Foodmart) — 1986–2015

A&P offered to buy Waldbaum’s for $287.1 million in 1986 and the family, along with minority public shareholders accepted.

A&P mismanaged Waldbaum’s. By 2015, the remaining stores that once were known as Waldbaum’s were shut down in A&P’s bankruptcy.

A&P was once highly successful from the 1880s-1951. Where did A&P fail? The company got complacent, bureaucratic, failed to innovate and maintain the consumer franchise of excellence that A&P’s original founders George Hartford Sr. and his sons, George Hartford Jr. and John Hartford, built. Their leadership was very similar to Ira and Julia Waldbaum, but on a much larger scale.

A&P failed to reinvest any money into stores or innovate. This trend could be traced back to the 1950s. By the 1970s, A&P’s stores were outdated, and the company maintained this strategy after they acquired Waldbaum’s. Julia Waldbaum, until age ninety-nine could be found doing surprise store visits, but those visits had no impact without the control. Waldbaum’s lost its luster and A&P allowed competitors to take customers. Numerous turnaround attempts from the 1970s and onwards all failed.

After years of poor performance, A&P began to sell of some of the poorest performing Waldbaum stores and rebrand the rest. It was too little, too late.

Conclusion

The business skill of both Ira and Julia Waldbaum created a consumer franchise in the mind’s of NYC and New England customers. The trust those intelligent fanatics built with consumers dissolved as A&P took over Waldbaum’s. Had the Waldbaum family kept control of the business or sold to a long-term owner like Berkshire Hathaway, Waldbaum’s stores might still be in existence operating well today. We will never know. But it is for certain that poor leadership can lead to a brand’s demise.

The wrong type of owners and leaders can destroy a business. The great organizations can sustain success. It makes sense why quality, successful private businesses are adamant about selling or going public. Their business is likely to suffer.

Learn more about the Waldbaum’s and A&P:

Julia Waldbaum, 99, Owner of a Chain of Supermarkets

Ira Waldbaum, 74; Built Northeast Grocery Chain

A Supermarket Boss With A Mom-and-Pop Philosophy (New York Times, June 16, 1982)

When Julia Waldbaum Pinches the Fruit, Clerks Never Complain (New York Times, June 3, 1967)

The Great Atlantic & Pacific Tea Company

About the Author

Sean Iddings

Twitter

Sean is the founder of Unconventional Capital Wisdom, a registered investment advisor in New York State seeking to invest in high quality microcap companies led by intelligent fanatics. He is a member of MicroCapClub and writes about investments, entrepreneurship, and leadership on a number of blogs and publications. Sean is also a long distance runner having completed five marathons across the globe and a jazz/rock guitarist. He lives outside Ithaca, NY with his wife and daughter.

Leave a Comment