Eagle Food Centers Inc. for the last 30 years has been a distant third in the Chicago area’s retail food market, and now it’s fighting to maintain even that position.
The essentially rural, 101-year-old chain based in this Rock Island suburb 150 miles west of Chicago has slightly less than a third of its 101 stores in the metropolitan area, and they account for only about 25 percent of sales.
The rest of Eagle’s stores stretch from Indiana as far west as Iowa City. But the company continues to try to be a player in the Chicago market, even though it has consistently had trouble competing with its larger rivals.
In addition to its traditional grocery store rivals, Jewel Food Stores, with its 164 area stores, and Dominick’s Finer Foods, with its 100 (84 Dominick’s stores and 16 Omnis), Eagle now also must contend with the growth of discount giants like Wal-Mart Stores Inc., Kmart Corp. and Dayton Hudson Corp.’s Target.
“Neither the stock nor bond prices of this company have been reflective of a robust situation,” said Thomas A. Meyers, senior vice president and director of research for Conseco Capital Management in Indianapolis, one of the few analysts who tracks Eagle.
The last seven years have been difficult. Eagle was spun off in a leveraged buyout by then-parent Lucky Stores Inc. in 1987, then taken public two years later by New York-based Odyssey Partners, which still holds a controlling interest. Eagle stock peaked at $21 a share just after the public offering but has since slid steadily, closing Friday at $3, unchanged, on the Nasdaq market.
Despite the battering the company has taken in Chicago’s crowded retail market, Eagle officials claim they have made considerable progress at reform and plan to open new stores and remodel others.
They pointed to a management shakeup earlier this year that brought previous company President Pasquale “Pat” V. Petitti back from retirement in Florida to replace Gerald E. Barber as president and chief executive; a reduction in labor costs resulting from an early-retirement program; and refinancing of $70 million in high-interest debt dating from the 1987 buyout as steps that should help.
The most immediate task for Petitti is to stabilize the chain. Eagle marked its centennial year in 1993 with a loss of $10.1 million on sales of $1.08 billion-primarily because of continued slippage in the Chicago market. Eagle lost another $6.3 million on sales of $502.3 million in the first half of this year.
Barber, who had been president only two years, quit under pressure from the board after being unable to revive declining sales and margins. Robert A. Jaynes, head of retail operations, followed him out the door within a few weeks.
Sales have declined every year since the chain went public. More telling is the fact that operating profits (earnings before income taxes, depreciation and amortization) have slipped from 4.79 percent of sales in 1990 to 4.15 percent last year. Same-store sales-an industry benchmark of how well a chain is really doing-were down 3.4 percent in 1993 from 1992.
Petitti said he is continuing a program to close non-producing outlets. Five in the Chicago area were shut earlier this year. Overall, Eagle’s goal is to reduce its total store count to 93 by the end of the year, down from 108 in 1992.
“We have a core of three-fourths of our stores that are in good locations, and we think we can make a go of it,” said Petitti. He hopes to use a portion of $30 million in new borrowing and the proceeds of the sale of 12 stores to investment groups to finance expansion. The stores would be leased back from their new owners, a common practice among retail chains, he said.
“They bought themselves the time and liquidity needed to promote and renovate their way to higher sales,” said Conseco’s Meyers.
To remain visible in the Chicago area, the company also has lengthened the hours of its specialty departments, upgraded its meat counter, conducted training sessions with employees to stress service and followed the lead of other chains by issuing a discount card to keep regular shoppers.
Petitti said he plans to stick with the Eagle Country Market format that was introduced in 1991.
“We still have some strong pockets in the Chicago area,” said Herbert T. Dotterer, a senior vice president and chief financial officer. Dotterer, a veteran of both the Jewel and Kroger chains, noted Eagle’s strength in the growing Naperville, Aurora and Joliet areas. “The area is big enough for a third player,” he said.
Eagle officials admit they are still suffering from a proliferation of discount stores that has cut into sales of many profitable items, including pet food and cosmetics.
The discount-store wars intensified with Target’s entry into the market last year. There are now nearly two dozen Targets in the area, marking a continuation of the warehouse-style supermarket invasion of the 1980s and a subsequent proliferation of superstores specializing in everything from pet food to kitchen utensils.
“Thirty percent of Target’s SKUs (store keeping units, or products on the shelf) are supermarket or combination-store items,” said Petitti. “The pie is only so big.”
To fight back, Eagle opened its first warehouse-style supermarket in Elk Grove Village in early 1993. But Kmart countered by opening one of its Super Centers, combining grocery and discount stores, a few blocks away early this year. Eagle also has stores near the other four recently opened Kmart Super Centers.
“We also got hit when Jewel and Dominick’s started shooting back,” said Petitti, but he added, “In the past few weeks we have seen some indication that that we’re getting back some of the business.”
Eagle has been something of a football in the retail food industry since expanding from its Quad Cities base into Chicago in the early 1960s. It was bought in 1961 by Consolidated Foods Corp. (now Sara Lee Corp.), which was forced by the Federal Trade Commission seven years later to sell it off in pieces to Kroger Co. and Lucky.
