Smart & Final's Not So Marvelous SmartCo Foods' Misadventure in Denver

We published the photo above in a July, 2010 story - Smart & Final Opens Second SmartCo Foods Store Today in Metro Denver, Colorado - about the opening of the second SmartCo Foods store in the Denver area, with this caption: One of the numerous ways Smart & Final is advertising and promoting its SmartCo Foods chain launch in Metropolitan Denver, Colorado is with the mobile billboard seen above. In this photograph taken from a moving car, you can see the SmartCo Foods logo wrapped around two of the Denver Regional Light Rail System's cars. The "SmartCo Foods Train Car" is garnering lots of impressions - both of the general sort and of the kind referred to in the advertising business. [Photo credit: Cass Jupiter for Fresh & Easy Buzz.]

The photo takes on a very different symbolism today, using it in this piece. That symbolism: Saying so long to Smart & Final's Denver SmartCo Foods venture, as seen in the rear-view mirror, as the retailer closes its five stores and pulls out the market a mere five month's after entering.

News/Analysis/Commentary

It's been nearly four weeks since City of Commerce, California-based Smart & Final announced the closing of its five SmartCo Foods combination supermarket/warehouse club/farmers market format stores in metropolitan Denver, Colorado - and since we published our analysis and commentary piece about the development two days later [November 17, 2010 Smart & Final Pulls the Plug On All Five SmartCo Foods Stores in Metro Denver After Being Open Less Than Five Months] - but many players in the region's food retailing community and allied grocery trade, along with local media and consumers, remain as puzzled about the abrupt store closures and decision by Smart & Final to exit the market - considering three of the five stores were open for less than five months and the other two for about three months - as they did when the announcement was made on November 15.

And while those in the Colorado grocery industry and others in the region remain puzzled, many of the 500 employees Smart & Final hired to work in the five SmartCo Foods stores are down right mad, not only about the abrupt store closures coming a week before the Thanksgiving holiday, and how it was handled, but also about the entire venture. All five stores, which were opened between June and August of this year, are set to be closed by December 15, ten days before Christmas.

In our November 17 piece we posed some questions about Smart & Final's SmartCo Foods venture in Denver, along with offering some analysis, and answering some but far from all of the questions posed.

Since publication of the piece, we've heard from retailers and members of the Colorado grocery trade, SmartCo Foods' store employees, a reporter for a major Denver-area newspaper, and a couple other Fresh & Easy Buzz readers in the region.

In their correspondence they all expressed various degrees of puzzlement over the abrupt store closures, but also asked questions based on reading our piece and local reports, as well as offered interesting first-hand information about SmartCo Foods and its operations in the area over the last five months.

We've also been investigating the closures since publishing our piece on November 17 and have learned some new information from a variety of sources.

Below is a summary of five key developments we've discovered about Smart & Final's closure of the five SmartCo Foods stores. We'll offer a conclusion following the summary.

1. The stores ran into trouble in terms of having sales volumes way below company projections almost from the start. For example, at one of the five SmartCo Foods' stores, Smart & Final cut the hours of most full-time employees from 40-hours to 24-hours a week about a month after the store opened, giving them part-time status, according to Danna Cholas, a former store employee. Additionally, according to Cholas, after the store was opened for just 90-days, over half of the employees were let go.

Cholas posted the note below on her Facebook page, as well as on the SmartCo Foods Facebook page:

Danna Cholas
"I 100% agree. Smart & Final owns SmartCo & they said oh we are bringing this new company to CO & bringing 500 jobs. Then 30 days after our store was open, they cut hours from 40 down to 24 hours. Then 90 days after the store was open, more than half the people were let go. Then from there, hours really went down the toilet. Some people were given 8 hours a week and then half the people were still on the schedule, but they had NO hours. How in the hell do you do that to people? Instead of SmartCo just letting those people go, they continued to leave people on the schedule w/no hours and then expected people to be at their beck & call. That is not right. All I know is, everyone just got totally screwed over and what makes it worse is, that it is right before the holidays."

Her post was a reply to a previous one made by another former SmartCo Foods store employee, Anita Romero, who said the situation was similar at her store.

Romero writes on her and on the SmartCo Foods' Facebook pages:

Anita Romero
"As an employee I can say since day 1 this company has seemed fishy, never got direct answers. Management from corporate/Cali was the worst they did'nt (sic) have the decency 2 tell their own employees anything they just kept cutting hrs n laying people off !! when we were hired an at orinentation (sic) they could of said this was a... trail period they made it sound as if this was a stable company n that they were in 4 the long term, lies all lies since day 1. I was very disapointed (sic) with the corporate staff. The employee/ management n co workeres (sic) @ Chambers were the best!! 2 bad Corporate greed or Investors make the call cuz trust me this may affect your Cali stores more then u think. Smartco now has the worst reputation an deservinly (sic) so."

Based on information from other SmartCo store employees, including those we heard from via e-mail, the hour-reduction and layoff situation was similar at the other three stores.

The two former employees who posted the Facebook notes aren't alone in their feelings about the closure and how it was handled. A number of other former SmartCo Foods workers are expressing similar sentiments, not just about the closure, but also about the way the stores were operated during the brief tenure in which they were open. For example, take a look at some of the employee comments on the SmartCo Foods Facebook page here.

For example, some of the SmartCo store employees say they learned about the closure of the five stores and Smart & Final's decision to withdraw from the Denver market from news reports or on the SmartCo Facebook page rather than from the company. For example, take a look at the discussion below from SmartCo Foods Facebook page:

Deb Shaffer: I can't believe you let your employees find out that the stores were closing from a news broadcast rather then telling them before the news hit the public. That alone tells me something about your management, and, possibly, why you are closing your stores.

SmartCo Foods: Deb - we did everything we could to alert each of our store associates prior to announcing the news publicly. We held meetings at all our stores, called as many employees as we could who were not working, and held additional meetings as associates came in for later shifts. We’re very sorry some of our associates did not hear this news directly from us first.
November 17 at 2:14pm

SmartCo Foods: Sarah – I am so sorry you heard this from 9News. We did our best to let everyone know before announcing the closings, but that clearly did not happen with you. Again, I am so sorry you did not hear the news from us first. If you have any questions about any of this, your store management will be able to answer them for you.
November 18 at 8:08am ·

Shelly Ashby: I don't think you "did your best to let everyone know," cuz (sic) we heard from FB and then when we turned on the 9News, saw that it was true."we did everything we could to alert each of our store associates prior to announcing the news publicly.... We held meetings at all our stores, called as many employees as we could who were not working, and held additional meetings as associates came in for later shifts. We’re very sorry some of our associates did not hear this news directly from us first." Not true.....See More
November 18 at 7:03pm ·

SmartCo Foods: Shelly - I'm so sorry you didn't hear this from your management team first. We did our best to let associates know before announcing publicly, but it's clear we weren't able to get to everyone. Again, I'm very sorry you heard the news on Facebook first.
November 18 at 7:15pm ·

Lani Miller: This is the way SmartCo has been from day one. Good riddance.
November 28 at 2:40am ·

The small SmartCo Foods regional staff in Denver basically did do all it could to try to tell employees directly about the closure of the five stores in advance.

The problem was: They were caught as nearly by surprise by the announcement from Smart & Final corporate headquarters in Southern California as the store employees were, thus having little time to inform the workers face-to-face.

Dayna Davis, the person handling social media for SmartCo Foods - its Facebook page and Twitter feed - is an account executive at Denver-based Linert Public Relations, a firm Smart & Final hired to promote the SmartCo stores in the market. She was unaware of the closures until the announcement and was posting on the SmartCo Foods' Facebook page and Tweeting on the SmartCo Twitter feed right up until the day before the official announcement on November 15, at which time she announced the closures on the two social media sites.

2. Smart & Final's store-labor-to-sales ratio was too high from the start, even based on the best case sales projections, which turned out to be far from close to being on target.

The retailer employed about 100 workers per-store. The stores featured full-service butcher shop-style meat departments rather than self-service, for example, which added to the number of employees it hired for each store.

The higher than anticipated labor costs, even though the stores were non-union and therefore paid less per-hour than unionized Albertsons did when it operated the stores, led in-part to the reduction of workers' hours from 40 hours to 24 hours a week, as mentioned above.

3. In late January of this year, Smart & Final's senior vice president for store operations left the company, just five months before the first SmartCo Foods store opened in Denver, Colorado. Smart & Final announced its plans to open the first five SmartCo Foods stores in early March, 2010. Snee left the retailer without having another position lined up. His LinkedIn.com profile still lists his Smart & Final position as place of current employment, for example.

In April, 2010, Smart & Final hired former Ralphs Supermarkets' executive Dave Hirz as president. Hirz left Ralphs to join Smart & Final.

According to published corporate information, the senior vice president for store operations position at Smart & Final, previously held by Snee, hasn't been filled.

Hirz, who is the number two man at Smart & Final and has been heading retail operations, including the SmartCo Foods venture, since joining the retailer in April, reports to CEO George Golleher, who's also a former executive of Kroger-owned Ralphs, as, interestingly, was Tim Snee, who spent many years at the chain, ending his career at Ralphs as vice president of grocery merchandising. He too left Ralphs when he joined Smart & Final a few years ago.

While it's impossible to know to what degree if any this senior-level management change and its timing had on the launch and ultimate failure of SmartCo Foods, it's an important question to ask. After all, Snee was in charge of all retail operations for Smart & Final - his was the senior retail position, which is much different in this case than if he had been in charge of legal or finance, for example, important positions but staff functions rather than being the key line responsibility for retail operations at a retailer. We'll let thour readers be the judge of the relative importance, or not, of this factor.

4. Sources tell us there were cost-overruns involved in the rapid renovation of the five former Albertson's supermarkets Smart & Final converted into the SmartCo Foods stores. The stores were renovated in a matter of just a few months.

These added costs, plus promotional monies spent on marketing, which included a radio and outdoor advertising campaign, which you can't fault the retailer for doing (in our obervations and analysis the marketing, especially the social media-marketing efforts, for SmartCo were done well), added to the cost side of the venture, making break-even, based on the retailer's projections, to much of a risk to continue operations.

5. The decision to pull the plug on the Denver area market and close the five SmartCo Foods stores wasn't made by Smart & Final's senior management though, according to sources. Rather, the decision to do so was made by private equity firm Apollo Management, which acquired Smart & Final in 2007 and currently owns the retailing company.

According to sources, The SmartCo Foods stores were performing so far below initial and even revised projections - even after the store employee reductions in hours described above - that the private equity firm decided to pull the plug on the Denver SmartCo Foods venture and division and close the five stores because it couldn't see any daylight in terms of stemming the financial losses and approaching close to a break-even point at anytime in the near future, based on its financial projections. Our sources aren't suggesting Smart & Final's CEO opposed the closure. But that the decision was made by Apollo Management.

Lessons learned

The U.S. military, which has one of the best management systems in America, has a mandatory practice called "lessons learned." Under the practice, every system, mission, operation, battle, war and the like undergoes a top-to-bottom review at various stages. It's a comprehensive practice designed to do just what the title of it says - learn lessons (from the past experience) from whatever is being evaluated.

Most often, particularly when it involves major issues, the military brings in outside experts to participate in the "lessons learned" process. The reason it does so is obvious, even though it's seldom done by most corporations and organizations: Outside experts without in-house bias, are essential if an organization is really going to discover those lessons - and learn from them for the future.

In many ways we pose as many questions as we offer information about regarding Smart & Final's less than half-year misadventure into the Denver, Colorado food and grocery retailing market. The five SmartCo Foods stores were the retailer's only business in what in June of this year became its newest market - a market it's now in the process of exiting as fast as it entered.

We suggest Apollo Management and Smart & Final borrow the "lessons learned" practice, at least in concept, from the U.S. military, because based on the information we've thus far learned about 'Smart & Final's not so marvelous SmartCo Foods' misadventure in Denver,' along with our analysis of it, there are many such lessons the retailer can learn from the experience, so as to not repeat them again.

SmartCo Foods: A Chronology - June-December 2010

>November 17, 2010: Smart & Final Pulls the Plug On All Five SmartCo Foods Stores in Metro Denver After Being Open Less Than Five Months

>August 29, 2010: Smart & Final's First California SmartCo Foods Store to Be in Southern CA City of Lake Forest

>August 17, 2010: And Then There Were Five: Smart & Final Completes its Mission of Opening Five SmartCo Foods Stores in Metro Denver Before Summer Ends

>July 29, 2010: Smart & Final Opens Four SmartCo Foods Stores in Metro Denver Since June 23; Store Five to Open August 4

>July 14, 2010: Smart & Final Opens Second SmartCo Foods Store Today in Metro Denver, Colorado

>June 28, 2010: Smart & Final to Open its New Format SmartCo Foods Stores in California and Arizona

>June 29, 2010: A Pictorial Look Inside Smart & Final's First SmartCo Foods Store in Denver, Colorado