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Thriving, employee-owned WinCo Foods gets noticed

The WinCo Foods store that opened in Bremerton in April 2012 was the company's first store in the Kitsap and Olympic peninsula region.While union workers at major chain grocery stores around Puget Sound were on the verge of a strike over contract proposals that would have cut wages, holiday pay and health care, another grocery chain that expanded into Kitsap County last year is quietly thriving while providing its non-union employees an enviable ownership stake in the company.

“Employee ownership is a big part of how we compete,” said Michael Read, an executive with WinCo Foods.

And WinCo, which opened its Bremerton store in April 2012 in a highly visible location on Kitsap Way next to busy State Route 3, is a formidable competitor. Not only for the chains — Safeway, Albertsons, Fred Meyer and QFC — that barely averted the region’s first grocery store strike since 1989, but increasingly for the retail behemoth that has the largest market share nationally in the industry.

One way WinCo keeps prices low at its warehouse-style stores is by having customers bag their own groceries.A Time magazine article in August was headlined “Meet the Low-Key, Low-Cost Grocery Chain Being Called ‘Walmart’s Worst Nightmare’.” The reporter borrowed some eyebrow-raising quotes from an earlier article in the Idaho Statesman, the newspaper in WinCo’s hometown of Boise. A supermarket industry expert named Burt Flickinger III told the paper that “WinCo arguably may be the best retailer in the western U.S.” He also said the company “is really unstoppable at this point,” and that “They’re Walmart’s worst nightmare.”

If that’s indeed the case, it’s primarily because WinCo’s cost-saving business practices allow it to match or even undercut Walmart’s low prices, and because the company is owned by all the people who work in its stores.

WinCo (the name chosen from employee suggestions is short for “winning company”) offers an Employee Stock Ownership Plan (ESOP), and every year the company contributes an amount equal to 20 percent of a worker’s annual pay to a retirement fund that essentially purchases shares in WinCo.

An independent valuation firm picked by the ESOP trustee appraises the value of the company’s shares each year. Since the company converted to the ESOP ownership structure in 1985, the value of those shares has increased an average of 20 percent compounded annually, according to WinCo’s website.

“It becomes quite a significant fund over a number of years,” said Read, who is vice president of public and legal affairs at WinCo. The company has more than 400 longtime employees (in non-executive positions) with retirement accounts of more than $1 million.

The possibility of accumulating a substantial retirement account in the company-funded ESOP is a strong motivating factor for employees to help ensure their stores operate efficiently and profitably.

“It creates a very stable workforce, a very loyal workforce,” Read said.

Obviously there’s no guarantee of 20 percent increases every year, but WinCo has been growing steadily and expects that to continue.

The company currently has 88 stores in seven Western states, with new ones opening this month in Coeur d’Alene, Idaho, and Norco, Calif. The first two WinCo stores in Texas are scheduled to open in the Dallas-Fort Worth area in early 2014.

“We plan to grow at about 10 percent of our total retail space each year over the next five years,” Read said. “We’ll probably open seven or eight stores a year.”

The 55,000-square-foot store in Bremerton, which has about 175 employees, is smaller than the typical WinCo store.

“Bremerton is sort of a new model for us,” Read said. “Usually our stores are in the 85,000 to 95,000 range, but the Bremerton market probably would not support a store that size.”

He added, though, that the store has had strong sales since it opened.

“Western Washington has been very good to us. We love the market and we’ve done very well there,” Read said.

In addition to the ESOP, WinCo provides affordable health insurance for employees who work at least 24 hours a week. Read said coverage including vision and dental for an employee and family costs a worker about $40 a month, and the policy’s annual deductible is $200.

It’s an egalitarian approach to health care and retirement benefits for WinCo’s 15,000 employees.

“The system is the same for everybody; the CEO doesn’t get a higher (ESOP) contribution,” Read noted. “It’s the same medical plan, same pension plan.”

Store workers earn an hourly wage that Read said is close to what the company determines is “the prevailing wage in markets where we operate.”

As for the low prices shoppers find at WinCo’s no-frills stores, that’s achieved through measures like not accepting credit cards and having customers bag their own groceries. Also, WinCo ships a lot of products by the truckload directly from suppliers to its warehouse-style stores, reducing distribution costs, although the company does have three regional distribution centers in Idaho, Oregon and California and is building a fourth in the Phoenix area.

Also, “We do very little advertising, almost none,” Read said.

Although ESOPs aren’t uncommon in privately owned companies — one of the largest is at the Florida-based Publix Supermarkets chain, which has 145,000 employees — Read said WinCo was one of the first companies to implement an ESOP in 1985. He said it was a “very far-sighted” decision by the owners at the time who bought the company from the founding family.

Some members of WinCo’s board of directors represent the ESOP, which owns 88 percent of the company, Read said.

“Collectively, the company is 100 percent owned by employees or former employees,” he said.

According to the National Center for Employee Ownership, workers in ESOPs fare significantly better than workers without the benefit.

The center cites a 1997 study in Washington state study that found “ESOP participants made 5 percent to 12 percent more in wages and had almost three times the retirement assets as did workers in comparable non-ESOP companies.”

Additionally, an analysis the center did of ESOP company government filings in 2008 found that “the average ESOP participant receives about $4,443 per year in company contributions to the ESOP and has an account balance of $55,836. People in the plan for many years would have much larger balances.”

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