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The Store That Helped Build the Suburbs

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On this day in economic and business history ...

One of the most important economic trends in postwar America was suburban sprawl -- the spread of families further from city centers, to two-car garages and half-acre yards instead of two-room apartments. Two business developments were vital to the spread of the suburb: the shopping mall and the supermarket. The first supermarket was the brainchild of grocery innovator Michael Cullen, and it first opened its doors in the New York City borough of Queens on Aug. 4, 1930. King Kullen, as that supermarket was known, took a sledgehammer to the grocery-store paradigm of the era.

Cullen had worked his way up through the ranks at Kroger (NYSE: KR  ) since 1919 and was intimately familiar with the shortcomings of small, specialized grocery stores, with employees serving customers over the counter. These stores lacked their own meat, produce, or bakery departments, which made the family grocery excursion into quite the drawn-out affair. Self-service groceries had been attempted as early as the 1910s at Piggly Wiggly stores, but this was a far cry from the expanse of the modern supermarket.

Cullen decided to go big and go broad -- the first King Kullen was to incorporate self-service, size, and an integration of different departments to provide its customers with discounts only available thanks to its high-volume operations. It was designed to generate 10 times the sales volume of the Krogers Cullen had worked for, and Cullen advertised the supermarket as "The World's Greatest Price Wrecker."

The strategy worked. Shoppers loved the convenience of having all their food needs under one roof, and they loved the volume-driven savings even more -- no small concern in the early days of the Great Depression. Within its first five years, King Kullen had expanded to 17 locations, and was doing $6 million in annual sales, equivalent to about $100 million today. The privately held chain now operates 42 locations on Long Island, but it's far from alone.

The grocery industry was always important to the American economy, but its adoption of the supermarket model has had a profound impact on both the industry and on the rest of the nation. Today, the grocery industry produces over $1 trillion in annual revenue in the United States, with supermarkets accounting for roughly $560 billion of that total. There are approximately 36,000 supermarkets scattered across the country, and more than 29,000 of those are part of chain businesses.

Supermarkets are more fragmented than many other industries, but a few leaders have risen to the top. As you might expect, the world's largest retailer also generates the largest supermarket sales. Wal-Mart (NYSE: WMT  ) introduced its integrated-supermarket Supercenters in 1988, and its total revenue that fiscal year came to $16 billion. A decade later, shortly after Wal-Mart joined the Dow Jones Industrial Average (DJINDICES: ^DJI  ) , sales at domestic Wal-Marts alone had soared to $84 billion.

Today, grocery sales account for 55% of Wal-Mart's U.S. revenue, which resulted in an astounding $150 billion in sales for its 2013 fiscal year. That's more revenue from one domestic segment than all but three other Dow components generate from their entire operations. It's also 50% more revenue than Kroger, the largest dedicated supermarket company in the country, earned over the same period.

Poppin' bottles
One product that's available in most supermarkets was purportedly invented exactly 237 years before the first King Kullen opened: Dom Pierre Perignon is said to have first tried champagne on Aug. 4, 1693. This date is probably apocryphal, as is the quote attributed to the monk as he first sampled his creation: "Come quickly; I am drinking the stars!" What's not in dispute are Dom Perignon's contributions to champagne-making that have remained in use to this day, because of their effectiveness in reducing losses from the carbon dioxide buildup that is now the hallmark of a fine champagne.

Dom Perignon wasn't the only mastermind behind the creation of champagne as we know it, but his name is indelibly linked to this unique beverage. Whenever you celebrate with a bottle of bubbly -- whether it's because you've closed a big business deal, bought your dream house, graduated college, or simply made it through another year -- you're "drinking the stars," thanks in part to a French monk who's become as much a myth as he was a man. Cheers!

The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century, and this change will affect the supermarket industry as much as any other retail sector. Only the most forward-looking and capable companies will survive this retail transformation, and they'll handsomely reward investors who understand the new landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.

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  • Report this Comment On August 04, 2013, at 12:33 PM, spintreebob wrote:

    Many "general stores" were in small towns outside the big city. As the suburbs grew, some of those "general stores" became supermarkets. They already had meat and produce departments and nonfood items.

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Alex Planes

Alex Planes specializes in the deep analysis of tech, energy, and retail companies, with a particular focus on the ways new or proposed technologies can (and will) shape the future. He is also a dedicated student of financial and business history, often drawing on major events from the past to help readers better understand what's happening today and what might happen tomorrow.

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