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A Project of The Annenberg Public Policy Center

Who Killed Food Town?

In Ohio’s 9th Congressional District, Democratic Rep. Marcy Kaptur misrepresents the facts when she accuses her Republican rival, Rich Iott, of running Food Town supermarkets "straight into the ground" after taking over as CEO of the company from his father. Her ad attacks Iott for "closing neighborhood stores and costing 5,000 people their jobs." But Food Town thrived with Rich Iott as CEO, and the job losses occurred three years after the company was sold to a larger chain and Iott was no longer in charge.

Perhaps Iott, in retrospect, could be criticized for supporting the sale of the company — which ultimately resulted in the closing of Food Town stores — but at the time, retail experts thought it was a good financial move for the smaller company to merge with a larger one.

Food Town’s Success Led to Merger

The ad — "Sorry, We’re Closed," which started to air Sept. 9 — takes on the emotional issue of who was responsible for the end of a local institution: Food Town. It has become a flash point in a heated campaign. The Kaptur campaign has launched a website, IottSoldOffMyJob.com, and a Facebook page, Sorry We’re Closed: How Rich Iott Shut Down Food Town, to drive home its message. Iott has responded with a TV ad from a former longtime Food Town employee, who absolves Iott of any blame.

Kaptur’s ad claims that after Rich Iott "took over Food Town from his father" he "ran it straight into the ground." First, Iott’s father, Wally, remained chairman of Seaway Food Town — so Rich Iott did not take complete control of the Toledo-based company, which had stores in northwestern and central Ohio and southeastern Michigan. Second, the company prospered during the years that Rich Iott served as president and CEO, from 1996 to 2000. In July 1999, the company reported its best ever third-quarter financial results. During the fiscal 1999 third quarter, the company reported that sales increased 8.3 percent to $167.3 million, up from $154.6 million the year before. The company opened three new stores between 1998 and 1999.

Around this time, the company began to pursue possible merger partners. In October 1999, the Cleveland Plain Dealer described Seaway Food Town as a "well run" hometown grocery store that would be attractive to larger companies at a time when the industry was consolidating.

Plain Dealer, Oct. 3, 1999: In the last six months, the company’s stock has jumped 130 percent, coming off a fiscal year that saw earnings jump 8 percent to $167.3 million.

And from 1994 to 1998, earnings catapulted 300 percent on revenues that increased only 14 percent during the same period.

"Seaway does a great job, and they have a strong name in the Toledo area," said analyst Charles Cerankosky of McDonald Investments Inc. in Cleveland. "But I think the company has looked at the economics of food retail today and decided some strategic combination makes sense. And we agree with them."

Iott Supported Merger, But Didn’t Sell Food Town

The ad further accuses Iott of "selling it off for millions, closing our neighborhood stores, and costing 5,000 people their jobs, their health care and retirement."

First, let’s look at the sale of the company and how much Iott earned from it. Food Town merged in 2000 with Spartan Stores Inc., as part of a cash and stock deal that McDonald Investments estimated cost Spartan between $141 million and $179 million. It wasn’t Iott’s decision to sell Food Town, although he strongly supported the merger and urged the board and shareholders to approve it. Wally Iott, who founded Food Town, told the Toledo Blade at the time of the sale that industry consolidation threatened the company’s future. The Blade republished Wallace Iott’s comments about the merger when he died in 2006:

Toledo Blade, March 29, 2006: "I guess it was inevitable," Mr. [Wally] Iott told The Blade as Food Town shareholders approved the sale. "I haven’t really looked forward to it. But because all over the U.S. the industry is consolidating, we had to do something.”

Under the terms of the merger agreement, Iott and other Seaway Food Town shareholders received $5 per share plus one share of Spartan Stores new common stock for each share of Food Town common stock. Iott campaign spokesman Matthew Parker explained that each Food Town shareholder received the extra cash in order to make up for the difference in value of the two stocks. At the time, Spartan was worth much less than Seaway Food Town. Parker estimated that Iott received approximately $2 million from his Food Town shares.

Rich Iott lost his position as CEO and president, but he was appointed to Spartan’s board of directors. He also received approximately $113,500 for one year of consulting services and a $253,193 severance payment, according to a merger document filed with the Securities Exchange Commission.

Iott Didn’t Close Food Town Stores

Not long after the merger, industry consolidation and competition from larger chains continued to threaten the future of Food Town stores. In an interview with us, McDonald Investments’ Cerankosky, who worked on the merger for Spartan, said multiple companies moved in to the market after the merger and started a price war that made it difficult for the new Spartan Stores to assimilate. Wal-Mart was one of the companies expanding in the area, and Cerankosky noted that its non-union labor force added to the difficulties.

Spartan — which acquired 47 Food Town stores in the merger — closed some Food Town stores in 2002. By March 2003, Spartan had 39 Food Town stores and decided to sell off or close all of them. Spartan CEO Craig Sturken explained to the Grand Rapid Press several months later that Food Town "had a dated approach" to the new market.

When the decision was made to shed all Food Town stores, Iott was a Spartan board member, but not for long. His term expired in August 2003. According to Iott’s spokesman Parker, the Spartan board of directors took no official position on the decision and had no say in the process. The final decision was reached by Spartan management. Parker said Iott "disagreed wholeheartedly" with the company’s decision to sell the Food Town stores, but as a board member he had no say in "the operational management’s decision." Parker could not provide us with any documentation of Iott’s position at the time on the closing of Food Town stores.

Steve Fought, a spokesman for Kaptur, said Iott is to blame because the merger failed and he should have known it would because Spartan had no experience running food stores. Spartan, which until then had been primarily a food distributor, disclosed in the merger document that operating retail stores "is a new line of business for Spartan," which began in January 1999 to acquire retail stores through a series of separate deals. "Jobs were lost because it was a failed merger, because it was a bad idea," Fought said.

But the ad is wrong to blame Iott for "closing our neighborhood stores," and it goes too far in blaming him for "costing 5,000 people their jobs." Although he was a major player in the decision to merge Food Town with Spartan, there is no evidence that he was involved in the decisions to close Food Town stores.

In the end, the ad’s summary charge — that Iott "doesn’t create jobs, he sells them off" — misrepresents what happened to Food Town and its employees, and who was responsible for it.

— Lara Seligman, Michael Morse and Eugene Kiely