Niche Products, Markets Propel Growth of Harps

Growing up in the shadow of the world’s largest retailer, Harps Food Stores Inc. has had to fight for its place in the sun. And it’s managed to not just survive, but also thrive, adding stores, employees — and revenue — year after year.

Harps is on track to open five stores this year. With new locations already open in West Fork, Elkins and Bentonville, the Springdale-based grocery chain will open two more in Hot Springs this fall.

The company that’s been in an aggressive expansion mode since about 2005 plans to keep up the five-stores-a-year goal for at least five more years, company officials say.

Roger Collins, Harps’ chairman and CEO, said the company’s grown from about 43 stores in 2001 to 72 today throughout Arkansas, Oklahoma and Missouri.

“And most of that growth has come after 2005,” he said.

All this has happened in the backyard of Bentonville-based Wal-Mart Stores Inc.

“Wal-Mart’s the toughest of competitors,” Collins said. “They’re the largest retailer in the world. And so we’ve really had to fight and claw to be successful, and our goal is to try to attract people with our high-quality meat and produce and bakery/deli products. [And] friendliness, because we’re an employee-owned company. No company should be as friendly as far as associates, because our associates are owners in what we have here.

“Those are areas that resonate with a lot of people, and so we’ve been able to carve out a niche that has enabled us to survive alongside Wal-Mart.”

The company was largely a family-owned business for decades, although management owned some of the stock. But in 2001, Harps bought the stock held by the Harp family and other investors to become 100 percent employee owned through an employee stock ownership plan.

“We had to borrow a lot of money to do that,” said Collins, who’s been with Harps since 1986. “So for the first few years, we were really just focused on trying to pay down the leverage that we had.

“But every year, we were having more Walmarts opening against us and it was hurting our volume, and we realized that we really had to keep growing and expanding. And so in the timeframe of 2005-2006, we started trying to build new stores and buy stores.”

Since 2005, Harps has opened 37 stores.

The grocery chain had 2,245 employees in 2001, compared to 3,850 today. It’s added 500 employees just in the last year.

The company’s revenue for the current fiscal year, which ends on the last Sunday in August, is expected to be about $640 million, chief financial officer Jim Antz said.

That’s a 16.36 percent increase over 2011, when Harps posted revenue of $550 million, which in turn was a 6.4 percent increase from the previous year.

 

Family Business

The story of how Harvard and Floy Harp opened Harps Cash Grocery in 1930 with $500 they’d earned working in California’s citrus groves is well known. From its original location at East Emma Avenue and Water Street in Springdale, the store moved into larger spaces over the years, but Harps didn’t become a chain until 1964, when a second store was opened in north Springdale.

The couple’s eldest son, Don, started working in the store as a teenager. By the mid-1960s, the Harps’ other sons, Gerald and Reland, had joined the business.

Harvard Harp was killed in a car accident in 1968. Reland died in 1986, and Floy in 1994.

Don Harp ran the company from the late ’60s until retiring in 1995. He died in January 2011. Gerald Harp became president in 1994, and served in that role until 2000. He retired after the 2001 ESOP offering, and lives in Springdale with his wife, Vicki.

The ESOP was a watershed in the company’s history, adding Harps to a very short list of employee-owned grocery chains. Initially valued at $27, each share is now worth $243.40.

Kim Eskew, Harps’ president and chief operating officer, said the move to an ESOP was a game changer for many of the company’s employees.

Eskew started with Harps in 1977 while attending the University of Arkansas. He worked as a stocker, checker, bagger — “anything they needed done,” he said.

By the time he earned his engineering degree, he said, “I knew more about the food business than engineering.” So he stayed with Harps, managing stores in Mountain Home and Fort Smith before being brought to the Springdale headquarters as a district manager.

But frankly, he said, in a family-owned business, if you’re not family, your opportunities are limited.

“When we became an ESOP, for a nonfamily member, that really changed what was possible,” Eskew said.

Another longtime employee, executive assistant Marty Yarbrough, said the company still has a family feel.

“It’s a family-oriented business where you know they care about you,” said Yarbrough, who started at Harps 21 years ago as a receptionist. “And that to me is very important. It means a lot. You know you’re not just an employee punching the clock, that they care about you.”

And now that employees own the company, she said, “You can tell they care more, because it comes back to you. They care about doing a good job because it reflects on them — ‘This is my company. If I don’t do my job properly, I don’t see that end result.’”

 

Reaching Out

As for where Harps may add stores in coming years, Collins would only say, “We have other sites that are on our drawing board to do.”

Describing the selection process for new store locations, he said they first look for places where there’s a need — either where there’s no store currently serving an area, “or where the store that’s there may not be adequately taking care of and serving the customer the way we think they should.”

Next, they do a survey to determine how much volume a store at that location would do. Then with that information, he said, they try to calculate what their expenses would be and whether they would generate a return on their investment if they put the store there.

“So it’s using a specific set of procedures and looking at it through the eyes of, well, what is this going to do financially to us, and do we have some competitive advantage in being in this location,” Collins said.

The most challenging part of establishing a new store, he said, “is trying to work a deal with a landowner and secure the land at a price where we can still be successful.”

Harps made a very high-profile purchase in June 2012, when it paid $1.86 million for a hotel in north Bentonville. Brian Shaw and David Erstine of Sage Partners in Fayetteville represented Harps in that transaction.

The store built at that site replaced one in the Mid-Town Shopping Center. At nearly 38,000 SF, the new store is bigger than the typical 32,500-SF stores Harps builds, allowing for more bakery, deli, meat and produce items.

Harps has built several smaller stores, Collins said, that are in the range of 18,000 to 20,000 SF.

While always on the lookout for areas to build in, Antz pointed out, the company also grows by acquiring smaller chains.

Harps bought an eight-store chain in 2008 and a two-store chain in 2009, he said, and last year bought a two-store chain and a single store.

“So we’re hoping we can grow to 100 stores in five years, primarily looking for both kinds — where can we build, or where’s a potential store or chain we could buy,” Antz said.

Collins credits much of the company’s success to the employee-owned model and the pride and incentive that comes with ownership.

“The Harp family was really a great family, and they gave back to the community and they really were great people to work for,” Collins said. “But I think there’s just something special about knowing that all your stockers and checkers and everybody in the company is an owner. It just changes everyone’s perspective some.

“And so I think just the corporate structure has made for a real improvement in the culture we have and in the company we have, because it allows people to share in the success. The better we all do together, then the better each of us does independently as well, and that’s a powerful concept.”