FedMart, every mention
92 scenes · ← back to FedMart
tap a year for its mentions
every year anyone David Rosenthal 77Ben Gilbert 13Charlie Munger 1
Verbatim, from the transcripts: the passages where FedMart comes up
Charlie Munger (Audio) · Acquired
- ▶ 9:11 Charlie Munger And he sold FedGo to the Germans.
- ▶ 9:15 Ben Gilbert Ah, FedMart to the, um.
Costco (Audio) · Acquired
- ▶ 5:59 David Rosenthal To someone that we talked a lot about on our Walmart episode, the legendary Saul Price and his two companies, FedMart and Price Club.
- ▶ 6:25 David Rosenthal And Price Club is really, of course, the actual result of Sol's previous company, FedMart, which FedMart itself really came out of, FedCo, in the 19 forties.
- ▶ 20:40 David Rosenthal What if we draft off the same brand recognition, though, and call it FedMart?
- ▶ 21:07 David Rosenthal By the time Walmart was starting, people knew what Fedmarts were.
- ▶ 21:10 David Rosenthal They were expanding across the country, and he was like, oh great, we're gonna draft off the Fedmart brand, and it was the same thing with Kmart.
- ▶ 21:17 David Rosenthal Fedmart becomes the first scaled quasi-national discounter, and people are like, what are discounters?
- ▶ 21:38 Ben Gilbert FedMart is not big pallets with enormous quantities of things.
- ▶ 21:57 David Rosenthal And on the one hand, FedMart is obviously a clone of FedCo.
- ▶ 22:12 David Rosenthal And so, just like all capitalist for-profit companies, Sol and the jewelry guys and FedMart have the impetus to expand.
- ▶ 24:16 David Rosenthal So, when Saul and the guys opened the first FedMart in 1954 in San Diego,
- ▶ 24:50 David Rosenthal A year after San Diego, they opened the second FedMart in Phoenix, Arizona, right off the bat going multi-state.
- ▶ 25:18 David Rosenthal So, at this .2 things happen that are gonna prove very fateful both for FedMart and for Costco.
- ▶ 25:26 David Rosenthal One, Saul fully stops practicing law and goes full-time with FedMart.
- ▶ 25:30 David Rosenthal He becomes the president of FedMart.
- ▶ 25:45 David Rosenthal And Jim would end up working for the next 22 years at FedMart directly for Sol.
- ▶ 25:55 David Rosenthal Eventually, Jim ends up running FedMart's entire distribution and centralized warehousing operations.
- ▶ 26:09 David Rosenthal FedMart goes public in 1959.
- ▶ 26:30 David Rosenthal This is when they add gasoline to FedMart.
- ▶ 26:33 David Rosenthal So the Costco gas lines, like, this started with FedMart.
- ▶ 26:39 David Rosenthal Price a few cents lower than whatever the other gas stations were charging in the area, and a few cents at that time was a lot, because gas was like, 25 cents, and unlike gas stations, FedMart is making money on consumers shopping in the…
- ▶ 27:04 David Rosenthal Add a pharmacy to FedMart.
- ▶ 27:11 David Rosenthal The guy who sets up the pharmacy division for FedMart starts getting death threats from people in the industry.
- ▶ 27:30 David Rosenthal That guy's protege, who then takes over the pharmacy division for FedMart when he retires, that guy goes on to start Costco's pharmacy division and run it.
- ▶ 27:46 David Rosenthal After they go public, FedMart uses part of this capital to develop their own house brand for some of the popular products that they're selling on the shelves.
- ▶ 28:11 David Rosenthal It's FedMart.
- ▶ 28:13 David Rosenthal And then one more piece of FedMart, uh, playbook, shall we say, that clearly makes its way over.
- ▶ 28:21 David Rosenthal As Saul is running the company during these first few years, he starts to codify some retail management philosophies, and he, uh, famously sort of canonizes these as FedMart's four priority order principles, and he teaches every new…
- ▶ 29:39 David Rosenthal There are some very, very clear trade-offs that Sol is gonna make with FedMart, that Costco makes today, that are very different from what their competitors do.
- ▶ 32:00 David Rosenthal So obviously the trade off of this is for FedMart at the time and straight through to Costco today, this creates meaningfully higher per employee labor costs for the company.
- ▶ 32:47 Ben Gilbert Costco, Price Club, FedMart doesn't have to do any of that because they're really rewarding their employees.
- ▶ 33:32 David Rosenthal And was true at Price Club and FedMart before it.
- ▶ 33:39 David Rosenthal I mean, Jim started as a grocery bagger in the fifties at FedMart.
- ▶ 33:45 David Rosenthal Craig Jelinek started his career as an hourly employee at FedMart.
- ▶ 34:14 David Rosenthal FedMart truly was the first discounter that scaled nationally.
- ▶ 34:46 David Rosenthal So they had so much more access to capital, certainly than FedMart, and even than Sam Walton and Walmart.
- ▶ 34:59 David Rosenthal Sol and FedMart, they don't really have the firepower to compete.
- ▶ 35:12 David Rosenthal In the biography, Saul comments to his son, Robert, who had also joined the company, joined FedMart at this time.
- ▶ 38:03 Ben Gilbert So what happens with FedMart?
- ▶ 39:35 David Rosenthal So as Saul and Robert are looking for partners to take FedMart to the next level and going across Europe, they're meeting with all these hypermarket operators.
- ▶ 39:51 David Rosenthal The idea was that Mann was gonna help Saul and FedMart
- ▶ 39:57 David Rosenthal Take this hypermarket concept and morph the existing FedMart stores into hypermarkets, which Walmart would do to great success, but like, 15 years later.
- ▶ 40:13 Ben Gilbert And we might all be shopping at FedMarts.
- ▶ 41:24 David Rosenthal And then the person at FedMart of the remaining executives who they task with, you think like doing an all hands or the equivalent of and, you know, inform the rest of the company what's just happened.
- ▶ 41:46 Ben Gilbert And I think what was going on here is Hugo Mann just realized that FedMart was sitting on a gold mine of real estate, and just wanted the real estate portfolio.
- ▶ 41:53 Ben Gilbert And what Sol and Robert wanted was operating capital from the parent company, from Hugo Mann, to invest more in aggressively opening more FedMart stores.
- ▶ 42:09 David Rosenthal Had this not gone down like this, I think Saul probably would have just retired as new management took over at FedMard and all would have been amicable.
- ▶ 43:06 David Rosenthal But they know they're not gonna compete directly with FedMart, because FedMart is failing at that.
- ▶ 43:15 Ben Gilbert By the way, FedMart within five years was, like, completely dead after this acquisition.
- ▶ 43:25 Ben Gilbert yeah, FedMart's dead.
- ▶ 43:35 David Rosenthal And they keep coming back to one part of the FedMart business that they felt was underappreciated, and they didn't really exploit enough while they were at FedMart.
- ▶ 43:58 David Rosenthal So the two of them are like, you know, if we zoom out, there really is kind of a different and orthogonal way to think about the FedMart business.
- ▶ 44:18 David Rosenthal They were supplying the individual FedMart stores, which were sort of smaller businesses.
- ▶ 44:25 David Rosenthal And when you look at it that way, almost all of the margin that we made at the company was at the warehouse level.
- ▶ 45:28 David Rosenthal And they're like, man, if we did that, I think that would be providing a huge service to these small businesses, because one of their big problems that we know from operating the FedMart stores
- ▶ 48:05 David Rosenthal So, once they hit on this business plan, Saul and Robert poach a few people from FedMard and elsewhere, including they hire this super bright young guy from Harvard Business School named Giles Bateman as their CFO, and then they go get…
- ▶ 48:31 David Rosenthal And part of the enormous diaspora of retailers that come out of not only FedMart, but Price Club.
- ▶ 48:39 David Rosenthal Jim Senegal, after, I think he was probably locked up at FedMart under new management for a while, after that he would come over and briefly work at Price Club a couple years later, so like, the best of the best are coming through this…
- ▶ 49:14 David Rosenthal So at the time, Walmarts and Kmarts had on the order of about 50,000 SKUs and even FedMart had
- ▶ 49:51 David Rosenthal Unlike FedMart, it's not an initial gangbuster success.
- ▶ 55:41 David Rosenthal So, on the back of this wild success in San Diego, once again, Sol and Price Club quickly expand, just like with FedMart, first to Arizona and then beyond.
- ▶ 55:53 David Rosenthal This time, though, it's way different than FedMart vis-a-vis competition and capital dynamics.
- ▶ 56:00 David Rosenthal So whereas FedMart was capital-constrained relative to the competitors, because of the genius aspects of this price club model, they are cash flow geysers, these stores.
- ▶ 1:08:19 David Rosenthal This is just like the Fedco, FedMart days, and Saul and the Price Club management team think about it, and they make the very poor decision to say no.
- ▶ 1:08:50 David Rosenthal They were following the old sort of trade routes of the FedMart playbook of Arizona, Texas, Florida, going out across the South and the Midwest.
- ▶ 1:09:44 David Rosenthal We've worked with him for a long time here at FedMart and Price Club.
- ▶ 1:10:55 Ben Gilbert There is a straight line through from Fedco to FedMart, or let's even just start it at FedMart since it's all the same people through to Costco today.
- ▶ 1:11:14 Ben Gilbert They recruit eight people immediately, mostly from FedMart, some from Price Club, and they're all sort of forties and fifties.
- ▶ 1:13:01 David Rosenthal What happens with Price Club is in some ways sort of the same as what happened with FedMart.
- ▶ 1:13:20 David Rosenthal Back in the FedMart days, FedMart was constrained.
- ▶ 1:13:39 David Rosenthal Quite quickly, especially relative to FedMart, because of the cash flow dynamics that we were talking about.
- ▶ 1:14:29 David Rosenthal He's made his point after his terrible exit out of FedMart.
- ▶ 1:22:01 David Rosenthal We talked earlier, back in the FedMart days, about how loss leaders and sales was kind of an anathema to solve price.
- ▶ 1:25:31 Ben Gilbert The Costco Code of Ethics, as it exists today, largely inspired by the FedMart values from 4050 years before, are in order, obey the law.
- ▶ 1:43:38 David Rosenthal And part of this, too, also harkens back to Saul and the FedMart days.
- ▶ 1:43:43 David Rosenthal Saul developed this kind of principle back in FedMart that he called the intelligent loss of sales.
- ▶ 1:44:14 David Rosenthal But other retailers and everybody back in the FedMart days had all sorts of different sizes of products, and the idea was that by having different sizes, you would maximize the surface area of customers in market that you could reach.
- ▶ 1:50:21 David Rosenthal It's almost like way back Saul and Robert sitting in the office after FedMart thinking, you know what, we actually had two different businesses at FedMart.
- ▶ 1:53:00 David Rosenthal I mean, when we were talking about the FedMart days, like it was two dollars for a lifetime membership.
- ▶ 1:59:40 David Rosenthal Business wholesale model was they could get out of the credit card game that they had to play at FedMart.
- ▶ 2:01:57 David Rosenthal I think a lot of that was from the FedMart days.
- ▶ 2:18:06 David Rosenthal Well, and this has always been part of the strategy, even going back to the FedMart and Price Club days.
- ▶ 2:19:30 David Rosenthal Oh, I mean, Craig has been working in FedMart since the seventies.
- ▶ 2:33:49 David Rosenthal They started as baggers at FedMart when they were teenagers, and they've just worked through the business all the way through.
- ▶ 2:34:40 David Rosenthal It's always been the case going all the way back to FedMart and really carries through to this day.
- ▶ 2:48:22 David Rosenthal You can really say it was started with FedMart before that.
- ▶ 2:48:37 David Rosenthal All of whom worked at FedMart.
Walmart · Acquired
- ▶ 1:12:59 David Rosenthal It was Ann and Hope stores in New England and contemporaneously at the same time, it was FedMart and Sol Price down in San Diego in Southern California.
- ▶ 1:13:17 Ben Gilbert I didn't realize he had a big venture before Price Club, that FedMart was his first very large successful thing.
- ▶ 1:13:29 David Rosenthal Saul Price, you know, FedMart and then Price Club, which he starts later, that's Costco.
- ▶ 1:21:34 unnamed speaker Obviously saving money on neon was appealing to his nature, but the other reason he really liked it was he really admired Saul Price, and Saul Price had FedMart.