Robert Price. The Story Behind PriceSmart: Our Founder’s Journey.

Okay, thank you David and thank you for the creative idea of doing podcasts. I think that's a great idea and I think it'll be very helpful to everybody who's connected with our company. So, thank you for doing this and also greetings to everybody at PriceMart who may be tuning in. So you want to know a little bit about me, or at least I want the people to know something about me. Okay. Well let me begin by saying that at the moment I just turned 82 years old young. 82 years young. I live in San Diego and have lived here my whole life. I have a family, children, grandchildren, a wife who I've been married to for over 50 years. That's a little bit about me personally. One thing I wanted to mention, I should really probably talk more directly to you, David, is the fact that as a young man, I never intended to be in the business world. My father Saul Price was trained and practiced as an attorney, but at some point he became interested in starting a business in the retail trade in 1954 when I was 12 years old. That was the FedMart business. I never really thought I'd ever be in business. Not because I didn't respect my father, I certainly respected him and I knew he had good values, but it wasn't of interest to me.

Yes, I had two. I went to college here in Southern California, Pomona College, and my interest — and you have to remember I'm a product of the 1960s. Now that may or may not mean anything to some of the people listening today, probably means limited to me also. Those of us in the 60s were thinking about how we were very idealistic and we were thinking about how we could make the world better, and most of that would have been through government service. So one of my interests was becoming a career government person. My other alternative was teaching. And it turns out that even in the business world, the biggest part of my job is teaching. It should be the biggest part of most management jobs.

Absolutely. And part of teaching is listening because you can't be a good teacher if you're not a good learner and a good listener.

So after college, and this was at a time when things were beginning to develop in Vietnam, the war was starting to happen in Vietnam. I decided reluctantly to go to law school and I spent about six weeks in law school and decided I didn't like it and so I quit. Then I thought I was going to be an army officer but I didn't get accepted to the army officer program. Then I joined the Peace Corps and didn't finish that job either.

Well, I was training in Puerto Rico to go to El Salvador and in the mountains of El Salvador. I was supposed to work with indigenous people teaching them how to build rabbit hutches and grow rabbits. That was going to be my job for $200 a month.

Well, I decided I didn't think I wanted to spend two years in the mountains of El Salvador. So I came back to San Diego.

Well, I ended up there in a sense through PriceMart. Correct. But then I went in the army as a private enlisted man and I spent a certain number of months there and then I came out and I didn't know what I was going to do. But at that point I had lost focus on government and teaching, and I decided — this would have been in September of 1965 — that I would work with FedMart and my father, and so that's how I started working there. I honestly didn't like it at all. I had some issues with the man that my father had made president of the company, who was a crazy man, absolutely nuts. And it was terrible. Most of the people at FedMart in senior management were people who had been with my father for years, and here's this young kid coming in. I never felt comfortable with the old-timers at FedMart. But little by little, I rose up through the ranks.

Yeah. And I learned a lot. I always learned a lot from my dad. I was at FedMart for 10 years working until I became an executive there, at which point my father decided to sell the company. It was a public company. He sold it to a group from Germany who we all thought we'd get along very well with. This is now 1975, right? But it turns out that we didn't get along very well. By the end of 1975, they fired my father and I quit in solidarity. I couldn't stay. There was no way I could stay. So at that point, I left. That's a little bit about how I got into this retailing business. But I'll stop there.

Yes. As people may or may not know, in the United States we have had a troubled history with how we have dealt with indigenous people, the Native Americans. Over time, the Native Americans ended up most of them on tribal reservations, which in a sense was their own land, but not totally free of US government oversight. The largest tribal tribe in the United States by population and land size is the Navajo Indian tribe. The Navajo Indian reservation actually extends over four states: Arizona, New Mexico, Colorado, and Utah. When we opened our FedMart store on the Navajo Indian reservation, there were about 300,000 Navajos, very poor, more high desert. But for me, it was a great opportunity because given my 1960s idealism, to do something good for our Native Americans was very satisfying to me. We took one of the FedMarts — similar to what might be a Target or a Walmart store — and we made an agreement with the Navajo. The Navajo do not have private property ownership; all the land is owned by the tribe as communal land. So we built the building there, a typical FedMart building, maybe 30 or 40,000 square feet. The building's still there, by the way. There's a grocery store in it now. I was there a couple of years ago. I met a tribal elder while I was there. We decided that we would price our merchandise the same as what we had in Phoenix, absorbing extra freight, and we would pay the same wages to the Navajos as we were paying in Phoenix. And because it was tribal land, there was no sales tax, so people actually were getting a better buy there than they were getting in Phoenix. We hired everybody except the managers were Native Americans, mostly Navajo. We even had a man by the name of Littlefish who was an Eskimo from Alaska on the payroll. The store was extremely successful. It really was a success and I felt very satisfied. It was the best thing I ever did while I was at FedMart for personal reasons.

Yes, that is true. So those were my FedMart days, but they came to an end when we got basically kicked out.

We opened in 1968. I was up there for some weeks helping finalize the opening. Mind you, this is long before cell phones and the internet. I remember the first night I stayed there, there was no hotel, no motel. There was a little six-bedroom motel and I was scared because there was no security. I couldn't close the window that opened to the outside. It just wouldn't close. I was just happy to be able to wake up safely the next morning. But it probably was safe.

A Navajo taco. It's made with something called fry bread, which is a deep fried bread, and then they put beans on it. They're delicious, not good for you.

Yes, they do. The founder of Costco, Jim Sinegal, had worked with my dad and was a protege of my father since he was 18 years old. He started out schlepping mattresses at FedMart. A lot of concepts spring from FedMart.

After we were no longer employed at FedMart, I was married and our eldest child Aaron, who we lost when he was 15, was a year and a half old, and our second child Rebecca was born. I left FedMart in December of 75 and Rebecca was born in January of 76. I didn't have a clue as to what would come next. But I had such confidence in my father that I knew we'd figure out something. My dad got an office and put a sign outside called it the Price Company. He said, 'You got to come to work every day. We'll figure out something to do.' So I would go to the office and my brother Larry too, and we started walking around our neighborhood trying to come up with an idea. We had all kinds of crazy ideas. One thought was to open a laboratory for developing film. But I said to my father, 'What did we like about FedMart and what didn't we like? Let's see if we can take what we liked and adapt it to a new business.' What I didn't like was having so many stores to manage. The thing we did best was our distribution centers. The idea I came up with was why don't we just run a distribution center and let the independent business person run the stores? All we will do is supply the merchandise and aggregate the buying power of the independent small businesses. We came up with that idea in February. It took about two months. Then my father said, 'You have to find some place to do this business. You need a warehouse.' I had no idea about real estate. I went out driving around San Diego looking for a warehouse and somehow came across this place that became our first building on Marina Boulevard. I negotiated with the owner, Seth Horn, and we leased a 100,000 square foot building that was an old manufacturing facility for airplane components. We finally made the deal, and Rick, who was the merchant, put together all the products. We hired a fellow named Giles Bateman as CFO. We finally opened in July of 1976. We restricted our business to business people. Retail customers could not come in and shop. It had to be a business person buying products for resale or for use in their business.

Okay, so I'm going to go back to FedMart. My dad, Saul Price, used to say when they first opened the first store at FedMart, it cost him $50,000. They didn't know what they were doing. But when they knew what they were doing, it cost him $5 million to open a store. When we didn't know what we were doing, it cost us maybe a million dollars to open the first Price Club, including the building, fixtures, and merchandise. We did it so fast. What makes things slow down is we become more careful. We have more to lose, so we keep adding bells and whistles. When we started, we didn't have a food court. The hot dog came about because people started calling us asking if they could put a hot dog stand in front of the store. It was crowdsourced. I met with Rick and my dad and said, 'What are we going to do?' They said, 'Why should we have them do it? Let's do it ourselves.' We priced a quarter pound kosher hot dog and a can of soda for $1.50. Costco carried that on. As companies develop, they tend to add cost to everything. It's got to look prettier. We had no air conditioning at that building. It was a metal building with a concrete floor. It was so simple, but it didn't work at first. When we opened, nobody came. We found out we couldn't survive just selling to businesses, and most of our merchandise was wrong. We had to totally revamp the merchandise, change the hours, and find a way to let consumers come in. We were losing tons of money and almost ran out. We came very close to failing, but we survived. In January of 1977, we finally made $5,000 for the month, and we said we're really going to make it.

Well, it's interesting because FedMart when it opened was an instant success, and this was not. But we learned a lot. Luckily, we had enough money to survive until we figured it out. If we had gone bankrupt, there'd be no Costco, no Walmart or Sam's, certainly no Price Club. We got it right. We lucked out. There's so much in life that's luck and timing.

I think it's totally true. I'll give you an example. We came up with the concept of having steel rack in the building because we were a warehouse serving businesses. But what we found at PriceMart is that we've taken some of the steel down and implemented new layouts to help expose product. Members didn't even know we sold a certain category. The other thing is, we're really a distribution business. We're distributing to our members in the most efficient way. When we started Price Club, we said no advertising, no delivery, no salespeople. We're going to cut everything that creates overhead and let people come in and buy at rock bottom prices. Even today, we have to maintain that. We have to think about how to structure our business to continue to deliver the product at the lowest price possible. For example, we buy a lot of product out of Asia, but we think we've come up with a better way to handle Asia shipments that will get the product to our markets quicker at a lower price. The mentality has to be that we have to keep challenging ourselves. How can we do it better? How do we do it more efficiently? But not by paying people the wrong way. We have to pay good wages and give good benefits. We want to do it because we are smarter in how we do it.

I would add one more thing. There isn't anything that we're doing today that is as good as it could be. Especially for the people working in the clubs, if you have a better idea, tell us. We don't have all the answers. The people who are closest to the work will have the best answers.

When we started Price Club, FedMart when it started had a $2 lifetime membership. Then they got rid of it. When we started Price Club, we decided we wanted it to be a club because we wanted people to feel they had the privilege of shopping there. That was one reason. The other reason is that the membership fee itself — in the early days it was $25 a year — we thought of it as part of the gross margin. We wanted the price on the sign to be as low as possible. If we could supplement our margin with the membership fee, we could reduce that signed price. The more people buy, the more they can leverage the membership fee. It creates an incentive to buy more, and it helps the company because more people buy, the more we can buy at a lower price.

I say one more thing about the employee. Going back to the 1960s culture I grew up with, our family of employees is truly a family. One of the top things we're doing in this company is providing quality work for people who will get good health care, good retirement, good wages, and be able to take care of their families and grow as we grow the company. It's a very personal thing for us. We really value the relationship with the people who work in this company.

The decision to merge — which ended up as a sale — was really done because Costco was doing a better job running their company than we were. It was the right decision. We sold our interest in Price Club and started a publicly traded real estate company in 1994. Costco took everybody from Price Club and gave them jobs. But there were a few people who didn't want to go work for Costco and said, 'Can we start something of our own?' We said fine, give it a shot. They started two things: one in Saipan in Micronesia, and then a man named Billy Barsonus wanted a Costco in Panama City. Since Costco didn't want to go there, these guys from the old days of Price Club opened the Los Pueblos store in 1996 in Panama City as a Price Costco. It did pretty well. We opened a second store in Guatemala through a joint venture with Michael Ascoli. Then a new president came in who was good at expanding, and we met Edgar and his group. They expanded into Costa Rica, the rest of Central America, the Dominican Republic, Trinidad, USBI, Aruba, and Jamaica. But unfortunately, he didn't run the company well and it was going broke. He left in the early 2000s, and the company was on life support. Somehow we got it back, and little by little Jose Luis came in and did a good job. Now after all these years, we have 54 clubs and almost a $5 billion company. We're doing a lot of good for the region and for our employees. But it was my second experience with almost going bankrupt. In both cases, it worked out.

For me, the PriceMart culture is very close to what my father Saul Price envisioned when we started Price Club and what we all envisioned, even more so. It's a more personal business than any of the other businesses I've ever been associated with, except maybe the Navajo Indian reservation. The basic culture is very much what I have learned for the last 60 years from my dad and from my own experience. But we operate in regions we have never operated in before, with so many different challenges in each country. It's really important that we continue to do the basics with people and merchandise in a consistent way throughout, but also be very cognizant of the cultural and customs differences in all these small countries. That's different. Even though people are people, the fact that we're in small, diverse countries creates a different demand on how we think about how we operate.

That's a really good question. Going back to the cultural differences between Price Club and PriceSmart, we didn't have any strong philanthropic connection in Price Club. My dad always had the philosophy that what you do philanthropically is a personal decision, not a company decision. So we didn't do that. At PriceSmart, I look at it differently because I think PriceSmart's role in these countries, especially countries with so many challenges — socioeconomic, geopolitical, lower GDP per capita — is important. As a US citizen and knowing the pressures we have with the border, I think we're in a unique position to help the United States by making it more attractive for people living in our countries to want to stay. Most people don't want to leave; they leave because of violence or because they can't make a living. To the extent that we have charitable activity and more importantly our business activity, we are making a contribution. We're buying a lot of product locally, which helps create jobs. I have a personal goal to continue to improve societies. We're not political, but the economic side — more jobs, better paying jobs, near-sourcing — these are all good things for the hemisphere, the United States, and the company.

I would certainly agree with that. I also want to reiterate my thanks to you for taking the initiative to have this podcast. I think it's a really good thing to do. I hope it encourages some of the listeners to present their own ideas or if they have further questions or comments, we want to hear from you. It shouldn't be a one-way speech.

That's a very good question. I learn every day. I'm still learning. I wanted to share one experience. In the last few weeks, we've been going through the renewal of our medical insurance in the United States. In the past, we just continued doing what we've been doing. But this year, we made a decision to do an in-depth review of how we're handling medical insurance. We learned a lot. We learned about government programs that support employees that we weren't fully taking advantage of. We learned a better way to negotiate with the insurance company. We learned about what's important to our people in terms of their needs. It's been a tough experience because we had to challenge everything we were doing, but I think we came out better for it. I learned a lot about the contents of the healthcare package and about how to think about our team and their needs. Thanks to the HR and legal teams who were on the front lines.