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exception. He's 72 now, happily relieved of all management duof what a combat veteran once told him about his experience ties at Stew Leonard's supermarket chaip, a~olutely thrilled by in Vietnam. "He told me he wouldn't take $1 million for all he the way things are going there under his e)d'est son, Stew Jr., and had learned," says Leonard, "but he would gladly pay $1 milgrateful for the peculiar set of circmp&t3.nces facilitating the lion not to have to go back." handoff. "This was a blessing," he says, "because it allowed me to
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do what all the books on family business tell you to do-let go.
and keep your nose out of it." .v'
When he says "blessing," Leonard is referring to the ~yer31'
HAT'S STEW LEONARD SR., SEE?" SAYS A TOOTHY
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female customer in culottes and flip-flops, one arm fesrlng'ori'her little boy's shoulder, the other pointing years during the mid-1990s when he was away at I!.opTace
down the aisle at two grinning, square-built men-plainly father calls "camp," actually the minimum-security federal prison in and son-who are having their picture taken for this magazine.
Bradford, Pa. He was sent there after pleading guilty in 1993 "And that's Stew Leonard Jr.!" The child stares blankly. He's to conspiracy to impede the Internal Revenue Service. Court more impressed by the Farm Fresh Five, a band of "state- of-thepapers describe an elaborate scheme to divert more than art audio animatronic robots who perform original songs about
$17 million in cash register receipts over a ten-year period, remilk" from a stage above the cottage cheese display. He's also suIting in $6.8 million in unpaid taxes. For his role as masterquite taken with Clover, a wall-mounted cow that lets out a mind, Leonard was sentenced to 52 months, plus three years throaty, satisfying moo whenever children tug a rope they can of supervised probation, and ordered to pay $15 million in reach without having to ask their parents for a boost.
back taxes, penalties, and interest, a $650,000 fine, and They say Wednesday is a slow day in the grocery business, but
$97,000 to cover the cost of his incarceration.
1\vo brothersyou'd never know it prowling the aisles at the original Stew in-law and a longtime employee received lesser sentences. At Leonard's store in Norwalk, Conn. Employees in duck suits and the time the IRS called it "the largest such case in the country cow costumes mingle in a packed procession of wide-eyed shopin which a computer was used:' pers who make their way along a single serpentine aisle that
With the benefit of hindsight, Leonard calls it for what it winds throughniore than 100,000 square feet of thrill-packed, was. "Stupid, stupid, stupid," he says, hanging his big jowly aromatic selling space. Milk and dairy, which is how it all started head, shaking his thinning silver puff of TV-preacher hair. "I've back in 1969-there's a bottling plant on the premises, and you asked myself a thousand times why."He has no answer yet. But can watch all the foamy action through a plate-glass windowat least now he's talking publicly-for the first time since he got but also meat and fish, fruits and vegetables, bread and cookies out of prison five years ago-and discovering lessons in his (baked on site), and a salad bar from vegan heaven.
story. Lessons he can appreciate now that he's sleeping in his Everybody, it seems, knows Stew Leonard's-notjust the local own bed again, in the mansion he came home to on a picturmoms. It's been written up in sales and marketing textbooks, imesque point of land overlooking Long Island Sound. Lessons mortalized in Guinness World Records (most sales per square that he can now see are extremely valuable, though he's quick foot) and Ripley's Believe It O'fNot! (world's largest dairy store), to add, "Don't for a minute think I'm trying to say that it was a recognized by Fortune (100 Best Companies to Work For), and fagood thing." When he reflects on his time away, he is reminded
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ard's adoringly as a "celebration of imagination and excellence."
(Since then, "Tom Peters abandoned us,"says Stew Jr. For Peters's side of the story, see box.) Delegations from Fortune 500 compa-
nies like Citigroup, Exxon, and McDonald's make frequent pilgrimages to this swank coastal town one hour outside New York
City to study customer service at Stew Leonard University. Industry groups pay as much as $15,000 to hear Stew Leonard Jr., who donates the money to a water-safety foundation in memory of his son, who drowned as an infant.
Stew Sr. doesn't do speeches anymore. Neither does Tom later started his Clover Farms Dairy, delivering milk door to
Leonard, the younger son, who says he was doing as many as 60 door..He used to bring his sons on his early-morning rounds, all a year, at $10,000 a pop, before his own tax shenanigansthe while dispensing advice freely. "You gotta claw your way to really-landed him in a federal halfway house in 1997. So Stew the top; he used to say, and "Be a nice fella-yeah, you'll end up
Jr. handles all the speaking engagements now, about a dozen with a seat on the park bench." Young Stew Leonard took his this year. While court documents make it clear that Stew Jr.
dad's stark aphorisms to heart. In his high school yearbook he played a role in the $17.million skim, his official record is clean.
vowed to make $1 million.
For that he's in debt to his dad, who admits his own guilty plea That was unlikely as long as he remained a milkman. But afwas contingent on a pledge by the feds to leave Stew Jr. out of it.
ter his father had died and left him the business, the state an-
By protecting his son, he was also protecting his business.
nounced plans to build a highway through Clover Farms. He
Someone had to mind the store while Stew Sr. was away, and took the opportunity to rethink his prospects. He decided the fu-
Stew Jr.-with his MBA from UCLA and his special status ture of the retail dairy business lay in brick and mortar, not dewithin the Leonard clan as Stew Sr:s chosen successor-was livery. In 1969 he opened the first Stew Leonard's at its present the obvious choice. Even so, the outlook wpbleak.
Here was location on WestportAvenue in Norwalk.
Stew Leonard's, reaching that most perl}ous stage in the life Originally Stew Leonard's carried just eight items. It has cycle of any family-owned business-when the founder gives many more tgdaYI.butsince it can't compete with the national way to the second generation; two out of three don't make it, chains on paper towels and laundry detergent, it doesn't try.
experts say-and really, that was the least of its problems. B~~tead it fQcuses on perishables. Think of Stew Leonard's as a sides the founder, the vice president for operations and'ihe.~ sup~rffiat:ke1lwitb.the
center aisles removed to make more vice president for finance were also in prison. The gej1eral room for all the items normally sold on the perimeter. "Most of manager was serving two years' supervised probation. Also, the things that we sell," says Tom Leonard, who has plans to
Connecticut had just gone public with its own investigation into charges that Stew Leonard's was skimming customers open a spinoff business, called Tom Leonard's, in Virginia, "you will eat up within three days." What makes Stew Leonard's so with faulty weights and measures (the Leonards deny any special is its over-the-top customer service, including enterwrongdoing, and.the charges were later dropped). And Martainment for the kids and speedy (gum-free) checkout for the tha Stewart-who lives nearby-thinks she has problems.
shoppers. Employees routinely hand out warm cookies and
But that was almost ten years ago. Since then, under Stew Jr:s pistachios for snacking-if you spend $100, you get a free yoleadership, the company has prospered and grown dramatically, gurt cone. And should you be unhappy for any reason, the store mostly by following Stew Sr:s recipe, though sales sagged for two will refund you. Early on, Stew took the first rule of retail-the years in the scandal's wake. What in 1991was one store doing less customer is always right-and added his own rule No.2: "If the than $100 million is now three stores doing nearly $300 million, customer is ever wrong, reread rule 1."Upon entering Stew Leplus Stew Jr. has ad!led two stand-alone liquor stores selling fine onard's, customers see Stew's famous rules, protected by copywines ("Wme is a great business," says Stew Sr. without apparent right, carved in stone like the commandments themselves.
irony. "Yourtrips to all these.great places are tax deductible"). He One aspect of Stew Leonard's operation that Peters had singled plans to open a fourth store in spring 2004 on Long Island.
out for praise was his sophisticated use of teclmology. "His cus-
Though Stew Jr., 48, humbly describes the family business as "a tomer orientating, through people, is matchless," Peters wrote in hobby with systems," he has also plotted an expansion timetable 1981s Thriving on Chaos, "but he was also one of the first grocers, that could make Stew Leonard's a billion-dollar, multistate entersmall or large, to do daily computer analysis of the profitability of prise in 15years, around the time he figures he'll be ready to hand every item he sold."1h1e, but what Peters didn't know was that as things over to the next generation.
early as 1981,Leonard was using those same computers-running acustom-designed program dubbed Equity-to skim a portion of each day's receipts without creating a paper trail (at least not one T HE ORIGINAL ENTREPRENEUR IN THE LEONARD FAMILY was a man Stew Sr. pegs, sympathetically, as "a dirty
Irish Catholic no-good son of a bitch" -in other words, his father. Charles Leonard was a hatter in a sweatshop, and that was visible to Stew Leonarq.'s accounting firm, which wasno kidding-Arthur Andersen~. The deception had begun, according to Leonard, with an innocent request from a longtime
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employee who had injured himself on the job. He needed more than he was getting from workers' compo "I just went in the register and gave him the cash," he claims. Over time, the undocumented withdrawals grew larger and more frequent. Stew
Leonard's was always remodeling, adding a new wing here, a petting zoo there, a garden center.
When contractors offered to do the work for 20% less if Leonard paid cash, he paid cash, and saved money on both sides of the transaction.
Equity examined which items were the day's biggest sellers-at one point the cutoff was 200 units; later it was lowered to 50 to spread the skim more widely throughout the store-and wiped out, for the record, a percentage of those sales. According to court documents, "The program left no audit trail or any trace that it had been run. It did not create a second set of data, but rather wrote over the existing data. On the first day of each accounting week, [Leonard's brother-in-law and the vice president for operations] Frank Guthman, or in his absence Stewart
J. Leonard Jr., executed the Equity program and altered the previous week's sales and fin,rreial data." Between executions, the softwo/e was sometimes stored in a hollowed-out ~dition of the 1982-83 New England Business Directory.
With Equity skimming often thousands of dollars a day, the conspirators were constantly on the lookout for large bills, the easier to conceal and transport the loot. One way they got them was by requiring organizations buying batches of Stew Leonard's gift certificatessuch as schools and churches, who bought them for 90 cents on the dollar and used them for fundraising-to pay cash. Usually that meant $50 and $100 bills.
Some of the money they took went to pay contractors, presumably. Some was stored in a safe hidden in the wall by the fireplace in Stew Leonard's office. Nearly half a millio~ dollars was later found in Frank Guthman's basement (which was news to Stew Leonard; he hadn't known that his own brother-in-law was skimming the skim). And a "significant portion," according to the government, was carried out of the country by Stew Sr.
and others "in suitcases or in boxes and
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sometimes even disguised as baby gifts" during frequent visits to Leonard's "expansive and palatial" vacation home in St. Martin, aptly named
Carpe Diem. On June 20, 1991, Stew Sr. was detained by U.S.
customs officials as he was boarding a flight on his way to St.
Martin. A subsequent search turned up $20,000 on Leonard's person and $50,000 in his luggage. 'IWoyears of messy public revelations culminated in his conviction. Leonard says that at nrst he just felt relieved that the spotlight on him was dimming.
But the feeling didn't last. "The funny thing is, people just forget about you," he says. "You're not an entity anymore. There's no more publicity. You're not on the front page or the headlines anymore in the local paper. You're just nothing."
W EAKENED BY HEART SURGERY AND A RECENT HIP replacement, Leonard began serving his sentence at a federal medical facility in Rochester, Minn., in December 1993. His sons flew out with him over the weekend and drove him to the hospital on Monday morning. Stew Jr. later told a reporter for Supermarket News that all three woke up early that day so they could squeeze in a 90-::minute benchmarking visit to a nearby Rainbow Foods supermarket.
"I guess we just tried to make it as normal as we could," Stew Jr.
says now by way of explanation.
Later Leonard was transferred to McKean federal prison, in a remote region of northeastern Pennsylvania known as the