BA 4700
Oral case
40 points
In the beginning…
 ’57- Food Town, Ralph Kenter, Brown Kenter, and Wilson







Smith - all former Winn-Dixie employees
Began by failing – closed 9 out of 16 stores in the first ten
years
Lowered prices to compete with Winn-Dixie
Sales then rose 54% to 8.4 million
’68 - Ralph Kenter developed LFPINC
’78 - went public (Establissements Dehaize Freres et Cie
bought nearly half the stock)
’83 Became Food Lion
Food Lion has expanded to 8 states
Key Players
 Ralph Kenter - developed LFPINC
 He passed the torch to Tom Smith:
- has helped Food Lion’s success greatly
- expert at reacting quickly + effectively
- committed to discount pricing + cost
reduction
- not afraid of media exposure
Keep in mind that the following
information is from ’87. Barbara
will conclude our presentation
with an updated wrap-up.
Corporate-level
Situation Analysis
Corporate Objective
 “Our goal is to bring extra-low grocery
prices to as many people in the
Southeast as possible.” –Tom Smith
1)Keep prices low
2)Expand across Southeast
Internal Strengths
 Buying is low-cost
 Less expensive ways of opening and
operating stores
 Distribution – centers overlap
 Stores are close to customers
 Optimal capital structure
 Community oriented/socially responsible
 Low labor costs
 Private label brands
 Affordable, attractive stock
Internal Weaknesses
 Don’t have all the departments that
competition does
 No service departments
 Non-unionized labor
 Small market share
 Fewer locations
Societal Trends
 Emergence of Superstores and
Hypermarkets (Wal-mart), trend toward
expanded store size
 Decline in disposable income for food
 Popularity of Secondary Competition:
-Fast Food (Jack in the Box)
-Take-out (Pasta House)
-Delivery (Wok Express)
-Drugstores (Walgreens)
-Specialty Shops (Whole Foods)
-Wholesale Clubs (Costco)
Industry
 Aspects of new grocery market:
- saturation of market = low profit margin
- In such a tight market, competition within
the industry can be used to and individual
companies advantage. (i.e. under pricing
or advertising attacks and retaliations)
- Emphasis is put on “one-stop” shopping. Is
this really what consumers want? – NO! It
was listed only 26th when consumers ranked
what characteristics were important to
them when grocery shopping. (exhibit 4)
Threats
 Saturation of the market
 Strong competition
 Women in the workforce have less time to
shop.
Opportunities
 Because market is tight, companies can
take advantage of another’s failure.
Situation
Store Distribution- in 1987
Growth of Food Lion's Stores
North Carolina
500
Virginia
400
South Carolina
300
Tennessee
200
Georgia
100
Florida
Delaware
0
1978 1979 1980 1981 1982 1983 1984 1085 1986 1987
Maryland
Stores
Growth of Food Lion's Sales
Growth of Food Lion's Net income
100000
80000
60000
40000
20000
Sales
Net income
19
87
19
86
10
85
19
84
19
83
19
82
19
81
19
80
19
79
19
78
19
87
19
86
10
85
19
84
19
83
19
82
19
81
19
80
0
19
79
19
78
3500000
3000000
2500000
2000000
1500000
1000000
500000
0
Product/Market-level
Situation Analysis
Customers Characteristics
 Want to save money, price sensitive
 Don’t require a large selection of
brands
 Focused on buying food, don’t need
all departments
 Expect fresh produce
 Community-oriented
Competition
 Kroger – $18 billion in sales
- recently converted to newer, larger formats
- have not been as successful as planed
- costs are high
- cannibalization is occurring
 Future of Kroger:
- investing in “super-warehouse stores” (lowgrocery prices with high-priced service
departments)
- reduce remodeling expenses
Competition (cont.)
 Winn-Dixie - $9 billion
- hurt by increase of competition in SE
- hasn’t been investing in new stores
- higher prices
 Future:
- larger formats
- importance placed on service
departments and price
- management layoffs and decentralization
Competition (cont.)
 Lucky Stores – lower sales
- only competes with Food Lion in Florida
- got rid of non-food businesses
- increase of store sizes, service departments
 Future:
- may be bought by American Stores
Company, leading retailer with
combination food stores and drugstores
Competition (cont.)
 Bruno’s – very small
- high volume sales at low prices
- owns stores of many formats
- innovative buying program
- huge distribution center
- high operating and net profit margins
Competition (cont.)
Comparison of the sales/employee for major
southeastern chains, 1987
sales/employee
200000
157386
150000
103881
110049
107265
109267
Winn-Dixie
Bruno's
Food Lion
100000
50000
0
Kroger
Lucky
chains
sales/emplyee/chain
Problems
Want to expand conventional
stores
Want to move to other market
areas
Want to finance this future
growth with out changing the
capital structure.
Alternatives
Expansion:
- Increase store size
- Add more departments
- Add non-manned departments
- Include non-food goods
- Change layouts
- Focus on characteristics that are important
to the customer
Alternatives (cont.)
Migration:
- Expand across the U.S.
- Expand where their competitors are less
prevalent
- Expand to growing cities
- Expand to high-volume areas
- Expand to peripheral zones
Alternatives (cont.)
Funding:
- Find outside funding
- Split more stocks
- Sell more stocks
- Distribute more dividends to make stock
more attractive
Recommendations
 We will focus on what our customers are
looking for and include a larger variety of
departments (that are non-manned). We
should place these newer stores to
peripheral zones where the competitors
are less prevalent. We will finance this
operation by distributing higher dividends
to entice stockholders buy more stock.
Action Plan
1)
2)
3)
4)
5)
6)
7)
Increase Dividends to .02
Sell more stock (not more than 50%)
Use funds to invest in new stores using the regular
layout.
Use survey to ensure that customer’s top store
characteristics are met.
Place stores at highway exits near the entrances of
cities in the Southeast region – “ink-blot” formula.
Concentrate on cities where the strongest
competitors are not yet established.
Name effective people responsible for controlling
new area.
Food lion in 1992 and 1993
ABC had a news broadcast that showed
Food Lion participating in unsavory food
handling methods.
As a result, their sales plummeted from
$178 million in 1992 to $3.8 million in 1993
Despite this, profits rebounded in 1993 to
$152 million.
Food Lion in 1996
Food Lion acquired Kash n’ Karry Food
stores, at $341 million.
Food lion said it would benefit customers
because more competition means lower
prices and continued customer service for
everyone.
Kash n’ Karry said it gave them access to
the capital they needed to accelerate the
store remodeling program and helped grow
their business.
Food Lion in 1997
They added 100 stores through the Kash n’
Karry and Food Fair acquisitions.
They opened another 64 stores, closed 94
stores, of which 61 were in Texas,
Oklahoma, Louisana.
They remodeled or expanded 99 locations.
They operated 1,050 Food Lion stores in 11
states and 91 Kash n’ Karry Food Stores
Inc.
Had sales of $10.2 billion
Food Lion in 1999 and 2000
In 1999, announced they were acquiring
Hannaford Bros. for $3.6 billion, which
made them now the sixth largest food
retailer in the U.S.
They appointed Joseph Hall as the new
president of Food Lion.
In 2000, they ranked as the fourth top
supermarket in the US, in terms of store
count; ranked eighth in terms of sales.
In 2000, Reported earnings of $3.6
million.
Food Lion in 2001 and 2002
Food Lion tackles rising energy costs with
improved refrigeration equipment and more
energy efficient stores.
E.P.A. named Food Lion an Energy Star
“Partner of the Year”. They are the only
supermarket chain with that honor. This is
probably because they are the only
supermarket focusing on saving energy.
Overall, they save 86,000 kilowatt hours per
year with their current store design.
Food Lion in recent years
In 2003, they began a PR focus on the war
with the Red Cross, and developed a fundraising effort with the called “Operation
Family Support”, in which they will donate
$50 gift cards to military families.
In 2003, they saw their stock plunge 65%,
and made plans to close 41 of their poorestperforming stores in 10 states.
In 2004, Food Lion focuses on recycling
ceiling tiles and reusing them, to help save
money.
Food Lion and Wal-mart
Wal-mart proves to be a fierce competitor to
Food Lion because some of their products are
cheaper.
As a result of Wal-mart planning to open nine
super centers in Food Lion’s market, Food Lion
is undergoing store remodels.
Food Lion usually sees an immediate decline in
customer traffic after a Wal-mart super center
opens, but it typically returns to normal after six
months.
Convenience shopping is Food Lion’s new store
layout objective, because Wal-mart is full of
congested parking and long checkout lines.
Opportunityisnowhere….!!!!!
THANK YOU !!!!