GREENVILLE, S.C. — Brian Hotarek, who began last week as president and chief executive officer at Bi-Lo Holdings here, said the company would increase its capital spending this year in an effort to revitalize sales.
The longtime Ahold veteran pledged to continue the strategic plan launched by his predecessor, Dean Cohagan, who is retiring. “I have the benefit of knowing the company and the strategic initiatives and business processes that are under way. The company is well-focused. It will be business as usual,” Hotarek told SN in an interview.
A former chief financial officer at Ahold USA Retail and at Stop & Shop, Hotarek was asked to join Bi-Lo's board of directors last summer by Bi-Lo's owner, Lone Star Holdings. As CFO at Ahold, Hotarek helped arrange the sale of Bi-Lo to Lone Star in 2005.
Cohagan had served as CEO of Bi-Lo since 2001, when it was a division of Ahold, and stayed with the company through its transition to the new ownership group and the sale of its weaker assets to C&S Wholesale Grocers. Cohagan is also a veteran of Stop & Shop and a former colleague of Hotarek.
Hotarek inherits leadership of a 305-store retailer with strong locations and market share in a six-state Southeast operating area, but also one he acknowledged was in need of investment and better sales performance. To that end, Hotarek said he would continue with plans to significantly step up investment in the store base and in technology during his first year at the helm.
“We had a modest capital program in 2006, and in 2007 there will be a lot more activity, particularly in the back half of the year. You'll see it,” he said. “We are going to have eight to 10 new or relocated stores, and a number of expansions and major and minor remodels, as we continue to update the quality of the stores in order to meet or exceed the expectations of our customers.”
Investment in Bi-Lo had slowed to a trickle in 2004 and 2005 as Ahold sought a buyer for the franchise. At the time of the sale to Lone Star, Bi-Lo shed more than 100 stores as it concentrated only in markets where it could have a No. 1 or No. 2 market-share position.
Hotarek declined to disclose how much Bi-Lo would spend on capital expenditures this year, but he said some would be devoted to information technology.
“The team has been implementing DemandTec — that's a significant investment that's going to create a lot more value for our customers and give us the tools to be more effective in our promotional spend. We're also investing in our entire pricing structure, and in our customer data warehouse, so that we better understand the needs of our customers in each of our markets,” Hotarek said. “That will give us tools to help us work more closely with our vendors, and it will also help us reduce our costs.”
Bi-Lo's recent sales results have been “softer than expected,” Hotarek acknowledged.
Standard & Poor's in December assigned Bi-Lo a “negative” outlook while affirming its “B” corporate credit rating. “Although Bi-Lo operates in the fast-growing Southeast U.S., competition is intense, and achieving sustained improvement in same-store sales will be challenging,” Stella Kapur, an analyst for S&P, wrote in a recent report.
Kapur noted that Wal-Mart's store openings in the region have slowed, but that Bi-Lo could face more competition from a revitalized Winn-Dixie, which recently emerged from bankruptcy protection. Competitive store openings and increased promotional activity by competitors have also negatively impacted sales and profits recently, she said.
“While our fourth quarter was softer than expected, we finished the year with positive momentum, which we're carrying into the first quarter of 2007,” Hotarek said. “The Southeast is highly competitive. You have Wal-Mart Supercenters and a lot of good regional supermarket chains.
“The good news is we have great market share in our key markets, good customer acceptance and we're doing a lot of things right. We will continue to be a market leader in the Southeast.”