BALTIMORE — Food Lion will turn its attention to individual stores throughout the company that have not been remodeled in several years, the chain said at its parent company's annual investor conference here last week.
The move marks an augmentation of Food Lion's recent remodeling strategy, in which the chain has been conducting “market renewals,” or remodels of entire geographic areas at one time.
“The downside of doing market renewals has been that some stores have been untouched for a long time,” said Cathy Green, chief operating officer, Food Lion, Salisbury, N.C., and is a division of Delhaize Group, Brussels. “In 2007, we will go back and invest in what we are calling ‘store renewals.’”
Green said the company has identified 321 locations that are in need of improvements, including some that have not seen equipment upgrades in 14 years. The company will seek to upgrade 40 of those stores in 2007, along with the previously disclosed market renewals that are planned for Norfolk, Va., and Myrtle Beach, S.C.
The market renewal plan began in 2003 with the Raleigh, N.C., market, expanded to Charlotte, N.C., in 2004, was rolled out to Greensboro, N.C., and Baltimore last year, and is currently being deployed in Washington, D.C.
“By the end of 2007, we will have touched 500 stores with the renewal program,” said Rick Anicetti, chief executive officer, Food Lion.
Green noted that in Raleigh, where the program was first rolled out, the company continues to see same-store sales gains.
The marketwide remodeling in Norfolk will include converting some stores to Food Lion's Bloom and Bottom Dollar formats, while Myrtle Beach will only involve the Food Lion banner.
Anicetti said the company plans to extend the market renewal plan to smaller markets in the coming years, and possibly to conduct renewals of groups of stores that share similar attributes even though they are not located in the same market, such as beach-town locations.
“Market renewal is here to stay,” said Anicetti, who described the strategy as an effective use of capital.
Assisting in the market renewal process is the data mining the company has done to segment its customer base based on shopping preferences. It has found 13 different clusters, including eight that skew to its basic Food Lion format, three that skew to the more upscale Bloom and two that skew to the price-impact Bottom Dollar banner, the chain's newest creation.
“We can now be very pointed and precise in where we put Bloom and Bottom Dollar in the future,” Green said.
In response to a question from an analyst, Anicetti said the Bottom Dollar and Bloom stores that have been converted from Food Lions are driving sales gains right away, but the impact to the bottom line takes a couple of years.
“We are on track to have these new concepts produce better returns than they would have if they were left as Food Lions,” he said.
The division of the customer base into 13 clusters is also being used to merchandise the stores. Each of its locations has been slotted to fit within one of the clusters for the purposes of product selection and merchandising. For example, one Food Lion store located in a market with a high number of retired people was fitted with lower shelving and benches for customers to rest, along with shopping carts that are more stable to provide support for feeble shoppers.
The company is remerchandising stores cluster by cluster, beginning with the clusters that have the potential to drive the highest profit gains.
“We will prioritize those clusters that give us the greatest pop in profit,” said Mike Haaf, senior vice president of sales, marketing and business strategy. “The last one we do will be the one with the least potential to improve profits.”
Company executives declined to provide details about the profitability of each of the clusters, although it did say they are all profitable.
The company also said it expected to ramp up new-store development soon.
“We are excited about the growth in our existing markets and in the areas surrounding our markets,” said Pierre-Olivier Beckers, CEO, Delhaize. “We also see opportunities in our area for acquisitions of small to midsized companies.”
Asked to comment on the media speculation that Delhaize and Ahold had discussed the possibilities of a merger, Beckers declined to address the issue specifically, but he did point out one of the positive side effects of the reports, which suggested that Delhaize would manage the combined companies if they did merge.
“The way it was presented in the media, it showed the strength of the Delhaize team at large,” he said.
