SCARBOROUGH, Maine -- Though its Northeast sales are strong, Hannaford Bros. here is experiencing growing pains in the Southeast, where sales are below expectations, Hugh Farrington, president and chief executive officer, told shareholders at last week's annual meeting here. "Because of competitive activity -- some expected and some not -- our sales and margins [in the Southeast] have been somewhat less than anticipated," Farrington said. Other difficulties in the Southeast include staffing the stores, because of low unemployment in the area; implementation of business systems in different corporate cultures, and unsatisfactory performance by the chain's two wholesalers, he said. One of Hannaford's goals this year is to establish positive sales trends in newly opened stores in North Carolina and Virginia, Farrington said.
"We faced similar challenges when we entered New York in 1987 and when we acquired the Alexander's stores [in New Hampshire] in 1990. Our new territory is somewhat larger in scope than New York was, but the same rules apply. And we are making progress. "The fundamental reasons for our entry into North Carolina and Virginia are still valid -- growth in population and the economy; many smaller, older competitors, and sites available for our locations. Five years from now, I hope we are as happy with our decision to go South as we are with our decision to go to New York," he said.
Hannaford entered the Southeast in 1994 by acquiring Wilson's Supermarkets, a 20-store chain based in Wilmington, N.C. It acquired six stores in Richmond, Va., last September from Farm Fresh, Norfolk, Va., and opened five new stores in North Carolina and two in Virginia in the last third of 1995. Farrington said Hannaford's Southeast operation has "excellent, new physical plants, a core of talented people and a strong desire to succeed. "It is a significant challenge to staff the stores in areas of very low unemployment, and implementing our business systems in the acquired stores is taking longer than we hoped -- but not longer than in past expansions."
The Wilson's stores "have different systems and culture from the newly acquired Farm Fresh stores, and our suppliers have different systems and standards," Farrington noted.
Another area of frustration, he said, has come from Hannaford's wholesale supply sources in the Southeast -- Fleming Cos., Oklahoma City, and Richfood Holdings, Mechanicsville, Va. -- "neither of which measures up to our standards of cost, service or quality of perishable product," Farrington said. Hannaford expects to resolve the supply issue later this year when it opens its own distribution center in Butner, N.C., he said.
Fleming continues to supply Hannaford stores in the Southeast; Richfood previously opted out of supplying some of the stores.