Four months ago, a decision was made to change the name of Red Food Stores, Chattanooga, Tenn., to Bi-Lo, the banner used by the chain based in Mauldin, S.C.
The decision was driven by the fact that both chains are commonly owned by Ahold USA. Ahold, the Dutch operator, owns several chains in the United States and last week agreed to acquire another, Mayfair Super Markets, Elizabeth, N.J.
In any case, Ahold acquired Red Food last May and, over time, the executive suite, logistics, buying and most other functions were unified under Bi-Lo management. Indeed, Red Food as a separate company has vanished. The decision to jettison the Red Food name -- and the equity it represented through 80 years of operations in Tennessee -- was far from an easy one. And some have questioned the wisdom of the decision, especially since sales at Red Food began to decline before the familiar Red Food banner started to come down. A Page 1 story in this issue of SN takes a look at factors surrounding the name change, and the fact that Red Food's sales have been in decline.
So what led to the decision to dispense with the Red Food name? As it happens, Marshall J. Collins Jr., Bi-Lo's president and chief executive officer, spoke at last week's Grocery Manufacturers of America annual Executive Conference at the Greenbrier on that very topic, among others. Marsh spoke quite candidly about factors that went into making the name-change decision, the subsequent market reaction and what he might have done differently if he were to do it all again. Here's the short version of Marsh's take on the situation:
"We talked during the time of the acquisition with people who asked, 'Would you ever change the name of Red Food?' I said, 'Well, I don't think so, and anyway we won't talk about that now because we have too many things on our plate.' And, we thought of Red Food as an 80-year-old brand, and obviously we wouldn't throw out an 80-year-old brand very quickly. "So we didn't deal with the issue for the first four or five months, but it became clear later that we had to step up and make a decision -- a decision we probably had to make sooner rather than later.
"There were a couple of things driving us. As an example, we found that the private-label program at Red Food needed a lot of work; it was fractured and it was splintered with a number of different brands out there. In some cases, the quality didn't stand up to Bi-Lo's specifications and, clearly, the costs weren't even close. Also the uniting of the buying system and distribution system was pushing us toward one common product assortment for both companies. "Then, what really made us think it was time to fish or cut bait was we made a decision that as early in 1995 as possible, we were going to get competitive on price. "We asked our customers [through research], 'Can we get credibility for being price competitive with the Red Food name?' The customers said 'probably not' and, in addition, said they were open to a name change. "So, to oversimplify a long and agonizing conversation within our business, we decided that, effective March 1, we would change the name to Bi-Lo.
"At the time we changed the name, we lowered prices 6% so there was a huge difference in the retail structure of the pricing in the marketplace. "And, we worked very hard to communicate with our [Red Food Stores] associates about what we were doing and why. We got the media involved and told them what we were doing and why. And we had meetings with community leaders. "The reception? I wouldn't call it overwhelmingly positive, but it was OK and things moved forward. "In retrospect, there was one thing we did after the name change that we probably should have done differently: We had made major shifts in the product assortment in April and May [after the name change]. We increased variety by 1,500 stockkeeping units. However, a lot of those SKUs replaced items that were, quite frankly, third and fourth in their category in terms of share. "Any time you change the assortment, customers might not like it. In retrospect, what we should have done was to align the product assortment, then change the name.
"We did get some pushback from customers on those product changes, but those are behind us now and for the most part the name change and consolidation are about 95% complete, and we think this will be an outstanding acquisition for Ahold in the United States." Many observers, including this one, agree with Marsh's observation about that.