Food Lion's early focus on cost efficiencies laid the foundation for its later success
In the mid-1960s, the small chain of Food Town supermarkets in Salisbury, N.C., stood on the brink of bankruptcy.
Competition from the big national chains like A&P and Southern stalwarts like Winn-Dixie was fierce, and it looked like Food Town, which had been founded in 1957 by a group of former Winn-Dixie executives, might not survive, according to Ralph Ketner, one of those founders.
In 1968, however, Ketner had an epiphany. He decided to use his expertise as a number-cruncher to introduce a novel idea to the market: Having the lowest prices on everything in the store would drive enough volume to eke out a profit.
“What I did was bet the company on low prices, and it worked,” Ketner told SN in an interview this month. “In 1968, we cut prices drastically, and we went from doing $5 million a year in sales to $140 million a week when I left the company 25 years later.”
Ketner's decision, made after holing up in a motel room for three days with six months' worth of invoices to calculate a formula that would deliver a profit, laid the foundation for Food Town to become the regional powerhouse now known as Food Lion. His core operating philosophy, to drive costs out of the organization in support of the bare-bones price reductions, remains at the heart of the Food Lion concept today, even as it layers on the nuances of segmentation, targeted store formats and the creation of what executives describe as a “retail branding initiative.”
“Our low-price positioning has been built on a low-cost structure,” Cathy Green, chief operating officer, Food Lion, told SN. “When you think about the last 50 years and how this organization was built, the foundation was low cost. That's a muscle the founders were passionate about, and that's a huge filter for us — we are constantly challenging ourselves about how we can take costs out of the system.”
Perhaps just as bold a move as Ketner's decision to seek profits through high volume was the decision in the last few years to diversify the Food Lion banner. As part of the company's effort to tailor its stores to meet the needs of individual communities, Food Lion debuted the Bloom concept for higher-end, time-pressed shoppers in 2004 and the Bottom Dollar banner for the most price-sensitive consumers in its trade areas in 2006.
The moves have been made possible by the strong culture of cost-cutting that has been reinforced at the company through the last five decades, executives said.
“That has allowed us to invest in Bloom and Bottom Dollar, and to invest in deploying segmentation across 1,300 stores,” said Green. “We can invest in growth, and we can look at expanding our network and at new-store growth. I'm not sure we would have been able to do that if we had not worked hard to take costs out of the system.
“Our ability to manage multiple brands in a low-cost structure is a point of differentiation in the industry,” she said. “There are companies in the industry that operate multiple brands that are looking to take costs out, but we started with a foundation of low costs. As we look at adding incremental head count and support, we are constantly challenging ourselves as to the necessity of any added infrastructure to manage multiple brands.”
Analysts who follow Delhaize point to Food Lion's strong margins, which help it weather price wars and fluctuations in the economy and give it a good return on its capital investments.
“Some of that is the nature of the non-union workforce, but it's also their use of technology and logistics,” said Carla Casella, an analyst with JP Morgan Chase, New York. “They have more cushion to weather price pressures.”
She cited the company's work in customer segmentation and its use of technology as among Food Lion's best attributes, as well as strong management.
“I think they've got not only a very strong team, but also a very deep bench,” she said.
The chain, together with sister chains Hannaford Bros. in New England and Sweetbay in Florida, now generates about $17.4 billion in annual sales, comprising nearly 75% of the revenues of parent company Delhaize Group, Brussels, which acquired a minority interest in the Food Town chain in 1974.
Before Delhaize helped pave the way for Food Lion to become a regional powerhouse, however, the company almost didn't make it.
“In the first 10 years, we opened 16 stores and closed nine, because we were losing too much money and couldn't keep them open,” Ketner explained. “I refer to those years as our ‘research and development’ years, but really that's another way of saying we were starving to death.”
Even before the founders had opened their first Food Town store in Salisbury in 1957, the odds didn't seem to be in the chain's favor. Ketner's brother Glenn, a real estate developer, had tried unsuccessfully to sell the site to several other supermarket operators. Unable to find a buyer, he enlisted the help of Ralph and a third brother, Brown Ketner, and another partner, Wilson Smith, to open a supermarket there.
The Ketner family had a history of food retailing dating back to 1923, and the three founders had all been buyers or managers in Winn-Dixie's North Carolina operations.
An accountant by training, Ketner, now age 87, still enjoys conducting complicated mathematical problems in his head during conversation. It's perhaps no surprise that he took the initiative to figure out, on paper, how to add and subtract his way to an escape plan for his fledgling chain.
His bottom-line solution: If the company could lower prices enough to increase sales by 50%, it could generate the volume to turn a profit through aggressive forward buying of product. The company slashed prices to what Ketner described as “below carload costs” on a range of popular items.
It worked. In the first year of the aggressive price promotions, the Food Town chain went from $5 million in sales to $9 million, and it never looked back.
“I'm not that smart, but I just kept cutting prices, and sales kept going up,” Ketner quipped.
The company was able to keep prices low in part because it did its own distribution and could control its logistics costs, and also because it did forward buying that allowed it to obtain discounts. The stores also eschewed such services as delis and bakeries, because the management felt they added too much cost for the sales volume they generated.
“My feeling was that I was going to cater to 95% of the people, and let somebody else have the other 5% that wanted deli and bakery,” Ketner said.
The concept of providing minimal services to keep costs in check remains a core element of Food Lion's philosophy, although it has expanded its service levels since those early days, particularly with its Bloom concept.
In the early days, Ketner said, he also eliminated advertising as a way to reduce costs, but the company soon decided that the funds it could obtain from suppliers in return for running ads made it worthwhile to do so.
He said the company even explained its reasoning in the ads themselves, with wording such as, “We do this so we can get thousands of dollars in co-op money.”
The chain originally did not target the lower-income residents of North Carolina, but the more affluent ones who read the papers and saw its ads bearing the slogan LFPINC, which local residents came to know stood for “Lowest Food Prices in North Carolina.”
As the chain grew, many of its original investors, who had been solicited by phone from the local telephone directory, became millionaires.
While it was still in its early stages of growth, operating about 14 stores, Food Town caught the eye of Delhaize, the 100-year-old Belgian food company that was seeking to expand into fast-growing markets. Delhaize made an initial investment of $8.2 million for a 34.5% stake in the company in 1974, and soon afterward Food Town adopted the “Lion” logo of its benefactor and spread its wings throughout the U.S. Southeast.
In its early years the company was competing with the mega-chains of food retailing — A&P and Kroger, as well as Southern stalwart Winn-Dixie and regional banner Harris Teeter.
But Food Lion stuck to its core low-price strategy and outlasted its rivals.
“I think at first the competition didn't pay attention to us, because they thought our prices were so low that we were bound to go bankrupt,” Ketner said.
“Truthfully, we had the lowest prices, so we were entitled to the business and we did the business,” he said. “The reason people trade with you is because you have low prices.”
Delhaize let Ketner and his partners run the chain autonomously, as they replicated the formula in one community after another.
By the early 1990s, the chain was opening an average of about 70 stores per year, and set a goal of “2,000 in 2000,” although it stopped well short of its goal. The company expanded from 106 stores in 1980 to 881 stores in 1991, mostly through new store openings in the fast-growing communities of the Southeast. The company did make a handful of acquisitions, but for the most part grew through new-store construction. Sales volume in that time period rose from $43.9 million to $6.4 billion.
In 1982, the chain soon began pressing up against two other chains with the Food Town name — one in Virginia and another in Tennessee — prompting the company to change the name of its stores to Food Lion, having already adopted the lion image into its logo and on its private label. According to company lore, the Food Lion name was also an economical choice, because it only required buying two new letters for each store sign.
Although the company often gets credit for having small, convenient locations, that's really only half the story, Ketner explained. In the early days, he said the stores were as big as any of their rivals, but the company did tend to blanket the communities it served with stores that most residents had to drive past. In Rowan County where Salisbury is located, for example, the chain operated seven stores serving a population of about 130,000 people.
“We were within shooting distance of everyone in the county,” Ketner recalled.
That concept of being the “store of the neighborhood” is another characteristic, besides the focus on low price and efficiencies, that the chain uses to define itself as a brand.
“At Food Lion, we've tried to take those strategic levers of price and convenience and wrap them in a brand image,” said Rick Anicetti, chief executive officer, Food Lion, in an interview with SN. “Three words we use to describe Food Lion throughout the organization are ‘neighborly, practical and dependable.’”
In the 1990s, Anicetti said, the company experimented with a lot of different strategies, with limited success. Now, he said, the chain has created a branding message that carries throughout the organization.
“I think the branding work really provided a significant amount of focus,” he said. “It provided a language that people could use amongst each other internally, as well as a language they could use to talk to consumers.”
That effort at branding the company, which began about three years ago, has resulted in the creation of the company's two auxiliary brands, Bloom and Bottom Dollar, which target the upscale and price-sensitive customer segments, respectively.
Anicetti said the company quickly learned that the segmentation work it had done to optimize its merchandising and internal store presentations could be extended to the exterior of the stores as well.
“Not only could we make choices internally, we could also determine which brand we wanted to wrap those internal decisions in,” he said.
Food Lion's efforts to tailor its offerings to individual markets bring it closer to what Anicetti describes as a CPG style of branding, in which the retailer itself becomes more like a brand in the mind of the customer.
Anicetti said the concept of branding has not been a part of traditional supermarket operators' repertoire.
“One of the things we discovered three or four years ago is that we were primarily focused on delivering what Food Lion had delivered — and quite successfully — through the '70s and '80s, and I think as more choices started cropping up for consumers, our branded message was one that, quite frankly, was missing amidst all the noise in the marketplace,” he said.
“I think historically in the industry in general, we've had advertising departments that mask themselves as marketing departments. We're great at fliers, and great at pricing, great at radio, great at TV, but I don't think we were particularly good at creating a branded message.”
So what Food Lion has done, Anicetti explained, has been to “take those strategic levers of price and convenience and wrap them in a brand image.”
The image is centered on the three key attributes of being neighborly, practical and dependable.
“We are really trying to have everything that we do — whether it is advertising, the uniforms we choose, the decor that's in the store, the messaging that we do, on TV and radio as well as in our fliers — all of that intended to create with the consumer this notion of ‘neighborly.’
“Our store locations are literally located in neighborhoods, so we think that tells the story more effectively, particularly with convenience, and we think with value that a consumer can really rely on and find as dependable.
“About three years ago, we really started focusing on the understanding of branding,” he continued. “If you were to walk through the halls of Food Lion today, it might sound like a CPG company.
“This notion of really establishing the edges of the brand are significantly important, and how do we tie in all of the other efforts, so they are point-on and focused on the same objectives.”
Anicetti said he sees Bloom and Bottom Dollar as having personalities that are not only distinct from Food Lion, but also from other concepts in their respective niches.
“For Bloom, we often talk about upscale, but we clearly move toward a greater differentiation and assortment, more variety, service and a unique way in which we want to deliver convenience.”
Unlike many of the price-impact banners in the market, Anicetti said he thinks Bottom Dollar, with its humorous T-shirts and store signs, gives customers an environment they feel good about shopping in.
“Bottom Dollar is the brand focused on price, and I think uniquely so,” he said. “What we like to think Bottom Dollar provides is a very energetic, upbeat, but very price-focused limited-assortment discount store that you can do a full shop in from soup to nuts with very, very competitive pricing, amongst the lowest in the marketplace.”
The effort to tailor stores to individual consumer clusters began with a thorough analysis of data collected both internally through the MVP frequent-shopper card and from outside sources.
“We discovered eight mutually exclusive and collectively exhaustive segments,” Anicetti explained. “We found eight segments of customer behaviors that are very different from one another but explain the marketplace in totality.
“We felt it was going to be difficult to segment 1,300 stores, but what we noticed was that certain stores followed similar patterns, and using gravity-modeling techniques and methodology, we were able to discover between five and seven macro-clusters, which virtually explained every one of our 1,300 stores.”
That, he said, impacts everything from decor to pricing, and even to recruiting as the chain seeks to hire a workforce that reflects its customer base.
“It really began to give us a way to begin to meet the different needs of different consumers across our 11-state territory,” he said.
Mike Haaf, senior vice president of sales, marketing and business strategy, who joined Food Lion in 2003, has been at the helm of the company's efforts to translate its treasure trove of customer data into a system of segmented offerings based on customer preferences.
“There have been tons of challenges,” he told SN. “Food Lion was a company that was started based on delivering low prices at low costs. It was designed with one planogram, one price zone, one distribution methodology, and driven for lowest cost.”
Like Green, Haaf credits the company's people with making segmentation work in a low-cost environment.
“Our approach to the business is really based on the approach that consumers differ, and we create brands, products and services to suit their needs,” he said. “All of the infrastructure required to do that has been really quite challenging, and it's been amazing what this organization has been capable of doing when they put their mind to it.”
The next phase of segmentation involves changing the “feel” of the stores, Haaf explained.
“I think of this as a black-and-white picture — one of the things we are looking at now is overlaying our demographic and psychographic segmentation scheme with need-state information, to add color to that picture. This will enable us to shift the merchandising, and how we manage the feel of the store a little bit. That is the next evolution of the segmentation and clustering work. If you sort of think of treating customers as large groups, as half of a circle — the ying — the yang of that, the other half of the circle, is how do we treat individual customers differently.”
The company's efforts at segmentation and branding have manifested themselves in its “market renewal” strategy, a process whereby the company has remodeled entire markets at a time rather than upgrading individual stores throughout the system.
“The problem with that — especially for Food Lion, given our significant geography in 11 states — if you end up doing two remodels here, five there and a few more in another location, is that it prevents you from being able to reintroduce yourself to the consumer,” Anicetti said. “So what we've chosen instead is to go in and virtually remodel every store in an area we could reach exclusively from a marketing perspective. We were able to put all of our best brick-and-mortar forward, and we were able to focus a lot of our time and attention on training and development for a specific number of stores.”
The company began with its most densely stored markets, including Raleigh, N.C.; Greensboro, S.C.; Charlotte, N.C.; and Baltimore and the greater Washington area. This year it “renewed” the Myrtle Beach, S.C., area and is now focusing on Norfolk, Va.
Its most recent market renewals have included the conversion of several stores to the Bloom and Bottom Dollar banners.
Part of Food Lion's efforts to brand itself in the marketplace involves its efforts to become a resource for health and wellness. Part of that involves the adoption of Hannaford Bros.' Guiding Stars shelf-labeling system for product nutrition analysis, as well as other learnings from Food Lion's sister chains.
“We certainly understand this trend is being recognized not only by competitors but by manufacturers as well,” said Anicetti. “So what we are really trying to do is sort of brand health and wellness in our operation so that the efforts of our manufacturers fall under that umbrella. Rather than it having a multitude of health and wellness messages from our manufacturers, we are looking at how to package all of those messages under a Food Lion-branded effort.”
Although only a handful of Food Lions currently have pharmacies, Anicetti said he sees the possibility for additional locations in the future.
“We have a very unique business model, with probably one of the lowest break-evens in the industry,” Anicetti said. “Because of that, the volume that's required on a weekly basis to generate a very acceptable level of profitability has a traffic count that we're having difficulty understanding how to translate into a successful pharmacy business.
“We believe that as the opportunity continues to grow, and we become a very popular choice for what works in driving these golden-years customers, we may find more and more locations where that may work. And we are really trying to determine the right sort of marketplace in which a pharmacy inside of a Food Lion is going to be successful.”
Another challenge Food Lion has faced in adding pharmacies, Anicetti explained, is that the chain drug store channel is very well developed in the Southeast, making it difficult to acquire the prescription files of independent drug stores, as many large supermarket chains have done in other markets as they added pharmacies.
In addition to health and wellness, other consumer trends Food Lion is tapping into include sustainability.
“Historically, we have been very, very focused on energy,” Anicetti said. “I think we were focused on energy before it became cool.”
In the last seven years, the company has reduced by 25% the number of BTUs used throughout the organization, and more than 700 stores have received the federal government's Energy Star award.
“Certainly, energy conservation is something that is significantly important to us,” Anicetti said. “We've thought of solar energy, we've thought of wind-generated energy, and in addition to that, we are focused on waste recycling. We've been working with manufacturers in terms of packaging reduction.”
One of the more recent initiatives at Food Lion includes creating what Anicetti called a “culture of ownership” among employees.
“When we think about ownership, we're not asking a cashier to make a real estate decision or a real estate person to make a pricing decision — that's not how we talk about ownership. We focus a lot on a concept we call a ‘fraction of the action.’
“That means that every single one of our 74,000 associates has a fraction of the action that they can own. That cashier can ‘own’ the space that he or she is operating in, and can ‘own’ the relationship with the customers.
“At the end of the day, the only thing we really own is that relationship with the customers. So when we think about the future, it's really about creating great customer experiences, and we think the culture of our organization has everything to do with that.”
To help spread this culture through the organization, Food Lion invests what Anicetti described as “significant financial resources” in bringing store managers and other chain leaders together in meetings to reinforce individual responsibility for the customer experience.
“If you try to define a great customer experience based on a 200,000-square-foot box with all the bells and whistles, then I'm going to lose,” he said. “But we believe that we can create a great customer experience in smaller boxes, in more convenient boxes, with associates who really want to build a great relationship with the customers who come into the stores every week.”
1957 — Ralph Ketner, his brother Brown Ketner and Wilson Smith, three veterans of Winn-Dixie, open a retail food store called Food Town in Salisbury, N.C. To raise funding, they solicit investors by calling numbers in the phone book.
1968 — With several of the 16 stores in the fledgling chain losing money, Food Town commits to the concept of driving volume through aggressive price cuts. It adopts the promotional acronym LFPINC, which stands for Lowest Food Prices in North Carolina.
1970 — Food Town's shares are listed on the over-the-counter Nasdaq stock exchange.
1974 — Belgian retailer Delhaize, which has reached the limits of expansion in its home country, acquires 316,000 shares of Food Town's stock, or 34.5% of the chain, for $26 per share. It remains a hands-off owner, allowing Ralph Ketner to continue to run the business.
1976 — Food Town expands into South Carolina as it begins to roll out the banner aggressively with Delhaize's support. Delhaize increases its stake to 52%.
1982 — Rapid growth continues, and Food Town changes its name to Food Lion because it has begun butting up against some other chains using the Food Town name. Also this year, the company opens a 375,000-square-foot satellite warehouse in Prince George County, Va.
1985 — Ralph Ketner retires as chief executive officer and is succeeded by Tom Smith, who had started as a Food Town bag boy in the early 1960s. Ketner remains chairman of the company for another five years.
1991 — Food Lion, already operating 881 stores in 12 states, unveils an ambitious expansion plan that would bring it into Texas, Louisiana and Oklahoma — for the first time deviating from its “ink spot” strategy of expanding in contiguous markets.
1992 — ABC's Prime Time Live features an undercover investigation demonstrating unsanitary food-handling practices at Food Lion. The report, combined with merchandising and site-selection miscues in the company's newest markets, was blamed for a steep drop-off in business.
1994 — Food Lion closes 84 stores in Texas, Florida and Oklahoma. Three years later it leaves Texas completely.
1995 — Food Lion introduces the MVP (Most Valuable Partnership) loyalty card and rolls out a new organizational structure based on three operating regions with more localized control.
1996 — Food Lion acquires the 100-store Kash n' Karry chain, a long-struggling banner based in Tampa, Fla., for $121.6 million.
2001 — Delhaize America, one year after spending $3.6 billion to acquire Hannaford Bros. in New England, conducts a share exchange that unifies it completely with Brussels-based Delhaize Group.
Sources: Food Lion, Ralph Ketner
Delhaize Group, one of the pioneers of international food retailing, is celebrating its 140th anniversary even as its largest banner, Food Lion, commemorates a half-century of operations.
Delhaize was founded in 1867, and has a legacy as a food retailer, importer and manufacturer in its native Belgium. It didn't cross the Atlantic until 1974, however, when it bought a 34.5% stake in a burgeoning North Carolina chain then known as Food Town. It would later add to its U.S. holdings with a range of acquisitions along the East Coast, from Kash n' Karry in Florida to Hannaford Bros. in New England.
In a half-century of investing, Delhaize has compounded that initial $8.2 million investment into a sprawling network generating more than $17 billion in annual revenues.
In addition to the exponential growth the company achieved in the U.S., it has also evolved in its management style. Until just a few years ago, it allowed each of its chains to operate autonomously; it has only been since its acquisition of Hannaford Bros. in 2000 that the company began to pursue the benefits of cross-banner efficiencies and synergies.
“One of the goals and challenges of the last five years has been to find common goals and alignment,” said Pierre-Olivier Beckers, chief executive officer, Delhaize Group, in an interview with SN. “It really requires a lot of trust-building — its not the kind of thing we do overnight.
“I don't think we will ever be at the conclusion of this, but I am happy to say that today we are aligned across our companies on goals, and strategies to reach them. Whereas a few years ago our companies were protecting their independence strongly, today we are looking across the group and across the regions, across the brand, to look at potential organizational things to optimize efficiencies.”
To facilitate sharing across the banners, the company is conducting more face-to-face meetings among the management teams of its various regions and divisions.
“We have a number of meetings and training programs across the groups, where a large number of executives and high-potentials meet at different places during the year,” Beckers said. “The different brands have an in-person, face-to-face opportunity to meet, and of course that is the foundation to create interest in — and commitment to — complementarity and cross-fertilization of good ideas.”
Among the gatherings are a leadership meeting for the top 100 executives, and a leadership college for high-potential managers, who are given a challenge and asked to come up with a solution to share with the group.
The company also has a development program called Oracle for young managers who have been designated as having high potential for leadership in the organization; every year Oracle brings about 35 people from throughout the company together in a learning environment. Another program that encourages stand-ardization across the organization is a training program that focuses on improving a single managerial skill each year.
In addition to its operations in Belgium and the United States, Delhaize also operates the Alfa-Beta chain in Greece, Delvita in the Czech Republic, Mega Image in Romania and Super Indo in Indonesia. The company had sales of about $27.4 billion in 2006, and operates about 2,700 stores in all.
The sharing among the various Delhaize divisions has expanded greatly since the acquisition of Hannaford, which took over distribution for Kash n' Karry about five years ago and has since overseen the reformation of the Kash n' Karry banner into Sweetbay Supermarkets, a format that mirrors many of the flourishes that have made Hannaford a success.
Increasingly, the various banners share technology, such as the ACES system, developed at Hannaford, that is being rolled out not only at the company's other U.S. banners but overseas as well. Just last week Delhaize announced that it was rolling out another technology, called Galleria, to its retail stores in Belgium. Galleria is a tool used by Food Lion to automate its customized product assortments.
Private label is another area where the various banners have adopted a more collaborative stance, as the U.S. businesses are in the process of rolling out a three-tiered private-label program across all banners. The U.S. banners have also been able to leverage Delhaize Belgium's prepared-foods expertise, Beckers said.
He said the company is focused both on organic growth and acquisitions.
“In the U.S., in 2002, 2003 and 2004 we had had a low number of store openings, but now, since 2005, we have been progressively accelerating the new-store opening program,” Beckers said.
“The second way of growth is acquisitions, but the good targets are few. It would be unrealistic to think that there are a lot of them, because there are a number of elements when you look at acquisitions — the geographic fit, the management strategy that you find in that company, the price tag that's going to be attached to it, and the possibility of actually finding strong systems and processes that you can leverage across your existing assets — and you need to have a few of those in order to justify making an acquisition.”
Going forward, Beckers sees several key trends impacting food retailing, including format differentiation, improved execution and a focus on value.
“Clearly the discount formats and Wal-Mart really highlighted the need to highlight distinctiveness, and we saw that the retailers who did not adapt quickly enough or simply were not willing or able to see the need for change put themselves in considerable trouble or even disappeared,” he said. “Those who decided to renew themselves — and I want to use Food Lion as an example — those have been successful and have transformed their store concept in increased distinctiveness.”
Bloom has turned out to be an appropriate name for Food Lion's convenience-oriented, upscale concept.
From a five-unit bud of a test project in 2004, Bloom has since flowered into a 52-store chain operating in several different markets.
“We took our time in those five learning labs, we took a couple of years to analyze what it really meant to differentiate, and then we introduced really rapid growth,” said James Egan, vice president of Bloom.
After the initial, five-unit test in Charlotte, N.C., the company opened seven stores in Greenville, S.C. — which was a new market for Food Lion — and converted 40 Food Lion stores in the Washington, D.C., area to Bloom as part of the chain's “market renewal” strategy. Another eight stores are opening this year in the Hampton Roads, Va., market, and a new prototype is also scheduled to open this year in Charlotte.
Since the original stores opened, Food Lion has extensively remerchandised the Bloom banner, which features higher levels of service and a more extensive product mix in some categories than a typical Food Lion.
“The primary focus of our redesign was on creating a really compelling experience in our fresh departments,” said Egan. “The intent was to deliver a really high-quality, high-variety fresh experience. We added high-quality seafood departments, an all-Angus beef program, and we have enhanced our assortment in produce, adding hundreds of SKUs.”
In Center Store, the chain made changes to emphasize its quality and variety image, and expanded 11 specialty food categories that consumers said they felt were important to them. Over 90% of the deli-bakery offering has been changed as well.
The concept, which has long made use of such technologies as self-scanning and interactive kiosks for recipes and wine pairings, has now branded that image with the “breeze” theme, so that “shopping is a breeze” and “checkout is a breeze.”
Although he declined to reveal specific numbers, he indicated that Bloom can generate higher sales than a typical Food Lion.
The higher expenses for food, equipment, service and decor are offset by better margins on the more upscale product mix and efficiencies obtained through the larger organization.
“We do have moderately higher [costs], but when you factor in the sales and margin improvements, we still look to deliver profit margins that are similar to our sister banners,” Egan said. “One of the things we really enjoy by being a part of the Food Lion family is that we really can leverage Food Lion's ability to manage costs and capital.”
With its low prices and no-frills shopping experience, Food Lion's Bottom Dollar banner in many ways embodies the original ideals that Food Lion's founders embraced.
The price-impact format debuted in 2005 as an even lower-priced alternative to Food Lion, and it has since been expanded to 27 converted Food Lion locations offering a streamlined SKU count and a selection of both private-label and branded product.
“What's kind of cool is that our customer is a Food Lion customer,” said Paul LaCroix, vice president, Bottom Dollar, in an interview with SN. “The customers are the customers we've been serving for a long time — it's just a different experience in the stores — and hopefully we're attracting new customers as well that hadn't shopped our stores before.”
That in-store experience, however, is what sets Bottom Dollar apart from other price-impact or limited-assortment stores, Food Lion executives said. The stores feature such whimsical flourishes as T-shirts with slogans like “I'm a black belt in price chopping.” In-store signs caution customers, “Watch your step — you might trip on the low prices.”
“We really wanted to be a little different in discount, and put a little fun into it,” LaCroix said. “Rather than just present a price on a sign, we present a different experience, without too much in added costs. It doesn't cost anything to have some fun, and we've enjoyed doing it.”
The company has also incorporated the approach into its advertising. At Easter, for example, the company ran ads suggesting that customers ask employees for a free joke. The company supplied workers with a handful of simple jokes so they'd be ready when customers asked.
“We happened to have one the best sales weeks ever — it was just an amazing response,” said LaCroix. “Was it tied to the jokes? I don't know, but it made having the best sales week ever a lot of fun.”
As part of the much larger Food Lion chain, which itself is part of Brussels-based Delhaize Group, Bottom Dollar is able to leverage many of the strengths that those parent organizations have evolved. Purchasing is handled centrally, allowing Bottom Dollar to take advantage of procurement efficiencies, and all back-office functions are “seamless” in their integration with those of Food Lion.
“We can be more focused on the in-store experience,” LaCroix explained.
Even though the chain does not have full-service delis or bakeries in the interest of cost reduction, it is able to leverage Food Lion's relationships with suppliers to offer a selection of the most popular items from those departments, he explained.
In fact, perishables is a fast-growing area of the store. “You get a great experience in the fresh side,” LaCroix said. “We have great-quality produce and meat, and we display it in a very thoughtful way to show it off.”
Customers also don't seem to mind the lack of services, he said.
“You bag your own groceries, but it's not that big a deal for the consumer, because from talking to customers in surveys and focus groups, we know they understand why they are doing that. It's because they are saving that kind of money.”