HANNAFORD TO BUY 8 FARM FRESH LOCATIONS

DAVID ORGEL

RICHMOND, Va. -- Hannaford Bros. accelerated its Southeast expansion last week by reaching agreement to purchase eight supermarket locations from Farm Fresh, based in Norfolk, Va.

The transaction, which includes seven units in highly competitive Richmond, jump-starts Scarborough, Maine-based Hannaford's effort to enter the Richmond market and continues its year-old regional push that began with its acquisition of Wilson's Supermarkets, Wilmington, N.C., in July of last year. The move also represents a pullback for Farm Fresh in the face of new Richmond competition, including reported plans by Wal-Mart to convert four discount stores to supercenters here.

The transaction, for $25 million plus the value of inventory and assumed leases, includes seven

stores currently operating under the name The Grocery Store. Six of them are in the Richmond area, and one in Charlottesville. The deal also includes a unit currently under construction in Richmond and certain assets from two additional closed Richmond-area stores. The stores range in size from 38,000 to 57,000 square feet. The deal, which is expected to be completed this fall, is subject to the usual due-diligence procedures. Following the move, Farm Fresh will convert its remaining Richmond stores to the Rack & Sack superwarehouse banner, an existing Farm Fresh format, and continue to invest in the company's base of Tidewater, Va., stores "that will see new competition in 1996," according to a statement from Michael E. Julian Jr., Farm Fresh's chairman and chief executive officer. "With Hannaford's announced entry into the Richmond market, as well as the recent report that Wal-Mart will open four supercenters in 1996, we believe that it would be prudent to reduce our exposure in Richmond," Julian continued. "We believe that the Rack & Sack stores leave us in a better market position in the Richmond market."

Hugh G. Farrington, Hannaford's president and CEO, indicated the New England chain's new presence in Richmond will continue its goals for Southeast expansion that began with the chain's acquisition of Wilson's. Hannaford will convert the acquired Farm Fresh stores over time to the Hannaford Food & Drug Superstores banner. Hannaford previously announced plans for two Richmond units, and indicated it would expand its presence from there. "The acquisition of these stores represents a great opportunity for Hannaford," Farrington said. "It gives us an immediate and substantial presence in the Richmond market, augmenting the Hannaford Food & Drug Superstores already planned or under construction in the area."

The transaction will also have supply implications. Farm Fresh is served by Richfood, a wholesaler based in Mechanicsville, Va. John Stokely, president and chief operating officer of Richfood, said the wholesaler will be in contact with Hannaford about possible supply arrangements. He said Richfood considers the deal to be a good move for both chains involved, and so "the supply implications are not material."

Hannaford operates its own distribution system, with three distribution centers in Maine and New York, and Hannaford Trucking Co., a wholly owned subsidiary. Hannaford said its Richmond stores will be staffed by a pool of employees that includes former Farm Fresh store employees.

H.B. Thomson 3rd, a securities analyst at Wheat First Butcher Singer, Richmond, said Hannaford's purchase of the Richmond units clarifies how the chain will make its mark in that city.

"I've wondered how Hannaford might distinguish itself here," he said. "This is the answer. They won't have to distinguish themselves from The Grocery Store; they'll own those stores."

Thomson pointed out, however, that Hannaford will face a challenging situation in Richmond, where a number of operators vie for market share. Food retailers here include Ukrop's Super Markets, Richmond; Food Lion, Salisbury, N.C., and A&P, Montvale, N.J., which operates here under the Super Fresh Banner. The Wal-Mart supercenter entry would add to that competition. Thomson said the strength of local operators, Ukrop's in particular, is significant.

"Other operators have had trouble competing with Ukrop's," he said. "Giant and Safeway had to withdraw in the past for that reason."

Hannaford operates 118 supermarkets and food-and-drug combination stores in seven states, not including the Farm Fresh deal. The stores operate under the names Shop 'n Save, Wilson's and Sun Foods in northern New England, upstate New York and North and South Carolina. The company is opening new stores under the Hannaford Food & Drug Superstores name in Virginia and the Carolinas later this year.