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Passion for People

Hannaford Bros. track record as a developer of executive talent, and the influence that has had on the entire Delhaize organization, combined with its success in positioning itself in the market, have led SN to recognize Hannaford with SN’s 2005 Retail Excellence Award. The award was to be presented at the Portland State University Food Industry Leadership Center’s Executive Forum this week in Portland, Ore.

Donna Boss

October 17, 2005

21 Min Read
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MARK HAMSTRA

SCARBOROUGH, Maine — Shelley Broader already had a successful career as an investment banker when she decided to change careers and join Hannaford Bros. here about 15 years ago.

While helping the chain secure debt financing for its distribution center in Schodack, N.Y., Broader found the enthusiasm of the Hannaford people she worked with there infectious and, eventually, irresistible.

She signed up for Hannaford’s Retail Management Training program and spent 13 years working her way up through the organization. Now the chief executive officer of Kash n’ Karry/Sweetbay Supermarkets in Tampa, Fla., a sister chain of Hannaford’s under the Delhaize America umbrella, Broader’s experience exemplifies the characteristics that have made Hannaford Bros. successful.

The chain’s track record as a developer of executive talent, and the influence that has had on the entire Delhaize organization, combined with its success in positioning itself in the market, have led SN to recognize Hannaford with SN’s 2005 Retail Excellence Award. The award was to be presented at the Portland State University Food Industry Leadership Center’s Executive Forum this week in Portland, Ore.

“The strength of Hannaford has historically been in its incredible devotion to talent development and in the very disciplined approach to everything they do,” said Pierre-Olivier Beckers, chairman and CEO, Delhaize America, in an interview with SN. “Whether it’s a new line of private label, or if they want to open a new distribution center, they really put their best talent on it, because developing talent is one of their
primary activities, day after day after day.”

The company’s strong focus on the development of its people and on organizational processes are at the heart of its success throughout the chain, from its positioning as a value-oriented, everyday-low-price operator to its dynamic perishables offering.

Brussels, Belgium-based Delhaize Group anticipated the potential influence Hannaford could have when it offered $3.6 billion for the company in 1999 — what many considered to be a steep price for so small a chain.

Hannaford’s contributions to Delhaize ever since have put to rest any doubts about the value of the acquisition, Beckers said.

“The benefits have been numerous, and Hannaford has continued producing day after day after the kind of growth in sales and profits we had been expecting, and that comes off a very high base,” he said.

When Delhaize acquired Hannaford, the chain had been a successful, publicly held regional operator with a solid core of high-volume stores, primarily in northern New England but also in upstate New York and in the Southeast. In its last full year as a publicly held, independent company, Hannaford operated 154 stores and generated net income of $98 million on sales of $3.5 billion. That represents about a fourth of Delhaize America’s U.S. revenues and more than a third of its net income.

After closing its operations in the Southeast following the acquisition, Hannaford now has 152 stores in five states, including the 19 stores it acquired from Victory Markets in southern New England last year and is converting to the Hannaford banner.

Despite its relatively small size, Hannaford has had a disproportionate influence on the operations of its sister companies — and the most obvious impact has been in the area of people.

“Many members of the leadership team at Food Lion have Hannaford experience, and Kash n’ Karry/Sweetbay’s leadership primarily came from a Hannaford background,” said Ron Hodge, CEO, Hannaford, in a recent interview with SN at the chain’s headquarters. “But it goes much deeper than that. There are easily more than 100 people at those two companies at management level who have furthered their Hannaford careers by moving on to our sister companies.”

The heads of both of Hannaford’s sister chains in the U.S. are Hannaford veterans. In addition to Broader, who is leading the transformation of Kash n’ Karry into Sweetbay Supermarkets, Food Lion CEO Rick Anicetti, who directed Hannaford’s foray into the Southeast, and several of his top executives are also Hannaford veterans.

“It seems to me that most really good companies start with having a strength in the people area,” Hodge said. “It’s a blend of having terrific people, and having a supportive and invigorating culture within the company that supports good people, helps them develop and makes them want to participate in the company’s success, and want to stay with the company for a long period of time.”

Edward McLaughlin, director of the Food Industry Management program at Cornell University, Ithaca, N.Y., from which Hannaford has recruited several executives, said Hannaford has long had a reputation as a good employer that attracts high-caliber managers.

“They have a very strong commitment to people,” he said. “It sounds hackneyed, but they really are a people company, and their employees enjoy working there.”

Delhaize has been seeking to adapt Hannaford’s emphasis on people development throughout the organization. In 2001, the company elevated Joyce Wilson-Sanford to executive vice president of organizational development, overseeing the performance review and development process for the entire company after she had held a similar position at Hannaford.

“She reports directly to me and sits on the executive committee, which shows how critical people and team development are at Delhaize,” Beckers said.

Hannaford’s focus on people development has allowed the company to continue to thrive despite the fact that so many of its top performers have been siphoned off to other Delhaize banners. Because the company has such a thoroughly integrated culture of training and development, and its managers get such well-rounded training, those toiling away on the lower rungs of the corporate ladder are well-prepared to step up to the plate when called upon to do so.

“On the one hand, you could be very concerned about it,” Hodge said. “Hannaford’s a strong company — producing high profits by industry standards — and it takes very strong people to deliver the types of results that we do, and you could say, if you lose all of these people, how are you going to keep the machine running?

“But it has not been a concern. It has been an opportunity for us, because we have so many good people at so many levels of the company, that every time somebody leaves to another Delhaize Group company, it gives an opportunity to somebody who’s ready for it and hungry for it.

“Even though we’ve had terrific people move on to other parts of the business, it’s just as strong as it was five years ago. It’s just a great statement about the depth of people we have here.”

The fact that so many executives leave the Hannaford banner to work for other Delhaize divisions has actually been a positive for the banner in some ways.

“In many cases, it is what keeps people here,” said Beth Newlands Campbell, Hannaford’s senior vice president, business strategy and retail operations. “If we didn’t do it, we would have lost some people. It’s a huge opportunity for us.”

In an industry that is not widely considered an attractive choice for recent college graduates, the opportunities for advancement within Delhaize also have helped Hannaford attract new hires, she said.

While Broader is an example of an executive who came from outside the industry, Hannaford also has an aggressive program in place to recruit management talent from about a dozen local colleges and universities in the Northeast.

“We recruit very aggressively on their campuses, and we go through a huge screening process,” Hodge said.

Retail Management Training

At the core of Hannaford’s training and development component is its Retail Management Training program, which has been in place for more than 30 years. The program takes recent college graduates or other individuals who are interested in working for the company and trains them in all areas of the store for several months before they eventually get to run their own store.

“We’re a retail company, and we make no bones about it,” Hodge said. “We want all of our future leaders to have retail experience.”

“To work at Hannaford means you start out in the stores,” Broader said. “They want the management of the company to understand that the lifeblood of our company is serving customers at retail. You need to embrace that culture and love that craft to be successful in this company.”

The company starts with a field of about 60 or 70 candidates for the Retail Management Training program, and narrows that down to about 25 to 30 for the final interview process. Those candidates spend two days with Hannaford’s executives in March, and typically about 10 to 15 people are selected from that group.

Once the recruits get through those two days of meeting with existing Hannaford executives, “they get a real sense of our culture, and I think that is more compelling than anything,” said Mark Doiron, senior vice president, merchandising and distribution. “Once we get to the point where we’re making offers, very few reject that.”

The company also has a systematic approach to developing and training its internal people.

“If I have someone who’s doing well in a store or a distribution center or in an office, we have similar types of training and development programs for them as well,” Hodge said.

Newlands Campbell noted that Hannaford also is prone to finding people in the organization who have strong leadership qualities and then giving them the training and skill sets they need to advance.

“We have taken what some people would look at as risks with some people, but we know what their core competencies are,” she said.

Developing Generalists

The development process at Hannaford also includes extensive cross training for those executives seeking to advance. Management personnel are encouraged to change jobs periodically to run other departments to gain a more holistic view of the company, so that by the time they ascend to the higher ranks of the chain they have had a broad range of experiences within the Hannaford system.

It’s part of a system of management development that Anicetti has been coaxing along at Food Lion since he took over there following the Hannaford acquisition.

“One of the things I brought to Food Lion is the whole idea of organizational development and training, and a desire from the talent-planning perspective for people to really have multiple experiences in their career,” he told SN.

Mirroring the developmental system that has long been in place at Hannaford, Food Lion recently shuffled the responsibilities of 10 vice presidents, shifting executives among the human resources, merchandising and operations departments to broaden their skill sets and give them more organizational knowledge. It’s a training technique that Anicetti said has evolved over the years at Food Lion as people at lower levels have developed enough experience and expertise to allow those above them in the organization to move around.

He said the concept of having Hannaford’s top managers trained as generalists across a range of disciplines has long been a cornerstone of that chain’s modus operandi.

“I think [former CEOs] Jim Moody and Hugh Farrington had a lot to do with setting the stage there,” Anicetti said. “Hugh Farrington had a relentless pursuit for development of people in the organization. At other companies, typically people move up in silos like merchandising or marketing, but Hugh was much more of a generalist in his approach. He wanted people to have multiple experiences.”

Anicetti said his experience working in several different departments as part of his own development at Hannaford was “not only pretty typical, it was the expectation.”

“As a result,” he said, “Hannaford has had a significant number of leaders who have had a broad understanding of the business, and who make decisions for the total business, not just the silo that they happened to grow up in.”

By shifting employees to different departments, Hannaford also seeks to benefit from fresh thinking and new approaches to problem-solving — an executive from human resources might bring a new perspective to operations, for example.

“It’s the type of work environment where we value diversity of opinions, diversity in how we think, as well as diversity of who each of us are as people,” Newlands Campbell said. “Everyone can bring their whole self to work and be who they are.”

Consumer Focus

Hannaford’s influence on the Delhaize organization is not limited to the management talent it has exported to other banners. The chain’s dedication to obtaining customer feedback and responding in a systematic way also has infiltrated Food Lion and Kash n’ Karry/Sweetbay.

“I think a real important strength is staying close to our consumers, and the ability to have business processes and systems that do allow us to stay close to the consumers,” Newlands Campbell said. “We think we have a strategy that really works, and delivers sales and profits, but it’s not a strategy where we sat around a table, and said, ‘Let’s be this.’ We went out and listened to customers and asked them what needs they had that were not fulfilled in the marketplace, and then we said, ‘Let’s deliver this to them.’”

Wal-Mart’s stepped-up expansion into New England over the past decade reinforced the need for Hannaford’s customer-centric approach. Although Bentonville, Ark.-based Wal-Mart Stores has had a limited presence in New England with discount stores for many years, it has only recently been rolling out its supercenter format to much of New England.

“Our dependence on good, intensive consumer research really intensified in the late 1990s and early 2000 and 2001, when we just dedicated many more resources to having a better understanding of what were the key drivers for consumers making the choice of where they want to shop,” Hodge said. “I don’t think you can de-emphasize the fact that Wal-Mart was making its move into our territory at that time. We knew what they stood for, and we wanted to make very sure there was a place in the market for Hannaford. We didn’t develop a specific Shaw’s defense strategy or a Wal-Mart defense strategy; we developed a strategy for our customers and our marketplace that we consider to be our Wal-Mart defense strategy.”

Hannaford competes with Wal-Mart — including its Sam’s Club format — in about 96% of its locations, although so far only 40% of Hannaford’s supermarkets have a supercenter as a direct competitor, according to Hodge. He said that when a supercenter opens near a Hannaford store, Hannaford typically loses 7% to 9% of its sales in the first year, returns to prior-year level in the second year and resumes its previous growth pattern in the third year.

“Whenever you have a facility the size of a Wal-Mart supercenter move into your market, it’s going to have some impact, but we think we’ve
mitigated that impact rather nicely,” he said.

Hannaford positions itself as a purveyor of value — rather than touting low prices on special items, it advertises “low prices that stay low” as part of its EDLP approach. It does not offer a loyalty card.

“We try to keep it as simple as possible for our customers to get a good value in our stores without double-coupons or stamps or anything else that could complicate their lives,” Hodge said. “We think we keep our total cost of business lower by doing it in this fashion.”

'Festival' Strategy

While the company's approach to staying in touch with its customers involves multiple channels of communication, including telephone interviews, in-person exit interviews in the stores and, most recently, online polling with a group of about 2,000 customers, the most important customer research comes from in-store testing and the actual observation of sales patterns, Hodge said.

Such data helped Hannaford develop its Festival of the Senses strategy, a continually evolving approach to merchandising the perishables departments that includes a broader selection and a focus on meal solutions.

Broader was one of the key architects of the strategy at Hannaford before she took over Kash n' Karry, and the approach is reflected in the template that has been created for the Sweetbay conversions.

The company's perishables strategy was clearly illustrated during a recent tour of Hannaford's flagship prototype near the company's headquarters -- a store that generates about $1 million in sales per week and attracts about 34,000 customers.

The produce department is laid out in an open-market style, with multiple display fixtures scattered around in a pattern that is "designed to make you feel surrounded by food," according to Karen Fernald, vice president, retail operations for the chain's eastern division. Displays of certain products, including peppers and mushrooms, have been expanded to showcase the variety offered in the store. It carries about 900 stockkeeping units of perishables.

Throughout the fresh departments, the company has worked in displays of sauces, marinades, dressings and other products from its new, signature private-label line called Inspirations. All of these grocery products are designed to be paired with perishables and support the sale of those products. For example, the Inspirations sweet cream fruit dip is paired with the strawberry display, and Inspirations salad dressings are located adjacent to the lettuce.

Each of the products in the Inspirations line, which also includes several fresh items in the delicatessen and meat departments, has flavor profiles that are specific to Hannaford Bros.

"Before, we were at the mercy of the manufacturer, but now we have control over the variety and the specifications," Fernald said of the Inspirations deli items. "It gives us a lot more flexibility, and allows us to go to market more quickly."

Inspirations deli items include such items as cracked-pepper turkey breast, maple brown sugar ham, Angus roast beef and hickory-smoked Swiss cheese. The line also includes several prepared salads, such as chicken salad Veronique and tofu salad.

In the meat department, the chain emphasizes selection and variety, offering multiple choices in thickness, cuts and package sizes. Hannaford does not offer select beef because it doesn't meet its quality standards, but carries choice as a budget option for those who don't want to pay the price for Angus.

The prepared-meals offerings include hot chicken from the Fire Works Roastery, store-made foccacia sandwiches and sub sandwiches, hot soups and sushi.

The focal points of the bakery include breads and desserts, including a successful product line Hannaford calls "Party of Two," which are desserts just large enough for two people.

"Bakery was originally not meant to be a cornerstone of our strategy, but we found that people really want to have good breads and desserts to meet all their shopping needs," Fernald said. The bakery also serves as a cross-merchandising area for Inspirations-brand spreads and oils.

The fresh departments are also designed to facilitate interaction between store workers and customers. In the seafood area, for example, the display cases are configured into five "pods" rather than a continuous counter separating workers from shoppers.

Customer interaction and sampling are encouraged throughout the store, and employees are trained extensively about new food items and about how to provide friendly service. The chain is adopting a "passion for food" mantra that encourages workers to share in and encourage enthusiasm for food and cooking.

Logistics Leader

Technology and logistics are another key area where Hannaford's expertise has been extended throughout the Delhaize organization. Its average cost inventory system, which allows managers throughout the organization to view sales, profitability and shrink at the item level for nonfood and perishable products, has been rolled out at Food Lion and Kash n' Karry/Sweetbay, and now is being implemented in Delhaize-Belgium.

Developed in the mid-1990s, the average cost inventory system gives Hannaford better control over shrink and thus boosts margins.

"It's an inventory management tool that has allowed us to manage product availability, profitability and work to decrease inventory shrink, right down to the [stockkeeping unit] level by store and across the company, so department managers, buyers and I can all look at the same information at the same time using the same system," Hodge said.

At Food Lion, the system has now been in place throughout the 1,200-store chain for a little more than a year, and Anicetti said the company has been reaping the benefits.

"I would say that we have reached and surpassed the expected return that we needed on this," he said. "While we've been able to benefit from a lot of the low-hanging fruit, there are still tens of basis points of shrink management that we have left to us as a result of this system."

He also pointed out that the system has the potential to assist in building sales as the company uses it to analyze category movement.

Broader said she "packed the system on the moving van" with her when she came down to Kash n' Karry, and has also begun to see the benefits of it at that chain.

Hannaford also has been a leader in supply-chain efficiencies.

"We're in the food-selling business, and we know that the logistics of getting the products from the factory or the farm to the customer's home is the key business challenge in our industry, and we've dedicated a tremendous amount of effort to make sure we're on the leading edge of supply-chain efficiencies and supply-chain management," Hodge said. "That involves technology, it involves relationships with our suppliers and it involves having an integrated system from start to finish in the supply chain. We believe it pays off, and it's a very, very real strength for us."

Hannaford took over management of the Kash n' Karry supply chain in 2002, and also has worked very closely with Food Lion on purchasing since Delhaize's acquisition of Hannaford, to manage the total supply of product, both for sale and items not-for-resale, through the combined businesses.

Part of the reason Food Lion and Kash n' Karry have been able to leverage the management and technological expertise of Hannaford is the structure of Delhaize America. Although it technically lists its U.S. headquarters as Salisbury, N.C., the company exists more as a network of relationships among the company's various banners than as a physical structure in the traditional sense.

"I think a key difference between us and some of the other large supermarket operators is that Delhaize in the U.S. is really a virtual company," Newlands Campbell said. "There is no headquarters per se. It is each company, being close to their consumer, executing locally, learning from each other and collaborating."

In purchasing, for example, Doiron noted that the products shared by all U.S. banners are not purchased through a central organization, but instead through a collaborative effort facilitated by strong relationships among key people within each chain.

Because Food Lion is a promotional retailer, the product-buying synergies with Hannaford are limited, Beckers explained, although the two chains do work together to purchase items that are not for resale such as transportation equipment.

The sharing also goes both ways -- Hannaford has benefited from being a part of Delhaize as much as the other banners have benefited from Hannaford's disciplined approach and its executive training.

"Delhaize has been very supportive to us as a group here at Hannaford, in providing more access to capital, and giving us an opportunity to learn from people who do things better than we have done," Hodge said. "Where one company excels at a particular part of the business, we don't keep that hidden within the company -- we make it very open, so other parts of the company can share in that knowledge."

He said he sees more opportunities ahead to leverage the food-development and private-label expertise of Delhaize in Belgium, for example.

Anicetti noted that Hannaford has benefited from Food Lion's expertise at cost-cutting, from developing more energy-efficient stores to adopting more efficient processes for in-store food production.

Growth Plans

Looking ahead, Hodge said he sees opportunities to add more stores, especially now that it has developed a smaller, 35,000-square-foot prototype designed to go into smaller markets. Typically the company's stores range from about 45,000 to 65,000 square feet.

"We found that in Massachusetts, a lot of the communities were too small for a full-sized Hannaford, so we can go in there with a smaller store," he said.

The company already has five such stores open.

Hodge also said he sees opportunities for more growth in Maine, where Hannaford is the dominant chain.

Beckers said Delhaize had reined in its capital-expenditure spending in 2004, but is ready to fund more new-store openings going forward.

They also said they see opportunities for more acquisitions, such as the recent purchase of Victory Supermarkets, which operates primarily in Massachusetts.

"We feel there are still a number of good local chains in the Northeast," Beckers said. "I think we have had good success with those types of acquisitions, in which we make the management a part of building something new and stronger for the future."

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