GOLDMAN SACHS GLOBAL RETAILING CONFERENCE 2005-09-19 (1)

Jon Springer

NEW YORK -- Food Lion is driving stronger sales through more aggressive pricing, but price is only one name of the game at the Salisbury, N.C., chain, according to its chief executive officer.

"Over the last year and a half, we've come to realize that for Food Lion to truly respond to changes in the marketplace, Food Lion must be about multiple brands, customer service, and multiple products and assortments for our consumers," said Rick Anicetti, Food Lion's CEO, in remarks at the Goldman Sachs Global Retailing Conference here this month.

Anicetti said that operating distinct formats and catering to specific consumer groups "is still in its infancy" at Food Lion, but that the growth of the Harvey's brand and the Bloom concept over the last year provides evidence of Food Lion's new approach. Harvey's, acquired in 2003 as a 43-store chain, has since grown to 67 stores -- with many converted Food Lion stores in Georgia and Florida seeing sales lifts of 12% to 20%. Bloom, though still a five-store "test" concept, is receiving high marks from consumers. "It is no longer a Food Lion store in a Bloom wrapper. It is a very distinct brand, and the early results are very promising.

"We'll see something more than five" Bloom stores in 2006, Anicetti said.

Analysis of "tens of millions of transactions" at Food Lion stores has allowed the chain to identify eight clusters of customers served by the chain and allow the company to adjust offerings at the store level to them, Anicetti said.

"Food Lion for years would have considered its target audience to be one where price was exclusively the cost of entry and why consumers chose to shop there," he explained. "[But] one of the segments we have identified is labeled 'wealthy elite.' More than 10% of our stores can be segmented to that category.

"Food Lion can no longer be in the marketplace with one size fits all," he added. "We have to become much better at being able to segment to individual marketplaces and, if necessary, individual stores."

Anicetti said each of the three Food Lion brands -- Harvey's, Bloom and Food Lion -- have distinct brand definitions that inform decisions about everything from associate behavior to product selection. He also said other brands may be considered. "We continue to be innovative and creative in considering other concepts in a way to meet the needs of consumers in a segmented fashion."

Differentiating store banners is part of an overall strategy that also stresses associate development, "executional excellence" and "continued improvement," Anicetti said.

The company is "investing significantly" behind associate development, which includes weeding out the wrong employees, he added.

"I believe that a third of the population 'gets it,' a third can get it and a third will never never get it. As aggressively as we're spending money developing associates in the first two groups, we're looking to find happiness for the others someplace else," he said. "People can make a significant difference in the way we can differentiate as a brand."