A CLOUDY FORECAST 1994-02-21 (2)

Stop & Shop's Southern Push

is focusing on growing its superstore program and building a presence in northern New Jersey and the New York regions of Westchester and Long Island, said Robert Tobin, president and chief operating officer. The company, which primarily operates in southern New England, will push its superstore count well beyond the current number of 86. Most of the 37 conventional stores eventually will be replaced with superstore units. By 1996, the company expects to be operating some 110 superstores and 125 units overall, which represents a square footage advance but not much of an increase in units. "As you can see, we are not enamored with number of stores," Tobin said. "We are much more excited by market share and financial results."

The company has modernized its distribution centers to the point where they can support a doubling of corporate volume, Tobin said. That provides the company with "tremendous operating leverage," he said.

The company also has cleared a big hurdle by inking a new three-year union agreement for Connecticut employees and is expected to ratify pacts for the Boston and Rhode Island areas, Tobin said.

Stop & Shop's expansion into new markets is being conducted very carefully, with a great deal of research, Tobin stressed. He said areas like Long Island and northern New Jersey require a slow, methodical approach to growth.

Regrouping at Food Lion

By focusing its near-term store growth in the Southeast, Food Lion, Salisbury, N.C., will be trying first to improve its Southwest operations before resuming unit growth, said Tom E. Smith, chairman, president and chief executive officer. "We want to bring the Southwest up to Food Lion profitability standards before continuing expansion," he said. "We hope to look solid out there in '95."

As reported, Food Lion will close 88 unprofitable stores, 47 in the Southwest and 41 in the Southeast. The company's planned openings of 40 to 50 new stores this year will be concentrated in the Southeast, said Dan Boone, vice president of finance. Food Lion also will complete at least 60 to 70 renovations to existing stores in 1994, most of which will involve expansions, Boone said.

Meanwhile, the severe pressure on margins that resulted from negative media publicity in the fourth quarter of 1992 has been abating, Boone stressed. In November 1992, the ABC television news program "PrimeTime Live" questioned the chain's food-handling and sanitation procedures. The company was forced to promote heavily following the television broadcast, a move that hurt margins. Moreover, the report led to a temporarily loss of customers in the higher-margin meat and deli areas.

However, Food Lion has reduced its promotions, especially in the fourth quarter of 1993, and has drawn back almost all of the lost deli customers, Boone said.

The company also has been placing heavy focus on executing changes based on consumer research, Smith said. It is brightening stores, expanding the view into food preparation areas and putting more advertising emphasis on promoting quality.

Food Lion is also striving to maintain everyday-low-price leadership in its markets, with prices an average of 8% below competitors' prices.

American Sees Opportunities

American Stores Co., Salt Lake City, is optimistic about 1994.

"1994 may not be a good time for some food and drug retailers," said Victor L. Lund, president and CEO. "But it is an unusually exciting time for those of us at American Stores."

Lund said the sales environment in American's markets remained stable through 1993's first three quarters. "However, we are starting to see signs of improvement in the Midwest and, of course, we are very encouraged by our results in southern California."

In southern California, the Lucky Stores division of American kicked off a price-reduction program one year ago that "was precisely the right thing at the right time," Lund said. "By the fourth quarter, our like-store sales were positive, between 1% and 2% week in and week out."

American also has plans under way for new formats, including "a nationally based chain of stores that will be noteworthy for their appreciably lower prices," he said.

Merchandise in the new stores will be displayed in a warehouse-style format. Lower prices will be made possible, in part, by reduced labor costs.

American is moving to centralize its private-label purchasing. Centralization will allow American to buy more efficiently and "share the power of research and knowledge" among its operating divisions.

"Private-label goods present a tremendous opportunity for growth," Lund said. "While they currently account for just 16% of our grocery sales in our stores, these goods account for approximately 36% of grocery sales in Great Britain and 32% in Canada."

Lund said he does not believe private-label sales will reach those levels, but "we do think we are capable of penetrating grocery sales in the neighborhood of 25%."

Grand Union Invests In Market Growth

Grand Union Co., Wayne, N.J., continues to improve its sales and financial results as a result of executing its business plan, said Gary Hirsch, chairman.

Hirsch said it "is difficult to imagine" a better investment marketplace and opportunity than what Grand Union already has in the New York metropolitan area. The company has a fixed-cost infrastructure in place and a large underused distribution center in Mount Kisco, N.Y.

As part of its business plan, Grand Union will add 4% to 6% to its total square footage between mid-1993 and mid-1998, Hirsch said.

"We have a lot of capital that we are happy to invest in projects that produce very little net square-footage growth because they have such a high potential within the type of markets we operate in," he said.

R. Terrence Galvin, senior vice president and chief financial officer, said Grand Union has opened nine new or replacement stores, which will add almost $100 million in annualized sales.

Galvin said Grand Union expects to spend $450 million on capital improvements between 1993 and 1998, which covers 144 projects. In the five previous years, Grand Union spent $225 million on capital expenditures.

"We are going to double, or better, the amount of dollar capital spending, the amount of major new projects and the amount of renovations in the next five years from what we had in the previous five years," he said. Hirsch said he has heard about Stop & Shop Cos.' plan to expand on Long Island, N.Y., and in northern New Jersey -- two of Grand Union's operating areas -- but he is not overly concerned.

"The problem is getting locations," he said. "We think we have a more flexible format in terms of our real-estate development than some of our competitors, which allows us to build a variety of stores."

Supervalu's Four-Point Plan

Supervalu, Minneapolis, has a four-pronged strategy to ensure its long-term success. The four parts, according to Michael W. Wright, chairman, president and CEO, are:

Leading an expected increase in industry consolidation, both at the wholesale and retail levels.

Investing in and using technology to improve buying, operating and marketing effectiveness.

Expanding both the corporate and independent retailer food base.

Pursuing new profit opportunities, which will offset changes to traditional "inventory management" practices.

Growth at the retail level will be accomplished by investing in successful existing formats and "by acquisition of other existing retailers, some small regional retailers and, maybe in the future, some large regional retailers," he said.

On the corporate side, Supervalu recently opened a new smaller Cub format, called "Cub, too" in Columbus, Ohio. The new unit is about 28,000 square feet -- compared with an average Cub of 70,000 square feet -- and features strong perishables presentations and takeout foods. Between five and six new "Cub, too" stores are planned for 1994, he said.

Supervalu, which operates 252 corporate stores, will add 30 to 35 new corporate stores in 1994, including 20 Save-A-Lot limited-assortment stores, he said. One area of operations that new technology has allowed Supervalu to test is the concept of regional buying. Wright said a regional buying test in Atlanta was successful and Supervalu will expand the idea to the upper Midwest with an office in Minneapolis and to New England with a facility in Andover, Mass. "I can assure you more of these regional buying offices will be established in the future," he said.

Giant's Expanding Borders

Giant Food, Landover, Md., is following a dual growth strategy: continuing to add stores in its Washington-Baltimore region and looking north to new markets.

"We're moving beyond our traditional boundaries for the first time," said Pete Manos, president. The company will open its first Delaware store in April and has signed a lease for a second. It will also open a new unit in Maryland and two in Virginia. Overall, the company expects to open five new food-drug stores in the coming year. The company will add some 400,000 square feet of selling space during the period.

Referring to the new market strategy, Manos said, "While we believe the Washington-Baltimore market is dynamic, we also believe we can grow up north. Any additional areas represent new businesses, not cannibalizations."

In the merchandising arena, the company will continue to expand its Super Deal program, which was initially launched to battle warehouse club competition. Giant is also becoming more aggressive against inroads made by natural foods retailer Fresh Fields in its market areas. Giant is selectively adding health-oriented lines, such as low-fat and low-sodium entrees.

Hannaford Responds to Competition

Hannaford Bros., Scarborough, Maine, will continue to increase its square footage in the face of heightening competition in its marketing areas, said Norman Brackett, senior vice president and chief financial officer.

The company will open six new stores and conduct three major expansions, representing a 10% increase in store selling space.

Noting a positive trend in same-store sales, Brackett predicted "another good year in '94 for Hannaford."

However, he stressed that the influx of Wal-Mart and warehouse club stores has made competition fierce. "We've been aggressive on pricing and using club packs, so our 2.3% estimated sales loss to these formats is lower than for others," he said.

Brackett said the chain's cost structure improved last year, and that will continue to be a priority in 1994.

"We know it's a key to being able to price aggressively and be competitive," he said.

Meanwhile, James Jermann, senior vice president of merchandising, said Hannaford will continue to expand its private label despite a closing of the price gap by brands. "Private label will continue to grow because it will have value to the consumer," he stressed.

Capital Ideas At Kroger

After refinancing long-term debt and cutting interest expense, Kroger Co., Cincinnati, now is able to turn its focus to increasing capital expenditures, said Joseph Pichler, chairman and CEO.

Capital expenditures from 1994 through 1996 will total at least $1.5 billion and square footage will grow by an average of 5% per year, Pichler said.

About 60 new stores will be opened this year and another 60 to 70 units will be remodeled, he said. This is part of a four-year effort calling for 573 capital projects, including 302 new stores and 271 remodels, through 1996.

In terms of competitive threats, Pichler said he expects the Indianapolis, Fort Wayne and South Bend, Ind., markets to become hot spots in 1994. Meijer Inc., Grand Rapids, Mich., expects to open eight of its units in those three markets this year and plans to add four more in 1995, he said.

In its Atlanta market, Kroger will see "a temporary moderation of sales growth" as the square footage added by Publix Super Markets, Lakeland, Fla., is absorbed, but Kroger will "remain on a growth curve," Pichler said.

In 1994, supercenters will become more of a factor in Kroger's markets, Pichler said. At the end of 1993, about 4% of the retailer's sales base competed against a supercenter, but that will rise to 12% at the end of this year.

The retailer also expects to continue building private-label sales, because that is what the customer wants, Pichler said.

"We're not pushing private label to the exclusion of national brands," he said. "But we have recognized that the customer has changed."

With 37 manufacturing facilities, Kroger is well-positioned to profit from the private-label boom, Pichler said. "We're making a ton of money on private label," he said, "and there's another ton to be made."