A RESPONSIVE MOOD AT FOOD LION

The customer survey is king at Food Lion.

hief executive officer of the Salisbury, N.C.-based chain, told investors at the Piper Jaffray Conference that Food Lion is putting more emphasis than ever on responses it receives from both customers and noncustomers in the various surveys it conducts.

"In order to put together our business strategy, we felt it was very important to become completely in tune with the wants and desires of our customer," he said. What Food Lion management heard from both customers and noncustomers was the importance of quality. With noncustomers, Smith said, Food Lion realized it had a quality-image problem.

"We have been an everyday-low-price operator for a number of years," he said. "It was our main thrust." The company found out, however, that some noncustomers associated low prices with lower quality.

After determining this, Smith said Food Lion immediately began incorporating everyday low prices with quality products. "That's our thrust going forward, bringing the two together to assure that anyone thinking of Food Lion as a low-price operator also thinks of Food Lion as a quality operation," he said.

Among the changes Food Lion has made based on the results of customer surveys are:

Increased product variety storewide, which in the grocery area meant adding more private-label products.

Added more variety in the produce departments and plans to do the same in meat and deli areas. It also added greeting card departments, even though the chain traditionally has downplayed general merchandise, Smith said.

Redesigned employee uniforms using a more contemporary teal-and-burgundy color scheme and switching to an apron from a smock design.

Developed new television ads that attempt to enhance the chain's quality image. One ad uses the tag line, "The service and quality here are just as spectacular as the prices."

Added club packs to respond to warehouse-club store competition.

Smith said Food Lion also is moving to decentralize some of its management functions. "We saw that (centralization) was preventing us from reacting as quickly as we should to the individual needs of stores or department areas or to requests from customers," he said.

This has led to the passing of authority "down to where merchandisers in the field can deal directly with merchandisers at our headquarters and make things happen a lot quicker." But the company also has attempted to "preserve what was good about our older system," such as the centralized buying operation, Smith said.

As part of its 1994 business plan, Food Lion closed 84 stores. That's four fewer than originally expected, because those four units "showed some promise," Dan Boone, vice president of finance and chief financial officer, told investors.

Although many of the stores Food Lion closed this year were in its Southwest market area, the company expects to maintain its presence there, Boone said. The conditions that prompted Food Lion to enter the Southwest -- a growing market, high prices and a lack of a Food Lion-like operator -- have not changed.

"That's why we went there," Boone said. "Those conditions are still present."

Still, Boone acknowledged that a late 1992 "PrimeTime Live" television report critical of Food Lion's sanitation procedures hurt the chain in the Southwest because shoppers didn't have a history with Food Lion. "We have an image problem there, but it's improving," he said.

The company expects to open new stores in "the lower end" of the 40 to 50 range this year, Boone said. Boone said Food Lion does not have projections for expansion in 1995, but "prudent and deliberate are good words" to characterize the plans.

The 1994 capital-expenditure budget is about $200 million and in 1995 it will be "something north of that," he said.

"We see ourselves getting back to the 10% to 12% square-footage growth rate in the future," he said.

Food Lion expects gross margins to improve throughout the year as it lessens the emphasis on price promotions. Cash-flow margins also should firm and begin "moving back up," Boone said.

The company's short-term goal is to get its net income margin back to 2% of sales, he said. The first-quarter net margin was 1.73%, and it was 1.9% in the second quarter.

Smith also downplayed the threat of new competitors, such as Publix Super Markets, entering Food Lion's core market in the Carolinas. "The grocery industry is becoming more of a niche industry," he said. "We're a different type operator than Publix."