FOOD LION BLAMES UNION FOR SOUTHWEST EXIT

ELLIOT ZWIEBACH

SALISBURY, N.C. -- Food Lion told SN last week its decision to close and sell its 61 stores in the Southwest was largely due to the effects of a negative publicity campaign generated by the United Food and Commercial Workers Union.

"The union activity made it difficult for us to be able to establish a customer base there," said Chris Ahearn, the chain's director of corporate communications.

As reported in SN last week, Food Lion said it will close its stores in Texas, Oklahoma and Louisiana and a distribution center in Roanoke, Texas, Nov. 17. All Food Lion stores in the Southwest, as well as those in the Southeast, are nonunion operations.

Ahearn also told SN the company has received numerous inquiries from prospective buyers.

In another development last week, Food Lion officials said the company plans to open 75 new stores next year and remodel or expand 133 locations, at a cost of approximately $360 million. The combination of new stores and renovations would boost square footage by 8%, to slightly more than 40 million square feet.

With 17 replacement units included in the total and 18 stores scheduled to close, the company would end the year with a net gain of 40 new stores -- comparable to the 39 it opened in 1996 and slightly behind the net gain of 52 this year, which included the addition of 110 stores through acquisitions.

Food Lion also said it projects same-store sales increases in 1998 to be about 1.5%, compared with approximately 0.5% through the first three quarters of this year excluding the Southwest, and 5.7% overall for fiscal 1996.

According to Ahearn, the union's activities in the Southwest began with pickets at Food Lion stores and were exacerbated by the airing of a negative television report in November 1992, which she said was prompted by the union. When Food Lion launched its Southwest entry in Texas in 1991, "the stores there were meeting and exceeding expectations, but sales fell off significantly when the union activity began," Ahearn told SN.

"There was a lot of picketing at our stores, especially in the Dallas-Fort Worth area, which led to a lot of negative publicity generated by the union.

"Then, when 'PrimeTime Live' aired [the segment on Food Lion] a year later, it hurt the stores just being opened and the ones we opened a few months later, and we were never able to achieve a substantial customer base there.

"Where customers elsewhere knew Food Lion, the folks in the Southwest were not familiar with our reputation -- and after hearing only negative publicity, they didn't come in for the first time to see for themselves," Ahearn said.

The "PrimeTime Live" program, which aired on ABC television stations, included a negative report on the chain's alleged perishables-handling techniques -- a story Ahearn said was fed to the network by the UFCW.

Food Lion successfully sued the network for fraud, trespassing and breach of loyalty because two news producers lied to gain employment at Food Lion stores.

SN is a unit of ABC's Fairchild Publications, New York. ABC is now part of Walt Disney Co., but at the time of the broadcast its parent was ABC/Capital Cities Inc.

The day after Food Lion said it would close the 61 Southwest stores, Ahearn said, the chain's real-estate broker in Dallas, Grubb & Ellis, received more than 80 phone calls from people interested in various locations.

Ahearn said Food Lion expects to end up with $100 million after expenses from the sale of the Southwest stores -- money that would be reinvested in new stores and in remodelings in existing market areas of the Southeast and growth in the mid-Atlantic states.

"And we're open to potential acquisitions in the Southeast and outside that region, in areas that are not necessarily contiguous," Ahearn added.

Even before the public disclosure of its decision to sell the stores, Food Lion had talked with several potential buyers for the Southwest stores, Ahearn said, "and those negotiations are continuing." While Food Lion said it will close any unsold stores Nov. 17, Ahearn said she was unable to indicate how many stores were likely to be sold by then.

The company said it has made a deal to sell three Oklahoma units to Homeland Stores, Oklahoma City.