HANNAFORD NEGOTIATING PURCHASE IN NEW AREA

ELLIOT ZWIEBACH

SCARBOROUGH, Maine -- Hannaford Bros. here is negotiating a purchase of "certain supermarkets" in an undisclosed region noncontiguous with its present marketing areas of northern New England and upstate New York. At the company's annual meeting last week, Hugh R. Farrington, president and chief executive officer, said the acquisition, if it is made, would increase Hannaford's anticipated sales and other revenues by approximately 10%. Hannaford's 1993 sales were $2.1 billion.

Farrington, who stressed the need for Hannaford to grow beyond its present borders, declined to be more specific about the target acquisition or the region in which the stores operate. However, he said Hannaford has already started to make a larger effort in that region.

"In addition to this potential acquisition, the company has been negotiating options to control other possible supermarket sites in the same general geographic region," Farrington said.

"We have recognized for some time that we need a new territory for expansion. We are hopeful our current discussions will create the core for future growth."

The acquisition would be financed by "cash and cash items," short-term investments and existing lines of credit, Farrington told the meeting. It would not have any adverse impact on Hannaford's

ability to fund other planned capital expenditures, he said.

Ed Comeau, a securities analyst with Lehman Bros., New York, said Hannaford is seeking acquisitions in a new area because it expects its northern New England area to be saturated in the next couple of years, while its growth potential in upstate New York is relatively limited.

Comeau said he believes Hannaford is seeking a 15- to 20-unit chain operating stores slightly larger than a typical conventional supermarket. "It is not going to buy someone else's problems by acquiring a lot of small- to medium-sized conventional stores. My guess is it is going to buy larger stores," he said.

He was unable to pinpoint the specific company, however.

Hannaford is likely to expand the operation it acquires by 15 to 25 units -- or to about 40 stores -- over a two- or three-year period and then open a distribution center to supply those stores, Comeau added.

Chuck Cerankosky, an analyst with Hancock Institutional Equity Services, Cleveland, said an acquisition like the one Hannaford hopes to make "fits the industry's need to seek growth opportunities through acquisitions rather than investing in over-stored markets.

Farrington told shareholders Hannaford anticipates spending up to $100 million on capital expenditures this year, compared with in excess of $76 million in 1993.

This year's expenses would cover six new stores and three relocations. Hannaford has already opened four new stores this year -- in Saratoga and Rotterdam, N.Y.; Oxford, Maine, and Bennington, Vt.

Last year the chain opened three new stores and upgraded five others.

Hannaford operated 93 supermarkets and three drugstores as of Jan. 1, 1994.

The last couple of years have been difficult for Hannaford, Farrington said. "New England and upstate New York have been in a prolonged recession, competitive activity has been furious, and reduced demand, low interest rates and excellent crop yields have served to reduce inflation substantially," he said.

Hannaford's sales growth in 1993 was only 3.3%, he said -- mostly from new and remodeled stores -- while business at stores opened at least a year declined 2%.

"The most logical course of action was to reduce our expenses," Farrington said.

Overall company expenses fell from 19.9% of sales in 1992 to 19.4% in 1993, Farrington said.

In the first quarter of 1994 sales have started to rebound, and stores open at least a year have turned slightly positive, Farrington added.