K-VA-T Boosts Presence in Tennessee

Mark Hamstra

ABINGDON, Va. — K-VA-T Food Stores here had a busy 2006.

The 96-store chain, operating under the Food City banner, acquired eight Bi-Lo stores and converted them to its core banner last year, helping boost its share of the Knoxville, Tenn., market.

“We had a year of transition last year,” said Steve Smith, president and chief executive officer, K-VA-T, and the incoming chairman of Food Marketing Institute. “We opened a lot of new stores and quite frankly closed a number of stores — we opened those Bi-Los and closed some older stores.”

Although the chain only added two net new locations, it gained 6% in square footage because the stores it opened were much larger than the locations it closed. The acquired stores ranged up to 58,000 square feet, vs. typical Food City locations in the 42,000- to 48,000-square-foot range

Smith said the company gained about 11% in sales volume last year. The company's volume is estimated at about $1.6 billion.

“It was a pretty positive year for us,” he said.

Early this year, the company suffered the death of its founder and chairman, Jack Smith, who died in March at age 81. Jack Smith, Steve Smith's father, had founded K-VA-T in 1955.

Steve Smith is now continuing his father's legacy of expansion in the Southeast.

In the last two weeks, the company opened its 18th store in the Knoxville market, where it competes for market dominance with Kroger Co., Cincinnati, and Wal-Mart Stores, Bentonville, Ark.

Tennessee, which along with Kentucky and Virginia form the letters of K-VA-T's name, has become a targeted expansion market for the company because it offers the most opportunities for population growth, Smith said.

“Tennessee is a pretty good growth market for us,” he said. “Virginia is growing, but mostly on the northern and eastern end of the state.”

The company, which has its headquarters at the western end of Virginia near both the Kentucky and Tennessee borders, now has about 60 of its 96 stores in Tennessee, Smith said. Plans call for opening three new stores this year.

The most recently opened store is located in an urban area of Knoxville, adjacent to the University of Tennessee. The 44,000-square-foot Food City includes a sit-down cafe with a hot food bar, a pharmacy, video department and fuel center.

“That store will have a very diverse clientele,” said Smith. “There's a large African American community adjacent, there are the businesspeople who work downtown, and the university. We almost have to merchandise it differently at different times of the day.”

Smith said the company is open to the possibility of acquiring more Bi-Lo stores, if they become available. Bi-Lo's parent company, Dallas-based Lone Star Funds, recently said it was putting the entire 230-store chain up for sale.

“There may be some opportunities in contiguous markets to look at some of those stores,” he said. “Certainly Bi-Lo as an organization built and had some good facilities, so I think there may be some more opportunities going forward.

“We've acquired several companies over the years, and that's one of things that's strengthened our company,” he added. “We've figured out what their best practices were and integrated them into our company.”

K-VA-T also benefits from being an employee-owned chain that has a diverse group of employees, Smith said.

“We have a lot of folks from different backgrounds and different upbringings, and I think that has helped us,” he said. “We don't care where they come from as long as they've got talent.”

Last year, K-VA-T also opened a new, $20 million frozen-food distribution facility as part of its 1.2-million-square-foot headquarters in Abingdon.

“We've basically tripled the size of our frozen capacity,” Smith said. “We now have the capability to double our volume, without really adding anything other than people and trucks.”