PENN TRAFFIC'S WIDE NET

ELLIOT ZWIEBACH

SYRACUSE, N.Y. -- The geographic diversity of Penn Traffic Co. here is one of its greatest strengths, according to Gary Hirsch, chairman and chief executive officer.

"We don't operate in any particular marketplace," he said. "Our operations are spread economically, demographically and geographically over a 750-mile radius, with a diversity of competition.

"Except for Kroger, which competes with stores that account for 30% of our sales in Ohio and West Virginia, no other single operator competes with more than 20% of our sales base, so we're able to limit the impact of any competitive activity to a relatively small group of stores.

"What's central to our strategy is that no single format fits all communities, and we're very comfortable operating stores of less than 25,000 or 30,000 square feet, as well as stores of 100,000 or 135,000 square feet," Hirsch said.

He said 70% of Penn Traffic's sales come from stores in small, stable communities of 15,000 to 25,000 people, with the other 30% coming from stores in Columbus and the Syracuse/Buffalo area.

"The flexibility of operating different formats enables us to tailor each particular store to an individual community," Hirsch said.

Howard Goldberg, a high-yield securities analyst with Smith Barney, New York, also stressed the importance of Penn Traffic's diverse operations.

"As a multiregional operator, the company doesn't compete against any single large chain, so it can offset competitive activities in one market with stability in others," Goldberg said.

Ken Bann, a high-yield securities analyst with Lehman Bros., New York, told SN said another strength is Penn Traffic's heavy presence in rural areas. "In a lot of those areas in New York and Pennsylvania, the Penn Traffic outlet is the only store in town, which is one reason it is able to generate such high margins," he said.

Bann said Penn Traffic's cash-flow margins are generally near the top of all high-yield companies -- running at 7.4% over the last 12 months, second only to the 8.2% margins generated by Stop & Shop Cos., Boston.