REMODELS SET AS FOOD LION'S FIRST STEP FOR KASH N' KARRY

ELLIOT ZWIEBACH

SALISBURY, N.C. -- Food Lion here plans to strengthen the existing store base of Kash n' Karry Food Stores, Tampa, Fla., with remodels and store expansions of virtually all 100 locations in west-central Florida before seeking new locations outside the area, Food Lion officials told SN last week.

However, it is expected it will do so without the services of Kash n' Karry's two top executives -- Ronald E. Johnson, chairman, president and chief executive officer, and Richard Coleman, senior vice president and chief financial officer -- who observers said will be leaving the company following a transition period.

Food Lion officials would not comment directly on whether the two executives would be leaving. The two Kash n' Karry executives declined comment last week.

In an interview with SN, Food Lion executives discussed numerous plans stemming from the pending acquisition of the Tampa-based chain, including the following:

Food Lion would retain the Kash n' Karry name on the stores, although it has not yet decided whether to convert the handful of Food Lions that operate in the same area to the Kash n' Karry banner.

The new owners anticipate closing one of two distribution centers in the area -- either Kash n' Karry's 625,000-square-foot facility in Tampa or Food Lion's 758,500-square-foot facility 30 miles away in Plant City. Observers said Food Lion maintains "only a skeleton crew" at the Plant City facility, and the additional volume at the surviving warehouse is likely to mean that employees at both locations would retain their jobs.

The Kash n' Karry acquisition would have no effect on Food Lion's decision whether to retain its Southwest division.

Food Lion disclosed Oct. 31 that it had reached an agreement to acquire Kash n' Karry's 100 supermarkets and 35 liquor stores (with one more due to open in December) for approximately $341 million, including assumption of its $221 million long-term debt.

The merger would add Kash n' Karry's volume of $1.02 billion to Food Lion's $8.2 billion.

Kash n' Karry emerged from a prepackaged Chapter 11 financial reorganization in late December 1994; it controls a 22.3% market share in the Tampa-St. Petersburg-Clearwater area, compared with 33.6% for Publix, 20.4% for Winn-Dixie, 12.5% for Albertson's and 4% for Food Lion.

Because Food Lion has already secured approval from Kash n' Karry's institutional investors, who collectively own approximately 70% of the chain's equity, the merger is expected to go through without a hitch, probably by the end of 1996 but certainly before the end of February, Bill McCanless, senior vice president and chief administrative officer for Food Lion, told SN.

Food Lion said it will refinance Kash n' Karry's debt at lower rates, which will result in annual savings of $9 million a year. That money, plus an extensive remodeling effort, the introduction of new technologies and the combined buying strength of the two companies, "will make Kash n' Karry a more viable competitor," Tom Smith, Food Lion president and chief executive officer, told SN.

Commenting on reports that the two top Kash n' Karry executives would be leaving, McCanless told SN, "We're only a few days into the transition, and we've been pleased with management's cooperation in the last few days. We're committed to making the transition a success, and part of that transition is determining management's future role."

Observers said Johnson and Coleman would be leaving Kash n' Karry after the transition is complete because neither would be needed. "Food Lion has its own corporate CFO, and the executive heading the Food Lion subsidiary will be a general manager, with different responsibilities from a chairman and CEO, so it wouldn't be appropriate for Johnson to stay," one observer told SN.

However, observers confirmed that virtually all other management personnel are likely to remain at Kash n' Karry. "The group that runs operations and merchandising will remain intact," said one.

Smith said Food Lion intends to begin making plans to upgrade the Kash n' Karry operation immediately. "We're already in the planning stages for what we want to do once the deal goes through so we can get moving quickly," Smith told SN.

One of the first moves, he said, will be to launch an aggressive remodeling program that is likely to encompass nearly all 100 Kash n' Karry units over the next four years at a cost of $150 million, all generated from the Florida chain's cash flow.

Because a lack of available cash meant Kash n' Karry was unable to complete more than a handful of remodels over the last couple of years, "nearly all the stores need some form of upgrading, although what each one needs varies -- from a major overhaul, including expansion, to new equipment," Smith said.

He said he anticipates completing 20 to 25 remodelings a year between now and 2000. "Once the remodeling program is completed, we will start looking for new store locations in the Tampa-St. Petersburg area," Smith said. "Kash n' Karry already has some sites in mind, although it hasn't had the money to expand.

"Since it's been unable to grow in its own market, we will stay there initially and make sure we are in the right locations to protect our share. Then, down the road, we will look outside the area for expansion."

While Food Lion has multi-store operations in the Jacksonville area in northeast Florida and in Orlando, across the state from Tampa on the east-central coast, it has only about 10 stores in Kash n' Karry's west-central operating area. Smith was reluctant to say how many of those stores actually overlap or compete with Kash n' Karry.

He said the company has "not decided yet" whether to convert those locations to the Kash n' Karry banner. "We have to do some market studies to see what would be best for all the stores, but we don't feel we have to change the names," Smith said.

Kash n' Karry would operate as a subsidiary of Food Lion and retain its existing high-low format, compared with Food Lion's everyday-low-pricing program. "The Kash n' Karry operation has its own strengths, and we won't alter that," Smith said.

He said the company plans to close one of the two distribution centers in the area once the deal is completed, though he was not willing to indicate which one.