K-VA-T FOOD STORES: ON BEING THE LOCAL HERO

David Ghitelman

ABINGDON, Va. -- For K-VA-T here, the name defines the market.

The company has 86 Food City stores scattered over the states of Kentucky, Virginia and Tennessee.

Although K-VA-T has 16 stores and a No. 2 market share in the Knoxville, Tenn., metro area (which has a population of nearly 700,000), it mostly operates in cities and towns with populations of 50,000 or less, according to Steve Smith, K-VA-T's president and chief executive officer. In all its markets, Smith told SN, it is either No. 1 or No. 2 in market share. He added that some of the communities where it operates have populations as low as 1,500.

The regional competition consists of stores operated by Wal-Mart Stores, Bentonville, Ark. (active in 70% of K-VA-T's marketing area, Smith estimated); three divisions of Kroger Co., Cincinnati; Food Lion, the Belgium-based Delhaize Group's Salisbury, N.C., subsidiary; and, to a somewhat smaller extent, Bi-Lo, the Netherlands-based Ahold's Greenville, S.C., subsidiary; and Ingles Markets, Asheville, N.C.

Largely defining K-VA-T's marketing approach, noted Smith, is the region's demographic. About 47% of its households have an aggregate annual income of less than $30,000, he said. "We're very conscious of our price image. A lot of people when they talk about Wal-Mart say, 'We can't compete on price. We're not going to worry about that.' We can't do that."

Smith explained that he considers Wal-Mart and Food Lion his two major price competitors. "We pride ourselves on quality produce, quality meat, bakery, deli, etc., but we focus on bringing a value proposition to all our customers."

The meat counter is one department the retailer has made into a distinct niche. "Our meat departments are strong because we still have meat cutters. We grind all our beef in-store. We cut all our beef in-store. You can get special cuts of meat. You can't do that in a Wal-Mart Supercenter. You can't do that in a lot of our competitors. They've gone over to prepacked meat products," explained Smith.

K-VA-T also enjoys the hometown advantage in many of the markets where it operates, Smith noted. "We're the local guy," he said. "This is our market. We're very community-oriented, extremely involved in the community, and not just on the corporate level. We encourage our associates to volunteer. That's a big differential advantage."

Another advantage: K-VA-T's stores follow national marketing trends. "In the last five or six years," Smith said, "we have branched out into the pharmacy and fuel businesses." He noted the company will soon have 45 in-store pharmacies and 29 fuel stations.

"It's extra sales," he observed. "It's good, intelligent use of square footage to get sales through your store and through your parking lot."

Although the Food City banner dates back to a store opened in Greenville, Tenn., the K-VA-T chain is the creation of Smith's father, Jack, who opened his first store in his hometown of Grundy, Va., in 1955. A former Navy officer, Jack was inspired to enter food retailing after having to wait on a 45-minute checkout line during a pre-Christmas 1954 visit to what was then Grundy's only supermarket.

The smallness of the 3,000-square-foot store, along with the long delay, convinced him he could do better. The store he opened the next year was an 8,000-square-foot Piggly Wiggly franchise.

Both Jack and Steve Smith have stressed the importance of good employees to the success of their enterprise. The younger Smith told SN that K-VA-T's greatest challenge going forward is "to continue to have the best people.

"We can have the great stores in the best locations, but people are what make the difference," he said. "We want to continue to attract, train and retain the best people we can."

The company's attraction and retention efforts include an Employee Stock Ownership Plan. "About 16% of the company is owned by our associates, and that continues to grow every year through our profit-sharing plan," Smith said. "It gives them a sense of pride and ownership in the company that other privately owned and even many public companies don't have."

K-VA-T

Market Position: No.1 or No. 2

Main Competitors: Wal-Mart, Food Lion, Kroger, Ingles, Bi-Lo

Distinguishing Features: produce, meat, local roots, family ownership, value pricing

Biggest Challenge: continuing to attract first-rate employees