BA 4700BA 4700

Oral case Oral case

40 points40 points

In the beginning…In the beginning…

’’57- Food Town, Ralph Kenter, Brown Kenter, and 57- Food Town, Ralph Kenter, Brown Kenter, and Wilson Smith - all former Winn-Dixie employeesWilson Smith - all former Winn-Dixie employees

Began by failing – closed 9 out of 16 stores in the first Began by failing – closed 9 out of 16 stores in the first ten yearsten years

Lowered prices to compete with Winn-DixieLowered prices to compete with Winn-Dixie Sales then rose 54% to 8.4 millionSales then rose 54% to 8.4 million ’’68 - Ralph Kenter developed LFPINC68 - Ralph Kenter developed LFPINC ’’78 - went public (Establissements Dehaize Freres et 78 - went public (Establissements Dehaize Freres et

Cie bought nearly half the stock)Cie bought nearly half the stock) ’’83 Became Food Lion83 Became Food Lion Food Lion has expanded to 8 statesFood Lion has expanded to 8 states

Key PlayersKey Players

Ralph KenterRalph Kenter - developed LFPINC - developed LFPINC He passed the torch to He passed the torch to Tom SmithTom Smith::

- has helped Food Lion’s success greatly- has helped Food Lion’s success greatly

- expert at reacting quickly + effectively- expert at reacting quickly + effectively

- committed to discount pricing + cost - committed to discount pricing + cost reductionreduction

- not afraid of media exposure- not afraid of media exposure

Keep in mind that the Keep in mind that the following information is following information is from ’87. Barbara will from ’87. Barbara will

conclude our presentation conclude our presentation with an updated wrap-up.with an updated wrap-up.

Corporate-level Corporate-level Situation AnalysisSituation Analysis

Corporate ObjectiveCorporate Objective

““Our goal is to bring extra-low Our goal is to bring extra-low grocery prices to as many people in grocery prices to as many people in the Southeast as possible.” –Tom the Southeast as possible.” –Tom SmithSmith

1)Keep prices low1)Keep prices low

2)Expand across Southeast2)Expand across Southeast

Internal StrengthsInternal Strengths Buying is low-costBuying is low-cost Less expensive ways of opening and Less expensive ways of opening and

operating storesoperating stores Distribution – centers overlapDistribution – centers overlap Stores are close to customersStores are close to customers Optimal capital structureOptimal capital structure Community oriented/socially responsibleCommunity oriented/socially responsible Low labor costsLow labor costs Private label brandsPrivate label brands Affordable, attractive stockAffordable, attractive stock

Internal WeaknessesInternal Weaknesses

Don’t have all the departments that Don’t have all the departments that competition doescompetition does

No service departmentsNo service departments Non-unionized laborNon-unionized labor Small market shareSmall market share Fewer locationsFewer locations

Societal TrendsSocietal Trends Emergence of Superstores and Emergence of Superstores and

Hypermarkets (Wal-mart), trend toward Hypermarkets (Wal-mart), trend toward expanded store sizeexpanded store size

Decline in disposable income for foodDecline in disposable income for food Popularity of Secondary Competition:Popularity of Secondary Competition: -Fast Food (Jack in the Box)-Fast Food (Jack in the Box) -Take-out (Pasta House)-Take-out (Pasta House) -Delivery (Wok Express)-Delivery (Wok Express) -Drugstores (Walgreens)-Drugstores (Walgreens) -Specialty Shops (Whole Foods)-Specialty Shops (Whole Foods) -Wholesale Clubs (Costco)-Wholesale Clubs (Costco)

IndustryIndustry Aspects of new grocery market:Aspects of new grocery market: - saturation of market = low profit margin- saturation of market = low profit margin - In such a tight market, competition within - In such a tight market, competition within

the industry can be used to and individual the industry can be used to and individual companies advantage. (i.e. under pricing companies advantage. (i.e. under pricing or advertising attacks and retaliations)or advertising attacks and retaliations)

- Emphasis is put on “one-stop” shopping. - Emphasis is put on “one-stop” shopping. Is this really what consumers want? – NO! Is this really what consumers want? – NO! It was listed only 26It was listed only 26thth when consumers when consumers ranked what characteristics were ranked what characteristics were important to them when grocery shopping. important to them when grocery shopping. (exhibit 4)(exhibit 4)

ThreatsThreats Saturation of the marketSaturation of the market Strong competitionStrong competition Women in the workforce have less time to Women in the workforce have less time to

shop.shop.

Because market is tight, companies can Because market is tight, companies can take advantage of another’s failure.take advantage of another’s failure.

Opportunities

SituationSituationStore Distribution- in 1987

North Carolina

Virginia

South Carolina

Tennessee

Georgia

Florida

Delaware

Maryland

Growth of Food Lion's Stores

0

100

200

300

400

500

1978 1979 1980 1981 1982 1983 1984 1085 1986 1987

Stores

Growth of Food Lion's Sales

0500000

100000015000002000000250000030000003500000

Sales

Growth of Food Lion's Net income

0

20000

40000

60000

80000

100000

Net income

Product/Market-Product/Market-level Situation level Situation

AnalysisAnalysis

Customers Customers CharacteristicsCharacteristics

Want to save money, price sensitiveWant to save money, price sensitiveDon’t require a large selection of Don’t require a large selection of

brandsbrandsFocused on buying food, don’t need Focused on buying food, don’t need

all departmentsall departmentsExpect fresh produceExpect fresh produceCommunity-orientedCommunity-oriented

CompetitionCompetition Kroger – $18 billion in salesKroger – $18 billion in sales

- recently converted to newer, larger - recently converted to newer, larger formatsformats

- have not been as successful as planed- have not been as successful as planed

- costs are high- costs are high

- cannibalization is occurring- cannibalization is occurring Future of Kroger: Future of Kroger:

- investing in “super-warehouse stores” - investing in “super-warehouse stores” (low-grocery prices with high-priced (low-grocery prices with high-priced service departments)service departments)

- reduce remodeling expenses- reduce remodeling expenses

Competition (cont.)Competition (cont.) Winn-Dixie - $9 billionWinn-Dixie - $9 billion

- hurt by increase of competition in SE- hurt by increase of competition in SE

- hasn’t been investing in new stores- hasn’t been investing in new stores

- higher prices- higher prices Future:Future:

- larger formats- larger formats

- importance placed on service - importance placed on service departments and pricedepartments and price

- management layoffs and decentralization- management layoffs and decentralization

Competition (cont.)Competition (cont.) Lucky Stores – lower salesLucky Stores – lower sales

- only competes with Food Lion in Florida- only competes with Food Lion in Florida

- got rid of non-food businesses- got rid of non-food businesses

- increase of store sizes, service - increase of store sizes, service departmentsdepartments

Future:Future:

- may be bought by American Stores - may be bought by American Stores Company, leading retailer with Company, leading retailer with combination food stores and drugstorescombination food stores and drugstores

Competition (cont.)Competition (cont.) Bruno’s – very smallBruno’s – very small

- high volume sales at low prices- high volume sales at low prices

- owns stores of many formats- owns stores of many formats

- innovative buying program- innovative buying program

- huge distribution center- huge distribution center

- high operating and net profit margins- high operating and net profit margins

Competition (cont.)Competition (cont.)Comparison of the sales/employee for major

southeastern chains, 1987

103881

157386

110049 107265 109267

0

50000

100000

150000

200000

Kroger Lucky Winn-Dixie Bruno's Food Lion

chains

sa

les

/em

plo

ye

e

sales/emplyee/chain

ProblemsProblemsWant to expand conventional Want to expand conventional

storesstoresWant to move to other market Want to move to other market

areasareasWant to finance this future Want to finance this future

growth with out changing the growth with out changing the capital structure.capital structure.

AlternativesAlternativesExpansion:Expansion: - Increase store size- Increase store size

- Add more departments- Add more departments

- Add non-manned departments- Add non-manned departments

- Include non-food goods- Include non-food goods

- Change layouts- Change layouts

- Focus on characteristics that are important - Focus on characteristics that are important to the customerto the customer

Alternatives (cont.)Alternatives (cont.)Migration:Migration: - Expand across the U.S.- Expand across the U.S.

- Expand where their competitors are less - Expand where their competitors are less prevalentprevalent

- Expand to growing cities- Expand to growing cities

- Expand to high-volume areas- Expand to high-volume areas

- Expand to peripheral zones- Expand to peripheral zones

Alternatives (cont.)Alternatives (cont.)Funding:Funding: - Find outside funding- Find outside funding

- Split more stocks- Split more stocks

- Sell more stocks- Sell more stocks

- Distribute more dividends to make stock - Distribute more dividends to make stock more attractivemore attractive

RecommendationsRecommendations We will focus on what our customers are We will focus on what our customers are

looking for and include a larger variety of looking for and include a larger variety of departments (that are non-manned). We departments (that are non-manned). We should place these newer stores to should place these newer stores to peripheral zones where the competitors peripheral zones where the competitors are less prevalent. We will finance this are less prevalent. We will finance this operation by distributing higher dividends operation by distributing higher dividends to entice stockholders buy more stock.to entice stockholders buy more stock.

Action PlanAction Plan1)1) Increase Dividends to .02Increase Dividends to .02

2)2) Sell more stock (not more than 50%)Sell more stock (not more than 50%)

3)3) Use funds to invest in new stores using the regular Use funds to invest in new stores using the regular layout.layout.

4)4) Use survey to ensure that customer’s top store Use survey to ensure that customer’s top store characteristics are met.characteristics are met.

5)5) Place stores at highway exits near the entrances of Place stores at highway exits near the entrances of cities in the Southeast region – “ink-blot” formula.cities in the Southeast region – “ink-blot” formula.

6)6) Concentrate on cities where the strongest Concentrate on cities where the strongest competitors are not yet established.competitors are not yet established.

7)7) Name effective people responsible for controlling Name effective people responsible for controlling new area.new area.

Food lion in 1992 and 1993Food lion in 1992 and 1993

ABC had a news broadcast that showed ABC had a news broadcast that showed Food Lion participating in unsavory food Food Lion participating in unsavory food handling methods.handling methods.As a result, their sales plummeted from As a result, their sales plummeted from $178 million in 1992 to $3.8 million in 1993$178 million in 1992 to $3.8 million in 1993Despite this, profits rebounded in 1993 to Despite this, profits rebounded in 1993 to $152 million.$152 million.

Food Lion in 1996Food Lion in 1996

Food Lion acquired Kash n’ Karry Food Food Lion acquired Kash n’ Karry Food stores, at $341 million.stores, at $341 million.

Food lion said it would benefit customers Food lion said it would benefit customers because more competition means lower because more competition means lower prices and continued customer service for prices and continued customer service for everyone.everyone.

Kash n’ Karry said it gave them access to Kash n’ Karry said it gave them access to the capital they needed to accelerate the the capital they needed to accelerate the store remodeling program and helped grow store remodeling program and helped grow their business.their business.

Food Lion in 1997Food Lion in 1997

They added 100 stores through the Kash n’ They added 100 stores through the Kash n’ Karry and Food Fair acquisitions.Karry and Food Fair acquisitions.

They opened another 64 stores, closed 94 They opened another 64 stores, closed 94 stores, of which 61 were in Texas, stores, of which 61 were in Texas, Oklahoma, Louisana.Oklahoma, Louisana.

They remodeled or expanded 99 locations.They remodeled or expanded 99 locations.

They operated 1,050 Food Lion stores in 11 They operated 1,050 Food Lion stores in 11 states and 91 Kash n’ Karry Food Stores states and 91 Kash n’ Karry Food Stores Inc. Inc.

Had sales of $10.2 billion Had sales of $10.2 billion

Food Lion in 1999 and 2000Food Lion in 1999 and 2000In 1999, announced they were acquiring In 1999, announced they were acquiring Hannaford Bros. for $3.6 billion, which Hannaford Bros. for $3.6 billion, which made them now the sixth largest food made them now the sixth largest food retailer in the U.S.retailer in the U.S.

They appointed Joseph Hall as the new They appointed Joseph Hall as the new president of Food Lion.president of Food Lion.

In 2000, they ranked as the fourth top In 2000, they ranked as the fourth top supermarket in the US, in terms of store supermarket in the US, in terms of store count; ranked eighth in terms of sales.count; ranked eighth in terms of sales.

In 2000, Reported earnings of $3.6 In 2000, Reported earnings of $3.6 million.million.

Food Lion in 2001 and 2002Food Lion in 2001 and 2002

Food Lion tackles rising energy costs with Food Lion tackles rising energy costs with improved refrigeration equipment and more improved refrigeration equipment and more energy efficient stores.energy efficient stores.

E.P.A. named Food Lion an Energy Star E.P.A. named Food Lion an Energy Star “Partner of the Year”. They are the only “Partner of the Year”. They are the only supermarket chain with that honor. This is supermarket chain with that honor. This is probably because they are the only probably because they are the only supermarket focusing on saving energy.supermarket focusing on saving energy.

Overall, they save 86,000 kilowatt hours per Overall, they save 86,000 kilowatt hours per year with their current store design.year with their current store design.

Food Lion in recent yearsFood Lion in recent yearsIn 2003, they began a PR focus on the war In 2003, they began a PR focus on the war with the Red Cross, and developed a fund-with the Red Cross, and developed a fund-raising effort with the called “Operation raising effort with the called “Operation Family Support”, in which they will donate Family Support”, in which they will donate $50 gift cards to military families.$50 gift cards to military families.

In 2003, they saw their stock plunge 65%, In 2003, they saw their stock plunge 65%, and made plans to close 41 of their poorest-and made plans to close 41 of their poorest-performing stores in 10 states.performing stores in 10 states.

In 2004, Food Lion focuses on recycling In 2004, Food Lion focuses on recycling ceiling tiles and reusing them, to help save ceiling tiles and reusing them, to help save money.money.

Food Lion and Wal-martFood Lion and Wal-martWal-mart proves to be a fierce competitor to Wal-mart proves to be a fierce competitor to Food Lion because some of their products are Food Lion because some of their products are cheaper. cheaper. As a result of Wal-mart planning to open nine As a result of Wal-mart planning to open nine super centers in Food Lion’s market, Food Lion super centers in Food Lion’s market, Food Lion is undergoing store remodels. is undergoing store remodels. Food Lion usually sees an immediate decline in Food Lion usually sees an immediate decline in customer traffic after a Wal-mart super center customer traffic after a Wal-mart super center opens, but it typically returns to normal after six opens, but it typically returns to normal after six months.months.Convenience shopping is Food Lion’s new Convenience shopping is Food Lion’s new store layout objective, because Wal-mart is full store layout objective, because Wal-mart is full of congested parking and long checkout lines. of congested parking and long checkout lines.

THANK YOU !!!!THANK YOU !!!!

Opportunityisnowhere….!!!!!