BA 4700 Oral case 40 points

1. BA 4700 Oral case 40 points

2. In the beginning… • ’57- Food Town, Ralph Kenter, Brown Kenter, and Wilson Smith - all former Winn-Dixie employees • Began by failing – closed 9 out of 16 stores in the first ten years • Lowered prices to compete with Winn-Dixie • Sales then rose 54% to 8.4 million • ’68 - Ralph Kenter developed LFPINC • ’78 - went public (Establissements Dehaize Freres et Cie bought nearly half the stock) • ’83 Became Food Lion • Food Lion has expanded to 8 states

3. Key Players • Ralph Kenter - developed LFPINC • He passed the torch to Tom Smith: - has helped Food Lion’s success greatly - expert at reacting quickly + effectively - committed to discount pricing + cost reduction - not afraid of media exposure

4. Keep in mind that the following information is from ’87. Barbara will conclude our presentation with an updated wrap-up.

5. Corporate-level Situation Analysis

6. Corporate Objective • “Our goal is to bring extra-low grocery prices to as many people in the Southeast as possible.” –Tom Smith 1)Keep prices low 2)Expand across Southeast

7. Internal Strengths • Buying is low-cost • Less expensive ways of opening and operating stores • Distribution – centers overlap • Stores are close to customers • Optimal capital structure • Community oriented/socially responsible • Low labor costs • Private label brands • Affordable, attractive stock

8. Internal Weaknesses • Don’t have all the departments that competition does • No service departments • Non-unionized labor • Small market share • Fewer locations

9. Societal Trends • Emergence of Superstores and Hypermarkets (Wal-mart), trend toward expanded store size • Decline in disposable income for food • Popularity of Secondary Competition: -Fast Food (Jack in the Box) -Take-out (Pasta House) -Delivery (Wok Express) -Drugstores (Walgreens) -Specialty Shops (Whole Foods) -Wholesale Clubs (Costco)

10. Industry • Aspects of new grocery market: - saturation of market = low profit margin - In such a tight market, competition within the industry can be used to and individual companies advantage. (i.e. under pricing or advertising attacks and retaliations) - Emphasis is put on “one-stop” shopping. Is this really what consumers want? – NO! It was listed only 26th when consumers ranked what characteristics were important to them when grocery shopping. (exhibit 4)

11. Threats • Saturation of the market • Strong competition • Women in the workforce have less time to shop. • Because market is tight, companies can take advantage of another’s failure. Opportunities

12. Situation

13. Product/Market-level Situation Analysis

14. Customers Characteristics • Want to save money, price sensitive • Don’t require a large selection of brands • Focused on buying food, don’t need all departments • Expect fresh produce • Community-oriented

15. Competition • Kroger – $18 billion in sales - recently converted to newer, larger formats - have not been as successful as planed - costs are high - cannibalization is occurring • Future of Kroger: - investing in “super-warehouse stores” (low-grocery prices with high-priced service departments) - reduce remodeling expenses

16. Competition (cont.) • Winn-Dixie - $9 billion - hurt by increase of competition in SE - hasn’t been investing in new stores - higher prices • Future: - larger formats - importance placed on service departments and price - management layoffs and decentralization

17. Competition (cont.) • Lucky Stores – lower sales - only competes with Food Lion in Florida - got rid of non-food businesses - increase of store sizes, service departments • Future: - may be bought by American Stores Company, leading retailer with combination food stores and drugstores

18. Competition (cont.) • Bruno’s – very small - high volume sales at low prices - owns stores of many formats - innovative buying program - huge distribution center - high operating and net profit margins

19. Competition (cont.)

20. Problems • Want to expand conventional stores • Want to move to other market areas • Want to finance this future growth with out changing the capital structure.

21. Alternatives • Expansion: - Increase store size - Add more departments - Add non-manned departments - Include non-food goods - Change layouts - Focus on characteristics that are important to the customer

22. Alternatives (cont.) • Migration: - Expand across the U.S. - Expand where their competitors are less prevalent - Expand to growing cities - Expand to high-volume areas - Expand to peripheral zones

23. Alternatives (cont.) • Funding: - Find outside funding - Split more stocks - Sell more stocks - Distribute more dividends to make stock more attractive

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

25. Action Plan • Increase Dividends to .02 • Sell more stock (not more than 50%) • Use funds to invest in new stores using the regular layout. • Use survey to ensure that customer’s top store characteristics are met. • Place stores at highway exits near the entrances of cities in the Southeast region – “ink-blot” formula. • Concentrate on cities where the strongest competitors are not yet established. • Name effective people responsible for controlling new area.

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

27. Food Lion in 1996 • Food Lion acquired Kash n’ Karry Food stores, at $341 million. • Food lion said it would benefit customers because more competition means lower prices and continued customer service for everyone. • Kash n’ Karry said it gave them access to the capital they needed to accelerate the store remodeling program and helped grow their business.

28. Food Lion in 1997 • They added 100 stores through the Kash n’ Karry and Food Fair acquisitions. • They opened another 64 stores, closed 94 stores, of which 61 were in Texas, Oklahoma, Louisana. • They remodeled or expanded 99 locations. • They operated 1,050 Food Lion stores in 11 states and 91 Kash n’ Karry Food Stores Inc. • Had sales of $10.2 billion

29. Food Lion in 1999 and 2000 • In 1999, announced they were acquiring Hannaford Bros. for $3.6 billion, which made them now the sixth largest food retailer in the U.S. • They appointed Joseph Hall as the new president of Food Lion. • In 2000, they ranked as the fourth top supermarket in the US, in terms of store count; ranked eighth in terms of sales. • In 2000, Reported earnings of $3.6 million.

30. Food Lion in 2001 and 2002 • Food Lion tackles rising energy costs with improved refrigeration equipment and more energy efficient stores. • E.P.A. named Food Lion an Energy Star “Partner of the Year”. They are the only supermarket chain with that honor. This is probably because they are the only supermarket focusing on saving energy. • Overall, they save 86,000 kilowatt hours per year with their current store design.

31. Food Lion in recent years • In 2003, they began a PR focus on the war with the Red Cross, and developed a fund-raising effort with the called “Operation Family Support”, in which they will donate $50 gift cards to military families. • In 2003, they saw their stock plunge 65%, and made plans to close 41 of their poorest-performing stores in 10 states. • In 2004, Food Lion focuses on recycling ceiling tiles and reusing them, to help save money.

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

33. THANK YOU !!!! Opportunityisnowhere….!!!!!