Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SATURDAY, March 9, 1991 TAG: 9103140011
SECTION: BUSINESS PAGE: E-1 EDITION: METRO
SOURCE: KATHRYN HOPPER/ LANDMARK NEWS SERVICE
DATELINE: GREENSBORO, N.C. LENGTH: Long
All while emphasizing "extra low prices."
"I never know what they are going to do to me," said Tom Smith, chairman of the Food Lion Inc., pegged one of the nation's fastest-growing supermarket chains. Because he's so often stars in the company's commercials, Smith has become a down-home Lee Iacocca, who became a household figure through Chrysler Corp.'s commercials.
Food Lion, which has stores in the New River and Roanoke valleys, has grown from 106 outlets in 1980 to 778 today. During the same period, net income and sales have grown at a compounded average rate of 27%. For 1990, the company reported sales of $5.6 billion, up 18 percent from 1989, and earnings of $173 million, up 24 percent.
A Belgium-based conglomerate, Delhaize le Lion, owns 50.3 percent of Food Lion's voting stock and 44.3 percent of its non-voting stock.
Like many other aspects of its business, Food Lion handles advertising a bit differently than the competition. Rather than hire an advertising agency, the Salisbury, N.C., company develops, writes and produces its own commercials.
In-house production has two advantages, said Tom Crabtree, vice president of marketing. It saves money - an estimated $250,000 a year - and it puts marketing campaigns in the hands of people who know the company best.
Food Lion rejects commercials that feature weekly specials, the staple of the food industry. Instead the ads emphasize everyday low prices and its television spots play up little ways that Food Lion trims expenses, presumably passing the savings to customers. From recapping tires on company trucks to reusing cardboard boxes, the commercials often feature Smith.
Some viewers have complained that the commercials are corny, a sort of corporatized Hee-Haw. Crabtree, who creates many of the ads, said the company produces a variety of spots, knowing that people will like some and dislike others.
"They work really well for their type of consumers - blue-collar workers who relate well to real people," said Kenneth Gassman, a retail analyst with Wheat First Securities in Richmond.
"Just as Frank Perdue has been able to achieve the only recognizable brand-name chicken with his personal repesentation, Tom Smith has used the same strategy successfully at Food Lion," Gassman said.
For its next major move, Smith is teaming with country music singer Janie Fricke. In September, Food Lion launches a $130 million effort to capture a share of the Texas food market.
Food Lion initially will build 40 stores and a 735,000-square-foot distribution center. But company strategists believe those stores eventually will average sales of more than $7.1 million per store, enough to quickly offset start-up costs.
Smith thinks Texas is ready to be factored into that formula. Food Lion's preliminary comparisons indicate its prices are 25 percent lower than other stores in the market. In many markets, however, Food Lion's price claims are stiffly contested by competitors.
Smith expects that Food Lion's entry in the Dallas market will force other grocers there to lower prices.
He cites what happened in 1987 when Food Lion moved into Jacksonville, Fla., home of Winn-Dixie. A trade publication surveyed the market six months before Food Lion came and six months after its arrival. The result: Winn-Dixie and other stores had lowered prices 6 percent.
The chain is concerned about being labeled an outsider by Texans. That's the reason it hired Fricke, who lives just south of Dallas, as its Texas spokeswoman to introduce Food Lion and Smith. In one broadcast spot, Fricke tells shoppers that Food Lion will offer "Texas-size savings."
Another commercial, which has Fricke walking through a store, was specifically designed to combat negative images that surfaced in Texas when Food Lion sought rezoning permits to build in suburban neighborhoods.
"When people heard the term `everyday low prices,' they thought we were some kind of warehouse club," Smith said. "Our challenge is to show them we have both low prices and nice stores."
Smith said the Texas real estate bust made land prices in Dallas and Fort Worth attractive to Food Lion, which prefers building several smaller stories to one big one. Its marketing strategy is based on being the most convenient grocer to shoppers' front door.
Another attraction could be the low rate of unionization in Texas. The United Food and Commercial Workers Union called for a boycott of Food Lion last year, accusing the chain of paying substandard wages and aggressively blocking attempts to unionize its stores.
The chain plans to add more than 125 stores this year. Food Lion is building two other distribution centers in Florida and Pennsylvania, and those will anchor growth along the East Coast.
Gassman said Food Lion is establishing its western beachhead and eventually will blanket most of the South.
"They're going around some states but will eventually backtrack and absorb them," Gassman said. "Alabama, Mississippi, Louisiana - they all have customers that could easily identify with the Food Lion message."
Smith said the chain might even amble down to Houston and over Oklahoma City way.
Then, go nationwide.
"We don't see an area we couldn't go into," Smith said. "Everyone everywhere likes low prices."
by CNB