THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Sunday, September 18, 1994 TAG: 9409160572
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY STEPHANIE STOUGHTON, STAFF WRITER
LENGTH: Long : 144 lines
The day Harris Teeter debuts its first supermarket here, Farm Fresh Chief Executive Officer Michael E. Julian says he will be there, strolling through the aisles with visions of booting the upscale chain straight off his turf and back to North Carolina.
``We want them to know they'll have to fight for their market share,'' he said. ``And that can get expensive.''
Those are tough words from the Hampton Roads supermarket king. But those who closely watch the industry say the Matthews, N.C.-based Harris Teeter is no pushover.
In Farm Fresh's battle to remain on top, the chain's bloated debts could place it at a disadvantage, supermarket analysts say. By contrast, Harris Teeter is financially robust and aggressively expanding.
The chain plans to break ground next year on a store in Virginia Beach and another in Newport News.
``Harris Teeter is a formidable foe,'' said Kay C. Norwood, a grocery analyst with the Charlotte brokerage Interstate/Johnson Lane. ``If it goes into the (Hampton Roads) market as confident as it did in Atlanta, it will be a success.''
Harris Teeter has a track record of tiptoeing into a market and then quickly becoming a player. If Farm Fresh can't make life miserable for Harris Teeter when it first shows up, the North Carolina chain will open one or two stores the following year and a few more the next, analysts say.
Industry analysts and real estate sources expect Harris Teeter to open its first two Hampton Roads stores in 1996. They say the chain hasn't signed any leases but is looking at as many as 11 sites.
``First, it doesn't make sense to open only two stores in a market,'' said Kenneth Gassman Jr., a retail analyst with the Richmond brokerage Davenport & Co. ``Secondly, Harris Teeter tends to cluster its stores. They've done that in Atlanta and Columbia, S.C.
``Their expansion rate is accelerating.''
Executives at the North Carolina chain have been coy about their plan for Hampton Roads.
``We're interested in the market, but right now there are no deals done,'' said Ed Cook, the company's director of marketing-controlled brands.
Like Farm Fresh, Harris Teeter is rooted in the South and began as a family business.
The Harris and Teeter families owned the 40-store chain before Charlotte-based Ruddick Corp. purchased it 25 years ago. Since then, it has swallowed several supermarket chains and fanned out to Columbia, S.C., Atlanta and Southwestern Virginia.
The chain now has about 140 stores and is hungry for more, analysts say.
Harris Teeter is probably most threatening to Farm Fresh because they both cater to upscale customers. Chains like Food Lion, Super Fresh and Be-Lo Foods don't mind upscale competitors as much because they attract the kind of customer who's looking for steak, not filet mignon.
``Harris Teeter is probably going after the upscale market, and if it does, it probably will take more of Farm Fresh's customers,'' said analyst Norwood.
Also, unlike Farm Fresh, Salisbury, N.C.-based Food Lion has its stores spread out in many markets.
A change in one particular market probably won't affect Food Lion, which has more than 1,000 stores, spokesman Mike Mozingo said. ``We're certainly in a position to withstand new people coming into the Hampton Roads market,'' he said.
While Farm Fresh is the most upscale chain here, analyst Gassman doesn't think there's anyone in Hampton Roads doing what Harris Teeter does. In the Raleigh suburbs, its supermarkets feature gourmet coffee centers, crunchy-bread bakeries and employees who toss spinach leaves for a fresh Caesar salad.
There are kiwi and strawberry tarts, chocolate mousses and three kinds of cheesecakes. Herb-stuffed pork loins and a four-grain salad with sun-dried cranberries are also offered in the deli-bakery section.
Julian disagrees that Harris Teeter has more to offer shoppers with deep pockets. His suburban stores, he says, offer just as many gourmet, deli and specialty items as Teeter's suburban stores do. And in some areas, particularly Southwestern Virginia where Teeter replaced a chain of supermarkets, it needs to improve its stores.
Some industry experts say there isn't much room for a new competitor in this market. The area's population growth has slowed, so newcomers will have to take customers from other chains.
``Someone is going to feel the pain,'' said Jeffrey Metzger, editor of the monthly trade publication Food World.
When Harris Teeter enters Farm Fresh territory, Julian will be waiting.
``I'll be there,'' Julian said. ``I always am. I want to see what they're doing and how they're doing it.''
Any new supermarket is likely to siphon customers, especially with its grand-opening price specials, Julian said. At the same time, however, Farm Fresh will boast its own competitive pricing, he said.
``No one opens a store with the pricing they'll have long-term,'' he said. ``You, in turn, lure the customers back. Generally, the customers win and both companies lose.''
Julian doesn't concede anything to competitors, and his fighter's instinct is well-known in the supermarket industry. After all, this is an executive who grew up around the grocery business and whose favorite pastime is visiting grocery stores in other markets.
There is no question about Julian's resolve. But analysts question whether Farm Fresh has the financial muscle to repel Harris Teeter.
Farm Fresh, the leader in the Hampton Roads market, is about half the size of Harris Teeter and less profitable. The hometown chain had sales of $741 million and losses of $20.7 million last fiscal year.
Meanwhile, Teeter is called the ``shining gem'' of Ruddick Corp., its parent company. It had $1.41 billion in sales last year, up 11 percent from the previous year. Ruddick doesn't separate its three subsidiaries earnings but says Harris Teeter is profitable.
Julian's chain of 67 stores, which also includes Rack & Sack and The Grocery Store in Richmond, is still paying off enormous debts from its leveraged buyout by Citicorp Investments Inc. and its purchase of Safeway stores.
FF Holdings Corp., which only owns Farm Fresh, has $330 million in debts and will soon have to make hefty loan payments.
In the short run, the company's debts won't be an issue, said Metzger, editor of Food World. But, ``if Harris Teeter's expansion plan goes to fruition, it absolutely is a factor,'' he said.
Julian say the debts and losses haven't kept Farm Fresh from improving and expanding. ``Our access to funding has not been a problem,'' he said.
He expects Farm Fresh's sales and cash flow to show substantial improvement in the next fiscal year.
``When the dust settles, Farm Fresh will continue to operate in this business,'' Julian said. ILLUSTRATION: Graphic
JOHN EARLE/Staff
STORE PROFILES
SOURCE: The stores
[For complete graphic, please see microfilm]
Color photos
RICHARD L. DUNSTON/Staff
Farm Fresh on Great Neck Road in Virginia Beach.
ASSOCIATED PRESS
Harris Teeter on Creedmore Road in Raleigh.
Photo
RICHARD L. DUNSTON/Staff
Hampton Roads' Farm Fresh stores, like this one on Great Neck Road
in Virginia Beach, are expected to get a competitor in Harris
Teeter, an upscale supermarket chain based in Matthews, N.C.
by CNB