COVER STORY: The Lion wakes

"It's a great time to be at Food Lion." So says Mike Haaf, s.v.p. of sales, marketing, and business strategy for the supermarket chain. But Haaf is articulating what could very well be the rallying cry for an entire corporate culture in the throes of an exciting, disruptive, and challenging time of change.

From seasoned executives with corner offices at the Salisbury, N.C. headquarters to the tens of thousands of associates across the Southeast and Mid-Atlantic regions moving products through distribution centers or working the checkouts and back rooms of more than 1,200 stores, Food Lion's employees are participating in an ambitious attempt to transform this 47-year-old retailer from the definitive cookie cutter into a master of market-specific flexibility, from a "one-trick pony" tethered to the pillar of low prices to a progressive operator willing not only to make a statement with freshness and friendliness, but also to experiment with revolutionary retailing.

This lion is proving it's got the courage to reinvent itself in the face of a changing market.

Some things at Food Lion, of course will remain the same, most crucially the low-price reputation it has so carefully cultivated over the decades while quietly fanning out across the Southeastern United States with small stores in small towns and many not-so-small towns.

But the executives at the helm of Food Lion today know they can't stand on price alone anymore, and over the past 18 months or so they've been prompting shoppers to do double and triple takes to gawk at changes at the store level that include colorful signage and decor, welcoming displays of fresh produce and high-quality service beef, and friendly associates trained as ambassadors of the chain's strategy to replace the one-note mantra of "price, price, price" with the three-part harmony of "neighborly, practical, and dependable."

Food Lion is the jewel in the crown of Delhaize America, the U.S. division of Brussels-based Delhaize Group. Delhaize's largest subsidiary (its U.S. sister banners are Hannaford Bros. in the Northeast, and Kash n' Karry and Harvey's in the Southeast), Food Lion started two years ago down the path of change and picked up its pace in 2004. It has:

-Completed two groundbreaking "market renewal" projects involving hundreds of store renovations geared to specific market needs, and embarked on a third;

-Launched Bloom, a revolutionary retail concept designed as a platform for incubating new consumer-centric ideas about how to make food shopping truly convenient and fun; and

-Cultivated a culture that embraces diversity in the consumer base it serves, the vendor community it engages, and the workers it employs.

Now the chain is busy exploring ways to apply the knowledge gleaned from these projects, to improve its entire operation.

It all adds up to a grocer that has made a distinctive effort to recognize where it's been, figure out where it is today, and, perhaps most important, decide where it should be going.

"I think Food Lion for years was a one-trick pony, and a very successful one," says president and c.e.o. Rick Anicetti, a former Hannaford Bros. exec who joined Food Lion in 2000 as c.o.o. and was named to his current post in 2002. He found himself at the head of a low-price juggernaut that was up against bigger, more aggressive low-price juggernauts, and it caused him to question his company's rigid reliance on price as its sole foundation.

It was time to shift some priorities around.

"We have some brand equity around price that many would love to own," acknowledges Anicetti. "It's been years of executing against price, and we're not going to give that up. Consumers don't want us to give it up -- they've come to rely on this brand to deliver that. But there are things that a) we had chosen to do and aren't doing as well as we need to, and b) consumers want, that we weren't paying enough attention to. I call it 'price plus.' It's taking the ability to offer low prices and continuing to refine it.

"You can't simply get low prices because you say you're going to be low-price," he continues. "There has to be a whole cost mentality, a drive for efficiency, the ability to learn to live with less. I think this organization culturally does that well, and it's now wrapping some other dimensions around that, which really creates a different value equation for a brand that is located very close to consumers, and really wants them to come away thinking about this brand as neighborly, practical, and dependable.

"Those three attributes will produce more leverage when we really focus on price and add to that a focus on fresh, on engaged and friendly associates, and on really driving that convenience theme within our stores."

The "three attributes" are what Anicetti, and just about anyone else with a Food Lion name tag or business card, says will be the filter through which the chain makes every strategic move from this point on. "From the way we advertise to the uniforms we choose to the signage -- it should all be about driving that notion of neighborly, practical, and dependable."

Retail renewal

"We are definitely crystal clear on who we are today," declares Cathy Green, s.v.p. of fresh merchandising, distribution, and quality assurance. "We have a brand that we're proud of. Combining that with our ability to execute is going to be a really powerful combination. Being able to answer a consumer need in the marketplace -- addressing the diversity that exists out there -- ultimately will continue to position us for growth in the future."

It's a position in many ways at odds with what had propelled the chain’s growth up until now. Darrell Johnson, s.v.p. of human resources, who this month celebrates his 20th anniversary at Food Lion, recalls: "We used to build stores in such a way that we had an ad in North Carolina and South Carolina during the summer that said, 'The same store that you shop in at your hometown is the same store you have at the beach.' People liked that."

The cookie-cutter approach had suited Food Lion just fine. For decades the company enjoyed double-digit growth in sales and earnings, and store count mounted steadily. But a new threat emerged in the late '90s as fierce competitors, including the biggest and fiercest one of all, from Bentonville, Ark., invaded Food Lion's turf.

"In the span of about eight years, the competitive landscape changed," recounts Anicetti. Food Lion's advantage was pulled out from under it. It was forced to re-evaluate its market strategy, but management chose not be to guided by outside consultants or the demands of Wall Street analysts, as many public companies often are. Instead it turned inward to examine its own soul, then call upon the talents it had in-house.

"We had never talked about brand before," he notes. "Food Lion was essentially 1,200 stores that stood for price." Management began to look at itself not through the traditional lens that had always been focused on retail efficiencies, but through a new prism that threw light on the consumer.

Food Lion realized that, essentially, its shoppers were every other retailer's shoppers, too. "Everyone comes into a Food Lion store at least a couple times a year," explains Haaf, a veteran in marketing whom Food Lion tapped in 2003. "We don't have a share-of-population issue–we have a share-of-wallet issue. That's an important distinction to make. It's simply a matter of taking that understanding -- that our customers vary -- then targeting them with physical attributes of the store, and different products, and really focusing on making the in-store experience meet their needs."

It was a revelation that gave birth to Food Lion's critical strategy of market renewal. The company decided it could transform itself into a more effective merchant by rationalizing its remodeling plan to align with the needs of consumers, one market at a time, rather than simply remodeling units in unrelated markets just because it was those stores' turn on the schedule.

For Haaf the most compelling part of the market renewal plan was "the whole idea of creating Food Lion from a consumer's point of view, starting with determining consumers' wants and needs, and figuring out which segment of consumers we want to serve, so we can really focus on being the best for them and not trying to be the best for everyone. "We look at the stores in a given market along four key attributes: prices, convenience, quality produce and meat, and engaged and friendly associates," explains Haaf. "Then we do research in each of the key DMAs, to understand quite specifically where we stand vs. the competition. Finally, we set goals for each of those markets, looking at which attributes we want to improve on, in which stores, and by what date.

"We're working to create an algorithm to determine which type of Food Lion we put in place. Do we maybe put a Bloom in place? And [we] look at what the returns are. We are rigorous and structured enough now to analytically approach this, to determine how to maximize customer satisfaction and profitable sales."

Applying this structured approach, Food Lion launched its first market renewal in October 2003, in the Raleigh/Triangle region of North Carolina, encompassing 68 stores. That was followed by a second renewal project in Charlotte, N.C. completed just a few months ago, also involving 68 stores; project No. 3, in the Greensboro/Triad market, also in North Carolina, should be completed by spring 2005.

As the market renewals take hold, Food Lion invites its shoppers to "take a fresh look" at the stores. What they find most likely surprises them, especially if they are veteran Food Lion shoppers: bright, welcoming decor and signage; a colorful array of high-quality fresh produce and service meat; angled aisles to soften the hard lines and make the store feel friendlier; a truly impressive wine selection; and associates knowledgeable enough to be able to offer advice about pairing wines with meals.

For Food Lion one of the most remarkable attributes of the remodeling effort is the commitment to taking fresh foods seriously as an integral part of the brand's appeal.

"It started with really taking time to understand the needs of our consumers in those marketplaces, and for Food Lion in general," explains Green. "After we understood that, we needed to raise our level of standards and execution as it related to fresh. It was really a cross-functional effort across the organization, to bring fresh to life very differently from how we did in the past. From the vendors that we partner with, through to the consumer eating experience, and all those touchpoints along the way -- the chill chain, how we price product, how we merchandise product -- we've touched every part. The end game is enhancing the consumer eating experience.

"It's been a shift in how we think about fresh, how we deliver fresh in the marketplace," admits Green. "Some would say today that quality fresh is the price of entry for the supermarket business."

Price of entry for some, yes, but for Food Lion it's a departure of epic proportions. "That's the shift we've made -- going for the eye appeal, which is important for consumers," notes Green. "Consumers make their shopping decisions based on meat and produce, so our focus has been on really getting those two departments at the highest possible quality consistently."

These are telling statements, coming from a senior executive at a chain where it seemed fresh departments in the past were often the focus of lip service more than actual execution.

"What we've really been focused on is the execution of our programs consistently, day in and day out. We haven't gone in and transformed the product offering, but we've really worked on the layout, the training and education of employees in that department, really having a new level of engagement between those associates and the shoppers," observes Green.

This fresh emphasis has opened up another dimension for the chain, as well, according to Green: treating vendors as partners. "On the fresh side we had been seen more as a procurement organization. That's really shifting to more of a partnership, in terms of looking at the business strategically, using our brand as a filter, looking at our points of differentiation, and selecting a product to be able to support that. It now has become part of our corporate culture."

The market renewals so far are proving worth the effort, on many levels.

Notes one store manager in post-renewal Charlotte: "The response has been great. Customers call me up front just to make comments, which is different from before."

Customers are expressing their appreciation with their wallets as well as their mouths, at the remodeled stores. Says Haaf: "We have seen a double-digit improvement in sales, and great enhancements toward distribution in Raleigh. In Charlotte, the first couple of weeks have put Raleigh to shame."

The company has made no secret of its investment in the market renewal initiative. Other markets will follow as the initiative gains momentum. "I'd say that's a safe assumption to make," assures Anicetti. "We are still looking at 2005. To date, we've only done one market every year. Obviously, to touch the number of stores that we have in a reasonable amount of time, we would have to ramp that up."

Less formally, the effect is already rippling through the entire portfolio. "We're taking learnings from market renewal and rolling them out to stores across the chain," says Haaf. "We're seeing sales growth from that. We're also taking a lot of the associate training activities and rolling those out."

The human factor

Food Lion's market renewals run much deeper than decor updates and bigger produce sections. The company's 72,000-employee base, more than any other factor, is the foundation of its reinvention, say executives.

The human factor in Food Lion's renewal first came up during an early meeting at which Pat Fulcher, v.p. of associate services, made a keen observation. "We were talking about doing 70 to 80 remodels in markets at one time. I made the comment: 'We can change the bricks and mortar, but if we don't ensure that people have the right attitudes and thoughts about why they're doing what they’re doing, it may not be as successful as it could be.'"

That was the start of a series of initiatives that Fulcher helped lead, from basic technical training ensuring employees have the right skills, to more personal awareness training that encourages interaction with customers.

"We've worked on motivational sessions with store managers and department managers," notes Fulcher, referring to a program called "Living the Vision" that's "geared toward the individual -- not about the company, but what you do with the customers. It gets employees thinking about themselves and how they want to relate to others in the company."

In Anicetti's view, the improvement is clear. "Formerly, part of Food Lion's business model was this seamless efficiency, where the store manager simply waited for someone to give him an order; then he executed the order and waited for the next one. That was part of a huge success story. But today the marketplace is so dynamic that we have to have people who can get the context of what they're doing, understand their role within that context, and then go out and meet the marketplace. In a learning organization an employee will say, 'OK, I accomplished that. Now what am I going to do next?' They're not waiting for the next order to come down; they're looking for the next opportunity."

While human resources had earlier been an emphasis, in 2004, for the first time in the company's history, "Associate Development" was explicitly designated as the top corporate goal. Food Lion has moved to a more sales-driven, profit-driven incentive bonus program for store managers, and has also begun developing a succession-plan program to identify people with high potential and determine where they might best fit in the organization.

"It's all part of a cultural transformation, where I think everybody is beginning to understand that in everyone's role, there’s a contribution to be made," says Anicetti. "Whether it's the power of one, or everybody's fraction of the action, it's the sum total of all those events–none of which you can live without -- that in the end leads to the kind of result we're trying to pursue.

"I've said to people in marketing before, the real missed opportunity in our industry is the failure to understand that we have 72,000 marketing folks across our entire geography. The ability to get them to represent this brand in a consistent way is a huge opportunity that we can seek to own."

It was not always so at Food Lion. Veteran Johnson recalls a time when "associate work was, 'We do it one way and one way only.' We used to joke about it being a cookie-cutter approach. Back then it was all about building stores based on price, trying to build them everywhere, and trying to build them all alike. So the work you did with your associates was, 'We’re going to send you information about how your store is set.' That was our training program, and it was very successful."

Now Johnson says, "We explain the goals; we explain their impact. We train associates not only on the technical side of the business, but also on the importance of relationships."

From this springs pride of ownership, he adds. "It's amazing how people get jazzed up about working in a grocery store after going through the training."

This training has extended to a program called "Lion Linkups," through which upper management discusses strategy in the field, with as many as 2,500 employees at a time.

"It has been really rewarding for the people who have been involved," says Green of the impact of the company's commitment to associate development. "To see real change happen, [and to know] they're leading those changes, has been inspiring. People grab onto it; they take ownership to it and want to make it happen, see the results associated with it, and celebrate it; then they’re ready to try something new.

"This is a cultural shift that has happened," says Green. "We'll continue on that journey as we continue to grow the financial results of the business, and also the associates within this business."

Haaf agrees that there's a direct link between Food Lion's associate development strategy and its goals for financial development. "Our first job," he says, "is to make Food Lion a compelling place to work. And if we do, it becomes a compelling place to shop. And it then becomes a compelling place to invest."

School's never out

Indeed, the chain is counting on its reinvention to spur material improvements in sales and operating margins, and there's evidence that this is happening. For the latest two quarters parent Delhaize's sales and earnings performance has been besting analysts' expectations, largely because of strong margin gains in its U.S. operation, which is overwhelmingly Food Lion.

The store remodeling initiative has been central to the gains. "Sales growth in the remodeled stores remains strong as a result of an increase in customer numbers, higher average basket size, and improved gross margin mix, due to a higher penetration of fresh produce," says Mark McCullough, analyst with Goldman Sachs' London office. While McCullough also lauds the division's improved shrink management, however, he cautions against assuming Food Lion's gains can be sustainable in the long term.

Such skepticism might be understandable given the chain's more tenuous footing before taking its new direction, but it's obvious Anicetti thinks his operation is squarely on the path of perpetual improvement.

"If there has been a knock against Food Lion over the last five or six years that I think we've started to dispel in the last 18 months, it is, can FL consistently produce the financial results that it needs to? I don't know that there's any point of time when you can look at all of this work and say, 'Aha, there are the results,'" notes Anicetti.

"It's that kind of continuous improvement, that desire to learn from our sister companies and learn from each other, that really builds into a culture that can perpetuate the kind of performance we've seen thus far."

There's a desire to grow physically, as well, but Anicetti doesn't see that coming in the form of leaps and bounds into new markets. Like so much else in the chain's strategic set, this is tied inextricably to the chain's newfound sense of branding.

"My predisposition is that other than Wal-Mart, there aren't too many banners that have traveled significantly well beyond some reasonable geographic stretch," says Anicetti. "What we're beginning to think about in the U.S. in particular is this notion of brand. Because the choices have become so prevalent to consumers, the thought of going into any marketplace in the U.S. and still building the sixth brand or the seventh one or the eighth one in terms of entry, that makes your chances of success a heck of a lot less.

"In the short term, it is more likely that we would see smaller fill-in strategies over the next one to three years. Harvey's is an example, where we bought a 43-store chain, and Victory in the Northeast, which Hannaford announced, is essentially a 20-store chain."

He recalls lessons learned from the chain's ill-fated '90s foray into Texas. "One mantra you're going to hear from me is this notion of learning. I think the real challenge for us is continuing to learn. We went to Texas, and we weren't successful there. In some ways we weren't successful because the consumer in Houston isn't interested in what a consumer in Raleigh cares about, in terms of eating choices.

"Hannaford ran into the same struggle [in attempting to move south]. When Hannaford packed up its bags, headed Southeast, and built stores in Raleigh and Wilmington and other places, it was pretty much a replication of what worked well 900 miles away in the Northeast," he says, succinctly summing up what he has learned from those experiences: "Banners simply don't travel."

But they can and must evolve. Anicetti and his team are relying on the momentum they've gained through the reinvention, to propel Food Lion far beyond its strategic, if not geographic, roots to a point where it's agile and diverse enough as an operator to match a market that just won't stay put.
This ad will auto-close in 10 seconds