By John Karolefski
Through a special arrangement, what follows is an excerpt of a current article from Grocery Headquarters magazine, presented here for discussion.
Food Lion is a different company today than the one Rick Anicetti took over as president and CEO five years ago. Back then, the chain focused more on sales, profits and efficiency, and not enough on consumers, according to some observers. The retail philosophy was “one size fits all” in terms of operating stores to serve shoppers. Everything was the same – store size, layout, format, assortments, pricing strategy, and even the circular.
Since then, Anicetti has methodically orchestrated and presided over a dramatic change of direction for Food Lion, a subsidiary of Brussels-based Delhaize Group. The latest results: Annual U.S. sales in 2007 for Delhaize improved by 5.1 percent to $18.2 billion, with a 3.8 percent comp increase called its best in more than 10 years.
Food Lion’s recipe for success consists of a blend of “market renewal,” multi-branding, consumer segmentation, and store clustering. Such a dramatic makeover made Salisbury, N.C.-based Food Lion an easy choice for Grocery Headquarters to recognize this chain as its Retailer of the Year.
“We’ve embarked on a very different path,” says Mr. Anicetti. “We have really moved away from the sameness that described Food Lion for years.”
Mr. Anicetti describes the process of “market renewal” as “throwing a marketing ring around stores, renewing them completely, and then reintroducing ourselves to the consumer.” In other words, when a Food Lion store is remodeled, it may re-open as another banner such as Bloom or Bottom Dollar – or it may remain a refurbished Food Lion.
“In 2006, we did our first multi-branded approach,” he recalls. “We took 80 stores in the greater Washington, D.C. area, converted 40 of them to Bloom, 26 to renewed Food Lions, and 14 to Bottom Dollar.”
Along with this initiative is the company’s focus on eight consumer segments that it has identified and leveraged to group its stores into clusters. The eight segments of distinct consumer behavior that collectively account for shoppers in the markets that Food Lion serves are Savvy Singles, Babies and Bills, Country Living, Comfortable Car-Pooling, Getting By, DINKS (Duel-Income No Kids), Wealthy Elites, and Golden Years.
“It’s all about serving consumers based on their individual needs,” Mr. Anicetti explains. “These segments informed our store clustering. We grouped look-alike stores into seven clusters across our 1,300 stores.”
Operating a company based on clusters affects format, design, assortments, fixtures, and promotional opportunities, according to Mr. Anicetti. Banners have their own attributes, personality, and strategy – even if they operate in the same trading area. For example, Food Lion is practical and dependable, Bloom is upscale and Bottom Dollar is value.
“That’s what the last five years have been about,” Mr. Anicetti explains. “First, it’s been multi-branding. We were an operator of a single brand. Today we’re an operator of five brands and our brands continue to grow. Every year we see the addition of new stores to our brand portfolio. Food Lion is still the engine, of course.”
Discussion Questions: What do you think of Food Lion’s efforts to move away from the sameness the chain was formerly known for? What has most impressed you about its transformation?
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We had the opportunity to participate in the Sales and Market Renewal program for three years. Food Lion was the low price leader with very low operational cost. They had hundreds of “cookie cutter” stores, which made it easy to operate with central control from the Salisbury headquarters. Then entered Wal-Mart and other new concepts, which took the low price edge away from Food Lion. Rick Anicetti knew that a major change was necessary. Their stores needed to focus on PEOPLE, both customers and employees.
We assisted them with the education and development of store employees. We taught their employees how to become proactive with customers by greeting, asking and thanking each customer that shopped their stores. We encouraged suggestive selling by having live telling sessions and getting customers to try samples of products. We participated in the review of many different new store concepts, which would serve various demographics. We encouraged celebration of success everyday at every store.
Over a short period of time the big ship called Food Lion was able to make a u-turn and better serve more customers while retaining a low price value image.
Food Lion is a good example (unfortunately there aren’t enough good examples like them) of a company that has committed to a paradigm shift in redefining and repositioning their brand to focus on delivering consumer value, in a way that beats the competition and satisfies corporate growth objectives.
Over 80% of all consumer grocery purchases in the United States are tracked at POS via loyalty cards, PLCCs, Catalina, etc…. So, how does Food Lion succeed in re-branding and repositioning themselves to their marketplace? One answer is simply that they have personally committed to being a long-term successful and viable brand to their customers. That includes investing in new technologies, investing in new direct marketing channels (other than just traditional TV and print media) and segmenting their customers based on what’s valuable to the customer, and not to what a brand “thinks” their customers want. Pretty simple strategy intellectually, but the magic is in the execution, and too few retailers have figured that part out–yet.
Food Lion is doing the correct thing. They are regionally segmenting their markets to differentiate their store’s positioning and target markets. This allows them to cast off the prior brand’s appeal and renew their image with a refreshed look, position and mix. This re-invigorates their existing customers, attracts new customers and develops a broader, yet-targeted market appeal. This is adding more focused gross margin dollars to the entire global brand, as well as developing a more differentiated regional presence that has a renewed appeal.
Food Lion has made some significant changes in the last few years. These changes are certainly noticeable in every aspect of the business but particularly in store. That’s where it really counts.
The changes Rick and the rest of the team has made have all been additive in a positive way to consumers. This is refreshing indeed. A company not only talking about taking care of its customer but also actually taking the next step and doing something about it. Food Lion is to be applauded!
When handling the ad agency duties for Ahold and their several food chains on the East coast during the mid 80s, Food Lion was the main competitor to our BI-LO chain in the Carolinas. The standing joke about Food Lion referenced their strict control over every store-level decision. Question: “How large is the Food Lion store manager’s manual?” Answer: “One page and one answer–call headquarters.”
A food chain I toiled for in the early 90s purchased a competitor’s chain in our marketing area to reinforce our share because a new competitor was preparing to enter the market. For nearly a year I was able to convince my fellow executives to keep the marketing for our newly-acquired chain separate from our original chain. My argument was that, like a football lineman, our competitive stance needed to remain as broad as possible to avoid getting knocked around by the new competitor. Simply put, it gave us flexibility. However, the new competitor never showed up and the advertising savings from combining the marketing for our two banners was too attractive.
Now, more than ten years later, a strong, mid-scale supermarket chain moved into town in a big way, using a price emphasis to gain share against my former employer’s single-note, upscale marketing for their two combined banners. These banners and their marketing are so intertwined and upscale (i.e., expensive) that they could not designate one banner or the other to combat the new competitor with pricing. They had lost the marketing flexibility that could have served them in the changing competitive situation. Food Lion has very intelligently broadened their competitive stance, they have the flexibility to move in several marketing directions as needed, and it is clearly working for them. It’s a lesson that many other chains should take to heart.
Food Lion has done a great job of segmenting its customer base, and gaining a better understanding of their customer’s needs, and creating specific store offerings that better fit these needs.
Delhaize traditionally has not been recognized as a global leader in innovation, which makes the work that Rick Anicetti has done all the more impressive. Food Lion was a very tired, very basic, very unexciting retailer, and while it had a lot of stores, it was never heralded as a trend-setting chain. The turn-around has been very impressive, and is one that other retailers might look to emulate.
It is interesting that the trend of identifying consumer segments, and changing the store mix to target these segments is a trend that is happening not only in grocery. This is a very similar tactic that Best Buy has taken, and it is working extremely well for them also.
In today’s age of customization, Food Lion’s strategy makes terrific marketing sense. Their target segments cover all the bases in terms of the US major households. Their market coverage is pretty high and should allow them to segment with multiple formats in close proximity for different positioning.
Food Lion would be wise to learn from the GAP strategy of different formats selling the same categories to different shoppers. In theory, they could saturate their market and still provide diverse shopping options just as GAP saturates malls, bringing some of us to to GAP Kids and others to Banana Republic.
Food Lion’s challenge will be operational. Running 3-4 chains within a chain will require a new level of discipline to avoid quadruplicting resources. And some healthy competition between the formats could be good for all.
In the past 5 years, Delhaize stock (quoted in dollars on the NY Stock Exchange) increased 250%. In comparison, Supervalu, a well-run American chain, increased 100%. Whole Foods’ stock is the about the same price as 5 years ago. If Delhaize ran Whole Foods or Supervalu, would they have done a better job?