Food Lion is dining well on leftover market share


An article in The Sun yesterday incorrectly stated the price of Food Lion stock and how it is traded. In fact, Food Lion stock is traded on the NASDAQ system, and Tuesday's closing price was $24.75 for "B" class stock and $24.50 for "A" class stock.

The Sun regrets the errors.

There's a ravenous lion stalking the edges of the Maryland grocery market, ready to prey on the weaklings of the food chain.

With its stripped-down format and prices as predatory as its name suggests, North Carolina-based Food Lion is quietly carving out territory here. For several years, the grocery chain has been nibbling away at the Eastern Shore and Western Maryland, with a chunk of Southern Maryland for dessert. Food Lion, like Wal-Mart, has found prosperity far from the big-city lights.

This year, Food Lion expects to nearly double its presence in Maryland -- expanding to 11 stores from six. It's a far cry from Giant Food's 95 Maryland stores, but nobody expects Food Lion to stop there.

Even though Food Lion is regarded as the fastest-growing grocery chain in the country, the elephants that dominate the food business in the core Baltimore-Washington area can probably graze in peace.

Food Lion's managers may be hungry, analysts tracking the grocery industry say, but they're not reckless enough to go hunting in the heart of Giant country. If they did, "Giant would blow them away," said Jeff Metzger, publisher of Food World, a Columbia-based trade publication.

The Food Lion store in Walkersville, near Frederick, shows the company's strengths and weaknesses.

For anyone who regularly shops at a recently built store operated by Giant or one of its chief competitors, the first impression of a Food Lionwill be that it's awfully small.

The Walkersville store is about 29,000 square feet -- typical of what Mr. Metzger calls Food Lion's "no-frills, cookie-cutter" format. By contrast, a new Giant is likely to be closer to 55,000 square feet, with space carved out for fresh flowers, bulk foods, a mini-warehouse aisle and extensive counters for deli items, prepared foods and seafood.

At Food Lion, you'll find little besides basic groceries. There's a .. complete produce department, a small bakery and basic health and beauty products. But there's no deli, and seafood is relegated to a small section of pre-wrapped items in the meat department.

Still, the 2-year-old Walkersville store is bright and shiny, with none of the telltale smells that mark a store where cleanliness is a low priority. The store is well-organized, and the shelves are fully stocked. But, as corporate spokesman Mike Mozingo said, "When people think of Food Lion they think of price."

Food Lion is regarded as one of the most aggressive practitioners of "everyday low pricing" in the grocery business -- with none of what Mr. Mozingo calls "double-triple coupon games."

"Food Lion makes no pretense of offering a high level of service," said Kenneth M. Gassman Jr., an analyst who follows Food Lion and Giant for Davenport & Co. in Richmond, Va. "They truly offer lower prices."

Food Lion maintains that it is able to keep its prices low because xTC of what it calls its "passion" for cost-cutting. Its small stores save on construction costs, and its highly centralized purchasing, which is done from its Salisbury, N.C., headquarters, results in savings that are passed along to the consumer, Food Lion says.

That cut-rate pricing strategy puts a severe squeeze on Food Lion's competitors in the small cities and towns where it thrives. Food Lion claims that grocery prices in the towns where it has stores are 15 percent lower than those in towns with no Food Lions.

By steamrollering the weak competition throughout the Southeast, Food Lion has built an impressive record of profitability and growth.

Since 1981, the publicly traded company has grown to 883 stores from 141, and it expects to have more than 1,000 stores and nearly $7.5 billion in sales by the end of 1992. Its earnings per share have increased every year during the 1980s -- from 6 cents in 1981 to 54 cents in 1990.

Food Lion's stock closed at $19.625 yesterday on the American Stock Exchange.

In 1990, Food Lion pushed north aggressively when it opened a $20 million distribution center in Greencastle, Pa., just across the state line from Hagerstown. The center, with a distribution radius estimated by the company at 150 to 200 miles, gives Food Lion a wide range of options, including a push into Washington or Baltimore. The closest to Baltimore Food Lion plans to venture, however, is Westminster, where it is scheduled to open a store this year.

Mr. Mozingo said Food Lion will continue to expand gradually into Maryland, but he was non-committal about whether the company will try to fight it out with Giant and other Baltimore-Washington chains.

Duane Norris, an analyst with Salomon Brothers in New York, said Food Lion might open stores in the Baltimore-Washington area. Even though Giant is one of the strongest retail franchises in the country, Food Lion can coexist, he said.

Ultimately, the strongest argument against a Food Lion move into the Baltimore-Washington area is its format. Consumers in the region have become used to a variety of selection and might have a hard time accepting a store where fresh salmon or crab meat isn't available on a Friday afternoon, as was the case in Walkersville last week.

Mr. Gassman said there is little likelihood that Food Lion will change. He said Food Lion's chief executive, tom E. Smith, "knows this format. He doesn't know anything else, and he admits it."

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