Food Lion, the venerable supermarket chain, was caught in the middle of a deteriorating situation, literally, that threatened its very existence.
With competition eating away at its core base of customers and its long-standing one-size-fits-all pricing strategy, Food Lion suddenly found itself facing enormous challenges just to survive, much less grow and thrive.
“When we looked at the numbers, we saw that traditional grocery visits declined 10% as an industry in just 2006,” said Cathy Green, COO, Food Lion, LLC, Delhaize Group, at the Technology & Operations Store Summit (TOPSS) in Las Vegas in October. TOPSS is produced by Chain Store Age and Retail Technology Quarterly. “The average U.S. household made 62 trips to the grocery store in 2006, continuing a decline that has gone on for at least nine straight years but accelerated rapidly in the last year,” she said.
Dollar stores and superstores also declined in average customer visits per year in 2006, following significant rises in the years before, but those declines were much smaller, Green noted. At the same time, higher-end boutique grocers were attracting more customer spending dollars, leaving Food Lion to lose market share rapidly to both the discounters and the gourmet-type markets.
Food Lion realized it needed to change and to so do rapidly. The new strategy involved moving away from price as the differentiating factor, and, like many successful retailers today, analyzing who its customers were in terms of shopping behavior and needs, as well as spending habits. One result was a recognition that Food Lion geographically served eight mutually exclusive customer segments—all with varying disposable income, shopping needs, buying habits and ways in which they wanted to shop and be catered to.
As supermarkets are located in geographical locations in which core segments overlap, Food Lion then grouped “look-alike” stores into 13 unique clusters based on customer representation and category sales performance.
Food Lion now is rebuilding its future around multiple brands represented by three distinct banners—each with different levels of service offering, average price points and other distinguishing factors.
Bloom provides an “accommodating, hassle-free, novel shopping experience,” that Green characterized, in terms of personality, as straightforward, thoughtful and optimistic. The core Food Lion banner, on the other hand, has been reformatted to represent the “neighborhood store—familiar and dependable—with a neighborly, practical and dependable personality.” Finally, the Bottom Dollar banner was designed to offer everyday best prices and to have a personality that displayed a lighthearted, candid, energetic and yet pragmatic touch.
In terms of overall operating strategy, the company now seeks to customize wherever it can make a difference in catering to specific customer groups within its clusters—such as pricing, service, merchandising, brands and categories offered. But when it comes to operational areas such as supply chain, the mantra clearly is to standardize, to save money and gain efficiencies.
Vendors are still grappling with the “new” Food Lion and the implication in serving three banners and a multitude of core-cluster store types, resulting in some tensions, Green acknowledged. However, whenever there is change there is bound to be resistance, and that inevitably will work itself out to the benefit of all, Green optimistically concluded.