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Food Lion Roars Back

BY Marc Millstein

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.

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CompUSA may get a new look

BY CSA STAFF

ADDISON, Tx. After opening a new format store last month, CompUSA may be changing the format of its other stores, depending on customer demand and product interest.

According to reports, the elements found in the prototype store, located in Texas, will be incorporated into other CompUSA locations across the United States.

The nearly 7,700 square-ft. relocation site includes an Apple shop featuring Mac computers, iPods and Apple accessories, and a full-length LCD TV wall.

Additional expansions include extended gaming, which includes an entire wall devoted to the Nintendo Wii, PlayStation3 and Xbox 360 gaming platforms, plus a PC gaming setup to test equipment and play new titles.

While businesses can get their share of support with a specialized services section, all consumers can visit the store’s redesigned IT support area.

“This new store aligns CompUSA’s vision to better serve its three core customers, the technology enthusiast, educated professional and small and medium businesses,” said Gabriela Villalobos, the retailer’s sales and operations evp.

CompUSA announced in April that it would narrow its focus to three core customer groups rather than try to serve a mass audience.

The move was part of a comprehensive restructuring, initiated last February, that included an overhaul of senior management and the closure of half its store base as the privately held chain looked to improve sales and profitability.

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Walgreens withdraws from CVS provider plans

BY CSA STAFF

DEERFIELD, Ill. After many months of talks over low and below-market payment rates by CVS Caremark for four prescription plans, Walgreens has withdrawn as a pharmacy provider from the plans.

Patients affected include members of prescription benefit plans managed by CVS Caremark for ArcelorMittal, Johnson Controls, Progressive Casualty Insurance and Wisconsin Education Association Trust.

Most of the affected members live in Illinois, Indiana, Michigan, Ohio and Wisconsin.

Trent Taylor, president of Walgreens Health Services, the managed care division of Walgreens, released the following statement:

“This is not where we wanted negotiations to lead,” he said. “We’re sorry that our pharmacy patients and CVS Caremark’s clients are caught in the middle, and we’ll do all we can to ensure a smooth transition for our patients to another pharmacy. Meanwhile, we’ll continue to work on resolving this issue with CVS Caremark.

“Leaving a benefits plan is an extraordinary step for us, but it demonstrates how extraordinarily low our payments were from CVS Caremark. We can’t continue accepting reimbursement rates that are drastically below market, while offering patients needed special services such as 24-hour pharmacy access and drive-thru pharmacies.”

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