Food Lion, Inc.

Food Lion, Inc.

Harrison Road
Post Office Box 1330
Salisbury, North Carolina 28145-1330
U.S.A.
(704) 633-8250

Public Company
Incorporated: 1957 as Food Town Inc.
Employees: 35,531
Sales: $3.82 billion
Stock Index: New York

Food Lion, Inc. is the fastest growing supermarket chain in the United States: its annual expansion rate has averaged 20% for the past 20 years. The company operates more than 560 stores in the Southeast and has recently been adding nearly 100 each year. Food Lion’s success has centered around its low-price, high-volume strategy. The chain sells many items at cost or even below to lure customers through its doors. By cutting its own overhead dramatically, Food Lion has been able to offer “everyday low prices” to consumers and still manage to reap some of the highest profits in the supermarket industry.

In December, 1957 Ralph W. Ketner, Brown Ketner, and Wilson Smith opened a Food Town supermarket in Salisbury, North Carolina. The three men had worked together in the grocery business for some time at a small chain that was owned by the Ketners’ father but had recently been sold to Winn-Dixie. Dissatisfied with their new employer, the Ketners and Smith set out to open their own chain of supermarkets. By calling on everyone they knew in Salisbury for a small investment, the trio slowly raised enough capital to begin operations. Although growth was sluggish for the first ten years or so, those early investors made out very well in the long run. After numerous stock splits, an initial investment of 100 shares, originally valued at $1,000, was worth more than $16 million by the end of 1987.

During Food Town’s first decade, the company tried every kind of gimmick available to entice customers into its stores. Contests, free pancake breakfasts, trading stamps, beauty pageants, and a slew of other tricks captured shoppers’ attention, but not their sustained business. By 1967, after a full decade of operations, Food Town had only seven stores, and earned less than $6 million that year.

In 1967 Ralph Ketner formulated the strategy that would launch Food Town’s dramatic rise in the retail food industry. Ketner, the story goes, locked himself up in a Charlotte, North Carolina motel room with six months worth of invoices and an adding machine. When he emerged three days later, he had determined that prices could be slashed on 3,000 items, and, if sales volume increased by 50%, the company would still show a profit. Gambling that the reduced-price strategy would adequately expand its repeat-customer base, Food Town implemented his plan. Ketner later remarked, “One thing about taking a gamble: when you’re already broke you can’t do much damage.” Soon the company adopted an unusual new slogan: “LFPINC,” which stood for “Lowest Food Prices In North Carolina,” and shifted its advertising emphasis from print to television. Ketner’s gamble was a winner: increased volume soon more than made up for the price reductions.

The 1970s were a period of tremendous growth for the company. By 1971, sales were nearly $37 million. Although it occasionally snapped up a particularly appetizing acquisition, Food Town preferred to build its chain from within. The company tended to construct more smaller stores rather than fewer larger ones in order to provide greater convenience. In 1974 the second-largest Belgian supermarket chain, Delhaize Freres & Cie, “Le Lion,” purchased a majority of Food Town’s shares. Delhaize “Le Lion” signed an agreement to vote with Chairman Ralph Ketner for ten years on all policy issues. The company’s growth accelerated dramatically in the late 1970s and the 1980s. Food Town opened stores in Virginia in 1978 and in Georgia in 1981. In 1977 the chain operated 55 stores; by 1987, it ran 475.

In 1982, Food Town was sued by the owner of several supermarkets in Virginia which operated under the name Foodtown. The court restricted the use of Food Town’s name in certain markets due to the similarity. As a result of this action and in anticipation of similar problems with another group of stores in Tennessee, the chain decided to change its name. The new name, Food Lion, was selected partly because the Belgian chain Delhaize had a lion logo, but also because the chain could save money in changing the signs on its stores: only two new letters, an “L” and an “I,” needed to be purchased since the “O” and the “N” could be shifted over. This type of frugality was characteristic of the chain. In 1983, Food Lion carried its new banner into Tennessee as sales surpassed the $1 billion mark.

In the summer of 1984, the National Association for the Advancement of Colored People (NAACP) organized a boycott of Food Lion stores because the chain refused to sign a “fair share” agreement to raise the number of blacks in management, increase minority employment, and pledge to do business with minority-owned vendors and construction firms. The NAACP moved its annual board meeting from New York to Charlotte, North Carolina to attract attention to its protest. The boycott ended in September when Food Lion signed an agreement with the NAACP to increase minority opportunities with the company.

Food Lion branched into Maryland in 1984. Early in 1985, the company acquired Giant Food Markets Inc. of Kingport, Tennessee. It soon sold the 22 Jiffy Convenience Stores that came with the Giant deal, sticking to what it did best—the conventional supermarket trade.

In January, 1986, Tom Smith became CEO of Food Lion, replacing Ralph Ketner, who remained chairman. Smith, who had once worked as a bagger for a Food Town store, returned to the company in 1971 as a buyer, and became president and chief operating officer in 1980. Smith steered Food Lion on the same course as Ketner had, stressing low prices and efficient service. The company topped the $2 billion sales mark at the end of Smith’s first year as CEO.

By the late 1980s, Food Lion had become the dominant force in the regions in which it did business. Stunning earnings and market share encouraged the chain’s further expansion. In 1987 Food Lion prepared to extend its territory into Florida. Food Lion saw Florida’s increasing population and the relatively high prices of chains already in the area, like Winn-Dixie and Publix, as an excellent opportunity for expansion. The chain planned to double its number of outlets by first tapping Florida’s shoppers, then possibly moving westward through Alabama, Mississippi, and Louisiana. After nine months of market-softening advertising proclaiming “when we save, you save,” three Food Lion stores opened in Jacksonville, Florida. The response was phenomenal; security guards had to be hired to help people line up at cash registers. By the end of the year, Food Lion had plans for 20 more stores and a one-million-square-foot distribution center to be built in nearby Green Cove Springs. That facility positioned Food Lion for eventual entry into other Florida markets like Tallahassee, Tampa, and Melbourne.

Since Ralph Ketner formulated Food Lion’s everyday low-price strategy in 1967, the company has stressed doing “1,000 things 1% better,” an attitude that has been responsible for Food Lion’s operating expenses of only 13% of sales, compared to a 21% average in the industry. Food Lion has cut costs in a variety of inventive ways: recycling banana boxes to ship cosmetics and health products and using exhaust from freezer motors to help heat the store in the winter, for example. Food Lion also uses aggressive inventory strategies, ordering enormous quantities of products in order to save through volume buying.

By the end of the 1980s, Food Lion was the fastest growing and one of the most profitable supermarket chains in the country. In an industry that is often considered stagnant, Food Lion has found new ways to improve its market penetration and share and held to the philosophy of making “five fast pennies rather than one slow nickel.” It is an attitude has paid off handsomely over the years, and promises to do so in the future.

Principal Subsidiary

Save-Rite, Inc.