November 15, 2024
BANGOR DAILY NEWS (BANGOR, MAINE

Hannaford Bros. primed for expansion > Food distributor studies eating patterns in South

SCARBOROUGH — Hannaford Bros. Co. thinks its newest supermarkets will move plenty of beef and pork, but not as much fresh seafood. Sales of grits will soar, perhaps at the expense of baked beans. And jams and jellies will fly off the shelves like never before.

After satisfying Yankee palates for more than a century, the Maine-based food distributor is analyzing eating patterns in the South as it embarks on an ambitious expansion into Dixie.

“There’s quite a different product mix,” said Hugh G. Farrington, president and chief executive officer. “We have to learn all that.”

Hannaford, a fast-growing regional company whose $2.2 billion in sales during 1994 elevated it into the Fortune 500 for the first time, is moving into Virginia and the Carolinas, leapfrogging hundreds of miles into a region it enters as a virtual unknown.

Its goal is to become a major player in such economically vibrant markets as Charlotte, Raleigh-Durham, Richmond and Virginia’s Tidewater region.

Hannaford, the largest food retailer in northern New England, has virtually saturated its home territory in Maine, New Hampshire and Vermont, forcing the company to look elsewhere for growth opportunities.

It moved into upstate New York nine years ago, opening 19 stores under the Shop ‘n Save name and carving out a robust share of the market in a region from Albany to the Canadian border. The company also operates along the northern fringes of Massachusetts.

But when it looked at where to grow from there, management found itself boxed in, its options limited by geography. To the north was Canada, to the east the Atlantic.

A southward move into the Boston market or elsewhere along the New York to Philadelphia to Washington, D.C., megalopolis was rejected out of hand. As a nonunion company operating in a semirural area, Hannaford feared it would be lost in an unfamiliar operating environment dominated by high real estate costs.

“We don’t know how to do business in those markets. It’s foreign territory to us,” Farrington said.

Still, the company could have pushed west, expanding its upstate New York bridgehead into Syracuse, Rochester and Buffalo. But there it would go head-to-head with the Wegman’s and Tops chains, whose strong grip on the market was perceived to offer less opportunity for a newcomer.

Before choosing its new territory, Hannaford screened all locations east of the Mississippi where it might anticipate a prospective fit.

“We really went very thoroughly county by county in each state to look at the demographics and the competition and what sort of reception we might have,” Farrington said.

In the end, he said, Virginia and the Carolinas were chosen for their strong economies, growing population and a marketplace that allows his company to offer “something a little different from what was there now.”

Farrington said the strategy offers another plus by loosening the company’s ties to the economic cycle in its home territory.

“This last recession was pretty deep in the Northeast. It really caught our attention in terms of what kind of company we are and what we would like to be in the future,” he said.

Hannaford ranks among the most profitable chains in the industry, according to analysts. In a business where profits are measured in pennies on the dollar, the company wins praise for both its use of technology to trim overhead and its corporate culture that has produced a loyal and dedicated work force.

“Hannaford is one of the better managed supermarket chains in the country,” said Joseph Ronning, an analyst who follows the company for Brown Brothers Harriman.

Nonetheless, Ronning cautions that moving into a new and unfamiliar market is not without its risks. “It’s a move that could be dangerous in so far as the markets are very much different from each other,” he said.

Farrington doesn’t minimize the competition, which includes such national and regional chains as Kroger, Winn-Dixie, Food Lion, Harris Teeter and Ukrops. But he is looking to Hannaford’s “new format” stores, which range in size from 45,000 to 64,000 square feet, to win over customers by blending high quality, wide variety and low prices in an attractive environment.

While the first of the seven new stores now on the launch pad won’t open until late this year, the company is getting its feet wet in the market through a pair of acquisitions of smaller chains.

Hannaford last year paid $120 million for Wilson’s Supermarkets of Wilmington, N.C., which operates 20 stores in coastal sections of North and South Carolina. This year it bought eight supermarket locations in Virginia from Farm Fresh Inc. for $25 million.

The stores acquired in the two deals continue to operate under their own names, at least for the time being, and are considerably smaller than the Hannaford Food and Drug Superstores planned or under construction.

Perhaps more important, Wilson’s and Farm Fresh will provide a springboard for the Hannaford expansion by allowing its managers to get a feel for the Southeast market before the new stores are up and running.

The use of the Hannaford name for the “new format” stores is a departure for the company, whose stores now operate as Sun Foods as well as Shop ‘n Save. The company, which traces its roots to a fruit and vegetable market founded by Arthur and Howard Hannaford in Portland in 1883, is gradually placing the Hannaford name on its more than 2,000 private-brand products.

Although it’s unusual for a supermarket chain to launch a major expansion into a noncontiguous region, stock analysts say the company’s strategy is understandable.

“I suspect they’ve done the right thing,” said Mark Husson of J.P. Morgan Securities. “They had no choice but to move somewhere,” he said, and Hannaford wisely picked a region that shares some of the operating characteristics of its own.

Winn-Dixie, the largest supermarket chain in the South, said the region was growing fast enough to support a newcomer.

“It’s a growth market. We welcome them as good competition. They have an excellent reputation and we assume they will be successful,” said Mickey Clerc, a company spokesman. Winn-Dixie’s focus, he said, will be to protect its market share.

Hannaford Bros. facts at a glance

SCARBOROUGH — Key facts about Hannaford Bros. Co., based on 1994 figures:

Sales: $2.29 billion.

Net earnings: $62.3 million.

Supermarkets: 118 in Maine, New Hampshire, Vermont, New York, Massachusetts, North Carolina, South Carolina. The company has since expanded into Virginia.

Total store space: More than 5 million square feet.

Employees: 16,500.


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