North Carolina grocery chain cuts prices, makes over stores: Food Lion trying pilot program to set itself apart from the competition

Elaine Fletcher and her 5-year-old daughter, Kacy, shop recently at the Food Lion in North Raleigh, one of the stores the chain is renovating in an effort to attract business.

TRAVIS LONG

RALEIGH -- Food Lion is out to repair its reputation with shoppers by sprucing up its stores.

In a test that has started in Raleigh and Chattanooga, Tenn., the Salisbury, N.C.-based grocer is cutting prices on 6,000 items, reorganizing shelves, adding shopping carts, increasing staffing and trying to improve customer service.

The changes will be closely monitored by rivals and perhaps imitated if they are effective. But shoppers have grown fickle and hard to impress after years of price wars and heavy advertising.

Food Lion will need to prove the improvements aren't just cosmetic.

"It really doesn't matter what it looks like," said Angeline Mills of Raleigh, who was shopping in a Food Lion earlier this month. "Everyone's tripping over the price of gas. Every one's tripping over the price of oil. It's the price at the register that matters most."

Retailers such as Food Lion know they must compete with low prices, which are still the priority for most shoppers. But they also must find ways to differentiate themselves from tough competition, including Wal-Mart.

If successful, Food Lion plans to expand the pilot program to all of its nearly 1,200 stores by the end of 2012. President Cathy Green Burns said the strategy is really about the future of the chain.

"The model is not broken; it's still a very profitable operation," she said. "We just want to make sure it's going to be sustainable."

In the U.S., groceries are a $562 billion business annually, but profit margins for grocers are notoriously slim, often only in the 1 percent range. That means it's a particularly unforgiving environment for grocers that make mistakes or fall behind the times.

"Otherwise you're not going to be in the game," said Phil Lempert, a grocery industry analyst who calls himself the Supermarket Guru.

Earlier this month, Food Lion's international parent company, Delhaize Group, reported that sales at stores open more than a year, an important measure for retailers, were down 0.3 percent -- negative but a figure that has improved for three consecutive quarters. The company owns other grocery chains and does not specifically break out Food Lion sales.

Food Lion began by surveying customers last summer about what they would like to see. Among the more popular answers: better, fresher produce; shorter checkout lines; cleaner stores; better lighting in parking lots; and less clutter in the aisles. Now Food Lion is checking those items off its list.

The effort started in the Raleigh and Chattanooga markets this month at about 200 stores.

Green Burns said Raleigh was chosen because it is a major market in which Food Lion has a large presence, and it is close to home.

Food Lion is dropping prices on 6,000 additional items, a strategy designed to better compete with Wal-Mart. It also is using a redesigned sales flier and running advertising to highlight various improvements to its stores.

It's not the first time Food Lion has made changes or tested a program here. In 2008, the company converted some area stores to focus on Hispanic shoppers.

Not all changes have paid off. Last year, the company scrapped plans to open its Bloom stores, which are geared at younger shoppers.

Green Burns and Delhaize officials did not disclose how much the program is costing. As shoppers adjust to the changes, there will be more surveys and tweaks based on the feedback. Green Burns said the expansion of the program to Food Lion's other stores will take place in phases next year.