Giant sets sights on Philadelphia region

September 09, 1994|By Jay Hancock | Jay Hancock,Sun Staff Writer

LANDOVER -- Giant Food Inc., which grabs 39 cents of every supermarket dollar spent in Baltimore and Washington, clearly indicated yesterday that it will try to grow profits by invading the Philadelphia region in the next few years.

Giant's interest in the Delaware Valley area wasn't a secret. The company already has one store in the Wilmington area, plans to open another next year and recently signed a deal to open in Cherry Hill, N.J.

But executives at Giant's annual shareholders meeting yesterday signaled that their ambitions for the region go far beyond a few scattered locations and probably entail price and advertising wars against established operators Acme and Super Fresh.

Giant is considering a huge area that extends from northern Delaware and southern New Jersey to Bucks and Chester counties on the north and west sides of Philadelphia, officials said.

The company has already looked at more than two dozen communities in the region that might support stores.

"And that's in our first wave," Michael J. Bush, vice president for real estate, said in a video presentation shown at the meeting.

Giant President Pete Manos said he hopes to operate 10 or 12 stores in the region within three years.

"It depends on the availability of sites," Mr. Manos said. "They're very hard to come by. We're not going to open stores anywhere just to open a store."

Giant has approximately 160 stores now and $3.6 billion in annual sales. Mr. Manos declined to specify what the goal is over a longer period.

But analysts believe Giant's long-term sights for the Delaware Valley may be set considerably above a dozen stores.

"They're being very deliberate about it," said Kurt Funderburg, an analyst with investment house Ferris Baker Watts. "This isn't a fast-moving, risk-taking company. And obviously, they're going underpromise what they can deliver."

The move won't be easy. For years, the conventional wisdom among East Coast supermarket operators has been that Philadelphia already has too many grocery stores and not enough good, available retail sites. One way to enter such a market would be to buy somebody who's already there -- say, the midsized Genuardi's chain, based in Norristown, Pa.

But that's not Giant's style, analysts said. Instead, it grows one store at a time, using its extensive, in-house property and building operations.

A from-scratch approach to Philadelphia "is quite a move," said Michael Julian, chairman of Farm Fresh Inc., a $900 million company that operates supermarkets in Hampton Roads and Richmond, Va. "But all the supermarket chains are finding there's no growth coming out of inflation, so you've got to expand."

With more than $200 million in cash and near-cash, Giant can afford to build some stores. Analysts believe the company will be able to find at least some profitable sites in the Philadelphia area -- although it will pay top dollar for them.

"They're very assertive and aggressive about putting forth this plan," said Jeffrey W. Metzger, publisher of Food World, a regional trade publication.

Super Fresh and Acme are deemed vulnerable. "Both of these operations have fairly high cost structures," Mr. Funderburg said. "They have older, developed store bases. Plus, I think Giant's just a better retailer than either of those companies."

Giant intends to supply all the Philadelphia stores from its Landover warehouse, Mr. Manos said.

The move north will probably involve price wars with Acme and Super Fresh and will take years to yield profits, analysts said.

"The key challenge to this is, it's going to take time," Mr. Funderburg said. "Three or four years down the road, we'll see the benefit from it."

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