Food Lion Looks Toward Baltimore

Area A `Growth Market' To Chain

20-25 Stores May Come, Sources Say

Company Keeping Quiet

No-frills Retailer Poses Competition For Region Leader Giant

April 28, 1997|By Liz Bowie | Liz Bowie,SUN STAFF

Food Lion Inc., a grocery store chain that built its business in small towns in the South, is making a risky push into the Baltimore and Washington metropolitan markets this year.

The company remains secretive about its plans, declining to comment on how many stores it will open or whether it will go into inner-city markets. Tawn Nahn, a spokeswoman for the company based in Salisbury, N.C., said only, "That [Baltimore] is a growth market for Food Lion. We are looking to put more stores in the area."

But several real estate sources said Food Lion has been aggressively seeking sites in the metropolitan areas and hopes to have as many as 20 to 25 stores in the Baltimore area in the next two years. A similar number is expected to surround Washington.

"I think Food Lion will have a definite presence in the Baltimore market," said Sam Hodges, a principal at KLNB, a Towson commercial real estate firm that is helping Food Lion find space in the market.

At least for now, Food Lion has said it will not build a store inside the Baltimore Beltway, according to Bill Wolf, at First Washington Management Inc., a firm that owns and manages numerous shopping centers in the mid-Atlantic region and is working with Food Lion. "They have explained their strategy to 10 or so property owners," he said.

Food Lion opened a store on Liberty Road at Marriottsville Road, just north of the center of Randallstown, this year, and has signed a lease to open a second store at Liberty and Old Court roads, just outside the Beltway. In addition, it plans to open stores in Essex on Martin Boulevard and one in Perry Hall.

Food Lion's entry into the Baltimore market will give Giant Food Inc., the market's leader, fresh competition. The two chains have different strategies. Giant is a full-service grocery chain that operates with promotions; Food Lion is a low-cost, no-frills retailer. But analysts said that studies have shown most families shop at more than one grocery store. So, they point out, Food Lion may snare customers with low prices on the basics.

"We will continue to do anything we have to do to meet the challenges," said Barry Scher, Giant's vice president of public relations. For instance, when warehouse stores came into the market, Scher said Giant responded with a new department called Super Deals, which offers reduced prices on a limited number of brands, some in large sizes. "That has proved very effective," he said.

Certainly, Maryland is not new turf to Food Lion, a grocery chain that started in small to medium-sized markets where there was usually only one independent grocery in town. It employs 2,402 in the state and has penetrated the rural markets with 33 stores, east as far as Ocean City, west to Oakland and south to Lexington Park and Princess Anne.

But it has never gotten closer than Frederick or Annapolis to the urban areas where competition between grocery store chains is fierce and real estate more expensive.

"I think they definitely have a game plan to have a much stronger presence in the market. They clearly want to penetrate around the edges," said Jeff Metzger, publisher of Food World, a regional grocery trade publication.

One of the challenges for the chain is finding real estate space in its price range. Food Lion is used to paying about $11 a square foot for retail space, Metzger said, and most grocery stores in the region spend about $15 or $16 a square foot for space.

In general, Food Lion will have smaller stores, about 25,000 to 35,000 square feet, compared with the 50,000- to-60,000-square-foot Giant stores.

Rumors abounded in the grocery business recently that Food Lion was interested in buying Valu Food Stores, a Baltimore-based chain. But the chain's president, Louis Denrich, denied that his business is about to be bought out.

"There is no truth to it at all. I have never spoken to anyone from Food Lion," Denrich said. "I have heard the same rumor."

Food Lion, which in December won its lawsuit against ABC News for a 1992 "PrimeTime Live" piece that showed a store selling tainted meat, has yet to win big in any urban area that it has entered recently. For instance, the chain entered the Houston and Dallas-Fort Worth markets in 1991 with more than 30 stores, struggled and pulled back.

"They had a very hard time there," said Sally Wallick, an analyst with Legg Mason Wood Walker. "The competition was very intense. They expected it would ease over time and a place would be made for them in the market, but it didn't happen."

This year, the company has said it will decide whether to pull out of Texas, she said.

While Food Lion's experience in Texas may not have been good, Wallick points out that the chain is doing well in Richmond, Va., and Charlotte, N.C.

And some experts believe that Food Lion could steal market share from Giant and other grocery chains that have union pay scales and higher prices.

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