Food City to buy, upgrade local Bi-Lo stores with gas stations, sharper pricing

The Food Experts are moving into Southeast Tennessee and Northwest Georgia.

That's what Food City, the operator of 104 supermarkets in Tennessee, Virginia and Kentucky and the buyer of 29 Chattanooga area Bi-Lo stores, uses as a slogan.

Steven C. Smith, chief executive of Food City parent K-VA-T Food Stores Inc., said Thursday in Chattanooga that the company plans to enhance selection and variety in the local units and offer sharp price points on goods.

He said the investment of $40 million to $50 million over three to five years will be "in the stores, in the people, in the product, and probably equally as important, in the price the consumers will see."

Food City President Steve Smith speaks during a news conference Thursday, July 23, 2015, to announce the purchase of 29 area Bi-Lo stores by Food City in Chattanooga, Tenn. The company operates 104 supermarkets in Kentucky, Virginia, and Tennessee.

Food City is seen at Ladd Landing in Kingston, Tenn.

Food City President Steve Smith, right, speaks with Senior Vice President and COO Jesse Lewis, formerly with Red Foods, during a news conference Thursday, July 23, 2015, to announce the purchase of 29 area Bi-Lo stores by Food City in Chattanooga, Tenn. The company operates 104 supermarkets in Kentucky, Virginia, and Tennessee.

Smith said plans are to start work in late August to early October rebranding and revamping the existing supermarkets. No stores will be closed and Food City will hire the vast majority of the 2,000 Bi-Lo employees, the CEO said.

"We look to the day when Food City will become a household name," he said.

Ian McLeod, chief executive of Bi-Lo owner Southeastern Grocers, said the sale of the Chattanooga area stores wasn't an easy decision. Bi-Lo's history in the region started when it bought the longstanding Red Food Stores in 1994.

"We believe we have identified a strong partner to ensure these 29 stores and our associates are positioned for continued success under another reputable regional brand," McLeod said in a statement.

The deal with Bi-Lo's parent is expected to close by fall, Smith said. He declined to reveal the purchase price.

But Smith said the acquisition will boost volume for Abington, Va.-based Food City by up to 30 percent.

He said Food City holds the No. 1 or No. 2 share in the markets in which it does business. Smith said the company has brought back a lot of regional brands, such as Kay's Ice Cream and Kern's Bread.

"We're passionate about our customers," the CEO said.

Jesse Lewis, Food City's senior vice president and chief operating officer, said plans are to bring back world-class supermarkets to Chattanooga.

"That's what we're all about," said Lewis, a former executive of Bi-Lo predecessor Red Food Stores. "We think we do it quite well."

He cited buying locally grown produce, with Food City purchasing over $6 million of the goods in the last three or four years.

"We put a lot of money into local farmers' pockets, and we bring a fresh product to our customers," Lewis said.

Smith said that Food City's southernmost store is in Monroe County, Tenn., and company officials see Chattanooga as a vibrant market.

"It's a real opportunity we think," he said. Food City already has a sizable presence in Knoxville, so there's still a lot of area to fill in with new stores between it and the Scenic City, Smith said. "That gives us a lot of growth opportunities."

Concerning Bi-Lo's Fuel Perks program, the company has its own fuel stations and plans are to build as many of those at the Bi-Lo stores as possible. About 85 percent of Food City stores have fuel locations, he said.

"People are passionate about fuel and if they can save money on fuel by buying groceries, that's something I think that's very positive for folks," Smith said.

Plans are to transfer the Bi-Lo Bonus Cards to a Food City value card loyalty program, he said.

Jon Springer, Supermarket News' retail editor, said Food City is similar to Bi-Lo in many ways and the purchase provides Food City a chance to grow its franchise in a new market.

"Food City has a reputation for running stores that are responsive to the communities they are in," he said.

For Bi-Lo, Springer said the sale could free up cash for other opportunities in its core markets.

The purchase of the Bi-Lo stores comes as Wal-Mart builds about a half dozen neighborhood grocery stores in the Chattanooga area. According to Supermarket News top 75 U.S. and Canadian food retailers and wholesalers, Wal-Mart is No. 1. Privately held Southeastern Grocers is No. 22. K-VA-T, also privately owned, is No. 53.

Lewis said Food City has competed with Wal-Mart since the Arkansas-based company first moved into its market.

"We understand Wal-Mart quite well. We think we do an outstanding job," he said. "We understand what the consumer wants in their supermarket. We think we offer a little more in that respect."

People shopping Thursday at the Bi-Lo store in St. Elmo said they were either only vaguely familiar with Food City or not at all, but willing to give the grocer a try.

"It's about the price, sales," said Brian Johnson of Chattanooga. "The name doesn't matter if it's a deal."

William McBee of Chattanooga said he usually shops at Wal-Mart.

"I'm on Social Security," he said. "If the price is right, it helps me a lot."

Smith said Food City employee pay and benefits are comparable with Bi-Lo, and the company plans to honor the individual worker's years of service.

"If they've been there 30 years, they'll be a 30-year Food City associate as well," he said.

Food City employees own about 13 percent of the company, Smith said.

"They own a piece of the rock. If the company does well, they do well," he said. "The Chattanooga associates will also be shareholders in our company."

Business Editor Dave Flessner contributed to this story.

Contact Mike Pare at mpare@timesfreepress.com or 423-757-6318.