As grocer grows, what's in store for its stock?

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By HOWARD TROXLER

© St. Petersburg Times, published May 5, 2000

Out of curiosity, and as a frequent shopper at Kash n' Karry, I dropped in Thursday on the shareholders' meeting of that grocery chain's parent company. Delhaize America Inc. also owns the Food Lion and Save 'n Pack chains.

The meeting was held at 9 a.m. in downtown Tampa at the Radisson Riverwalk Hotel. The lobby was filled with polite, business-suited folks wearing printed name tags. Most were from company headquarters in Salisbury, N.C., where Food Lion was founded in 1957 as Food Town. This was the company's first meeting held outside North Carolina.

About 150 of us filed into the dimly lit meeting room. The front wall was darkly curtained and lined with fake plants. A large projection screen showing the Delhaize logo hung front and center, flanked on the left by a lectern and a fully packed grocery cart, and on the right by a table for company officers.

Like most outsiders, I knew two things about Food Lion. In 1992, ABC News aired a hidden-camera expose that accused the company of unsafe food handling. The company won a court judgment against ABC, but it later was substantially reduced.

The second thing is that the company's old boss, Tom E. Smith, used to do all its TV commercials. I could never decide whether his twangy sincerity was charming or annoying. But Smith retired suddenly last year, and folks in Salisbury have remained tight-lipped about whether he was pushed out.

The company's situation in recent years has been somewhat of a paradox. Its fundamentals are sound. Last year's sales ($10.9-billion) and net income ($300-million) set records. The company says it squeezes nearly three cents of profit out of each dollar in sales, triple the industry average.

Since buying Kash n' Karry in 1996, the company has aggressively opened new stores and remodeled old ones, so that there are now 142 in Florida. Delhaize is one of the 10 largest U.S. grocers, and has nearly 1,300 stores overall.

Yet the company's stock performance has been puny.

The price of Delhaize's Class A common stock on Thursday was $17, down from a 52-week high of $38. The ratio of the stock's price to the company's earnings is much lower than the industry as a whole. Investors are not happy.

Smart people tell me that Delhaize is being punished in the market both for not being big enough, and for trying to get bigger. Analysts favor the top-three chains -- Kroger, Albertsons, Safeway -- in the fight against the hard-charging Wal-Mart Stores Inc., which has its Supercenters and Sam's Clubs.

Yet Wall Street also reacted cooly last year when Food Lion reorganized under the name of its Belgian owners, Delhaize, and announced plans to acquire Hannaford Bros., a New England grocery chain, for a hefty $3.6-billion. The stock slumped even further.

At Thursday's meeting there were not many small shareholders. Since the Belgian owners control 55 percent of the voting stock, the meeting was a formality. Directors were re-elected automatically. Only one man in the room asked for a paper ballot. Only one shareholder spoke during the question period.

This latter gentleman was Gene McKinley, 66, who with his wife, Debra, had driven down from Charleston, S.C. He is a retired Food Lion employee and was worried about his retirement investments because of the stock price.

Delhaize's chairman, Pierre-Olivier Beckers, assured McKinley he also was "extremely concerned about the evolution of the stock price." Chief financial officer Laura Kendall said that Wall Street had now "fully absorbed" the Hannaford deal. Bill McCanless, the chief executive officer, noted all grocery stocks have been down.

"If there are no more questions ..." McCanless said, looking around the room. There were none. So the meeting adjourned at 9:50 a.m., and the great return to Salisbury began.

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