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During the past few years, specialty retailers that hang their hat on rock-bottom prices, bulk sizes or natural products have grabbed headlines — and market share — leaving many of their mainstream supermarket competitors scrambling. But while Aldi, Costco, Sprouts and others are making inroads in the five Southeastern states where Abingdon, Va.-based K-VA-T operates 139 Food City supermarkets, the privately held, family-owned chain continues to not just survive but thrive.

“There’s no shortage of competitors, but we’ve gained share over the last few years,” says K-VA-T president and CEO Steve Smith, son of company founder Jack Smith. In fact, sales have grown more than 5% each of the past two years, with same-store sales up between 2% and 3% — “not bad for the markets we do business in,” he says.

IT ALL STARTS WITH THE PEOPLE

Known for its well-curated assortment, including exclusive brands such as Kay’s Ice Cream, Food City’s frozen department is outperforming the national average. Hot-selling frozen chicken (right) is a key growth driver.

What’s the secret to Food City’s success? It all starts with the people, says Smith, citing an employee profit sharing plan that gives team members a real stake in the chain’s performance. Since associates own nearly 12% of K-VA-T, “When the company does well, they do well. And when they do well, the company does well. Everyone wins.” So whether it’s meat department personnel, the front-end team, a frozen or dairy manager or the foodservice staff, everyone in the store is working together to create a positive, differentiated shopping experience that research proves is very important to Food City customers. But it’s a philosophy that extends throughout the organization.

“I’ve worked with a lot of retailers around the world, and this is one of the few places where operations, merchandising, marketing and every other department is pulling the rope in the same direction,” confirms executive vp of merchandising and marketing Dan Glei, citing a collaborative spirit that simply doesn’t exist elsewhere. He thinks K-VA-T’s private ownership makes a difference. “We’re significantly more nimble than many public companies in terms of decision-making, which is very meaningful in today’s dynamic retail environment,” he explains. But not having shareholders to answer to also makes long-term projects that may not pay dividends right away much more feasible.

Another key differentiator is K-VA-T’s involvement in the communities in which it operates. Although Food City is the official supermarket of Bristol Motor Speedway and the corporate champion of University of Tennessee Athletics (its name is actually on the basketball arena), the chain also partners with several other collegiate athletic programs in the region. But the company’s support for the community trickles down to the local level as well. “It’s the local school district, the Little League teams, the community food banks, the Johnia Berry Holiday Toy Drive,” says Smith. “Those may seem like small things but they’re important to people in the communities where we operate.” He adds, “Every store has money to contribute to those kinds of programs. They never get in trouble for spending too much, but they might get in trouble for spending too little.”

A longtime sponsor of the Bristol Motor Speedway, Food City recently partnered with NASCAR legend Richard Petty to help raise money for paralyzed veterans — one of many ways the chain gives back to the community.

‘We’ve added Starbucks to more than 70 locations and sushi [counters] in nearly every new location. Many of those towns didn’t have a Starbucks before that — and certainly not sushi.

Another way the chain serves the community is by offering services not otherwise available in many small towns. For example, says Glei, many newer Food City supermarkets feature foodservice operations that rival the food court at any shopping mall. “We’ve added Starbucks to more than 70 locations and sushi [counters] in nearly every new location,” he adds. “Many of those towns didn’t have a Starbucks before that — and certainly not sushi.” In addition, Food City has seafood delivered to its warehouse daily, and it’s one of the few operators in its market that offers certified Angus beef, both choice and prime, which Glei calls a real game-changer. Most stores also include floral departments, pharmacies and fuel centers. “Those are things that improve the experience for the whole community,” he says.

WELL-CURATED ASSORTMENT KEY

Already a hit in the frozen pizza category, the upscale Crav’n brand was recently added to Food City’s ice cream and novelties set as well.

Service to the community also takes the form of a very well-curated assortment designed to meet the unique needs of area shoppers. For example, says Ross Purdy, vp of center store operations, K-VA-T recognizes the importance of legacy brands enjoyed by generations of customers in the Southeast. So when local favorite Kay’s Ice Cream fell on hard times, the chain acquired it. Now, the brand is sold exclusively at Food City. “Offering a brand that takes customers back to their childhoods — and allows them to share that with their grandchildren — is just one of the ways we curate our assortment, which we think helps set Food City apart,” says Purdy.

The company also offers a broad range of private label items under more than two dozen Food City and Topco own brands, including about 1,000 frozen and dairy items that represent approximately 32% of total sales in those two departments. Running the gamut from opening price point to premium, “They’re all productive and, candidly, they’re somewhat accretive to our business,” says Glei, citing Topco’s upscale Crav’n lineup as a perfect example. The brand has been part of Food City’s frozen pizza assortment for several years but was recently added to the ice cream and novelties set as well, meeting growing demand for more premium frozen treats.

Food City offers approximately 1,000 private label items in its frozen and refrigerated departments, including the Topco-supplied Food Club brand.

Despite Food City’s wide-ranging private label program, “We don’t turn our backs on national brands, though we probably curate them more aggressively than other retailers,” says Glei. “We may have a particular brand, but we may not have every flavor in existence and it may not get a whole door for its entire family of products,” he explains. “We don’t think that ‘conventional’ approach is the way we should do business any longer. So we do things somewhat differently,” but all in the name of offering a balanced assortment that meets the needs of Food City shoppers. “We try not to think in terms of private label versus national brands,” adds Purdy, who says store brand sales are more important than share. “We think about the category and how both our brands and their brands together create an assortment that will delight the consumer.”

National brands that make the cut often find Food City an excellent partner, continues Purdy, citing a recent survey by the Advantage Group. In terms of promotion, for example, “The supplier community ranked us very, very high for return on trade investment, as well as on execution, fulfillment of our commitment, etc.”

TWO-DAY SALES A HIT WITH SHOPPERS

Despite the plethora of own brands offered by Food City, national brands remain a key focus — and supplier partners give the chain high marks for return on trade investment.

Topping the list of highly effective promotional activities is Food City’s extremely popular two-day sales, which are offered 51 weeks out of the year, according to vp of marketing Kevin Stafford. “Approximately 30% of customers that shop on Friday or Saturday buy something that’s included in the two-day sale,” making them an integral part of the chain’s marketing plan, he reports.

Oftentimes, two-day sale items are featured on endcaps, though that space is used primarily for Food City’s “Back to Basics” program. “There’s an annual planning process with key frozen and dairy manufacturers where we sit down and lay out our plans for the year and what we want to try to accomplish together,” explains Purdy. “Once we agree on that, manufacturers or brokers come back to us on a monthly basis and propose four-week displays that support those key themes.” The Back to Basics display planogram covers about 90% of the store, he adds. “So stores just have to execute it.”

‘Approximately 30% of customers that shop on Friday or Saturday buy something that’s included in the two-day sale.

However, one display in the meat department is reserved for Food City’s three-day “Weekend Dinner Deal,” which not only offers families a great value but also pulls together various meal components so busy shoppers don’t have to traipse all over the store (think ground beef, shredded cheese and a taco kit). From simple meals such as hot dogs or spaghetti to pricier options like gourmet hamburgers or certified Angus steaks, “We’ve got a dozen or so that we rotate, ranging from $9.99 to $19.99,” reports Stafford, who says shoppers often stock up on the weekend so they have an easy meal ready to go during the work week.

Pizza is one of several frozen categories that have grabbed more space in recent years. Note the freezer cling highlighting Food City’s popular Fuel Bucks rewards program.

Shoppers can also save money by signing up for Food City’s ValuCard, which also allows them to accumulate Fuel Bucks that can be used toward discounted gas purchases. But the real benefit of the ValuCard program is the shopper data it provides. “Customer data has been huge for us,” says Stafford. “We’ve really been able to identify customer segments and — focusing on primary and secondary customers — focus on what they buy when we run different sales. We’ve really tried to integrate [that information] into everything we do in marketing. Our merchandising team does the same… It really helps us to better understand our customers and to perform at a higher level.” He adds that although Food City isn’t yet using shopper data to create customized offers, it is tailoring offers for certain groups of shoppers.

Food City execs say sales went up after organic and other specialty products were integrated into conventional frozen sets.

‘Customer data has been huge for us…We’ve really tried to integrate [that information] into everything we do.

Beyond the usual sales and displays, Food City also sponsors a variety of other fun events and promotions designed to enhance the shopping experience and further differentiate the chain from competitors. “We do a fair number of creative promotions in the frozen space,” says Glei, pointing to one recent contest where a customer won a freezer for their home filled with frozen foods. Other recent promos have revolved around root beer floats and ice cream sundaes, but that’s just the tip of the iceberg. “We think it’s important to change things up all the time,” says Glei. “It’s all part of the experience we talk about that helps separate us from others in our marketplace.”

INTEGRATED SETS BOOST SALES

As Food City stores have gotten bigger, so, too, have its frozen departments. But the recent elimination of separate sets for specialty products, including club packs and organic products, shifted even more square footage to the core department, says Stafford. Although some plant-based meat alternatives and gluten-free items are still merchandised separately, most other specialty items are now integrated with their conventional counterparts to allow simple side-by-side comparison, he explains. However, the chain’s Pick Well color-coded shelf tags help consumers easily locate items that carry certain claims (heart healthy, low sodium, organic, high fiber, etc.).

“We’ve seen a very significant improvement in sales since we integrated those sets,” says Purdy. “We think our frozen and dairy departments are appropriate for the size of our stores,” he continues. “However, we are constantly looking [for secondary placement opportunities] outside of those footprints as well.” For example, “We invested in a cooler for refrigerated salad dressings and placed it in the dry grocery area (near the shelf-stable dressings), which resulted in a significant improvement in total salad dressing sales. We did the same thing with refrigerated pasta in a few of our higher-demographic stores.” While that particular move didn’t yield the same results, the chain continues to experiment with placement of frozen and refrigerated products in an effort to boost sales. However, both departments are outperforming the national average. What’s driving the most growth?

Milk is the second-fastest growing category in Food City’s dairy department.

Stafford says handheld entrees, chicken, frozen novelties and pizza, among other frozen categories, have all gotten more space the past few years. But lately, the fastest-growing are unbreaded and lightly breaded chicken items that are a little healthier than previous iterations, as well as ice cream and frozen novelties.

In the refrigerated department, meanwhile, products with added protein or fiber are selling like hotcakes, especially yogurt (including drinkable options), cottage cheese, plant-based beverages and value-added milks. In fact, milk is currently the department’s second-fastest growing category, with many customers gravitating back to whole milk.

Although Food City operates in five different states, the assortments are fairly standard from store to store, though the number of frozen doors or linear feet of dairy may expand or contract as needed. However, says Glei, “We do store-specific planograms in two dairy categories: milk, because there are a lot of regional brands there (for example, Duchess Dairy is very, very big with customers in parts of Virginia), and yogurt, because consumption differs between rural and metropolitan areas.”

K-VA-T may have started out in the small towns of Kentucky, Virginia and Tennessee (whose abbreviations make up its name), but it’s expanded into several urban areas as well. “We like to go where people are relocating,” says Smith. For example, “Huntsville (Ala.) is on fire, which is why we committed to six stores there, four of which are already open…And we’ve invested hundreds of millions in the Chattanooga (Tenn.) market, taking over a company that was owned by private equity. Adjacent to that, North Georgia is another area we’re really bullish on as the population spills out of Atlanta into the suburbs. There’s a need for good retailers there, and we’re going to fill it.”