SALISBURY, N.C. -- Food Lion here surprised the industry last week when it announced that Tom E. Smith, who has played a major role in running the company since 1981, would retire, effectively immediately.
Indeed, by the time Food Lion made the announcement, Smith "had already left the building," one securities analyst told SN.
Smith, 57, held the titles of chairman, president and chief executive officer. In relinquishing those titles last week, he ended a 29-year career with Food Lion with the explanation it was time for a change.
"After almost 30 years of dedication and hard work, it is time to retire and give the company a new management team to lead it into the next millennium," Smith said in a prepared statement. "I can think of no better time to make these changes than the present, as Food Lion is in excellent shape, financially and operationally."
Analysts said the management change may be a signal that Delhaize "le Lion" Group, Brussels, Food Lion's majority shareholder, plans to take a more integrated approach to its businesses around the world.
Delhaize operates 1,904 stores worldwide with sales of $13.9 billion (U.S.). It has operating companies in Belgium, Greece, the Czech Republic, Slovakia, France, Indonesia, Singapore, Thailand and the United States. It acquired Food Lion in 1974.
According to Food Lion, Bill McCanless, 42, has succeeded Smith as president and CEO and Pierre-Olivier Beckers, 38, has been named chairman. McCanless was Food Lion's senior vice president of administration, chief administrative officer and secretary, and Beckers is president and CEO of Delhaize and president and chief operating officer of Detla -- Delhaize the Lion Atlanta, a wholly owned subsidiary of Delhaize that operates 18 Cub Food Stores in Atlanta.
Food Lion said Beckers will retain all his titles, while McCanless' CAO position has been eliminated.
In an interview with SN last week, McCanless said Smith's decision to resign was not sudden, "but the announcement of the decision was. Tom told the board he wanted to see the company through 1998, and that's what he did."
McCanless said Food Lion plans to become more aggressive seeking out acquisitions -- in line with Delhaize's overall corporate strategy, he noted -- but it may be a few months before anything happens. "In the coming months Food Lion customers and employees won't see any significant changes," he told SN. "What we plan to do is step back and take a breath and look at ways we can help the company increase shareholder value.
"It would be fair to say we will heighten our acquisition activity because we recognize the importance of acquisitions in maintaining a certain scale to be competitive in a consolidating industry. One of the key drivers to increase shareholder value is consolidation as a means of growth, and Food Lion will take a critical look at making sure we are positioned as a player in consolidation."
However, he declined to say if or when the company might have something to announce.
McCanless said the role Delhaize will play in the future of Food Lion will not be much different from the role it has played in the past. "Our relationship with Delhaize has been ongoing for years, but retailing has changed -- it's global now, and you're seeing more global players like Delhaize.
"Three or four years ago we began discussions with Delhaize seeking ways to lever the two companies and its other operating units, and we see clear advantages to being a member of the Delhaize group, which allows us to participate in global information exchanges, sharing of best practices and the common pursuit of mutually beneficial opportunities."
Ed Comeau, an analyst with Donaldson Lufkin & Jenrette, New York, questioned the suddenness of Smith's retirement and the subsequent changes. "It's highly unusual that a company's CEO resigns so abruptly and doesn't share that transition with the investment community," he said. "It certainly has the look and feel of something happening that caused him to resign or to be eased out."
One reason for the change may be that Delhaize wants to take a more integrated approach to operating the companies it owns, Comeau said. "Food Lion was a one-man show under Tom Smith -- he did a great job building the company, and it was his domain. But it's clear that Delhaize is moving toward a more global procurement policy and promoting more interaction among its management teams, and what I know about Tom tells me he may not have fit into that strategy.
"This is a new era of consolidation, and Food Lion can no longer operate as a fully autonomous division operating under its own strategies. Instead, it must become part of a more integrated global organization under Delhaize's direction."
Comeau also noted that the company's conference call last week to discuss the management changes with analysts marked the first time since 1992 that someone from Delhaize, in this case Beckers, had participated in the call. It was also the first call in years that excluded Smith, observers added.
Gary Giblen, New York-based managing director of NationsBanc Montgomery Securities, San Francisco, said he was initially surprised by Smith's resignation. "But the more I thought about it, the more sense it made because Delhaize is shifting to more of an acquisition strategy -- one that involves more cross-fertilization of best practices on a global basis -- in hopes of becoming an Ahold Jr., and Tom Smith grew the business on a different model, building stores at a rapid clip on a low-cost basis.
"But things are moving in a different direction because of changes in the U.S. food-retailing market, and it's hard to grow simply by building square footage. Instead, there's been more of a shift to acquisition and consolidation for the best economic return."
Giblen noted that Delhaize signaled that shift several weeks ago when it said it wanted to become a stronger player in the global field.
He also said McCanless is very smart, "and he's been an important force at Food Lion, though certainly not as visible as Tom Smith."
Jonathan Ziegler, a San Francisco-based analyst with Salomon Smith Barney, New York, also suggested that the management changes at Food Lion may be a signal that Delhaize wants to make more acquisitions -- "perhaps discussing a mutually beneficial consolidation with Wal-Mart," he said.
Ziegler said he doubts the situation that led to Smith's retirement is as simple as Food Lion officials are saying -- "that everything is very friendly and Smith simply wanted to go out on top. Because the company is not on top, and its stock has been falling since 1992, from 17-1/2 down to the 8 range.
"So the question I have to ask is, what did Tom Smith want to do that Delhaize wanted to do differently? Maybe his departure is a signal that, by making a change, Delhaize could get the stock up again," Ziegler said.
Beckers himself is new at running Delhaize, having been named president and CEO only four months ago, Ziegler pointed out, "so perhaps this is his way of trying to put his mark on the company because Food Lion is Delhaize's biggest asset.
"Beckers has seen that the stock is not working under the old regime and he has a responsibility to Delhaize's stockholders. But one thing is clear -- the stock has not done a lot for investors, so a change has to take place. But the combination of no advance word of the management change and the stock price continuing to fall suggests Smith's retirement may not have been completely voluntary."
Laura Kendall, Food Lion's chief financial officer, said McCanless was hand-picked by Smith as his successor and has been groomed for the job "for the past several years."
She said she does not anticipate any changes in corporate strategies under McCanless' leadership. "As a senior vice president reporting directly to Tom, Bill has been actively involved in creating and executing Food Lion's strategy. And because Bill has been close to that work, we are confident this transition will be smooth for the company as it continues its pursuit of growth."
The rest of Food Lion's management team will remain unchanged, Kendall said, with Joe Hall continuing as chief operating officer and senior vice president of operations and Pam Kohn remaining as senior vice president of merchandising.
In other news last week, Food Lion disclosed financial results for the first quarter ended March 28, which showed sales were up 4.4% to $2.4 billion (and up 6.8% after adjusting for a change in the way the company records sales tax related to its loyalty-card program); same-store sales rose 2%; and net income increased 6.1% to $58.6 million, including an after-tax charge of $2.4 million related to Smith's post-retirement benefits.
The company also said it has completed the acquisition of 18 of 28 former A&P locations in Virginia and is in the process of completing details on the remaining 10.
Smith began his career at Food Lion, when it was called Food Town, while he was still in high school and continued working for the company through 1964, when he graduated from college. He spent the next six and a half years with Del Monte Sales Co. before rejoining Food Lion in 1970 as a buyer.
He was named president in 1981, chief executive officer in 1986 and chairman in 1990. He was also the chain's TV pitchman for several years.
McCanless joined Food Lion in 1989 as a tax attorney. He was named chief administrative officer in 1995, with responsibilities for finance and accounting, information technology, legal and public affairs, human resources and employee benefits, loss prevention, real estate and construction, and diversity and minority affairs.
Beckers was named president and CEO of Delhaize in January, after serving as executive vice president of the company's executive committee. He also continues as president and chief operating officer of the Delhaize subsidiary that oversees Cub Food Stores in Atlanta. He has been a Food Lion director since 1992.