Food City SEROY 2016

2016 Southeast Retailer of the Year Company Flourishing Thanks to Strong Roots Abingdon, Virginia-based Food City was selected as The Shelby Report of the Southeast’s Retailer of the Year as a company that exemplifies leadership in merchandising, marketing, innovation and community service.

The company founded by Jack Smith back in 1955 started out, as most do, with one store, his in Grundy, Virginia. Unlike many, though, Smith’s company has thrived, today operating a chain of more than 130 stores in Virginia, Kentucky, Tennessee and, most recently, Georgia, via its acquisition of 29 Chattanooga-area stores in 2015.

K-VA-T Food Stores/Food City has been in the capable hands of Jack’s son, Steve, since he became president in 1993 and CEO in 2001. He continues his father’s legacy in many ways, including maintaining a family atmosphere throughout the company; keeping stores up-to-date in facilities, technology and product offerings; growing through acquisition; and supporting communities across its operating area. As an employee stock ownership plan (ESOP) entity, around 13 percent of K-VA-T/Food City is owned by its associates—which includes a healthy mix of those who started their careers with the company and those who joined from other companies.

Steve Smith, who has been on the national stage as chairman of the Food Marketing Institute in recent years, believes in hard work and having a passion for serving loyal Food City shoppers. It’s a formula that continues to make Food City a success.

Steve and Jack Smith

Steve Smith Nurtures Food City’s Rich Heritage Steve Smith, president and CEO of K-VA-T/Food City, has been a student of the grocery industry for the vast majority of his 59 years.

At the age of eight, he was a trained cashier. He would stand on a case of product and ring up his family’s groceries on Sundays when the store was closed. He worked part-time at the Grundy store until he graduated from high school in 1975 and enrolled in James Madison University, where he obtained a bachelor’s of business administration degree.

After a failed venture in the early 1980s with no-frill, discount stores in partnership with his dad, Jack Smith, Steve continued to work in the business and learn everything he could, not only from his dad but also Claude Varney, an “acquired” store manager who later became company president and a major mentor to Steve and many other key Food City executives. In 1992, Steve was named EVP of store operations, president of K-VA-T Food Stores in 1993 and CEO in 2001. His dad remained chairman of the company until his death in 2007.

Steve has continued his dad’s legacy of growing the company through new store construction and acquisitions, while keeping the stores fresh and staying on the cutting edge of technology. Food City was one of the first grocers in the nation to implement scanning technology, and more recently was the first in its marketing area to offer online ordering and curbside pickup service. A recent major acquisition for the company took place in 2015 when it purchased 29 Bi-Lo stores in the Chattanooga, Tennessee, area, including northwest Georgia; remodels are ongoing following that purchase. The company now operates 135 stores in its four-state market area.

When Shelby Report Editor-in-Chief Lorrie Griffith spoke to Smith on Nov. 1, he was about to depart for a grand reopening of the Food City store in Whitesburg, Kentucky, which was updated and expanded by 10,000 s.f., “and is going to look like a brand new store when we get there tonight,” Smith said.

Following are more excerpts from that conversation. with a sit-down café, produce department, floral department, located. It’s not just all about what size building it’s going to Describe the “bread-and-butter” Food City store of full-service seafood, full-service meat/service meat, complete be; but what attributes are relevant as well. with prime Certified Angus Beef, and expanded beer and today.

Do you operate fuel centers with most of your stores?

We currently build four different store formats; a smaller wine.

Yes, we do. We have fuel centers in about 90 percent of our We focus a lot on our beer and wine departments 38,000-s.f. store; a 44,000-s.f.; a 48,000-s.f.; and we also have a 62,000-s.f. store. We locate the 62,000-s.f. units in larger (Tennessee stores gained the ability to sell wine on July 1, legacy stores; legacy stores being the locations we operated communities and more metropolitan areas and the 38,000 2016). We’ve added Growler Stations in some of our stores prior to the Bi-Lo acquisition. We currently have several fuel in smaller county-seat towns. The 44,000 and 48,000 are our with the right demographics, whether it’s college towns or centers in the works for some of the locations we acquired from Bi-Lo as well. As you know, we’re a little over a year into bread-and-butter layouts, with 48,000 being the size we build younger communities.

Again, we really work hard to design what’s going to be the Bi-Lo purchase, having converted the stores fairly quickly more of.

Please see page 20 Those locations typically include a full-service bakery/deli in a store to best suit the community where it’s going to be

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2016 Southeast Retailer of the Year From page 19

last fall. The stores were owned by (investment firm) Lone Star, and a lot of them needed some work. We’ve just finished major remodels in six of the stores with four more that we’ll complete before the holidays.

We will spend $30-$35 million this year alone on major remodels in the greater Chattanooga market, and we’ve got somewhere between eight to 10 more, both minor and major remodels, to do next year. …Our store at the foot of Lookout Mountain has just undergone a $4 million remodel. It was an old Winn-Dixie, and we put a new front on it and gutted it. That’s a good example of where we added a Growler Station and a cut-and-wrap cheese department. That’s been very popular there.

We’ve announced two new stores in the greater Chattanooga market: one replacement store, in Rossville, Georgia, and a brand new location in Athens, Tennessee. They’re planned for 2017.

The Athens store is 52,000 s.f. which is not one of our prototypes.

We originally looked at going with 48,000 s.f., but the property is large enough to accommodate 52,000, so we expanded it. It’s a downtown location, in a really neat underserved part of town, about a third of the way toward Knoxville…where Mayfield Dairies is located.

That’s what we talk a lot about—our stores, the people in them and the products we sell. We want to invest in all three of those, from our training programs to our remodels to our fanaticism about fresh product. And having the right price on items.

—Steve Smith

Many of your executives and team members have been with the company for not just years, but decades. Why is that?

I think first and foremost, we’re a family company. My dad started our company with the principle of treating people the way you’d want your own family to be treated. That doesn’t mean we’re easy. We have high expectations of what we should deliver to our customers, but we’re fair and we give clear expectations and understand that there are no perfect-world scenarios. We embrace change; I think that’s important with any business, but I think it’s particularly important in the grocery industry.

While a lot of our people have grown up within the company, we also sprinkle in a good mix of talent from outside the company to keep ourselves fresh and energized. A large portion of that has come from the acquisitions that we’ve made over the years.

We’ve grown by three major acquisitions. There have been others, but three were really large acquisitions.

Food City (Quality Foods), which we acquired back in the mid-’80s; the White Stores in the early ’90s; and the most recent were the Bi-Los in 2015. Some of our members of leadership came from Food City, others from the White Stores and, obviously, we’ve retained a lot of great people from Bi-Lo, and I’m confident that many of them will be great leaders within our company going forward.

How have the former Bi-Lo team members come through the transition process?

While change is certainly never easy, they came through it great, and they’ve finally found a home. Previously, their company had different owners with different philosophies and business concepts—ranging from a really large company (Ahold) to a private equity company (Lone Star). Now they’re part of a family business that wants to invest in not only our stores, but our people and our products. That’s what we talk a lot about—our stores, the people in them and the products we sell. We want to invest in all three of those, from our training programs to our remodels to our fanaticism about fresh product. And having the right price on items.

We grew up competing with some very good price operators, from Food Lion to Walmart, and we know the demographics of our customers. They’re hard-working people and we have to be very price competitive, so we try to be sharp on prices, run good specials to keep people excited and interactive, and we use our loyalty marketing, I think robustly, to reward people that are loyal customers, whether it’s through our fuel points or discounts on your groceries—whatever method they choose to use their loyalty points.

Food City is known for supporting local farmers and producers. How did that come about?

It really started back in the late ’90s, early 2000s. Certainly, my dad was still active in the company then. But it really came about as a result of the downturn in tobacco farming. Where we operate in the valleys of Tennessee and Virginia is rich tobacco country, and for years, both were No. 1 tobacco markets. After the loss of their subsidies and the downturn in tobacco usage, a lot of the farmers found that it was no longer profitable to raise tobacco. So we saw an opportunity to partner with a number of talented local farmers. We said, “hey, we’d love for you to raise beans for us, or corn, strawberries or blueberries.” We’re very fortunate that we live in a fairly diverse geography because a lot of the valleys and plateaus lend themselves to different crops. We have farmers that grow cauliflower, broccoli, pumpkins, squash. Every pumpkin that we sold in our stores this year came from a local farmer. We leave trucks at these family farms, and when they gather their harvest, we come by and backhaul it to our warehouse and drop another trailer to pick up in a couple of days or whenever the product is ready.

So it’s really been a win-win for everyone. We’ve kept a lot of family farms in the family, and it’s been great for our company because we’re able to get fresh product that a lot of times is less than 24 hours old when it gets to our stores. There’s nothing like a fresh-picked strawberry.

We work hard at it. And we take a little more shrink and make less margin because we want to make sure we’re fair with our farmers; they’re our customers and our neighbors.

But that differentiates us. It allows us to do something that companies bigger than us have a harder time doing.

And companies that don’t have a central warehouse have a little harder time doing that.

It is a very price-competitive business, and logistics play a lot into how well you can procure and ship product. We try to do things the right way, but we also try to do things the profitable way. The devil’s in the details sometimes.

How do you discover what your customers need and want?

We use a lot of the Nielsen data that comes from our customers along with our own loyalty marketing data to determine the shopping patterns for our customers. But we also talk to

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our customers. As a matter of fact, it’s part of our incentive program for our store managers and our district managers. Once a year, at a minimum, we conduct in-store surveys with our customers. We talk to somewhere between 300 and 400 customers typically and ask what they like about our stores, what we can improve upon, if they shop at any of our competitors, what they like about them, what they do well, etc.

We also use mystery shoppers. They visit our stores every month and grade us on our friendliness, cleanliness, freshness and the presentation that our stores make to our customers. This information is compiled into an annual grade that determines part of their incentive plan.

Our stores know that at some point during the year we will come in and interview their customers, who are picked at random through the front end for a four- or five-minute interview. We want to know the stores that score really well and quite honestly, the stores where we have opportunities, and we’ll coach those stores on how they can improve. I learned a long time ago that if you don’t measure things, you can’t fix them.

Organic and natural…is also a fast and rapidly growing commodity and category in our stores, and we have really focused on that over the last five years to make sure we’re very competitive with not only our best supermarket competitors but have offerings comparable to Whole Foods and Earth Fare and other specialty supermarkets.

In conjunction, we’ve also changed a lot of how we go to market. For example, we’ve added an online shopping and curbside pickup option for our customers. Our GoCart program is available in 18 stores today. We typically pick larger metropolitan areas like Knoxville, Tri-Cities and Chattanooga. In an area like Knoxville, we have three or four participating stores scattered around the town. Customers can go online, shop and set a pickup time and for a small fee, and their personal shopper has their order waiting for pickup when they arrive. It’s been wildly successful.It’s been pretty fascinating to see what response we’ve had. The program has been active for a little over a year. Actually we started it right before we acquired the Bi-Lo stores, and once we converted the Bi-Los, we rolled the program out in Chattanooga and Cleveland as well.

Do you have a dedicated staff in the store that handles that?

We do. We have GoCart personal shoppers in those locations, and based on the orders they get in a given day, we schedule them accordingly. It varies by time of year. We’ve learned that during cold weather and holidays, the service is probably more popular. But you’d be surprised; we also get a lot of business and church orders—folks that pick up big orders. GoCart orders are about four to five times larger than our regular orders. We also see a lot of heavier, bulky items, bottled water, pet food in large sizes and things of that nature.

It’s had a favorable impact on the bottom line…We were actually the first in our market with the curbside pickup option, so we received a lot of positive attention for having the right technology. It was all done in-house, and I’m proud of our IT and our marketing teams for their hard work and innovation.

What else would you like to add?

One of the other things that differentiates our company is our employee stock ownership program. Back in the mid-’80s, we began sharing stock with our associates through a profit-sharing plan. Every year, beginning in 1984 to the present, based on the profits of our company, we’ve shared that profit with our associates, both full-time and part-time. It’s part of their retirement plan, and right now, about 13 percent of our company is owned by our associates. As our company does well and grows in store count, our contributions increase and our stock value grows.

So we’re extremely proud of that. It’s not just our family that benefits from our growth and our expertise, but also our associates. So they truly own a piece of the company. It’s not unusual to get invited to a retirement function and hear somebody get up and testify about what the company’s growth has meant to them and their ability to do X, Y and Z in their retirement.

You work too hard in this business not to have a little fun. Not all days are created equal, some days are better than others, but it’s our job to make the most of every single day that we have an opportunity to serve our loyal customers.

Sounds like you’ve gained a lot of wisdom over the years.

I’ve learned a lot in the school of hard knocks, too, I have to say. I’ve got the scars and the bruises to prove it. As my dad used to say, “I hate learning lessons more than one time.” He used to say; “I made that mistake; if you’d listened to me I could have kept you from making it!”

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2016 Southeast Retailer of the Year A Brief Company History...

Food City actually dates back to 1918, when the first store by that name was opened in Greeneville, Tennessee. But the official beginning of K-VA-T Food Stores—parent company of Food City—was in November 1955 when founder Jack C. Smith, along with his father, Curtis, cousin, Ernest, and uncle, Earl, opened their first store in Grundy, Virginia.

Jack had decided a supermarket was needed in town after he had gone to the local A&P to buy some things for his mother and had to stand in line at the checkout for 45 minutes. There were two checkouts in the store, but only one was open.

The partners’ first store was an 8,800-s.f. Piggly Wiggly store with 16 employees—including Jack, who recently had completed a 10-year stint in the Navy. He and his wife Judy had two daughters at the time, Stephanie and Sharon, so even though he knew next to nothing about running a supermarket, he was driven to succeed in order to feed his family.

Labor Day 1974: A grocery warehouse, Abingdon Wholesale, is purchased, along with six stores. John Mast sells the businesses to Jack; John’s sister, Margaret Mast, ran the wholesale operation, which was located in Abingdon, Virginia. The stores include four Piggly Wigglys in Virginia, one Piggly Wiggly in Tennessee, and one independent store in Norton, Virginia. The independent’s store name, which is not Piggly Wiggly, would put Jack at odds with the Piggly Wiggly organization—operators were not supposed to have stores with any other name—and that tension would last until ties are ultimately severed about 10 years later.

January 1975: Three Piggly Wiggly operators band together to supply their own stores, an idea Jack had come up with several years earlier but hadn’t gotten to work out before now. The Abingdon Wholesale warehouse and two others become the Piggly Wiggly Mid-Mountain operation, a co-op of which the Smiths own 49 percent.

1976: The company operates 15 stores after buying five stores from Charlie Glenn. The South Williamson store burns down in December.

1977: The three warehouses are consolidated into one, moving into a former mobile home factory on Hillman Highway in Abingdon (a structure that still stands today).

That April comes “The Great Flood,” which causes major damage to the Williamson and Grundy stores; a new store under construction in Williamson also is wiped out.

It was tough going for the first couple of years, as Jack tried to learn everything he could about running a store. Some area residents were not sure what to think about the Piggly Wiggly, which featured color-coded departments (blue for frozen, green for produce, beige for meat) instead of the traditional white store of the day, but a break came when a flood shut down the store’s competition for two weeks and people were forced to shop at the Piggly Wiggly. That jumpstarted the store’s profitability, as shoppers were pleased with what they found in the store, especially the competitive prices.

Jack and Judy’s son, Steven Curtis Smith—current company president and CEO—was born in April 1957.

Following are some more key events in Food City’s history: October 1963: Jack buys a second store, in South Williamson, Kentucky.

January 1965: The third store, which is built from the ground up, opens in Pikeville, Kentucky.

April 1968: The fourth store, in Prestonsburg, Kentucky, is added.

Early 1980s: Steve Smith has finished his bachelor’s degree in business administration and decides it’s time to work instead of pursue his MBA. Jack has been toying with the idea of opening no-frills, discount-priced “box stores,” that are popular at the time. Jack, Steve and Steve’s friend, John Cecil, partner in the venture, and Steve and John are mentored

by Claude Varney, who had joined the company when Jack bought the Williamson store, where Varney was the store manager. Steve spends a summer chauffeuring Varney around (Varney didn’t drive) and learns much about the grocery business.

Three stores open under the Sav-U Discount Foods name, in Bristol, Virginia (in a Piggly Wiggly the company had closed), and Greeneville and Morristown, Tennessee. The stores start off strong, but as the economy improves, sales taper off, and after a year and a half, the stores are closed down. The experience humbles Steve and John but doesn’t dampen their interest in the grocery business.

1984: Jack purchases Quality Foods in Greeneville, Tennessee, which operates 19 stores under the Food City name. K-VA-T Food Stores is formed and now operates 30 stores. Jack is chairman; Nelson Humphreys of Quality Foods

is president; and Claude Varney is EVP. Jack has put all his worldly goods on the line to buy Quality Foods, so success is a necessity. A major reason for the acquisition is to fend off Food Lion, which is making inroads into K-VA-T’s territory.

An employee stock ownership plan is implemented to share profits with team members.

1985: The Quality Foods acquisition is digested, and Jack decides he wants to use the Food City name on all his stores.

This prompts Piggly Wiggly to sue K-VA-T to try and keep it from changing the banners. The judge sides with K-VA-T, and this marks the end of the Piggly Wiggly era for K-VA-T. In addition to changing all the store signs, K-VA-T must remove the Piggly Wiggly logo from store equipment, which is a major undertaking. Sales increase because Food City has a more aggressive price structure than Piggly Wiggly.

1986: The company operates 33 stores.

1989: The decision is made to enter the Knoxville, Tennessee, market for the first time with the purchase of 37 White Stores. Seven stores have to be sold between the two companies to satisfy FTC requirements for the deal to go through. Six of them are White Stores; one is a Food City.

1998: The company enters new markets in southwest Virginia with the purchase of 11 Kennedy Piggly Wiggly stores. The purchase also marks the end of the co-op relationship in the Mid-Mountain warehouse. K-VA-T now owns Mid-Mountain and renames it the Food City Distribution Center.

1999: Food City buys six stores in the Knoxville area from Winn-Dixie, which is leaving the market. Three of the stores are replacement stores for existing Food Citys.

October 2005: In its 50th anniversary year, Food City operates 92 stores in Virginia, Kentucky and Tennessee.

2006: A 165,000-s.f. expansion of the freezer facility at the Food City Distribution Center is completed.

Eight Bi-Lo stores are purchased in Knoxville, Oak Ridge and Maryville, Tennessee, putting the company’s store total at 100.

March 2007: Jack Smith passes away at the age of 81 at his home in Abingdon. He had continued to serve as chairman of the company after passing the CEO torch to Steve in 2001.

2015: K-VA-T/Food City reaches an agreement with Southeastern Grocers (parent company of Winn-Dixie, Bi-Lo and Harveys) to purchase 29 Bi-Lo stores in the Chattanooga, Tennessee, area, including the company’s first Georgia locations (eight stores in northwest Georgia). These are added to Food City’s 105 existing stores.

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Brand in the Southeastern United States

All Natural Wild Alaskan Salmon Congratulations Food City 2016 Southeast Retailer of the Year

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2016 Southeast Retailer of the Year

Supporting Communities Food City’s role in the community is multifaceted. The company provides jobs for about 16,000 people, is involved in various philanthropic endeavors and sponsors multitudes of community-based organizations and activities.

Staffing well

According to Barbara Thomas, director of training at Food City, the company seeks to promote from within whenever possible, knowing that the possibility of career advancement helps with staff retention. But a healthy mix of outside hiring gives the workforce the important element of diversity as well.

Thomas, who graduated from Grundy High School, began working Barbara Thomas at the company’s first store, the Piggly Wiggly in Grundy, in 1974, prior to graduating from high school in 1975. She continued to work on weekends and during summers while working toward her education degree at East Tennessee State University. In 1979, Jack Smith asked her if she would be interested in starting a training department at his company. Thomas was pretty sure she wanted to teach, but told Smith she would try it for a year, and if she didn’t enjoy it, she’d go to the classroom. She stayed, and continues to lead the training department today.

While there are a number of staff members who, like Thomas, have been with Food City for decades, there also are young people who are excited to embark on a grocery career.

Thomas, who notes that company recruiting is handled by the human resources department headed by Donnie Meadows, talked about a young man who finished the manager training program at Food City about a year ago, and at 24 already had been with the company for 10 years.

“He said, ‘I started when I was 14, and this is what I want to do. I really want to do this, and I’ve known that for a while,’” Thomas said.

An 18-year-old young woman who works in one of the company’s stores contacted Thomas recently and asked for a meeting. She wanted to talk about what steps she needed to take to one day become a store manager.

“Those are the kinds of stories that just tickle you to death,” said Thomas, who said Food City has several top-notch female store managers.

Food City also is among a group of retail companies that is working with area community colleges to get a Retail

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Management Certificate program off the ground. A pilot program with Virginia Highlands Community College will start soon. Students enrolled in the certificate program learn skills specific to the retail world, preparing them to succeed and grow in their companies.

Food City also offers numerous scholarships each year. The scholarships are handled by the Tennessee Grocers Education Foundation, which chooses the recipients from Food City. But Food City applicants also are eligible for scholarships funded by manufacturers.

To encourage potential job applicants, there is a hiring station in each store, and each store also has an HR coordinator who can answer questions about job openings or the hiring process itself.

Giving back

Food City is a large contributor to the Second Harvest Food Bank in its marketing area, Thomas says. The food bank sends a truck to the Food City Distribution Center in Abingdon to pick up food for its warehouse in Johnson City.

“If there’s anything going on in any community where we operate pretty much, you can figure we’re right in the middle of it,” Thomas says. “Whether it’s companywide or the individual location.”

organizations and agencies throughout its market area. Food City’s School Bucks Program has donated more than $17.2 million in much-needed equipment to area schools. Its annual Charity Golf Outing has raised a combined total of more than $2.74 million since its inception to benefit area charitable organizations, and its annual Race Against Hunger campaign provides more than $390,000 in assistance to local hunger relief organizations each year.

The Mission Able project has raised in excess of $731,000 in the last six years to benefit Paralyzed Veterans of America.

The company supports scores of other initiatives as well, including United Way, Susan G. Komen, Relay for Life/The American Cancer Society, American Heart Association, Juvenile Diabetes, Feeding America and countless others.

The Food City name also is synonymous with NASCAR racing through the sponsorship of two of the sport’s most popular events, the Food City 500 and Food City 300 at Bristol Motor Speedway in Bristol, Tennessee. In 2017, Food City will celebrate the 25th anniversary of its race sponsorships, as well as the 30th anniversary of Food City Race Night. As the second-longest-running sponsor in NASCAR, the company has also contributed more than $550,000 in proceeds from its annual Food City Race Night events to local organizations throughout the area.

Fun is important, too

Store team members have planted trees and picked up garbage around area lakes. Stores have offered old cell phone disposal to customers, with the phones refurbished and given out to women in abuse shelters. Clothes have been collected to donate to Goodwill. Of course, food drives for area food banks and pantries are a regular occurrence, including an annual pet food drive.

The company also supports a number of community-based

Food City stores host associate appreciation events at each location, and individual stores hold Kids Day festivals that they design themselves. Thomas said the Food City near her house started its festivities with a bouncy house, water slides, popcorn and cotton candy.

“I couldn’t believe how many people were in attendance,” Thomas says.

Some stores partner with other businesses and “just throw one big Kids Day party that becomes a whole community event. It turns out great,” she says.

Food City’s Family Race Night closes down about 10 blocks in downtown Bristol, Virginia/Tennessee, every August. The admission fee is donated to a local charity, Thomas says.

“It’s grown so much now that we have around 40,000 to 50,000 people that attend,” she adds.

Lisa Johnson from Food City’s marketing department is a coordinator of the event, and she depends on the many volunteers from the Food City ranks.

“Our people all volunteer and work it,” Thomas says. “They do everything from giving out free hot dogs and ice cream or controlling the line to get autographs from your favorite NASCAR driver to handing out plastic bags and selling tickets.

They do anything and everything.

But it’s jam-packed. We have vendor after vendor after vendor all the way down the street. There are race car drivers who bring their cars to the event and sign autographs. There also are race car simulators.

There is a kids’ section and live entertainment on both ends of the street.

The event first began at a store in Bristol, where Richard Petty would come and sign autographs, back when NASCAR wasn’t the ultra-popular sport it is now.

“We kept growing and growing and moving into different places.

In August we always have it down State Street.”

Food City also holds its Race Night event each April, prior to the Food City 500 at Bristol Motor Speedway. Food City, in fact, is the second-longest sponsor of NASCAR, next to Coca-Cola.

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2016 Southeast Retailer of the Year Departing Longtime COO Breaks Down Chain’s Recipe for Success Jesse Lewis, 77, spent 22 years with K-VA-T/Food City as EVP and COO. Semi-retired at 55 after helping turn around a supermarket chain in Missouri and getting those stores sold, Jack Smith approached Lewis about coming to work for him, and apparently he was pretty persuasive. Lewis and his wife Joyce moved back east—to eastern Tennessee, specifically—for Lewis Jesse Lewis to help run operations at K-VA-T. Today, those roles are being filled by former Safeway executive Greg Sparks, but Lewis will remain at Food City through the end of the year while getting his next career—consulting—off the ground.

It’s not going to be easy for him to leave K-VA-T, he says.

“I never intended to play that role (COO) again, and 22 years later, it’s eating me up to give it up. But I initiated this change,” he says. “I just felt like it was something this company had to do. I’ll be quite honest with you, I didn’t realize that making the change would have the effect on me that it’s having, but giving up my day-to-day involvement with my buddies is a real challenge.”

His new consulting role will take a couple of days a week, allowing him to spend time with his wife of 57 years, Joyce.

Perhaps they’ll find a second home somewhere in between their son’s home in Alabama and their daughter’s home in Georgia, so they can see their grandchildren more often.

They now reside in Piney Flats, Tennessee, on Boone Lake, about 35 minutes from Abingdon headquarters.

“I fully realize that I could never have done what I have without the support of Joyce and her being willing to move when I needed to move,” he noted.

But Lewis is not one of those people that plans to ever be not working at something.

“I cannot imagine getting up in the morning and not having a purpose,” he says. “I can’t imagine a day of not being involved in the food industry. It’s literally been my life.”

He started his career in a Kroger store in Birmingham, Alabama, in January 1958.

“I was going to work in that grocery store until I found something better, as I tried to go to school. Sixty years later, I’m still looking for something better,” he jokes. “But I was very fortunate to work for Kroger and get the training I received

there.”

He became a store manager for Kroger and then served as store manager for another company before becoming a district manager.

“Some of my best success was at Red Food Stores in Chattanooga, Tennessee, where I filled the COO role. We had wonderful people there, and the company was very ­successful.”

He left Red Foods in December 1989 and became part owner of Consumers Markets, a chain of 36 stores based in Springfield, Missouri.

He and the other owners were able to turn the stores around and then sold them to The Fleming Co. He and Joyce then moved to Alabama—her home state and where Jesse’s career had started. There, he served on the board of Mobile-based Delchamps.

“At that point, I was going to cut back and not work as hard.

Jack Smith, the founder of K-VA-T, and I started talking and I ended up here. It will be 22 years (in November). It’s been a very interesting and rewarding time because of the people.

There is just a tremendous group of people here, as it was at Red Food Stores.”

As it happens, Lewis’ history with Red Food Stores wasn’t quite over.

Food City’s 2015 purchase of 29 Bi-Lo stores in the Chattanooga area included many former Red Food Stores locations, a number of them that Lewis opened himself.

“We’ve just been there for a little over a year, but going back to Chattanooga was a tremendous experience for me,” he says.

“It was extremely rewarding, and it was shocking to me the number of people still there who were there when I left in 1989. It’s kind of like a homecoming.”

He went into one of the stores and saw a head cashier who had been with Red Food when he left, and they were able to recognize each other in spite of the years that had passed.

“To see people like that was a tremendous experience,” he adds. “One of the toughest parts for me in stepping back is not being a part of the ongoing Chattanooga conversion process. I have a lot of old friends there inside and outside the company.”

But he is confident in the company’s success in that new market.

“I think Food City has a great opportunity and a great future in Chattanooga; I like to say ‘southwest Tennessee/northwest Georgia.’ Like any other market, it’s not going to be easy, but there is a great plan in place and we’re on the right track. Just gotta keep moving down that track.”

Stafford’s Career Has Grown from the Ground Up at Food City Food City’s VP of marketing, Kevin Stafford, started out bagging groceries at a Food City store when he was 16. He moved up quickly, becoming a frontend manager at 18.

He became a front-end supervisor by 20, overseeing one district. After a few years, he ran the company help desk, supporting all the company’s stores, then went to the IT side Kevin Stafford of the business.

But that wasn’t the end of his journey up the ladder.

“One day, Steve came to my office, I’ll never forget it. It was late in the afternoon and he said, I need you to come to my office. So I went to his office and he had my boss at the time there, and he sat me down and said, ‘Kevin, I think it’s time for you to move on and do something else. You’ve outgrown what you’re doing now, and I’d like for you to be our director of front-end operations for the company. Is that something you’d like to do?’”

“I did.”

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Stafford, who is 35, took that job eight or nine years ago, so “at that time, I was young…and he took a chance,” he says.

When the role of VP of marketing came available earlier this year, he decided to throw his hat in the ring, knowing other candidates were being interviewed as well.

“It was kind of humbling for me that Steve and Jesse took a chance on an internal guy who grew up in the company,” Stafford says, noting that he earned both his BBA and his MBA while working at Food City.

Having mentors like Smith and Lewis have led Stafford to want to do the same for others.

“It’s your greatest reward when you see people get the opportunity to advance and do other things,” he says. “I was the boy that experienced the other side of it for so long, and it’s really interesting over the past four or five years to see the people who worked for me get to go on and do other things. It’s very rewarding.

“For me, probably more rewarding than the fact that I received the promotion (to VP of marketing) is the fact that the person who took my position was somebody who worked for me. That made me just as happy as I was for myself. It’s good to see them get those opportunities.”

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The keys to Food City’s success

Asked why Food City has been able to grow and be successful over the course of six decades, Lewis listed some of them, drawn from his responsibilities for managing the merchandising, marketing and operation of Food City stores.

“First and foremost, it’s a people-oriented company,” he says. “Jack Smith told me one time, ‘You know, when I had four stores I was really making all the money my family and I would ever need. But I had some people that could manage a store and they needed a store. So we kept getting more stores.’

The people orientation is a key part of it.”

“Another part that I think has been absolutely key here is the willingness to reinvest in the business. Jack Smith reinvested every dime of profit this company ever made during his time…and provided opportunity for other people,” Lewis said.

That reinvestment appears in the store base itself.

“This company has done one of the best jobs of maintaining their stores and relocating their stores and improving stores,” he continues. “At the same time, through acquisition, it was able to grow the company.

“And staying focused on the basics of the business and serving the needs of the customer, I really think we did a good job. I think Jack Smith built this into the foundation—we know who our customer is, and we know how to serve that customer.”

He said Jack Smith’s tendency to be an early adopter of technology also played a role, and continues today.

“He made those investments, and today, this company is in the best position of any company I know of with information and data to help manage the business. I’ve told our people many times, the only limitation we have is our imagination and our ability to use that data that provides us information to better manage our business,” Lewis said.

“And Jack had the vision to have his own distribution center.

We actually, shall we say, merged our merchandising function and our distribution function to make our stores better. We do things in our distribution center specifically to make our stores better stores. We probably do some things that the efficiency experts would laugh at, but at the end of the day, it accomplishes the objective that we’re looking for—and that’s the very best service possible to our stores in the most costeffective manner to put our stores in the position to serve the needs of the customers in the best possible manner.

“Jack Smith’s vision, the willingness to reinvest and being a people-oriented company that’s focused on their customers, I guess in a nutshell that’s what I see that has put this company in the position to be where it is and do what it does today,” Lewis says. “And Steve Smith’s willingness to carry that forward. Steve is a very hardworking individual, he’s a good merchant and we have some really good people in this organization.”

Continuing on the topic of the importance of people, Lewis said, “I’ve always thought a company is not so much about the brick and mortar as it is about the people. The right people in the right slots make good things happen. There are special people here that are very committed to this company, committed to what they do.

“And there is a lot of longevity in K-VA-T,” he continued.

Some started their careers with the company and have moved up the ladder into executive positions; others came onboard through acquisitions or outside hiring.

“While there is a lot of longevity here, there’s also a lot of diverse background here. Salt-of-the-earth type people in this organization,” he says, noting there are team members from chains like Safeway, Ahold and Food Lion in addition to acquired companies.

“Jack Smith was truly one of my heroes,” Lewis continues.

“He was a wise man with great vision. He built a tremendous foundation for this company, and his son Steve has done a good job of carrying it forward and building on that foundation. I see no reason that shouldn’t continue—we just have to stay focused on the right things.

“This has been a wonderful experience for me,” he says of Food City. “This company will always be a part of my life. The people here are my family.”

11/10/16 1:20 PM

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Cheers Coca-Cola congratulates Food City on being selected Southeast Retailer of the Year

We are honored to have you on our team!

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2016 Southeast Retailer of the Year Johnson City Store Represents Company’s Latest Concept Food City opened a new store in Johnson City, Tennessee, in October 2015 that “features every amenity that we offer right now,” according to Rick Bishop, district manager over 15 stores.

Fresh foods are abundant.

“We have an in-store smoker for pork and ribs; an in-store brick-oven pizzeria; and our Fresh Bar, which is a taco bar that also has wings, soups and a traditional salad bar and an olive bar—all in one.”

Hot food choices are changed out daily. The menu boards in the store are actually TV monitors that are easy to update with the day’s choices.

The store features a wide variety of salads (above) as well as a brick oven for pizza and a barbecue pit for smoking meats (right).

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Country Sausage, Rolls, Patties, Sausage & Biscuits, and More.

www.itsgooo-od.com F.B. “OLD FOLKS” PURNELL SAUSAGE CO., INC

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SIMPSONVILLE, KY 40067

Sushi is freshly made in the store each day by a chef. The sushi has only a 24-hour shelf life, so the product is constantly turned over.

“We do a lot of business out of this case,” Bishop says. “It’s something fairly new for the company, store-made sushi, and we’re still trying to get our bearings on it, but we’ve come a long way. We have it in a limited number of stores right now, but it’s something we hope to grow as we go along.”

The store also features a stand-alone cheese shop, called The Cheese Board, with about 600 cheese varieties available for purchase. The cheeses can be cut to the customer’s specifications.

The Johnson City store also features a Brew House with a Growler Station where customers can have their growlers filled with the fresh craft beer of their choice.

Growler Station customers can buy a bottle or growler at the store to fill, which is one price, or bring in a bottle or growler from home and pay just the fill price for a 32-oz. or 64-oz. container.

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2016 Southeast Retailer of the Year The store’s wine aisle, called The Vinery (left); The Growler Station ordering pad (center); and The Growler Station counter in the Johnson City store.

As Food City likes to offer local product whenever possible, most of the beers offered come from no farther than an hour and a half away from the store. Yee Haw Beer, for instance, is located in downtown Johnson City; Studio Brew is from Bristol, Virginia, just up the road from the store.

In the beer case, there are 1,000 SKUs, Bishop said. Nearly 70 percent are imports, a major departure from the days when domestic products filled about 75 percent of the case.

The No. 1 SKU in the Brew House cooler is the “Pick 6.” The customer can fill a bottle carrier with six different craft beers to determine which one they want to buy larger quantities of.

Wine sales became legal in Tennessee grocery stores July 1 this year, and sales levels in the store’s “Vinery” reflected customers’ appreciation to be able, finally, to buy wine in grocery stores, according to Bishop.

“Today is the 26th; we’ve only been selling it for almost four weeks. It’s going good. Some of the distributors are still trying to catch up a little bit, but we’re probably 85 percent, 90 percent stocked,” he said.

Johnson City customers also can find marinated, seasoned items in oven-ready pans in the meat case, along with prime beef, kabobs, natural poultry items, regular chicken items and much more.

This summer, the store featured Virginia Burgers and Tennessee Burgers in the meat case to build excitement for the “Battle at Bristol” on Sept.

10. The infield at Bristol Motor Speedway was turned into a football field to host the game which pitted the Tennessee Volunteers against the Virginia Tech Hokies in front of a crowd of nearly 157,000 people.

Don Smith, VP of store planning and development, designed the store. Smith has a keen eye for design, according to Jesse Lewis, former EVP and COO.

Please see page 30

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2016 Southeast Retailer of the Year

Whole chickens fresh from the in-store barbecue pit

The grab-and-go food case

Local produce is featured.

The full-service seafood department

Food City offers click-and-collect grocery service at the Johnson City store. Customers order online and then pick up their groceries curbside.

From page 29

In addition to his new-store design skills, Smith also knows how to remodel stores in a way that the older part and the remodeled part perfectly mesh.

“He’s the best at remodeling a store I’ve ever known,” Lewis says. “We just kicked off a new remodel and expansion in Whitesburg, Kentucky. To me, the real sign of a really good remodeling is you’re not able to see where the old part stopped and the new part started. Don Smith is the best at that I’ve ever seen. When you go in the store, you don’t see any signs that indicate that this was the old part and this is the new part.”

Smith joined Food City with the Quality Foods acquisition more than 30 years ago. He is a former stock clerk, store manager, district manager and merchandiser, so he is well acquainted with what works at store level. And he’s been in the business for nearly 50 years.

“I think that’s one of the things that’s made K-VA-T successful—having people with diverse backgrounds,” Lewis says.

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2016 Southeast Retailer of the Year Facilities Facilitate Food City’s Mission Jack Smith knew intuitively that having a distribution center to service the company’s stores was the right move, and he worked until that objective was achieved, first as part of a co-op warehouse with other Piggly Wiggly operators before eventually having a dedicated distribution center serving only company stores.

The distribution center continues to be a vital part of Food City’s business, under the leadership of Buddy Honaker, director of distribution, and his dedicated team of associates.

Honaker started his career as a truck driver for the wholesaler that serviced Jack Smith’s Piggly Wiggly in Grundy, Virginia.

“We go back to unloading trucks together, checking loads in,” Honaker says. “And they acquired us (Abingdon Grocery) eight years later. That’s when I went to work for Mr. Smith.”

Speaking of deliveries, Food City has more than 100 deliveries to its stores on the road every day, and its drivers have some of the lowest turnover levels in the entire company, according to Jesse Lewis, former EVP and COO. Lewis says the truck drivers develop good, strong relationships with the stores they service.

“Our truck drivers’ and our store managers’ relationships are something I take a lot of pride in,” Lewis says. “They’re buddies. That’s when you say things are humming right, running the way they should.

It’s important that when a truck backs up to the door of a store that they are unloaded and on their way quickly. That’s a part of our success, and that doesn’t happen without having the right people in the right positions.”

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The distribution complex

Buddy Honaker

Food City’s distribution complex covers 45 acres, with 1.2 million s.f. of space under roof, according to Honaker. The complex still includes the original dry warehouse that has been expanded many times over the years to accommodate the company’s growth.

The company has 98 tractors and 450 trailers, both refrigerated and dry.

“We’re running about 223,000 miles a week, burning 33,000 gallons of fuel weekly,” Honaker says. “We average about 830 runs out a week, all commodities.”

Perishables go out every other day, as does produce, Please see page 32

Food City’s Volvo tractors are made in Pulaski County, Virginia; the trailers are procured in Virginia as well.

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From page 31

meaning a refrigerated truck is going out to stores every day.

That helps get perishables or produce out to the store on time even if Food City receives a late shipment.

“If we have a late truck, we can catch another perishable or produce truck and still get it to the stores,” Honaker says.

“That’s a big plus for our stores.”

In all, he says the distribution center is handling about 3.4 million cases a week, inbound and outbound.

The perishables warehouse is where dairy, milk, bakery and deli items are handled, including locally produced items like eggs. Honaker noted that milk, dairy and seasonal items like eggnog are sent to the stores in less-than-case quantities to meet stores’ needs and cut down on expiration issues.

The produce warehouse contains many items from local farmers in Virginia and Tennessee, Honaker says, and as this category continues to grow in importance and popularity,

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the company is looking to expand it soon. Food City produce managers also have the opportunity to meet some of the area farmers and tour their farms so they can be more familiar with local products. The freezer facility has room for the addition of more than 200,000 s.f., as needed, Honaker says.

In addition to meat, dry and specialty/HBC warehouses, Food City also owns its own bottled water and ice production facility, Misty Mountain Spring Water. Food City produces bottled water and ice for sale in its own stores, as well as at a number of other retail locations. It also offer customized label services for businesses and private citizens.

The company operates its own in-house-developed reclaim program.

The stores enter their reclaim items into the system to obtain proper credit and package them in banana boxes for shipment to the distribution center.

“They send it back to us, we verify everything, process it through Carolina Logistic Services, they sell it and give us

instant credit,” says Honaker.

The warehouse also recycles all of the cardboard and plastics that come back from the stores.

The giant Food City shopping cart—known as The Big Cart—which is displayed at numerous events and parades, was designed and constructed by a team of distribution center associates. The 13 smokers that are in use throughout Food City’s market area also were built at the distribution center.

“They’re mobile, so they go from store to store,” Honaker says.

Shoppers have responded very favorably to purchasing those smoked meats, he adds.

Other duties handled by the distribution center team include maintenance on the tractors and trailers, pest control, hazmat control, logistics, mail delivery to and from headquarters, print shop and third-party backhauling for items such as company uniforms.

Barbara Thomas, director of training for Food City, said, “We found a uniform company in Knoxville, and Buddy backhauls from them once a week.

We distribute the uniforms to the stores, so we have no shipping costs whatsoever.

“We are all one company, whether we’re in retail or distribution; we all work for what is going to be best for our consumers,” Thomas says.

Last year, the inventory accuracy rate at the warehouse was 99.8 percent, as determined by an independent auditing firm, and Honaker gives the credit to his team.

“I’m proud of our associates and the great job they do,” he says. “I guess that’s the reason I’m here year after year.”

The warehouse also scored 100 on the most recent food safety audit. State inspectors have even used the distribution center as an example for new inspectors.

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