Three opportunities for Bi-Lo

Date : 26 January 2015

With Bi-Lo Holdings announcing the appointment of Ian McLeod as its new President & CEO, we take a look at what this could mean for the retailer’s future development.

Engineered and led significant retail turnaround

Ian McLeod joins Bi-Lo from Coles in Australia, the country’s second largest grocery chain. He handed over the reins at the retail chain last year, stepping down from his role as Managing Director to take up the position of Group Commercial Director at the retailer’s parent, Wesfarmers Group. During his six year tenure he led the business on one of the most impressive turnarounds of any grocery retailer over the past six years.

From decline to out-performance

When he arrived at Coles the business was in serious decline. McLeod set out a clear strategy that focused on renewing the store network, simplifying the supply chain, building private label capability, improving staff morale, bringing in international expertise and delivering great prices for shoppers. Coles consistently outperformed main rival Woolworths during his leadership of the retailer.

Emerging from bankruptcy

This expertise and focus on developing a turnaround strategy will be critical for the company. In 2012, Bi-Lo’s acquisition of Winn-Dixie brought together two retailers which had each faced financial difficulties. In 2005 Winn-Dixie filed for bankruptcy, emerging from this a year later, while in 2009, Bi-Lo filed for bankruptcy protection. While bringing together these two retailers was a logical move from a geographic perspective, creating a leading retailer in the south east, sales growth remained moderate. Beyond delivering stronger organic growth, there will be scope to improve business performance across a number of areas.

1 Opportunity 1 – cost savings
At the end of 2013, the retailer’s parent, Southeastern Grocers, revealed it had achieved over $180m of annual run rate cost savings from operational improvements and synergies to date as a result of bringing Bi-Lo and Winn-Dixie together. The more recent acquisition of 155 stores from Delhaize will provide the basis for further cost saving opportunities. Beyond his experience with Coles, McLeod has also spent almost 20 years with Walmart, a retailer which has fine-tuned the Every Day Low Cost (EDLC) operating model. This will be another opportunity to dust-off this playbook.

2 Opportunity 2 – store remodels
Bi-Lo is a single format retailer. The majority of its stores are supermarkets in the 40,000 sq ft to 50,000 sq ft range, and are not unlike those operated by many of its competitors. Although it has remodeled around half of its stores over the last five years, helping to improve traffic levels, over the same period the competitive bar has also been raised. Retailers such as Whole Foods Market, The Fresh Market and Sprouts Farmers Market have developed exceptional store formats which have raised customer expectations. Although capital spending decisions will have to be based ultimately on the anticipated rate of return, the retailer may have to push the design envelope further if it is to create a differentiated identify in what are saturated local grocery retail markets.

3 Opportunity 3 – grocery ecommerce
Grocery ecommerce remains in its infancy in the US. However over the last 12 months, there have been a number of signals from the market to suggest it is set to take off in a much bigger way. Existing ecommerce operators have been extending their geographic reach, those without the right capabilities have gone out and made acquisitions in order to accelerate their progress, while others have partnered with technology companies, leveraging their expertise in order to get a foothold in the channel. With a significant store estate, a store pick-up based ecommerce model could help the retailer build a key point of difference and a leadership position in this channel the south east.
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