Professor Michelle Roehm Comments on Lowes Foods Stores Departure from Charlotte

6.6.2012 Article, Faculty News, Retail

Analysts: Lowes Charlotte pullout prudent move
Reposted from Winston-Salem Journal | by Richard Craver

The decision by Lowes Foods Stores Inc. to pull out of the Charlotte market may be a prudent move given the level of existing and new competition there, according to analysts.

Lowes said Friday it is selling 10 stores in the Charlotte area to rival Harris Teeter Supermarkets Inc. in exchange for six Harris Teeter stores in western North Carolina, including some near Lowes' Hickory distribution center.

The supermarket chains said Harris Teeter will pay Lowes $26.5 million as part of the deal, which is expected to close by July 1. Neither chain has commented on the cash part of the agreement.

Kimberly George, a spokeswoman for Lowes' parent company, Alex Lee Inc., said Lowes decided it wanted to focus on core markets in the Triad, the Triangle and Hickory.

Analysts said the deal is an acknowledgement by Lowes that it couldn't gain a significant foothold in Charlotte, where it was in competition with Harris Teeter, Walmart and Food Lion. Another formidable competitor, Publix Super Markets Inc. is on its way.

After the deal, Lowes will have two stores in Gastonia and one each in Harrisburg and Mooresville. There are no plans to open any more stores in the Charlotte area, George said.

"It's difficult to make money in a market with such limited share as Lowes had," said Tony Plath, a finance professor at UNC Charlotte.

"For Lowes, it's really difficult to go head-to-head against Harris Teeter in the high-end of the market because it is quite entrenched here and they have the best store locations."

Michelle Roehm, a professor of marketing at the Schools of Business at Wake Forest University, said major metro markets, such as Charlotte, "can be more expensive in terms of gaining a sizable share of voice."

"Being heard above the fray is going to require a bigger budget commitment. The same number of media dollars may go farther in a smaller market, especially if it is less crowded."

Harris Teeter's motivation for the deal is clearer, analysts said.

Once the swap is done, the chain will have more than 40 stores in its home market. Thomas Dickson, chairman and chief executive of Harris Teeter, said in a statement Friday that the deal aligns with the company's strategic plan "to replace rural store locations with more urban locations with higher density of our target demographic groups."

Plath doesn't believe the planned entrance of Publix into the Charlotte area was a major part of Lowes decision. Publix has 1,100 stores, though none in North Carolina. It is opening two stores in South Carolina near Charlotte this fall.

By comparison, Harris Teeter has more than 200 stores and Lowes has about 100.

"Publix competes in the Food Lion, Walmart, Bi-Lo segment of the market that's focused on higher-volume, lower-margin sales," Plath said.

It will be a challenge for Publix to gain market share against Food Lion and Walmart, Plath said.

"Publix can likely gain share against some of the weaker middle-market players in the market, like Bi-Lo, by offering prices similar to Food Lion and product and service similar to Harris Teeter," Plath said.