North Carolina People; Ralph Ketner, Chairman of the Board, Emeritus Food Lion, Inc.

Good evening ladies and gentlemen. If you've ever shopped at food town a food line and our guest has had an impact on economic your family but his name is Raphe kept the profile. All it would say North Carolina people is brought to you by Wilco via banking investments and financial services for individuals businesses and corporations. We're here let's get started it picked up this little book recently five fast in it by raft and it's a story of his life. When I ask you some questions about this my friend but first how many stores are there now in this enterprise.

Bill I'm not exactly certain I think there's around ten hundred seventy five they open almost weekly. But somewhere between ten fifty and eleven hundred that's a lot of movement. It is we are at the Food Lion is the seventh largest publicly owned supermarket chain in the United States and five fast pennies. How did this come about where that name comes from the first 10 years we were in business are referred to us as being a me too. We were trying to be equal to A and B when takes a colonial not better not worse but same prices and so forth. And quite frankly we were starving to death at the end of 10 years we had open 16 stores close nine because we're losing so much money and so we had seven left. I read an article that says somebody knows the price of every item in your store. And so using that as a background. It took six months and voices went to a

motel and Charlotte spent three days and nights reducing the price of every item carried in the workhouse 3000 items. We reduced prices so drastically it took a 50 percent increase in sales to breakeven. I came back and presented it to my board. They bought the idea. This was in November 67 and we started in January 68 30 years ago and we had an 80 percent increase in sales. We went from 5 million and 9 to 15 to 22 to 33. Today they do an over 200 million dollars and we 40 times what we did per year when we came up that year Question Five face pennies. We cut prices so dress strictly in my answer was I would rather make. Penny profit five times than to make us live next. So that's Answer thing well you represent the great depression or tradition in the United States if anybody in North Carolina

does and you're that way because of things that happened earlier on in your life you and your dad you had an interesting relationship that you recount in this book and yes my dad was in 1923 as a former about 16 miles from Solsbury and he owns a society slaughtered animals and would take them into the butcher shop and Salzburg and one day realize the difference between what he was getting and what they were getting in figured he was on the wrong side of the equation. So he sold his farm move the family that five children at that time and the mother and dad they moved to salt grain opened a little butcher shop that size of this facility and his feeling was and his catchword only Zad was live and let live prices which is basically he said the same way as five face pennies on the reverse side he used as ever charged account on the bank he said. You need your money and I need mine. If we both get ours that would be fine but if you get yours

and keep mine too. What in the h him are going to do. So his philosophy was volume and low price. He was quoted one time to saying that if you charge a nickel more for an item than you should you had stolen the nickel from the customer and are great when growing up in a depression as you did and I did. There's a different cast to the way you think in the way you look at money after you get older and get to our present level of AIDS. Was that your experience of living through those times. It was because as you said it was during the Depression. My mother died when I was 5 years old in 1925. My dad when I was 11 in 1932 so I grew up selling newspapers all my next given hat circulars. I used to work for an ice cream parlors a curb boy. And no one knows. You probably know what a curb boy is but back then they walked the streets and used to speak to a lot of colleges and they know that. Raf that has a few dollars that

and so forth and they assumed I inherited. It's always tell him I said I sold ice cream for nickel an hour for so long I'll never forget the flavors. We have another child destroyed we're packing up warm and journalism an orange pineapple over gyse butterscotch better blend in with special bendy special maple nut. You think got into work there long time you licked it so it does make you have a feeling at least it does to me and that's what we started with the company 3 years and about 5 years later we started the company. The three of us were brother Brian and Wilson Smith made a decision that 20 percent of all pretax earnings would go to the employees and profit sharing. And so we didn't want the time to come that 20 years or 30 years assuming we were successful that we had to have somebody retire and then we wondered Will he be able to eat regular. So our profit sharing plan has made all of the employees with 20 year service wealthy I would say

a lot about that time though. People our age bracket World War 2 came along. How do you get along with the United States Army. I volunteered and we were supposed to be overseas within a short time in the break a long story short I went to council Blanco and then transferred Casablanca to the fiscal Department as an auditor and sometimes I'd complain as an enlisted man and the colonel said what you're so scared of what your serial number 14 didn't stop one means you volunteered. Don't tell me your problem but I was lucky not to be court martialled never did anything bad but I just say I never did. I just couldn't get along with officers too well although I did a great job in my position and Colonel love me and love the work I was doing. But I generally just stayed old aboard a liner. Well it not an uncommon experience in lots of

ways. Well what what happened to you when the war ended. Where where do you return to Where did what when you come back to solve to the. I was discharged at Fort Bragg in 1985 I went to work for an older brother for about 8 months at the end the one who owned the stores and later sold and I was dating at the time in Glynn County had a rule that he didn't want you to work over 24 hours a day. But up until then you belong to him and it interfered with dating site I resigned and took a job with some promoter minds as auditor with them and within a period of three years I was an internal revenue agent and state revenue agent. I had 10 jobs. I never got fired but I found none things I didn't like to do and it turned out and I notice and reading about it is here that you made suggestions when you were in the accounting division of cannon mills that expedited purchasers large parts there's all these big things begin to happen and

those younger years they they were obviously the bedrock of what you later did with food was with Kevin Bales and later with mine or with any company I worked for the idea was is there a better way of doing it. And generally there is a better way. I know I can build an item A to item I would pick up that they were doing wrong. Failing to take discount had failed to take discounts for years and get it paid on time just carelessness overlooked and some promoter Lionhead a system that if they delivered freight paid for case 100 deliveries they would debit case for $500 say $5 each in credit revenue but if each of those persons paid by check they can be considered the charged transaction. 1000 entries to get the 500 delivery zone is a receivable in their collection. When they only needed one entry. So to me and that's what I tried to do later with the food town and food line because you can't sell for less

unless you do one of two things or both of two things buy for less or and that's hard to do or operate from this being more efficient. I look for things and hear read through here to see what what happenings in your life may have turned for you and I didn't believe it. Zwei back at the old baby toes could cause you to immobilize all processing what happened there. Well the background of that is that once it's used. Not well I still don't. People asked me Do you try to take the Wall Street Journal. I don't. Do you take U.S. business news in the world. No. Do you take it so and so I know. Well how do you know what's going on in the world. I said to sales or worse in good shape sales are down to worse in bad shape. I'm that narrow minded when I rent food lion. Well one Sunday I'm reading. We weren't open on Sunday at that time in November 1967. An article in the trade publication progressive grocery and this fellow Roberts Reagan in Dayton Ohio

it was telling how he had revolutionize his business because of the fact that even missed one customer that Westend in their regular use our church. He said You know I've missed you too nice couple weeks she's so and I could trade with you because your prices are too high. Well he knew his prices were probably identical to everybody else. He said for example she said don't swap bad said you two cents higher on that and you probably don't sell through a week. So for six cents a week he lost a customer. So he determined that he would cut prices drastically own everything. And so when I read the article I determined to fly the date know how and visit with him. And I spent about three or four hours in the most kind and now I'm a lot and came back determined that I could do better than what he was doing that he could because I had nowhere else he was at the mercy of a wholesaler. And so that is a beginning of failing P.I. and see and really the beginning of what became food line.

I want to ask you how in the beginning you made decisions like these for example and you go in there and you go down the cereal and you see certain companies Nabisco and so on. How do you choose who gets your counter space or is it a choice you have to make or did you have to make or do you go out to get a mole and you basically got to get them all because you need to for the customers benefit. But now I think that these fact I know that these preferred spaces are sold to the supplier and not but back and 30 years ago that was not true. Basically you everybody had the same price. And what I did when I cut the prices I had reduced prices drastically on 16 categories they very important categories cereal if we sold 10 million dollars worth a year we made not one penny. We sold at all the core load coaster list baby food I had a friend call one day said

the elder granddaughter. Could he buy baby food. Sale I said be delighted to sell it to you. He said something wrong. Raf said you don't sound right. As for will I sell it 15 percent below cost. Retail facility home sale entitled 10 percent market so that it cost you 25 percent more to buy it own sale than retail. So when I cut the prices swap back though you've got to price it while back who three packages a week you can't make an impression. So I cut dog food baby food surreal Rice detergent those 16 categories are the most popular items and thank the Lord our sales went up 80 percent had to go up 50 percent to increase it to break even. So a lot of people would say well no maybe i cut prices too much. I'm guessing Hobson If the Lord let me have an 80 percent increase. He means for me to cut prices more so each year as our sales went up. I just kept cutting prices and it worked I'm not smart.

So I mean I'm a firm believer that I don't think so in the beginning when you were rapidly expanding as this book indicates you were did. Did you build the stores or did you lease them. Well how do you go about getting a space in which to release them. And at that time we didn't have the capital and really I don't think you ever have that much capital that you want to tap in real estate because at the end of 20 years you've outgrown the store obsolescence and so forth so we always rented our property with one exception and we couldn't get it so we bought it but died. The developers once you had we had the low price concept they have until then no one wanted Foodtown her name then. But once we had this lowest price we became a very important ichor to a shopping center strip center or what have you. So I have to add that the developers were looking for us begging us to put store so it was not a problem finding locations.

I've noticed as you drive around seeing new areas that that's for saying it's safer to put a sign up that who's coming in your in your name so we do know that you reason make sure that competitor doesn't get careless and not know would we go in there to book one close by and both make a mistake. Warehousing. You must buy commodities and trainload lots of the way you distribute Is that true and how do you go about buying like that. Well back when I did the buy in and the buyers now have categories that they are you know responsible for but at one time I get 100 percent of the buying and. It's very easy if you have a movement figure now that you have the computer. You get a print out and if you move 500 a week and it takes two weeks to get it in the new got to have a margin of a thousand cases on hand to keep from running out. So you just it's just mathematics I mean I'm used to be extremely good with repetition not with math but arithmetic. So all of those things were set up as second nature to me.

Did you buy a whole company production. I mean as you take over an agency and everything about it. One of our competitors years ago ANP used to do that they would buy White House mail because the story goes. And they finally White House company pull all of salesmen off the road because they knew that they could sell the entire alphabet to A and B. But as a certain time they said we don't need you anymore. Are we by now in those instances where you do your own label. Yeah I've noticed that certain commodities I buy that carry the food market. Was that something you did in the beginning and you grow it in the beginning because we didn't have enough volume. But once we got the volume we owed it to the customer to offer them a competitive item. The private label and so obviously the sugar is back by Dixie Crystal American domino or somebody the cereal is back my name brand cereal company. Now one thing that food lion does not do it I hope they never will. They will not put inferior product

in the private label. Other words it's got to be top quality and savings to the customer and you made reference a moment ago to talking with students every once in a while. Now you're an executive in residence at Catawba college I read and I know of your work there. The School of Business bears your name and what do you tell young people when they say could you do it again today. What are they but what do you think you could do it again today probably be easier today really for this reason that the atmosphere that we grew up under you're younger than I am but basically during the depression everybody worked like Trojans just to keep a job. Now the. Work ethics is not what it used to be so therefore somebody who doubt wants to pay the price does not have the competition. In my opinion that they did back in the thirties or the forties or even the fifties. So I tell them yes but first they've got to offer something unique to

be a me too. You shouldn't succeed if all I was doing was open a food line to be identical to a competitor who needs us. Unless I'm going to offer the customer something I've got no business being in business. And so that's what I would tell a student. And another thing is find a job they like or business sanely because if you don't you're not going to succeed. Handling the volume you do. What quality control did you set up in the beginning that guaranteed when I went in to buy a product that it is going to be what I think it is. How did you go about that. Basically you had to be getting yours no problem because we cared nationally advertised items Delmonte Stokely those so their quality control was sufficient for us. Now under the private label I'm sure Tom Smith and his crew have quality controls that they check that they. And even back in the days when I would put in what is referred to as a regional

brand. You know that doesn't have the nation. You take five or six home. Try them out. Not just one can because it might read a label to the can but you Testament home giving it to the other buyers and then come back have a meeting get a consensus of opinion. You were always the organization spread by dealing in contiguous states and that you used the word reasoning. Would you have product lines for sections of North Carolina that were not in Virginia for example or did you ever get into that kind of geographical distribution you had that problem I know years ago I worked for a competitor Winn-Dixie and at the time that was I to my brother sold his group of stores to Winn-Dixie and they told me we were going to take over some South Carolina stores. They said now South Carolina sells a lot of rice and then I thought I knew what a lot of rice was. I said send me the move but figured out where I thought they might have moved in case that they were moving a hundred cases. So

they are areas in North Carolina and South Carolina. As you get up into Pennsylvania you don't want grits for example but so you have to check the market in other words if we are going into Pennsylvania. We would check three or four of the major competitors there to see what items they were carrying and then we duplicate them. On that very point how do you decide. You said earlier that developers come to you now but there have been instances in your career I know what you want and you look at a time when there was no new development but might be a ready market. If you do that as a systematic thing looking at different communities in the state it was easy as we came up with the lower price. We came up with the FBI and CIA and South government and so forth. It was extremely easy or we looked for sex number of people we knew that our prices were so low that we were going to get the bulk of the business. So we didn't have to do too many surveys if the people are there. We won't get in. I would stoled a competitor or

developer and said if you have a competitor there there there and there I will to be in the middle and later the Jackleg put it competitor in the same shopping center with us. Jim Garrison senator from ever walk in so I called and I said Jim what's this you put a competitor in the same area in the same shop and said I said that's forbidden. He says Aren't you the one that said if you had one two three four that you'd like to be in the middle. I said Jim I said it but I did not tell you that if I was there I would have one two three four wheel program it worked out because our sales went up tremendously. Early on in this book you say that when time came to go to college you just made a decision to go away all of them where you were not in the Middle West. What motivated you to do that I wanted to try State College and then go Indiana and I was committed speaker there not too long ago some years ago and one of the students I say How did you choose the school is far away said it's a

farthest away from home I got a Cadillac I mean a cattle there I'd like to have a Cadillac too but a catalog and basically I was 16. Everybody graduates 16 or 17 then because they only had 11 grades and I wanted to get far enough away from home that I would be away from home so to speak and to another thing that was extremely important. I was a wallflower. The speaker didn't dance and I wouldn't tell you my name in public. And so I went up there because they didn't have dormitories you stayed in private homes and you started on your major the day you went there. Now had I gone to Davidson our four year college I would have run out of money as I did at the end of two years. I would not have known a debit from a credit. But having gone to trust state owned it like six months of finishing getting my degree in 1982 as commencement speaker they gave me my

B.S. degree in accounting and rough as you look around and see what was going on in our country. It was the spirit of entrepreneurship running a strong as it did those days when you took off with your brother and Mr. Smith created this enterprise. Well with all the tech you know computers and so forth I would say yes but its a different field completely because you see Bill Gates And these people start off with nothing you see. Sam Walton what he's done. You see Warren Buffett and so forth. I would say that. They've got more handcuffs on him now. The government restrictions so forth makes it perhaps harder. But I still say that there's opportunity it's as in everything there'd be somebody come along think they can do better what food line is and what food I need if we ever get careless and start raising prices then they'll be placed for somebody

else to come in. I have the impression that when you put the hole in the whole food line system you created you have your own trucking system. You know you work from the warehouse straight to the customer and you control the whole thing. It is and if you ever doubted that that was the best system to follow in my bids is very definitely the best a one of our largest competitors only. They just lease their trucks. In my opinion. If you lease something from someone he's going to make a profit he's got to. So if you can operate more efficiently than he can you need build it yourself now or in the stores. Basically is a little different situation because of the obsolescence you outgrow the store and so forth and that lease it into 20 years you want when leaving whereas you couldn't if you hold have you as a system so big now that you can order a volume on any commodity and have it shipped to a regional warehouse

instead of the one Solsbury distribute from there that the system you don't think they have eight regional warehouses now in the US do you know if we bought truckloads of 8 or 10 years ago when I was still active in the company but I was not going to buy. We had a supplier I think it's Dell money and for dinner all of the top million and so the bar at that time said. We recently placed an order for 10 solid core modes of one size catch a quart Delmonte ketchup. It said it's at largest order that Dell money had ever received. I went up the behinds where Don said he didn't bow to the freight car loads of that one item did. He's a must get or you don't know how much we sell and that he was right. Resold when we lost money on it but that was a purpose. Thank you for joining me on North Carolina people tonight RAF I've enjoyed listening to you all good luck. Thank you. North

Carolina people is brought to you by Wilco via banking investments and financial services for individuals businesses and corporations. Welcome VO. We are here let's get started.