Will Kroger Buy A&P Next?

A&P is looking for a buyer.

Management at the grocery chain, which emerged from Chapter 11 bankruptcy protection, apparently has concluded that the business is in good enough shape to attract the type of money required to pursue its growth goals.

An internal memo, seen by The Wall Street Journal, claims the company could be valued at $1 billion or more in a sale. One retailer named as a possible suitor was Kroger, which does not have a presence in A&P’s home market in the New York metro area. Kroger recently agreed on a deal to acquire Harris Teeter.

"Having strengthened the core of our business, we are now focused on the capital required for future growth," said Greg Mays, chairman of A&P, in an e-mailed statement to Bloomberg News. "Our goal is to build on our positive momentum and grow A&P in a way that benefits our customers, associates, suppliers and partners."

If a deal is not made, according to the memo seen by the Journal, A&P is prepared to capitalize its own growth albeit "at a slower pace from internal cash flow."

BrainTrust

Discussion Questions

Does A&P need a sale or has the business become strong enough to compete on its own? Which retailers would benefit most from acquiring A&P?

Poll

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David Livingston
David Livingston
10 years ago

I doubt Kroger or any reputable supermarket retailer would be interested. A&P’s sales per square foot number is simply too low. Most likely their stores will be sold off piecemeal like in all the other markets they have shuttered. Their better stores would probably be sold to various grocers while the weaker ones would just close.

Richard J. George, Ph.D.
Richard J. George, Ph.D.
10 years ago

Unfortunately, A&P’s days of glory and even survival are behind this once iconic food retailer. If Kroger wants to fill in geographic areas that A&P occupies, it could be a suitor. Likewise, Ahold might want to acquire some of A&P’s better locations. Fact is that the areas where A&P still operates are over stored and will represent a challenge to any suitor to operate profitably.

Currently, A&P’s declining value is in its real estate, which might attract non-food interest.

Tony Orlando
Tony Orlando
10 years ago

Unless Kroger gets a super deal, I would be careful, as the Northeast is full of stores all trying to make a go of it. If the price is right, Kroger can work it out over time, and become profitable, as they run really good stores.

Herb Sorensen, Ph.D.
Herb Sorensen, Ph.D.
10 years ago

What a sad note. There are probably many who are not aware that A&P was the first billion dollar business IN THE WORLD!!! In a major way, this was due to John Hartford’s absolute commitment to low margins, as the key to driving high volume.

“To his division presidents, who were overseeing thousands of stores or substantial industrial operations, a large profit, relative to sales, indicated good performance. To John, though, a large profit was a warning light, signaling an attempt to maximize short-term returns by paying workers inadequately or by holding prices too high. Either way, too much profit in the short term was bad for the company’s position in the long term. As he saw it, excessive prices would reduce volume. Once that occurred, A&P would be forced to spread the fixed costs of its warehouses and factories across a smaller customer base, which would require it to raise prices even higher.” [Levinson, Marc (2011-08-30). The Great A&P and the Struggle for Small Business in America (Kindle Locations 4083-4087). Macmillan. Kindle Edition.]

The two Hartford brothers died in the 1950s, leaving a pathetic succession plan, and the beginning of the ruin of a truly great American business. A decade later, Sam Walton launched his general merchandise business with a similar business philosophy, later moving into groceries—to catcalls from much of the commentariat. Walmart then became the second business to achieve global largest retailer status.

It’s hard to imagine Walmart crashing and burning as A&P did—the succession issue has already been successfully navigated. But there is a new “global” player, Amazon, that does not have the capital invested in real estate and inventory that Walmart does, and that Walmart possibly must have. Driving low cost, drives retail volume. And low cost not built on genuine efficiency is ALWAYS disastrous. This means that Walmart’s capital deployment, globally, which has been a tremendous asset in global dominance of retailing, also MAY become an albatross. (I doubt it.) But Amazon needs only a fraction of that capital to generate equivalent sales, and is clearly more skillful in actually meeting the mind of the shopper—too long a story to tell here.

It is still sad that the ghost of Hartford’s A&P wanders about.

Ed Rosenbaum
Ed Rosenbaum
10 years ago

A&P or Kroger; it does not matter. Competing in the Northeast or anywhere in the East is going to be too difficult. Overcoming those already in place trying to beat up each other now might be too much of an economic uphill battle.

Donna Brockway
Donna Brockway
10 years ago

I don’t see any way for A&P to succeed on its own, and it might be difficult for it to find a serious buyer, at least one that would view the purchase as more than just a “fire sale.” For Kroger, it would come with some good locations in the NE which they would like, but I can’t see them wanting or needing anything beyond that. A&P’s operational capability is limited, and a Kroger could create or match it quickly and at a very low cost.

Craig Sundstrom
Craig Sundstrom
10 years ago

“If a deal is not made…A&P is prepared to capitalize its own growth albeit ‘at a slower pace from internal cash flow.’” Is this meant as a threat or a promise? Or perhaps it’s just the set-up to a good punchline. Even before reading Herb’s dirge, I would have wished them well, but gee-whiz folks, even people like me (knowledge of the food industry largely gleaned from RW) know A&P is a name you equate with ICU more than NYSE…I’m surprised David showed such restraint in his comments.

Kai Clarke
Kai Clarke
10 years ago

A&P needs a sale, or needs to be sold off for its real estate. Whether this would most benefit Kroger, or perhaps a group of investors, is up for debate. The most important part of this entire debate should be that the model which A&P is built upon is broken. A&P needs to adapt, be sold, or perish. The sooner this is done, the more valuable the assets are.

Michael Fitzpatrick
Michael Fitzpatrick
9 years ago

The A&P is on borrowed time. The stores are outmoded and there is no money for capital investment. The Pathmark chain was an anchor that precipitated the bankruptcy and despite getting out of bankruptcy, they are still on life support.

The current changes in management only signify that there is nobody at the helm that will take a firm hand in guiding the ship. Its only a matter of time that the stores are sold off piecemeal and the entire operation dissolves with the execs leaving with golden parachutes and the employees left with nothing! THE END IS COMING!

ed miller
ed miller
8 years ago

A&P needs tons of money to continue. The stores are so run down from years of not re-investing in them. They do not compete in pricing, and cut labor so much that they are chasing customers out of their stores.

I see no future unless they sell stores or someone invests, sell enough assets for capital and they learn how to compete in pricing and start giving customer service.