A&P Files for Bankruptcy Protection
The Great Atlantic & Pacific Tea Company announced yesterday
that it has filed for Chapter 11 bankruptcy protection to enable it to restructure
operations and put itself on the path to "financial health."
The company
said it planned to continue operating its 395 stores as-is and it had obtained
$800 million in debtor in possession (DIP) funding from JPMorgan Chase. Banners
operated by the grocer include A&P, Food Basics, Food Emporium,
Pathmark, Super Fresh and Waldbaum’s.
Sam Martin, president and chief executive
at A&P, said in a statement, "We
have taken this difficult but necessary step to enable A&P to fully implement
our comprehensive financial and operational restructuring. While we have made
substantial progress on the operational and merchandising aspects of our turnaround
plan, we concluded that we could not complete our turnaround without availing
ourselves of Chapter 11. It will allow us to restructure our debt, reduce our
structural costs, and address our legacy issues."
According to a source described
in a Wall Street Journal report as "a
person familiar with the situation," A&P felt it needed to take this
step in large part because of its inability to renegotiate a more favorable
contract with C&S
Wholesale Grocers.
Frederic ("Jake")
Brace, who was named chief administrative officer by the company in August,
will add the title of chief restructuring officer as A&P goes through the
Chapter 11 process.
Discussion Questions: What do you think is likely to happen now that A&P
has filed for Chapter 11? What will the filing mean to competitors of A&P?
- A&P
Files for Chapter 11 Reorganization to Facilitate Financial and Operational
Restructuring – The Great Atlantic & Pacific Tea Company, Inc. - A&P, U.S. Grocery Store Owner, Files for Bankruptcy as Competition Rises
– Bloomberg News - N.J. grocer A&P files for bankruptcy – The Star-Ledger
- Grocery chain A&P files for bankruptcy – Reuters
- A&P
in Bankruptcy – The Wall Street Journal
The future of A&P has been uncertain for several years and this most recent proceeding was anticipated by many. What is even less certain today is what’s next for a company that at one time had 1600 stores and was the Walmart of its day. A Wall Street Journal article in the ’40s predicted that “by 1950, every supermarket in America will be an A&P.”
Unless some dramatic changes are made in Montvale, the A&P banners are doomed for continued operation at a marginal level at best and for potential extinction. Realistically, if A&P emerges from Chapter 11 what resources do they command that could make a difference in today’s crowded supermarket environment? Their only hope is to move out of the “big middle” and become some form of a niche player in an undefined niche–a real challenge. As a result there is little competitors need to do to defend against this once mighty giant. Suppliers and other creditors will fight the battle for them.
A very sad day for A&P and reminds us that “success does breed complacency.”
Filing for Chapter 11 is a tough decision to make, but it appears it was a necessary step for A&P to have time to restructure. The largest challenge A&P will have is keeping inventory in store since suppliers will be careful not to over extend themselves on credit to A&P. If suppliers can support A&P and help them get back on their feet I believe all involved (shoppers, A&P and suppliers) will benefit.
Competition is good for everyone. If suppliers let A&P fall, it will make them more dependent on fewer retailers in the region. Said another way, suppliers will lose a lot of negotiation leverage with other retailers in those markets.
This is something the competitors have been preparing for, for several months. Competitors have already done their due diligence and picked out the stores they want. Since few deals could be made to sell the stores, bankruptcy was the next option.
There will be stores closed. A&P’s sales have deteriorated to such low levels many locations are for all practical purposes “closed” anyway. However, some locations can be salvaged particularly in the NYC metro area. Areas like DC, MD, and PA – those are just too far gone, so only a handful will be saved. I can see Wakefern and their army of independent retailers taking over many of the NYC metro area stores. Whole Foods will probably get a bigger presence in Manhattan.
I do worry a bit for my clients in Michigan, Wisconsin, and Louisiana that have been getting their rents subsidized by A&P after they bought shuttered A&P stores in those markets. Landlords will probably do what they can to keep them in place.
Unfortunately, A&P is another case of a newer and better business model comes along and the old standbys (Pan Am, Eastern Airlines, Woolworth’s, W.T. Grant, Alpha Beta, Fazio,s, First National, Fleming) all don’t or can’t change and the result is inevitable. A&P hung on longer in the Northeast than they might have in other markets where Walmart and the national grocery chains are stronger. This company has to change and develop a point of difference (i.e Food Emporium to the next generation) to have any hope of long term survival.
A&P has been going downhill for years. They went out and bought a number of good regional chains for which they overpaid. At least one of these chains had a 60% market share, but today is out of business. In fairness to A&P, they got some consulting advice from people that did not know the food industry and that may have done more damage than good.
Reality is they do not know who their target market consumer is. The store locations are good. The store sizes are on the small size. The neighborhood changed and now they sit with a problem of defining customers. This is a perfect example of a chain that could not run more than one format. When Food Emporium looks just like every other store, how does one get to charge premium prices?
Their decision making is top down and too slow for today’s market. They will clean up the balance sheet and drop more stores, but are unlikely to get healthy with their current third party logistics supplier.
What is so disheartening about the A&P story is that it has been like watching a slow motion train wreck.
Ever since Tengleman bought the company in the early eighties and liquidated the over funded corporate pension plans, A&P has seldom seen an operating profit. The pension assets funded a competitor buying spree that hid the declining performance through acquisitions. When the pension assets ran out, the newly purchased companies became sources of funds as A&P sold off Milwaukee, Michigan, Canada, and the North East. The stranglehold was set when A&P liquidated their warehouses and turned to third party distribution. Finally, A&P just accelerated their troubles when they made the Pathmark purchase. This purchase left them “over stored” in a highly competitive region of the country. The fixed labor costs necessary to merely “open the doors” of each location left A&P with low sales per labor hour. Higher labor costs simply made it impossible to offer consumers a competitive price point without losing more money.
What is still totally perplexing to me is why the problems could not be fixed before it came to this. A&P had twenty seven years to stem the tide. They have gone through a succession of senior managers who should have been able to correct it. Was it hubris? Was it incompetence? Was it personal greed? Was it a combination?
I am looking forward to some graduate business student’s doctoral thesis on the subject.
I was a packboy at A&P in the late ’70s albeit north of the border. I’ve followed the company for years and have met many of the middle management professionals that make the company tick. Two key areas that have been missing in the sustainable strategy at A&P from my perspective here in NJ are 1) operating metrics were cloaked by acquisitions and same store performance was skewed or rather diced,chopped, smothered and sprinkled in Wafflehouse lingo. 2) While competitors attracted the high-end “foodies” and organic fans, A&P seemed to resemble the three monkeys or an ostrich with its head in the sand. Profitable customers left and only uninterested, bargain shoppers regularly patronized a mediocre, non-descript A&P assortment–if they had to. One product assortment fitting all is a thing of the past.
I don’t sell the stuff but localizing assortments and an investment in some demographic data from Neilson, PopStats or Claritas combined with a proactive interest in customer preferences would go a long way. I wish the company good luck and the strength to accept criticism all the way up to the board level.
Alas, A&P is dying beyond its means. Bankruptcy protection is a legal affection to extend the ebbing life of America’s former largest grocery chain … and a shrewd California investor sits waiting in the wings.
Bankruptcy? Too little, too late. My advice–sell off these marques while they still have some intrinsic value. To keep them under the A&P corporate banner will certainly doom every one of the chain’s banners to extinction.
Certainly you can keep throwing money at A&P to restructure itself. But what’s left? A half-hearted attempt to compete with its “low price project”? Management simply doesn’t have the financial wherewithal, the talent, or the stomach to do 21st century innovations.
As far as Tengelmann is concerned, it has little interest in seeing A&P evolve. The supermarket business is no longer where the Haub family makes its money–here or in Europe. You can make a lot more by focusing on discount clothing and D-I-Y stores and the elder Haub no longer has to worry about having foreign investments as a hedge against Communist regimes in Eastern Europe.
A&P was a great company. It was an innovator in so many areas and it will go down in the history books as just that. But that time has passed and will never come again.
Haven’t we seen this story before, when it was called ‘Albertsons’? In the hunt for cash, they will most likely be snapped up by either a larger player (Giant Carlisle/Ahold?) or a VC/PE group or both. Unit banners will then be changed or the units will be parceled off to the highest bidder; e.g. Walmart(?) or even a dollar player. Eventually, no one will be able to recognize the new A&P, which is exactly what needed to happen in the first place.
As is the case when something like this happens for any retailer, there is some sadness on the consumer side. I mean, they’ve been around for a long time and I’m sure that some people grew up with them and visited loyally every week. But for the most part, this should stand as another harsh reminder of the Darwinian nature of retail. To paraphrase Charles himself, “It’s not the strongest or the fastest of a species that survives…it’s the one most adaptable to change.” Right.
And exactly what will change after Chapter 11 is over? It might be possible that they could negotiate better leases and (lending) rates in today’s markets, but that’s a big “might” given that they’re entering bankruptcy; and of course legal costs will absorb huge amount of cash (just when it’s needed most). I wish them well.
I agree with Len. Probably better to sell off the banners while they still have some value.
When I was a kid in this business (’60s and ’70s) A&P was the most dominating retailer around. Late in the ’70s it started to collapse within, due to the huge pension liabilities promised to their workers. I know several former employees who lost everything they had, as they were let go just short of being vested (20 years), and had to scrounge for work elsewhere. That temporarily kept A&P afloat, but then came the mega-stores, and the wholesale clubs with much lower labor costs, and today we have regional chains all in a flux.
The future–believe it or not–is in a really savvy, well-run independent, or a small chain of strong perishable style stores, that know their customers well.
Price alone will not win the day, as that niche is gone forever. Plenty of hope is still in the operator who can run a great meat, deli-bakery, dairy, frozen, and produce store, with just enough grocery deals to still look competitive. As I have said before, the mega stores do not run impressive perishable departments…BUT we can, and therein lies the REAL GROWTH for anyone willing to adapt.
Ten years from now I still believe that perishables will still be the area of strength for our stores, because Amazon still can’t deliver a pack of ground chuck for $1.89 lb, and make a profit. We still can! Happy Holidays to all.
It’s always tragic when a company with such a wonderfully rich history declares bankruptcy. Unfortunately, the A&P of today bears no resemblance to the great company that served the needs of American grocery shoppers for so many years. In recent years, A&P management has done little to stand out and nurture customer relationships in today’s competitive environment.
This is an example of an old model that is perishing because it cannot adapt. A&P has nothing left to make it distinguishable from the rest of its competitors, and yet it continues to believe that it can still compete, even though it is mired in its old model. A&P will survive only if it completely changes its model, focuses on a new target market, and differentiates itself from the rest of its retail competitors with a unique product mix and pricing.
Perhaps the Great Atlantic & Pacific Tea Co. should become the Great Atlantic & Pacific Tea PARTY Co. Get political! Party On!! As a retail marketing strategy, it may be time to test the value of identifying with a political party. After all, what does A&P have to lose? Special discounts for registered Tea Party members. Registration locations. Fund raising programs. Of course, a great number of A&P-owned stores bear other banners, so this suggestion is just a jape. Much like A&P’s business savvy. From 1,600 stores to less than 400.
The Buggles reminded us in their ’79 single that “Video Killed The Radio Star.” They also unknowingly described the beginning of the fall of A&P some decades previously. Video killed A&P, and they’ve stumbled along like zombies for decades, not realizing they were already dead. Regular readers of these conversations may have noticed that I’m not as enamored of Private Label (aka Store Brands or Controlled Labels) as many retail experts. A&P rose to prominence in great part due to the profits from their Private Labels. Their thousands of stores were stocked almost completely with PL products manufactured in their enormous Horseheads, NY, complex. Then Video killed PL and, along with it, A&P. TV advertising in the 50s and 60s allowed national brands to systematically clobber store brands.
So here we are today, with an A&P which never understood that over-reliance on PL is not productive. Zombies figuratively searching for brains. Be sure to wear your foil hat in A&P stores, and also in Safeway stores. The zombies are everywhere.
I first read of A&P’s decision to file for bankruptcy from the daily NRF Newsbrief. Interestingly, one story down was another interesting article, this one on Louis Vuitton’s opening of a new flagship in Vancouver, B.C. The story highlighted LV’s policy of no sales, no discounts, no outlet centers.
“We define the price based on our costs the hours that go into the product and the materials we are using. On that we fix a defined price that we feel corresponds. We don’t think it would be right for one customer to pay a higher price and then two months later another to pay less,” explained the company’s executive vice president Philippe Schaus.
Good for them if their brand and unique customer-desired product holds up to lower-priced competition.
So what happened to A&P? At one time their unique brand and pricing policies made them a clear distinction from Mom and Pop grocers. Marketing and economics classes profiled them. For a while they could do no wrong. What happened? There’s a study and a book out there somebody is ready to write.
A&P never became part of the 21st century. Sad, but there comes a time to say the chain has had its run and now the time has come to turn off the lights.
Definitely a sad day for Great A&P fans everywhere.
What went wrong? Everything mentioned above.
What is needed in the short run? Grocery store basics 101.
I am a big fan of Great A&P Own brands. They need to focus on getting the word out that they have the best food products around at reasonable prices. Organics that are really good value, Italian products that taste like Mama’s back in Tuscany, and health and personal care products that are of the highest quality, competitively priced. Even their entry level Food Basics, is guaranteed good quality at very good prices.
If they can get this message out, then maybe they got a chance.
If not, what a tragic loss to everyone of a legendary 151 year old grocery chain.