March 15, 2012
A&P Ready to Write New Chapter as Private Co.
The Great Atlantic & Pacific Tea Company (aka A&P) filed for Chapter 11 in December 2010. Just under fifteen months later, the supermarket operator has emerged from bankruptcy as a private company. Bu, what does that mean?
"We have completed a thorough restructuring of A&P’s cost structure and balance sheet to build a strong foundation for the company’s future," said Sam Martin, president and CEO of A&P, in a statement. "With the full support of our financial partners, the new A&P is committed to delivering exceptional value and an enhanced in-store experience to all of our customers."
The partners that Mr. Martin referred to included Ron Burkle’s Yucaipa Cos., Mount Kellett Capital Management LP and Goldman Sachs Group. The firms combined to provide $490 million in debt and equity financing for the grocer.
According to A&P, the company took advantage of its time in bankruptcy to put together a new and experienced team of top executives to lead the company. It closed underperforming locations, renovated remaining locations and negotiated a new supply agreement with C&S Wholesale Grocers. It also worked out deals to modify its union contracts.
A&P currently operates 320 stores in six Northeastern and Mid Atlantic states. The company’s banners include A&P, Best Cellars, Food Basics, The Food Emporium, Pathmark, SuperFresh and Waldbaum’s.
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Discussion Questions
Discussion Questions: Is A&P ready to successfully compete coming out of Chapter 11 bankruptcy protection? Which of the chains that A&P operates do you think has the greatest upside potential?
Poll
In the 1940s a Wall Street Journal headline announced that by 1950 every supermarket in America would be an A&P. While I applaud the collected efforts of those mentioned in the article to lead the company out of Chapter 11, I am of the opinion that A&P’s glory days are behind it.
Unfortunately for A&P, the company never fully adapted to the changing retail landscape, consumer or competition. It may be able to be a niche player, although most of its banners, present little differentiation versus the market offerings. Perhaps its financial woes are behind it, but now comes the formidable task of successfully competing in today’s changing environment. I wish the company well.
Financially they might be ready to come out of bankruptcy. However, they are still the same poor retailer they have always been and they have no chains with any upside potential. The competition is just too much for them. They will continue to operate low volume and low sales per square foot stores. Most likely, they’ll follow the same path as post bankrupt Winn-Dixie and just operate sterile 1980s-style stores until all the money has been milked. Then sell.
Depends on whether the investors plan a sale for a quick profit in a couple years, or actually plan to compete over the long haul. Only they know that. Historically, the Northeast is a very tough market, with A&P adrift and mediocre, with bad management. So of course much also now depends on the new management that has been brought in. They couldn’t do much worse than what was there before. Whether it will be good enough to revive A&P and make it a real factor again, my jury is out but hopeful.
Here’s today’s biggest promise: The CEO of today’s A&P says, “With the full support of our financial partners, the new A&P is committed to delivering exceptional value …”
That’s a tall order in today’s world but it is what the old A&P did in the first half of the 20th century when the Hartford family took only .14% of 1% profit and shoppers flocked into A&P stores for value. The family passed on and eventually, so did old A&P.
While great promises require no financing, their full actuation does. Thus it remains to be seen if A&P’s new financial partners — Ron Burkele, Mount Kellett and “Goldie Locks” Sachs are Three Samaritans or Three Wise Men of Asset Conversion.
Going into bankruptcy may have helped them to right the ship from a financial standpoint, but it is unclear what steps have been taken to resolve their issues in the marketplace.
A&P suffers from the plight of many mainstream grocery outlets that are caught the middle between the newer, more consumer focused retailers and the price discounters. Also, it competes in one of the toughest markets in the country.
A&P needs to use this new financial lease on life to reestablish itself though a more defined positioning. Essentially, it needs to become relevant again.
Struggling chains like A&P, Winn-Dixie, and others need to train their focus on improving the shopper experience. Often when the corporate debt is restructured and expenses are reined in, the stores and associates do not get the attention they need to make a real difference with the shopper. So while the P&L looks better, the stores, the level of service, and the quality of product do not improve.
Ultimately, it’s all about sales and if A&P is going to be a player going forward, shoppers must notice the difference and begin to consider sharing more of their wallet with A&P. With that said, A&P’s more quality and service banners have the most upside, but only if they receive the TLC they need to improve.
Warren is right — it all depends on what success looks like. If this is a pure financial play, they may pull it off. If, on the other hand, they are trying to create a sustainable retail franchise — or seven — or somewhere between one and seven, well, then there are some serious issues.
Fixing the balance sheet is the easy part. Fixing the brand(s) and the culture(s) is where the heavy lifting has to get done. A&P has been driven by cultural denial for so long, it’s hard to think the blinders are suddenly going to come flying off and that prosperity will be restored.
Concept, baby. Concept. Grocery retail is dynamic and has seen dramatic steps forward over the last few years. The folks at A&P had better come up with a compelling reason why customers should abandon Whole Foods and Trader Joe’s to shop there instead….
A&P has been here before. In the early ’80s the Haub family bought the company, terminated the overfunded defined benefit pension program and freed up the assets. For the next 10 to 15 years management went on an acquisition spree that concealed the fundamental failure to create an organically sustainable environment. Then the reverse began: A&P started selling off the acquisitions they had made in order to pay off debts which were accumulating from operating losses. This ultimately led to the sale of the warehouses and warehouse operations to C&S which further weakened the ability of the firm to operate a profitable supply chain because it had been broken into multiple profit centers.
So what is different this time? Certainly we wouldn’t say the competitive environment has become any friendlier. If anything, the stretched consumer is going to make price an even more important consideration in their choice of retailers. The news release seems to address all the obvious weaknesses that kept A&P from being competitive. Renegotiated contracts with C&S and labor should go a long way to improve the cost structure. I believe A&P still has a good relationship with manufacturers, I am not aware of any defaults on money owed to them. A lot of the dead wood that could only be removed through bankruptcy has been culled. All these are good things.
The biggest factor in all this seems to be that the investors (despite the recent revelations of a Goldman Sachs employee) have their success aligned with the success of A&P. People must eat. If the negotiations have brought operating costs to the point where A&P can offer competitive consumer prices, then they will succeed. In today’s environment, the big challenge will be getting consumers to give them another try. This will require some heavy discounting to get consumers to switch. I hope they are able to survive.
We continually write our experienced thoughts on the grocery industry. Rarely, if ever, do we mention A&P as a player. Okay, they have come out of bankruptcy and are a leaner cleaner company. How does this equate to feet in the store and cash in the register? It has been too long since they were a significant player in the industry. I don’t see it happening again anytime soon.
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In the 1940s a Wall Street Journal headline announced that by 1950 every supermarket in America would be an A&P. While I applaud the collected efforts of those mentioned in the article to lead the company out of Chapter 11, I am of the opinion that A&P’s glory days are behind it.
Unfortunately for A&P, the company never fully adapted to the changing retail landscape, consumer or competition. It may be able to be a niche player, although most of its banners, present little differentiation versus the market offerings. Perhaps its financial woes are behind it, but now comes the formidable task of successfully competing in today’s changing environment. I wish the company well.
Financially they might be ready to come out of bankruptcy. However, they are still the same poor retailer they have always been and they have no chains with any upside potential. The competition is just too much for them. They will continue to operate low volume and low sales per square foot stores. Most likely, they’ll follow the same path as post bankrupt Winn-Dixie and just operate sterile 1980s-style stores until all the money has been milked. Then sell.
Depends on whether the investors plan a sale for a quick profit in a couple years, or actually plan to compete over the long haul. Only they know that. Historically, the Northeast is a very tough market, with A&P adrift and mediocre, with bad management. So of course much also now depends on the new management that has been brought in. They couldn’t do much worse than what was there before. Whether it will be good enough to revive A&P and make it a real factor again, my jury is out but hopeful.
Here’s today’s biggest promise: The CEO of today’s A&P says, “With the full support of our financial partners, the new A&P is committed to delivering exceptional value …”
That’s a tall order in today’s world but it is what the old A&P did in the first half of the 20th century when the Hartford family took only .14% of 1% profit and shoppers flocked into A&P stores for value. The family passed on and eventually, so did old A&P.
While great promises require no financing, their full actuation does. Thus it remains to be seen if A&P’s new financial partners — Ron Burkele, Mount Kellett and “Goldie Locks” Sachs are Three Samaritans or Three Wise Men of Asset Conversion.
Going into bankruptcy may have helped them to right the ship from a financial standpoint, but it is unclear what steps have been taken to resolve their issues in the marketplace.
A&P suffers from the plight of many mainstream grocery outlets that are caught the middle between the newer, more consumer focused retailers and the price discounters. Also, it competes in one of the toughest markets in the country.
A&P needs to use this new financial lease on life to reestablish itself though a more defined positioning. Essentially, it needs to become relevant again.
Struggling chains like A&P, Winn-Dixie, and others need to train their focus on improving the shopper experience. Often when the corporate debt is restructured and expenses are reined in, the stores and associates do not get the attention they need to make a real difference with the shopper. So while the P&L looks better, the stores, the level of service, and the quality of product do not improve.
Ultimately, it’s all about sales and if A&P is going to be a player going forward, shoppers must notice the difference and begin to consider sharing more of their wallet with A&P. With that said, A&P’s more quality and service banners have the most upside, but only if they receive the TLC they need to improve.
Warren is right — it all depends on what success looks like. If this is a pure financial play, they may pull it off. If, on the other hand, they are trying to create a sustainable retail franchise — or seven — or somewhere between one and seven, well, then there are some serious issues.
Fixing the balance sheet is the easy part. Fixing the brand(s) and the culture(s) is where the heavy lifting has to get done. A&P has been driven by cultural denial for so long, it’s hard to think the blinders are suddenly going to come flying off and that prosperity will be restored.
Concept, baby. Concept. Grocery retail is dynamic and has seen dramatic steps forward over the last few years. The folks at A&P had better come up with a compelling reason why customers should abandon Whole Foods and Trader Joe’s to shop there instead….
A&P has been here before. In the early ’80s the Haub family bought the company, terminated the overfunded defined benefit pension program and freed up the assets. For the next 10 to 15 years management went on an acquisition spree that concealed the fundamental failure to create an organically sustainable environment. Then the reverse began: A&P started selling off the acquisitions they had made in order to pay off debts which were accumulating from operating losses. This ultimately led to the sale of the warehouses and warehouse operations to C&S which further weakened the ability of the firm to operate a profitable supply chain because it had been broken into multiple profit centers.
So what is different this time? Certainly we wouldn’t say the competitive environment has become any friendlier. If anything, the stretched consumer is going to make price an even more important consideration in their choice of retailers. The news release seems to address all the obvious weaknesses that kept A&P from being competitive. Renegotiated contracts with C&S and labor should go a long way to improve the cost structure. I believe A&P still has a good relationship with manufacturers, I am not aware of any defaults on money owed to them. A lot of the dead wood that could only be removed through bankruptcy has been culled. All these are good things.
The biggest factor in all this seems to be that the investors (despite the recent revelations of a Goldman Sachs employee) have their success aligned with the success of A&P. People must eat. If the negotiations have brought operating costs to the point where A&P can offer competitive consumer prices, then they will succeed. In today’s environment, the big challenge will be getting consumers to give them another try. This will require some heavy discounting to get consumers to switch. I hope they are able to survive.
We continually write our experienced thoughts on the grocery industry. Rarely, if ever, do we mention A&P as a player. Okay, they have come out of bankruptcy and are a leaner cleaner company. How does this equate to feet in the store and cash in the register? It has been too long since they were a significant player in the industry. I don’t see it happening again anytime soon.