The Great A&P chain is out to recapture its grocery greatness
Montvale, N.J. — At one time the Great Atlantic & Pacific Tea Company was not just the largest grocery chain in the United States. It was the second-largest corporation in the world - exceeded only by General Motors. But by the late 1970s, it was a shadow of its former self. It was overextended, dependent on aging stores, and facing bankruptcy. Now, however, A&P - which is No. 4, behind American Stores, Kroger, and Safeway, - is making a comeback.
``We know who we are,'' A&P chairman James Wood said in an interview at A&P's corporate headquarters in northern New Jersey. ``We're not just another grocery chain. We're a national institution. And we fully intend to be No. 1 once again, just as we were for so many years.''
Bolstering his resolve is A&P's corporate ledger. Last month the company announced that net income for the second quarter of 1988 (ended Sept. 10) was up 21 percent on a sales gain of 5.8 percent. For the year to date, net income increased 23.4 percent on a sales gain of 4.5 percent.
In the early years of this century, A&P stores could be found in neighborhoods across the United States, and its own brands, such as Ann Page and Jane Parker products as well as Eight O'Clock coffee, were household staples. The ``neighborhood A&P,'' says Mr. Wood, is still a presence throughout the US, but it is no longer necessarily an A&P. In Toronto, A&P may be a Dominion store; in Pennsylvania it is likely to be a Super Fresh. In metropolitan New York, it's also a Food Emporium or Waldbaum's, while in Wisconsin it is a Kohl's.
In Louisiana, if A&P has its way, the company would like to be known as Delchamps - a profitable local chain that A&P is trying to acquire. A&P recently offered $210 million for the 108-store regional chain, at $30 a share. But Delchamps, which is controlled by a group representing the Delchamps family, has resisted the takeover.
``We think the takeover would be good for Delchamps' stockholders as well as for A&P,'' says Wood, speaking in a precise English accent. A native of Newcastle-upon-Tyne, Wood came to A&P in 1980 after a stint as head of Grand Union stores. He has also worked with Sir James Goldsmith, the Anglo-French financier, and is credited with having helped turn A&P around.
Investment analysts are generally positive in their assessment of A&P. The stock, says Ed Comeau, a food analyst with Oppenheimer & Co., ``offers good value.''
Becoming No. 1 could be difficult, however. New store openings and remodelings have fallen somewhat behind schedule, Mr. Comeau notes. A&P had planned to open 35 to 40 new stores this year, while finishing 100 remodeling projects. In the first half of the year, the chain opened 11 stores and remodeled and enlarged 33 stores, while closing 18 older ones. Still, Comeau believes A&P will have opened 30 to 35 new stores by year's end and finished 100 remodeling projects.
The A&P-Delchamps struggle comes at a time of major restructuring in the grocery industry. Kroger, for instance, has been pursued by the Haft family's Dart Group and by Kohlberg, Kravis, Roberts & Co., both New York leveraged-buyout specialists. On Tuesday, however, the Kohlberg takeover attempt was scrapped.
Stanley Hollander, a professor of marketing at Michigan State University, sees an industry dealing with tight profit margins, making it difficult ``for any one chain to establish a major differential over other chains.'' Large chains, he notes, are facing very tough competition from regionals - as well as regional competition in the nongrocery area.
``If A&P has anything going for it at this time,'' Mr. Hollander says, ``it would have to be its strong momentum.''
Wood remains upbeat about A&P's prospects. He notes that retail leader Safeway has been downsized following its own takeover battles in past months. Smaller regional chains are also more important and have taken market share from larger chains.
A&P, by contrast, is almost an island of calm. The chain is 52 percent controlled by the Tengelmann Group, a large West German food retailer. Thus, it is relatively insulated from a hostile takeover. It is the clear market leader in its main store areas, Greater New York and Ontario. It operates 1,172 outlets in 25 states and Canada.
Wood is quick to defend A&P's new, more regional look. The company now fields six management groups, representing various chains and regions. Wood believes that the national chain concept, as once represented by A&P, and perhaps Safeway in recent years, is now outdated. Today's grocery complex, he asserts, must serve specific constituencies - ethnic groups in big cities, as well as suburbanites and rural shoppers.
``Our product,'' says Wood, ``is a store.'' He foresees a lessening of the percentage of sales in a store that actually comes from groceries, as opposed to other retail products. Food sales accounted for 64 percent of grocery sales for A&P before 1980. Today, groceries represent less than 50 percent of sales.
Still, Wood disdains moving too far in the non-food direction toward clothing and other consumer items where a ``family decision is necessary.'' A&P is, and will continue to be, a grocery store, he insists.