Dr Kurt Jetta, founder and CEO of CPG analytics firm TABS Group, was speaking to FoodNavigator-USA after New Jersey-based A&P (The Great Atlantic & Pacific Tea Company) announced it was filing for bankruptcy protection for the second time in five years, “to the surprise of absolutely no one in the industry”, according to Dr Jetta.
A&P - which operates in Connecticut, New York, New Jersey, Pennsylvania, Delaware and Maryland under the A&P, Best Cellars, Food Basics, Food Emporium, Pathmark, Superfresh and Waldbaum’s brands - became stuck in the no-man’s land of food retailing, lacking the flair of Sprouts and Whole Foods; the culture and efficient business model of ALDI or Trader Joe’s; or the scale of Costco, WalMart or Kroger, said Dr Jetta.
A&P was ‘already starting to lose relevance in the early 1990s’
Indeed, A&P was already “starting to lose relevance” in the early 90's - when it still had well over 1,000 stores – claimed Dr Jetta, who described it as “the largest account nobody cared about”.
A&P was subsequently “run out of Detroit, New Orleans, Florida, Tennessee” before opting to focus on New York and Philadelphia, he added.
However, it has continued to lose ground in both states, and not just to ‘upstart’ retailers such as Whole Foods and Amazon, but in many cases, to traditional players such as Stop & Shop, ShopRite, Target and Walmart, he said, citing Metro Market Studies data showing A&P’s market share dropped a “staggering” 41% from 23.4% to 13.8% in New York between 2008 and 2014.
“Its store count declined by only 23% during that time, so each of the remaining stores is dramatically less productive than it was seven years ago,” said Dr Jetta. “But I think a better-run retailer could turn around many of these stores, as they do have some pretty good locations.”
It shows how long a zombie retailer can exist
He added: “A&P was really on a death march even before it acquired Pathmark [in 2007] and filed for bankruptcy the first time [in 2010], so I guess it shows how long a zombie retailer can exist. They’ve been a dead retailer walking since about 1992.”
While labor union costs and pension obligations have made life harder for A&P - which posted a net loss of $305m last year - he acknowledged, “the real culprit is a management team that allowed their revenue to go into free fall.”
However, lack of money to reinvest in updating and refreshing stores only made things worse, he said. “Some of the stores look like nothing had changed for 30 years.”
Space allocated according to slotting fees, not sales potential
Three key factors have been key to A&P’s demise, argued Dr Jetta:
Store size: A&P's average footprint remained at around 20-30,000 square feet, when rival grocery retailers were opening stores 5-10 times the size, he said, making it impossible to compete.
Bully culture: Too often space in A&P stores was allocated according to which suppliers paid the most money in slotting fees, not based on what consumers wanted, or what was selling, claimed Dr Jetta. “Salty snacks, vitamins and frozen foods were a few areas of the store that had notorious bidding wars for more shelf-space… They had this beat up the vendor mentality, they really had a terrible reputation.”
Lack of scale: When A&P was larger it had an “ill-defined geographic sprawl that inhibited efficiency in warehousing and transportation”, noted Dr Jetta.
“Even once they focused on the NY/PHIL markets they undermined their potential efficiencies by maintaining five banners across 300 stores - A&P, Pathmark, Waldbaum's, SuperFresh and Food Emporium. There was no chance to leverage scale in marketing or merchandising costs.”
Buyers lined up for 120 out of 296 stores
So what happens next for A&P, which had assets of $1.6bn, and debts of $2.3bn as of the end of February, according to court documents?
In a statement issued earlier this week, A&P said it had lined up buyers for 120 of its 296 stores for around $600m, while around 25 loss-making stores would close immediately. The remaining stores would be sold via a court supervised process which “could include a possible credit bid for certain assets to be purchased by A&P’s current investors”, said the firm.
In the meantime, a $100m cash injection from Fortress Investment Group LLC will help A&P pay its bills while the bankruptcy process is underway, said the firm.
“After careful consideration of all alternatives, we have concluded that a sale process implemented through chapter 11 is the best way for A&P to preserve as many jobs as possible, and maximize value for all stakeholders,” said CEO Paul Hertz.
“The interest from other strategic operators has been robust during the Company’s sales process to date, and we have every expectation that will continue in chapter 11.”
Potential buyers are reported to include ACME Markets (Albertson's/Safeway); Ahold's Stop & Shop division; Fairway; Walmart; and Whole Foods Market.
Dr Jetta will be speaking about trade spending - the elephant in the CPG boardroom - at Food Vision USA in October. For more details, click HERE.
