So, the inevitable inevitably happened at A&P. Surprised by the bankruptcy? Hardly. Surprised by the timing? Yes. But then, when you can’t pay the electric bill (or to quote the great Willie Nelson and later the recently deceased “Dandy” Don Meredith), the party is over and it really is time to turn out the lights.
Ever since the once mighty Tea Company went the Chapter 11 route, I’ve heard way too much nostalgia talk about the company’s “greatness,” its iconic status in American retailing and its pioneering methods in shaping this industry. It’s nice to reflect and reminisce, but the truth of the matter is that the A&P train has been running on one wheel for the 36 years I’ve been reporting about the food business, and ever since the disastrous decision to acquire Pathmark (disastrous for everybody but Ron Burkle and his Yucaipa organization) three years ago, not only were the wheels damaged, so was the track.
Sunday, December 12 marked the derailment of the Great Atlantic & Pacific Tea Company. Sure, it might make it back in some revisionist form (we hear that the metro New York A&P bannered stores are the units that management would like to keep), but much like Winn-Dixie, Bi-Lo, Bashas or the now sold Penn Traffic stores, the organization will never get up to full speed again.
Then again, it really hasn’t been at full speed since before any of our readers entered the business and the last 25 years have often resembled episodes of the Three Stooges rather than that of a respectable food retailer. Countless management changes, quarter after quarter of poor results, store conditions that were notches below many of its competitors – all being supervised by the Haub family, whose success in Europe obviously got lost in the translation.
There’s lot more work to do before the “new” A&P begins to take shape, The bankruptcy court (judge, trustees and creditors) will have a lot to say about the direction of the company. While some think that Chapter 11 will provide A&P with a “get out of jail free” card, it won’t be that easy.
We estimate that of the approximately 12 pension funds they’re involved with, underfunded liabilities are in the $300 million range. And if A&P (and the court) opts to no longer participate in those funds, the other existing retailers that are also currently in those plans, will have to shoulder increased exposure. Don’t be surprised to see as many as 200 A&P, Pathmark, Super Fresh, Food Emporium and Food Basics units on the block. It’s true A&P has many quality locations in towns and cities that are either geographically protected or too expensive for current competitors to enter. However, until the all parties can actually see what those individual leases hold (time remaining on the lease, renegotiation clauses, continuous occupancy language), some of those “on paper” quality locations may not be as desirable as first perceived.
And how about the store associates? How can this really produce a good outcome? Like scavengers, A&P’s competitors have been scrutinizing its store lists for more than a year, believing a massive store dump or bankruptcy proceeding would happen. That day has come. While the unions will fight this fiercely, the future store owners who either acquire stores directly from A&P (with the bankruptcy court’s approval) or negotiate with a third party if a store is shuttered, will in most instances seek non-union status even if the buyer currently is organized in other parts of their operations.
Now that it’s protected under Chapter 11 status, could A&P choose to withdraw from its pension fund liabilities and create an indirect scenario where the new buyer can open that old facility free from UFCW attachment?
A few more thoughts on the denouement. To “blame” C&S’s unwillingness to negotiate new terms which might have extended the Tea Company’s shelf life a bit longer is laughable. C&S negotiated those terms to protect itself knowing full well the handwriting was on the wall for A&P. CEO Rick Cohen didn’t become super successful by making very many bad deals.
No, A&P can only blame itself. The vibe has been bad for too long now. In today’s environment with a still imperiled economy, overstoring in every market in which A&P operates, and a diversity of retailing styles never seen before in the food and drug business, a 35 year run of ineptitude finally resulted in crashing into the proverbial brick wall.
In the end, the Haub family and Ron Burkle will probably suffer little. They have crafted contractual language that will protect them from the worst.
As for the vendors and associates who have loyally served A&P for many years, there are few guarantees. However, I’m not getting a warm and fuzzy feeling that they are going to be happy with their ultimate fate.
But would you expect to get more from a company that’s fumbled, stumbled and bumbled itself into this level of dysfunctionalism over the past 35 years?
‘Round The Trade
You shouldn’t be surprised that Wal-Mart took such assertive action in trying to block Hank Mullany’s move to CVS where he would become president of its drug unit. Hank was a big hitter even in a huge company like Wal-Mart and clearly they didn’t want to see him go, much less wind up with a large retailer they deem a competitor. A Delaware Chancery judge reaffirmed an earlier injunction on December 15 and now the whole issue will go to trial on March 15. My bet is that a compromise will ultimately be reached, but not for awhile. In Mullany’s last public Wal-Mart speech in September, he told vendors that 2011 would be an aggressive growth year for the Behemoth in currently underserved urban areas. The first salvo was sounded recently when Wal-Mart announced it would be opening four new stores in Washington, DC over the next two years. Those are all slated to be “division one” conventional stores, but don’t underestimate Wal-Mart’s potential interest in some A&P stores if they become available, At 35,000-50,000 square feet, many Super Fresh and Pathmark locations would seem to fit Wal-Mart’s “smaller format” needs. More Wal-Mart news: the U.S. Supreme Court has agreed to hear Wal-Mart’s appeal of the gender bias class-action suit which alleges that the Bentonville, AR merchant discriminated against hundreds of thousands of women in pay and promotions. The high court will review whether the 10 year old lawsuit justifies class action status, which if allowed to stand, could cost Wal-Mart several billion dollars….in the timing is everything department, Harry Giglio, has resigned his post as senior VP-perishables at Weis Markets to join A&P as its top man in meat and seafood. Harry’s one of the best meat/seafood executives I’ve ever met, but regardless of a hefty signing bonus and increased compensation, you’ve got to wonder about career choice in this instance¼ premium priced Fiji Water almost had a real dilemma on its hands. It seems that political instability and rising taxes on the Polynesian island nation caused the company (owned by entrepreneurs Lynda and Stewart Resnick of Pom Wonderful and Paramount Farms fame) to consider shutting down its bottling operations. A last minute compromise was reached and bottling operations will continue in Fiji. But what would have happened if no resolution was reached? Perhaps an unforgettable new name and a new water source. Something like Piscataway Water. As a future contingency plan, it’s kinda catchy, don’t you think?…the A&P sale-a-thon should be interesting, given a still tight money market, many underwhelming locations and a limited number of potential buyers. While I expect Ahold and Wakefern to be aggressive hunters, they both are potentially limited by store overlaps. And as for possible newcomer heavyweights such as Kroger (doubtful) and Delhaize (a small possibility to expand its Food Dollar unit), I wouldn’t go to the $20 window and make those bets…the Food Marketing program at St. Joseph’s University will be hosting its 5th annual Food Summit on March 10 at the school. It’s another heavyweight panel including Carl Schlicker, COO of Ahold USA; Dan Sanders, president of Acme Markets; Rick Brindle, customer VP for e-sales and industry affairs for Kraft; and Mike Webster, senior VP and GM of NCR’s retail group. This year’s topic will be “Sales and Profit Growth through Direct Marketing, Social Media and E-Commerce.” And on the undergraduate side at the Academy of Food Marketing, a tip of the hat to executive director Bob Higgins. The former Scott and Irving Tissue executive, who’s been at the helm for about 15 months, is really shaking things up in a positive way. Recently, AFM’s board was partially reorganized and six new members were added including: Dave Jones, VP-industry initiatives at Kellogg; Robert Hill Jr., president and CEO of Acosta; Jeff Brown, CEO of Brown’s Super Stores (ShopRite); Jeff Martin, executive VP-merchandising and marketing at Ahold USA; and Tom McAloon, regional GM for Wal-Mart. We’ll have more next month about how Higgins is trying the reshape and revitalize a very important ancillary partner, which is now the largest food and drug industry academic training ground in the country.
Local Notes
Struggles at its recently acquired Ukrop’s operation and costs related to its restructuring held down Ahold’s earnings in the U.S. in its third quarter ended October 10. The $11 million loss relating to Ukrop’s as well as $10 million in restructuring and related charges and another $9 million in reorganization and IT integration costs, dropped U.S. earnings from $234 million to $196 million in the period. However, sales remained solid, up 4.8 percent with ID revenues (excluding gas) increasing 0.6 percent, at the upper end of its peer group. More Ahold news: Giant/Landover division president Robin Michel has left the organization, which other than the timing of the announcement didn’t shock me primarily because her career path has included many stops and clearly she’s a strong personality to deal with. But in the 33 months she was at the helm, she clearly had a positive influence on the company. Yes, at the end of the day, Robin Michel did what all the poseurs who preceded her couldn’t – she turned Giant/Landover around on several levels. She clearly was the driver that has yielded significantly improved sales and earnings, but she was also the linchpin in restoring pride and a sense of urgency to what once was among the best retail organizations in the industry. Robin was mercurial and peripatetic; she wanted the ball on every play. She was passionate and had a tireless work ethic. Those traits alone represented a major change from Dick Baird, Marc Smith or Bill Holmes, the leaders whom she followed at Giant, and who, for a nine-year period, appeared to treat the $5 billion organization as if it was Stop & Shop’s red-headed stepchild. Yes, Robin was very demanding and often tough on her associates, but she was also tough on herself. Her standards were very high and she was driven to impart those standards to her team. And let’s not forget that her background wasn’t in store operations or finance, but in merchandising. Learning the blocking and tackling of operating stores from a different vantage point, grasping the nuances of a new market and helping revitalize what was once a rich culture were high hurdles to clear when she arrived in Landover 33 months ago. Clearly, there will be at least one more major move in Robin Michel’s career. That one will most likely put her in a CEO post, with the freedom and flexibility to run her own show. She deserves it. The Baltimore native can look back and take satisfaction in a job well done. She clearly leaves Giant in a much better place than when she arrived¼Village Super Markets, the only publicly-traded member of Wakefern, reported that its first quarter earnings declined 13 percent to $3.94 million from the corresponding period last year. Total sales increased 1.5 percent to $307.3 million, while comps were flat for the 13 week quarter which ended October 30. The 26 store ShopRite retailer, controlled by the Sumas family, attributed the profit decline to lower gross prices and the impact of two competitive openings. Wakefern’s corporately-owned discount banner, PriceRite, will open its first Baltimore unit in late winter/early spring 2011. The Keasbey, NJ firm will cut the ribbon on a 38,000 square foot store in the Security Blvd. area of town…results from the Thanksgiving period from a cross-section of Mid-Atlantic retailers indicates that sales were solid-to-good, with slightly heavier traffic and a slight jump in transaction size¼ in the brokerage biz, Johnson O’Hare and Sell Ethics, which were already aligned in an affiliated venture, have announced they have formed JOH Sell Ethics, which the new partnership providing an “East Coast Solution” from Florida to Maine. The two companies, which have worked together since 2002, noted “As the industry continues to consolidate, it becomes critical that we deliver high quality and local expertise with local owners over a broad geography.” According to Chip O’Hare, CEO of Johnson O’Hare, “¼we believe that a partnership between our companies is the logical next step. The market demands it, and we are delighted to have such a talented partner in SellEthics.” Joel Barham, CEO of SellEthics, added, “SellEthics is pleased to join forces with JOH, one of the most respected sales agencies in the nation. We believe local ownership, coupled with all the necessary tools and quality personnel, provides our clients and customers with the service they deserve. Our East Coast Solution will meet the needs of the marketplace.”¼Marty Margherio, president of Farmland Dairies, and one of the real good guys in our business, is going to hang up his hat at the end of the year. Margherio led Crowley Foods for many years and helped rebuild Farmland from bankruptcy in 2005. CFO Terri Webb, who has worked with Marty for many years, will take the helm as president- national brands. We wish Marty the best of luck in his future endeavors…Supervalu has sold its Total Logistic Control division to Ryder in a stock purchase agreement. The sales price was not disclosed. With Supervalu’s share price dipping to $8.20 per share (on December 16) it becomes more vulnerable to a takeover. Clearly, there are many pieces for sale at Supervalu, but the large former Albertsons units, many of which they would like to move, remain in poor shape. When the core banners of the business – Albertsons, Shaw’s, Acme and Shoppers – continue to drain the company of sales and earnings, dumping a few ancillary units won’t make a dent in SVU’s problems. Also at Supervalu, Sherry Smith, who was named interim CFO after the resignation of long-time chief financial officer Pam Knous in July, has been installed as permanent CFO and also becomes an executive VP of the Eden Prairie, MN based retailer/wholesaler…I’d like to be the arbitrator in the Kraft-Starbucks dispute involving the Seattle firm’s 12 year old grocery store arrangement with the food giant. Starbucks claims that Kraft has neglected the brand and wants to unilaterally terminate the agreement, while Kraft insists the arrangement can only end if its is bought out (at a premium) by the large coffee producer. I’d pay to see Starbucks CEO Howard Schultz in court…sadly we have several deaths to report. Our condolences to Shop ‘n Bag’s John and Ceil Hallinan, on the death of their son, Matt, who was only 27. Also passing on was Bill Purcell, 87, former owner of T. A. James, who in its heyday (1960s though the early 80s) was a major supermarket factor in the Delaware Valley…just before presstime, we learned of the death of Hall of Fame pitcher Bob Feller. “Rapid Robert” was the one of the game’s best overall hurlers, winning 266 games during an 18 year career, all with the Cleveland Indians. His record undoubtedly would have been even better if he hadn’t missed four seasons during World War II. I had the pleasure of meeting Bob Feller more than 30 years ago in Buffalo (he was helping his buddy and fellow pilot, food broker Jack Bradigan at a food show). A nicer, more humble man you could never meet. Born in Van Meter, IA in 1918, Bob Feller was truly an American hero…and it’s with a heavy heart that I also report the recent death of Leslie “Don’t Call Me Shirley” Nielsen, who passed away late last month at the age of 84. Although he began his career as a dramatic actor in the 1950s, Nielsen really made his mark later in his career as one of the great comic actors of the last 25 years. His role in the classic comedy “Airplane” (1980) as the doctor on an ill-fated flight on which many of the passengers become violently ill was unforgettable. In one hilarious scene, Nielsen instructs the flight attendant that the sick patients must get to a hospital right away. “A hospital? What is it?” the flight attendant asks, inquiring about the illness. “It’s a big building with patients, but that’s not important now,” Nielsen deadpanned. The Canadian born actor also excelled in the three “Naked Gun” movies in which he played the bumbling but serious-minded Lt. Frank Drebin. Leslie Nielsen, a man who could make me laugh out loud, will be m
issed…and finally, while it’s been a tough year for many in this great industry, I’d like wish all of our readers a wonderful holiday season and pray for a healthy and more prosperous 2011.