A&P, pioneer of general food stores, specializes Grocery chain transformed from its nadir a decade ago

September 30, 1990|By Thomas Easton | Thomas Easton,New York Bureau of The Sun

NEW YORK -- The smell of fresh-baked bread wafts from the 68th Street Food Emporium to Broadway, mitigating the fumes from a hundred stalled cars. Inside on the counter are smoked Scotch salmon ($7.49 a quarter-pound) and similarly expensive caviar, pesto salads and chocolates.

The impression is aisles away from that of the typical gritty New York supermarket, and it is the kind of grocery that its owner, the Great Atlantic and Pacific Tea Co., A&P for short, intends to bring to Baltimore, Washington and numerous other cities in which it retains at least a minor presence and a number of smaller stores that aren't suitable for conversion into the gargantuan supermarkets that have steadily become more popular.

The Food Emporium is just one recipe that has been used by A&P recently to freshen up a business that had gone rotten. It was a pioneer in setting up identically laid-out chain food stores, and it dominated the development of supermarkets in the 1930s. In doing so, A&P squeezed out the corner grocer -- and beat the grocer's belated champion, the Justice Department, which made a strenuous effort to prove A&P was a monopoly.

A&P won the case, and the company's contention that the supermarket business was highly competitive became all too apparent after World War II, when other firms became equally adept at inexpensively packing mass quantities of food into no-frills markets. A&P's nationwide dominance collapsed. As the 1970s ended, the chain had about $7.5 billion in sales and $50 million in losses, and only the losses showed potential for growth.

A new majority owner, the Tengelmann Group of West Germany, along with new management, took over in 1981 and showed little attachment to either the established (and tattered) A&P name or its classic (read, small) supermarket formats.

Hundreds of older stores were closed. Operations were sold in several regions where the company's presence lacked what the company defined as "critical mass" -- a solid core of stores that allowed for maximum efficiency in purchasing, distribution and advertising. Many existing outlets were renamed. In the Philadelphia-Baltimore-Washington region, for instance, A&P now goes by Super Fresh.

The harsh surgery initially resulted in a 40 percent reduction in sales. But the remaining core was profitable. Money from the sale of non-core units, as well as retained earnings, was poured into refurbishments, replacing old stores that had become shabby and awkward with modern ones. Different formats were used, ranging from discount to opulent.

In 1981, the number of units dwindled to 1,000 from 1,500. It has now rebounded to 1,250. But those numbers, as large as they are, understate the change. About 80 percent of the current stores weren't around when the decade began.

In 1984, management considered the operating innards of the company sound and began an acquisition program to scoop up good names and locations run by companies with fractured operations and decrepit balance sheets.

"If you want to acquire for the right price, you must buy a company that's either going down the drain or already down the drain," James Wood, A&P's chief executive, said.

The results have been most evident in Manhattan. Near a posh upper West Side Food Emporium patronized by the affluent is a sparse Shopwell used by students.

Their parents, living in the outer boroughs of the city, shop at Waldbaum's, a supermarket with a longtime Jewish and Italian clientele and a growing New England franchise.

Though the umbrella company is no secret, few customers know the linkage. "If they did," said Mr. Wood, "they probably would find another place to shop." For example, the cost-conscious buyer might fear the cost of a gourmet store, and the salmon and pate crowd might skip a down-scale market loaded with vast economy-sized boxes.

After years of visibly withering, A&P has regained its health, albeit under a host of names that have left buyers of the company's shares far more conscious of the turnaround than are buyers of its food.

By 1986, sales were at new highs and have continued to expand. Profits have risen throughout the past decade at almost 20 percent a year. The company's share price soared to $46.125 from a 1981 low of $3.50.

And most analysts remain optimistic about A&P's prospects for See A&P, 2F, Col. 1A&P, from 1Fgrowing profitability. Ian Bell of Merrill Lynch expects its earnings to grow 14 percent to 16 percent a year, and Wendy Heavner, an analyst at Kemper Financial Services Inc., predicts the upper end of that range.

Strong profits have been registered by other supermarket chains, notably Giant Food Inc., but they are no sure thing. While A&P rebuilt its franchise, many other operators disappeared.

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