A&P decline a cautionary tale, says CPG expert: 'It was the largest account nobody cared about'

By Elaine Watson contact

- Last updated on GMT

Dr Kurt Jetta: 'A&P was the largest account nobody cared about' [Picture: A&P].
Dr Kurt Jetta: 'A&P was the largest account nobody cared about' [Picture: A&P].

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The steady decline of grocery retailer A&P “speaks to the lack of permanence of a corporate entity - no matter how large it gets - when it fails to innovate, fails to adapt to the changing consumer landscape and creates a cumbersome, stifling bureaucracy”, according to one consumer packaged goods (CPG) expert.  

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.

Kurt Jetta
Dr Kurt Jetta: "They’ve been a dead retailer walking since about 1992.”

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​.


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My Condolenses

Posted by Jodi,

I will never be able to wrap my mind around how things work in the corporate world. At any job that I have worked, if I didn't perform, I'd lose my job. In corporate la-la land, you can fail miserably, take your large payout and move on to your next failure. Yupcaipa, who had previously owned Pathmark, never had any intention of improving the business; they bought it in order to sell it. They jacked up prices in order to raise the gross profit on paper. That was the beginning of the end. A&P just gave them the final blow. The saddest part of it all is that the people who devoted their lives to Pathmark, the ones who showed up everyday are the ones who will suffer. There really should be a way to penalize these corporate people who rob and pillage and move on without any consequence.

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Soon to be job-less

Posted by Tina,

I want to thank A&P for ruining peoples lives. I have worked for Pathmark for over 40 years. It has been on a steady decline ever since A&P took over. You have a bunch off assholes in suits that don't know a damn thing about running a business. For all of you have have ruined thousands of lives. I wish you all burn in hell. Hopefully the judge puts all of your dumb asses in jail.

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Management Clueless

Posted by Sean,

I left Pathmark years ago, in the 1990's but I still have friends who are working there and have told me stories. Everyone thinks that retail is just so easy and brainless to run but they don't realize how hard it is and you need talent. About a month ago, some corporate A and P person came to a Pathmark and asked what is the most important thing customers look for in a store (A/P has been raising pathmark's prices steadily for years) and everyone said Prices! She said oh no - its store cleanliness! My friend said the store is beautiful and clean with no shoppers. If you are not putting $ in the bank, you are doomed. In today' culture all of these upper corporate types who have never worked a day of retail in their life, focus on ANYTHING but the sales and bottom line. New logos, different colors in stores and of course METRICS METRICS METRICS. Back in the day, EVERY store manager was aware of their store sales and that what the FIRST thing you looked at. Now store managers don't even look at that. A perfect example of this is Toys R Us. Find a store manager or assistant and ask them to spit out their sales figures for the last month and they have NO CLUE. But ask them what their metrics are, and they can tell you (loyalty card percentage etc) as this is all Toys R Us corporate focuses makes them focus on......

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