Life after bankruptcy for A&P?

The once-great Great Atlantic & Pacific Tea Company said today that it may emerge from Chapter 11 as soon as this week. The news followed the US bankruptcy court’s approval of its exit plan yesterday.

A&P, which filed for Chapter 11 in December 2010, has done much during its 14-month reorganization to address its bloated cost structure. It has shuttered or sold dozens of unprofitable stores, won steep concessions from its unionized workforce, assembled a new management team, and renegotiated a more competitive supply contract with distributor C&S Wholesale Grocers. It has dumped or renegotiated expensive store leases in many of its markets. The company, which operates 336 stores under the A&P, Pathmark, Food Emporium and Waldbaum’s banners (among others), does business in some of the most densely-populated and competitive grocery markets in the US, including Manhattan, home to some of the highest retail rents in the nation.

These considerable accomplishments should go far toward putting the company on more stable financial ground. But are they enough to ensure that A&P will survive, let alone thrive, post Chapter 11? I doubt it. Here’s why.

For all its hard work, what hasn’t changed is A&P’s place in today’s dramatically changed and rapidly-evolving retail grocery market. The 153-year-old company has fallen far behind its rivals, including Whole Foods Market, e-tailer Fresh Direct, and Trader Joe’s (all wildly popular with New Yorkers and other well-to-do shoppers) at the high end, and extreme-discounter ALDI and Wal-Mart Supercenters at the low-end of the market. Indeed, Wal-Mart and Costco Wholesale rank as #1 and #3, respectively, among North American food retailers, according to Supermarket NewsTop 75 Retailers for 2012. A&P, once the world’s largest retailer and dominant grocery chain in the nation, today ranks 28th. A&P’s rivals have succeeded in making grocery shopping exciting, fun, convenient, or cheap enough to entice shoppers away from its stores. Years of financial struggle have left A&P with fewer stores and supermarkets that have fallen far behind the competition. The 115-store Pathmark chain, acquired by A&P in 2007, is especially in need of rehabilitation. (Debt from the Pathmark purchase helped precipitate the company’s bankruptcy filing.)

Financing from Yucaipa, joined by Mount Kellett Capital Management and investment funds managed by Goldman Sachs Asset Management, will buy A&P time to get its retail act together. Certainly, as a private company it will have greater flexibility to maneuver and innovate. While I wish the company and its 36,000 employees luck, I fear it may already be too late for A&P.

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Photo by Cynthia Closkey, used under a Creative Commons license.

 

Alexandra Biesada

Alexandra Biesada shops everyday, whether she wants to or not, and pines for the days when it was strictly a recreational activity. She has covered the retail beat for Hoover’s since 2001. Follow her on Twitter.

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