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A&P Chairman Says Comeback Continues, No. 1 Spot In Sight

June 20, 1987

NEWARK, N.J. (AP) _ After seven years of rebuilding at New Jersey-based Great Atlantic & Pacific Tea Co., the supermaket company’s British-born chairman now sees the chance to realize an American obsession: becoming No. 1.

An aggressive acquisition campaign, reinvestment in stores and labor cost reductions have left the nation’s fourth-largest grocery chain poised for major growth in the years ahead, some analysts say.

″At one stage in time, I didn’t think we’d be No. 1 in North America again. I think that’s more possible now,″ said James Wood, chairman and chief executive officer of the Montvale company.

Sales in 1987 are expected to reach $10 billion, doubling revenues from the decade’s outset, when A&P began its march back to health.

Net income last year was $95 million on sales of $7.8 billion, or $2.50 a share, compared to a net loss of $101 million in 1981.

In 1986, shareholders received a dividend - 40 cents - for the first time in 10 years. A&P’s stock now trades around $35, up from $4 in 1981.

Still, A&P’s profit margin stands at 0.9 percent, only a 0.03 percent increase over the past several years and below the 1.1 percent industry average.

Analyst Edward F. Comeau of Wood Gundy Inc. of New York gives A&P another two years before reaching the average - if everything goes well and recent acquisitions don’t sour.

″The stock was a dog for easily 10 years,″ said Abraham Karp of Karp Financial Group, affiliated with Moore & Schley Inc. of New York.

But things have changed, and Wood said he is making himself accessible. For instance, he and top management traveled to Boston to meet with institutional investors recently.

″Now we can tell you we have a good future,″ Wood said.

The new image was helped by a $15 million television advertising campaign last year, which represented 15 percent of the company’s ad budget. Earlier, TV advertising had accounted for 6 percent of the ad budget.

During an interview earlier this month - practically seven years to the hour after Wood signed a 10-year contract with A&P - the 57-year-old executive sounded sure about that future.

″We’re in a better position not to have someone take a shot at us in a takeover bid,″ because of 52-percent ownership by West Germany’s Tengelmann Group, said Wood.

Another New Jersey supermarket powerhouse, Supermarkets General Corp., owner of Pathmark stores, was bought out by management recently after a sometimes bitter takeover attempt.

The ″secret″ of A&P’s success, and its current strategy, is regionalization , Wood said.

″We’re trying to build an image to suit an area and suit a clientele,″ he said. Rather than overextending the company geographically, it is concentrating resources on existing stores and selected markets.

Comeau noted the company has steered wide of fast-growth areas. Rather, it has reinvested in strong markets and built sales volume by acquiring four chains in three years.

A&P became a billion-dollar company and one of the world’s largest in the 1930s, when it had 15,000 stores. Government officials even spoke of breaking up the giant.

In the 1950s, however, A&P began a 25-year decline that hit bottom around the time Wood took over. To recover, the company closed stores. By 1985, two- thirds of its outlets remained - around 1,000.

Reinvestment followed. A&P started building new, expanded stores with full services and special departments.

A&P has spent $1 billion on renovation, construction and expansion, Wood said. Two-thirds of its markets are new, remodeled or expanded, and 300 more are expected to be redone by the end of 1988 when a three-year, $450 million modernization program is concluded, said A&P spokesman Michael Rourke.

Labor costs were reduced by achieving union concessions in exchange for a high-performance bonus program at some stores. Now, Rourke said, labor costs as a percentage of revenue are at the industry average of 11.4 percent, down from 13 percent in 1980.

″A&P acquires problem chains and goes in and turns the companies around,″ said analyst Comeau.

From 1983 to last December, A&P acquired Milwaukee-based Kohl’s Food Stores, Dominion Stores in southern Ontario, New York-based Shopwell Inc. and Waldbaum’s of Central Islip, N.Y. - a total of 347 stores for an estimated $475 million.

Kohl’s and Dominion Stores gave A&P access to major markets, as did Waldbaum’s, with its strength in New England.

Waldbaum’s, purchased in December, also gave A&P a 20 percent market share and dominant position in the important New York area market.

A&P is showing flexibility by operating different categories of stores, from the upscale Food Emporiums acquired in last year’s purchase of Shopwell to the blue collar-oriented, Sun Food ″warehouse″ markets in the Norfolk, Va., area.

″We’re trying to be all things to all people,″ said Wood.

A&P hopes to equal the success of regional chains by becoming, in a sense, a group of regional chains, matching types of stores to areas.

For instance, Food Emporiums offer delicatessens, gourmet foods, bakeries and an emphasis on service to New Yorkers and other urbanites, who expect those elements.

″That same kind of a store would not work well in South Carolina,″ said A&P spokesman Rourke, where A&P stores don’t have the gourmet selection or strong service but lower prices.

One place where A&P hasn’t done well is the South, where Wood admits little capital has been dedicated.

As chains rushed to the area to meet a growing market, A&P was busy rebuilding. So it sold off 18 Family Marts in Florida, rather than make the large investment necessary to compete, and put the proceeds into areas with established market shares, Rourke explained.

But analysts believe Wood is still looking, and the executive doesn’t rule out the possibility of another purchase. Wood notes that A&P has one of the lowest debt-equity ratios in the business and could easily take on more debt for other acquisitions.

End Adv June 20-21

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