Taking Stock

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A&P: Same Bad Retailing, Only Worse

New ownership, constantly evolving management teams, sweepstakes, contests and games – it really doesn’t matter which era of A&P you want to scrutinize from the past 35 years, the results are generally the same. Sure, you might think that Ron Burkle and his Yucaipa team (chairman Greg Mays and CEO Sam Martin) would actually try to become more competitive once the company emerged from bankruptcy, wiping away a huge debt from supermarket chain’s balance sheet.

Think again.

In fact, there are many who would argue that the A&P of today is even worse than it was in the waning days of Christian Haub’s 30 year magical mystery tour at the Montvale, NJ based retailer (except perhaps Yucaipa, which now holds millions of dollars worth of real estate and also gained major economic concessions for A&P’s labor unions and a new streamlined contract from its primary supplier C&S).

Where are the new and significantly remodeled stores that we thought were on the way? Oh, I guess I must have been out of the country when the new batch of “ribbon cuttings” occurred after the Pathmark in Weehawken, NJ was remodeled shortly after Burkle & Co. took the helm. How about the innovative marketing and merchandising approach that the now privately-held supermarket chain was going to develop to gain market share against existing operators ShopRite (which should pray daily that A&P sticks around for a long time) and Stop & Shop while at the same time neutralizing growing emerging competitors such as Wal-Mart, Whole Foods, Wegmans and retailers from other channels who have drank from the A&P trough for many years?

OK, Ron Burkle is a brilliant guy. His financial track record in the supermarket industry over the past 40 years illustrates that he’s netting a lot more than one percent annually from the business he started in. But in the retailing world of 2013, it’s simply too difficult to actually compete on the playing field – especially if you play the game like the (once) Great Atlantic & Pacific Tea Company. So should it be surprising that Credit Suisse is exploring A&P’s future options? If I pulled off a deal where I controlled much of the company’s real estate and gained major givebacks from my two largest payroll factors (unions and supply chain), why wouldn’t I want to “get out of dodge” knowing that since Yucaipa gained control of A&P in March 2012 sales have continued to be generally poor. And throw in the possibility that New Albertsons/Cerberus might be looking to sell some or all of its retail banners (including Acme) within the next 12-18 months – that might be an additional incentive to want to sell stores.

But wait, A&P still has to operate stores. And with double-digit declining sales (according to recent syndicated data), a fierce competitive landscape (both in Philadelphia and Metro New York) and apparently no significant cap-ex being directed toward improving its old and tired store base, it looks like the new management team has dusted off the playbook of former A&P CEO Jim Wood from the early 1980s. Some of you might remember its unofficial title: “Pay Me First And I Might Actually Sell Something (but don’t hold me to it).”

Actually, the Tea Company has been a member of the “pay to play” church for even longer than Wood’s long reign at the company. But recently, A&P has put a different twist on that ancient, weary and beaten dead horse.

In a memo dated September 25 sent to “all vendor partners,” A&P informed its suppliers, distributors and brokers that it is now capable of automatically invoicing them on the same day via email. The memo was issued by A&P’s current CFO Bill Barrett, who joined A&P 10 months ago (making him a seasoned veteran at the chain), and noted that the retailer has two options available for the payment of invoices: 1) Immediate deductions from accounts receivable (direct vendor accounts) or via C&S (indirect vendor accounts or 2) Immediate deduction via a vendor maintained pre-payment account at A&P sufficient to cover future invoices. The memo also notes that “if you are not using these options today, your account will default to ‘Option 1,’ effective October 1.

One can only imagine how delighted the vendors were when they received Mr. Barrett’s missive.

I sensed that by the volume of emails and phone calls I received and the unfiltered expressions of emotions that followed.

“I’d very much like to support the ‘Bank of A&P,’ but my clients may object to this,” said a senior executive at a large food brokerage organization whose company has been calling on A&P for many years. “I’ll have to check on how enthusiastic my clients are about putting money in their account to collect interest.”

“Isn’t C&S getting a slice of the pie already?” another executive at a direct sales company caustically wondered. “Do they need to be part of A&P’s act of desperation?”

Of the approximately 12 vendors (brokers, DSD firms and direct sales companies) that I talked to about this new policy not one gave the new program any validity. All saw the invoicing and collection policy for what it is: a money grab.

I asked all of my contacts to try to be more objective and find a positive spin in judging this program. Only one did and his response was:

“Since A&P is one of our biggest deduction scofflaws in relationship to the cases they sell, maybe you could argue that keeping a small amount of money in a pre-paid account would offset the man-hours used and the headaches created when chasing their deductions which can take months to be repaid even when we’ve proven our case – and we’re right more than 90 percent of the time,” an A&P team leader for a large snack food company offered.

What a great compliment. It really is like déjà vu all over again, except the mindset of the vendor community is much different than it was even five years ago. Other than the small or regional vendors who count on A&P’s business for their survival (and they will be hurt if they don’t comply), the majority of the brokers, distributors and manufacturers who call on the Tea Company, and control an overwhelmingly large percentage of sales, aren’t going to be bullied.

A&P is no longer important in their universe. If the punishment for non-compliance is the delisting of items, the larger suppliers won’t blink and A&P will be worse off for it. Those vendors and brokers are going to spend their discretionary funds with accounts that are growing and can assure them of a fair return on their investments.

Their collective unspoken message to A&P is clear: Why don’t you try selling something?