A&P cut the ribbon on a new Super Fresh store August 26 in the Northern Liberties area of Philadelphia. The 51,000 square foot unit is the retailer’s first store to open in the Delaware Valley market in more than 10 years. A&P president and CEO Sam Martin was on hand, as were many members of his executive team. They were joined by Philadelphia Mayor Michael Nutter, who said, “This supermarket, which is on the corner of three neighborhoods, is ideally situated to provide healthy, fresh food options to many Philadelphians who previously lacked this option.”
Business has been brisk since the store opened, but it once seemed that the unit on West Girard Avenue and North 2nd Street might never be operated by A&P.
The unit is located in the second floor of a building that is part of developer Bart Blatstein’s redevelopment of a former Schmidt’s Brewery site. Originally, A&P had signed a lease and planned to open the store as a Pathmark unit and signed a lease with Blatstein’s Northern Liberties Development LP in September of 2008.
After the project sat in limbo for more than two years, A&P filed for Chapter 11 bankruptcy protection in December 2010, putting the store’s future further in question. In the aftermath of the bankruptcy filing, A&P seemed to focus more on closing underperforming stores and selling most of its stores in Maryland and parts of Delaware, culminating with the sale of 12 stores in those two states in June of this year.
In March, Blatstein sought to speed up the process of opening the Philly store by filing a request with the bankruptcy court to force the retailer to reject the lease or move forward with it, saying other supermarket operators had expressed interest in the site and that his project was being damaged by A&P’s delay in taking action. U.S. Bankruptcy Judge Robert D. Drain, in the Southern District of New York, denied Blatstein’s request that A&P abandon the stalled lease, but gave A&P until July 10 to decide what to do with the unopened store.
Ultimately, the retailer opted to switch banners from its struggling Pathmark unit and opened the store as a Super Fresh. The new store certainly provides an upgrade over most of the Tea Company’s stores in the Delaware Valley. Merchandised as an upscale unit, the new store features locally grown produce, in-store sushi bar, freshly prepared foods, hot and cold food bars, grab-and-go meals, extended international offerings and a full-service pharmacy.
Despite the optimism the new store represents, a longer-term issue remains regarding whether there will be more store closures or sales of A&P’s stores in New Jersey and Pennsylvania as the company works its way through bankruptcy and seeks to continue to trim losses.
Those losses remain substantial. For the four week period ended July 16 (the most recent report available), A&P reported a net loss of $677,000 on sales totaling $558.3 million for the period. For the full 16 week quarter ended June 18, A&P reported a loss of $157.2 million on sales of $2.2 billion for the 16-week first quarter. Comp store sales declined by 4.2 percent, with its A&P, Pathmark, and Food Basics divisions all operating at a loss.
At the next scheduled bankruptcy hearing, scheduled for September 26, the retailer hopes to get approval of its request for a two-week extension for the filing of its final reorganization plan, originally due to be submitted on December 30.
Also at the next bankruptcy hearing, to be held in White Plains, NY, the retailer will propose procedures for dealing with more than 2,600 personal injury claims its faces. In a September 11 filing, the retailer reported that personal injury claimants are seeking $1.3 billion, although that number does not include 500 claims that don’t specify an amount being sought. The problem for A&P is that its insurance policy has a $750,000 self-insured retention, meaning that the company must pay the first $750,000 in damages before the insurance company begins to pay claims. The retailer is proposing that the claimants and the company first exchange settlement offers. In the cases where no settlement is reached, there would be a 60-day mediation period. If mediation fails, then A&P would have the right to send the dispute to a state or federal court. A&P says it would then allow a suit to proceed if the claimant agrees only to receive payment from whatever insurance may be available. For settlements or judgments not covered by insurance, they would be paid like unsecured creditors under a Chapter 11 plan.
A&P also faces a lawsuit from disgruntled investors who bought stock from the retailer during the 18 months before the chain filed for bankruptcy protection. A law firm representing investors filed the class action lawsuit saying the CEO Sam Martin and five other executives misled investors about the financial health of the company.
The suit alleges that Martin, along with Great Atlantic & Pacific Tea Company chairman Christian Haub and other executives, deceived investors about the company’s business, operations, management and the value of its securities. The suit adds that the misleading information put out by the company allowed executives to artificially inflate the value of the company’s stock and to sell more than $430 million of debt on favorable terms.
Law firm Robbin Geller Rudman & Dowd LLP is asking that investors who purchased securities between July 23, 2009 and December 10, 2010 contact them to be included in the suit.
In a statement replying to the suit, A&P said: “While A&P is not a party to this suit, we believe the suit is without merit due to the fact that, among other things, the company’s financial disclosures were accurate at the time they were made, as well as consistent with applicable law and regulatory requirements.”
Those filing the complaint would beg to differ. A plaintiff in the suit, Ricky Dudley, says that during the period specified a series of A&P press releases said that, despite financial difficulties associated with its $1.3 billion purchase of Pathmark in March 2007, the company was working on an investment agreement that would significantly increase the liquidity available in the future. There was an infusion of $175 million from a German investment firm and the Yucaipa Companies, a former owner of Pathmark, that A&P said would better position the company to compete. Although the retailer noted that Pathmark would continue to weigh on earnings, it stressed that the company would be well-positioned to generate long-term growth once the overall economy improved.
According to Dudley, the string of positive news from A&P led to a strong demand for a public offering of $260 million in shares in 2009. Then, in January 2010, A&P announced a sudden “impairment charge” of nearly $413 million, and said for the third quarter of 2009 it would report a $502.4 million loss that included charges of $412.6 million for “goodwill, trademark and long-lived asset impairment and $16 million for mark to market adjustments related to financial liabilities.”
In the previous year, losses from continuing operations for the overall year had been only $3.8 million and A&P’s financial statements included income of $23 million for mark to market adjustments to financial liabilities.
According to Dudley, the retailer continued to spin corporate statements, claiming they had identified critical issues that they would address to create a turnaround.
Then, in December 2010, A&P revealed for the first time that the company was performing so far below expectations and that its turnaround program was failing so miserably it would be forced to file for Chapter 11 Bankruptcy protection.