Last week's bankruptcy filing by Winn-Dixie Stores, Jacksonville, Fla., served to illustrate the precarious position of supermarket retailing in today's environment.
stand at a turning point where they could either continue a slide down a path of sluggish sales and earnings growth or climb back up to emerge on stronger competitive footing.
Fresh Brands, Sheboygan, Wis., and Pathmark Stores, Carteret, N.J., were among the worst performers on the stock market in 2004 among companies in the industry. The stock of A&P, Montvale, N.J., although it has been trending higher in recent months, is off by more than 50% from its three-year high.
Each faces unique challenges. For A&P, bifurcating its formats into high-end and low-end destinations requires capital investment, and some observers think that to secure that capital the company may have to divest its profitable Canadian division.
Fetching a good price for Canada "would allow A&P to pay down more debt, leaving a higher per-share value for the remaining U.S. operations," said Meredith Adler, analyst, Lehman Bros., New York.
Fresh Brands faces not only increasing pressure from Wal-Mart Stores, Bentonville, Ark., but also from Roundy's, the Milwaukee-based wholesaler that has been on a growth tear in the Upper Midwest.
At Pathmark, finding a buyer for the company is a top priority, but no willing candidates have yet emerged.
"While the real estate is certainly compelling because these are nice-size stores with adequate parking in congested areas, [buyers would] have to come up with a way to recognize their investment pretty fast either with a lot of cost cutting or selling off stores," said Jonathan Ziegler, analyst, J.M. Dutton and Associates, El Dorado Hills, Calif.
Unlike Winn-Dixie, which has thrown itself at the mercy of the bankruptcy court and faces a long, difficult turnaround process, these three companies still have it in their power to improve their fortunes on their own. Stay tuned.
