MONTVALE, N.J. -- A&P here said last week it will spend $250 million over the next four years to develop a new supply-chain and business-management infrastructure.
The company said it expects the cost of the program to reduce net earnings for fiscal 2000, ending Feb. 24, 2001, by $1.50 a share. The company added the program's benefits should offset costs in fiscal 2001 and have a positive effect on earnings beginning in fiscal 2002.
Equity analysts told SN the program was an expensive but probably necessary step to keep A&P competitive.
A&P said it intends to upgrade all processes and business systems related to the flow of information and products among its corporate offices, distribution facilities and stores, as well as between the company and its suppliers. The infrastructure will be created by IBM, Somers, N.Y., and Retek, Minneapolis, a business-software developer.
The company said it expects to realize $325 million in cash benefits during the four-year program and benefits of approximately $100 million annually thereafter.
In a conference call following the announcement, Christian Haub, A&P president and chief executive officer, said the new infrastructure would produce these benefits through "lower costs and improved margins generated out of better management of products."
Haub also said the program would give the company the ability to "run every store like an individual business."
He called the initiative the second phase of Project Great Renewal. The first phase, launched in December 1998, focused on improved customer service and store facilities.
The company said Robert Panasuk, formerly president of A&P's New England operations, will direct the implementation of the initiative.
Chuck Cerankosky, equity analyst at McDonald & Co., Cleveland, called the plan "important and significant."
"If you're going to be a major retailer," he said, "you've got to spend money on systems that support your business."
Other analysts, however, expressed concern at the project's cost. "This is a very ambitious project," said Debra Levin, equity analyst at Morgan Stanley Dean Witter, New York. "It's probably necessary, but it's definitely going to hurt earnings."