A&P Looks to Past for Pathmark's Future

JON SPRINGER

MONTVALE, N.J. — A&P is going back to the future with Pathmark.

The chain's new “price impact” format for Pathmark stores, set to debut late this month at two sites in New Jersey, will reintroduce elements from the chain's past that helped establish it as a high-volume, competitively priced chain, officials of A&P said last week.

“It's going to be an extremely powerful store with a powerful flier and it's going to be an experience that really delivers on exactly what Pathmark was built on many years ago, when they were still successful at the time,” Eric Claus, chief executive officer of A&P, said last week at a conference call discussing fourth-quarter and year-end financial results. “So we spent a lot of time actually with folks that have been around Pathmark for 20, 30 years and said you know what made you guys great 20, 30 years ago and what can we bring back? There's a lot of exciting stuff coming to that end.”

A&P acquired its former competitor Pathmark last year and had previously said it would proceed with a cost-effective “refresh” program at its stores that would further define a price-impact offering. The two locations where A&P will reveal the new format — which sources told SN are Irvington and Edison, N.J. — would serve as templates for a “massive Pathmark refresh to be rolled out between now and the end of 2009,” said Claus.

The locations chosen to debut the new format seem to indicate an interest in testing the new concept in disparate conditions, sources said. The Edison store serves a largely suburban, middle-market demographic and battles neighboring ShopRite and Stop & Shop locations, while the Irvington store primarily serves an urban-based African American community.

Some analysts speculated that the changes would include a return of the “No Frills” private-label brand that was once a Pathmark staple, though Claus would not confirm that. Claus said the renovated Pathmark stores would deliver a value message through “impactful” displays and signs, an aggressive ad flier and a revamped merchandise selection that does not cut down on SKUs but works to present consumers with a money-saving offer when measured over a full shop.

The new format is “a destination price leader where the customer basket is considerably less expensive than conventional supermarkets. It offers a full selection of the products customers need most at low prices with national-brand products and own-brand alternatives,” said Claus, reciting a definition of the new format adopted by the company. “With designated deal zones and treasure hunt items throughout the store, it delivers value and an impactful shopping experience.”

The changes at the Pathmark banner are somewhat of a departure from previous owner Yucaipa Cos., which while attempting to effect a more profitable overall shop by shifting merchandise to a greater mix of fresh goods, also allowed pricing to drift higher, Claus explained. Mindful of the difficulty of battling a negative price perception at its A&P conventional banner, Claus said the company has already eased prices throughout Pathmark, helping that chain achieve a comparable-store sales increase of 1.5% during the 12-week fourth quarter that ended Feb. 23.

That improvement, part of a 3% overall comp increase at all A&P banners, represented the best comps at Pathmark in more than three years, noted Karen Short, an analyst at Friedman Billings Ramsey, New York.

Officials said they could accomplish about 20 renovations at Pathmark during the current fiscal year. The $200 million capital budget also calls for 10-15 store renovations, said Brenda Galgano, chief financial officer. Galgano added that the company sees between 20 and 25 stores in the portfolio that could be flipped from one format to another as part of a renovation.

John Heinbockel, an analyst at Goldman Sachs, in a research note said A&P turned in a “solid quarter in a tough climate,” citing the 3% comparable-store sales increase and a threefold increase in EBITDA.