A&P Posts Loss, Ousts CEO Claus

JON SPRINGER

MONTVALE, N.J. — Eric Claus, the chief executive who championed A&P's transformation to a multi-format operator but had yet to realize the benefits of its Pathmark acquisition, left the retailer here last week.

“The company's performance has not met our expectations, and based on these results the company felt a change of leadership was warranted and appropriate,” Christian Haub, executive chairman of A&P, said in a conference call last week. Haub, who was Claus' predecessor as CEO, has returned to that role on an interim basis while the company searches for a permanent successor.

Claus' departure comes only months after Ron Burkle's Yucaipa Cos. took a larger ownership stake in A&P and gained additional seats on its board of directors, and while Pathmark, the banner A&P acquired from Yucaipa two years ago, continued to see sales and earnings slide.

While Claus is taking the hit for Pathmark's struggles since A&P acquired it, some observers believe that Pathmark was headed for trouble when it arrived, with earnings boosted by shelf prices that were unsustainable, particularly when the economy turned.

“The question is, did Eric create a problem, or did he inherit a problem,” Karen Short, an analyst at BMO Capital, told SN. “As a CEO, he has to be responsible for the end result, but I'd argue he inherited a problem. They [A&P] paid for an asset that had overstated EBITDA as a result of raising prices over a number of years.

“I think Eric had a sense of what he was getting into, and he had a plan,” Short added, “but he wasn't the one cutting the checks.”

Haub said he would seek a new CEO with industry experience and a broad view of business. He said he did not have a timetable to name a successor.

“We've been working on a transformation strategy with some good success in the past but with some challenges, and we've got to further transform the business,” he said. “I think the next leader has to share in that vision of success that will not come necessarily from tinkering with what is existing but thinking of more radical ways of better positioning the organization.”

A&P in a separate announcement last week said that Andreas Guldin, a board member who previously served as executive managing director of strategy and corporate development for A&P, had been appointed vice chairman and chief strategy officer. Guldin is also an executive with Tengelmann Group, A&P's largest shareholder.

Yucaipa in July made a $115 million investment in A&P that boosted its ownership stake to 27.6% and gave it two additional seats on A&P's 11-member board (it had one representative already).

Yucaipa has historically installed new management at food retailing companies in which it has invested, including Pathmark and Wild Oats, with many coming from a stable of managers assembled through its investments dating back to the 1980s. Observers contacted by SN last week said they did not know how much influence, if any, Yucaipa had in the decision to change leadership at A&P. Haub said he would seek Yucaipa's involvement in selecting a successor but added, “we're not limiting ourselves to anything here.”

A native of Montreal, Claus joined A&P in 2005 after serving as president and CEO of its former Canadian division. At A&P, Claus worked to centralize control of A&P's various divisions, then renovated stores under distinct gourmet, fresh and discount formats. Renovated fresh stores under the A&P, Waldbaums and SuperFresh banners won industry acclaim and helped improve the performance of the banners that flew them.

“To his credit, Eric did a lot to stabilize A&P and its banners and turn that business around,” Burt P. Flickinger III, managing director of Strategic Resource Group, New York, told SN. “They did a terrific job making the deli and produce businesses better, and they were making meaningful progress in meat. In grocery, they were running great ads.”

Some analysts felt Claus spent too freely behind store renovations, not all of which worked out as planned. The flagship store in its gourmet Food Emporium format needed extensive refitting when a renovation cut too far into Center Store categories; and attempts at reviving Farmer Jack behind a hybrid discount/fresh format in Detroit failed. “Not everything you do is going to fire on eight cylinders,” Claus told SN in a 2007 interview.

A&P is standing behind the effort to convert acquired Pathmark stores to a “price impact” format, but the banner has suffered steep drops in earnings as the chain invests heavily in price and promotion to stimulate sales against headwinds of the economy, recovery from poor price perception, product price deflation and higher costs than A&P's other banners. Comps at Pathmark decreased by an estimated 7.6% in A&P's second quarter that ended Sept. 12, Short noted, vs. a 1.5% comp decrease among A&P's other stores.

Negative same-store sales and income from the Pathmark division contributed to a loss of $80.3 million in the quarter, up from an $18.1 million loss a year ago, A&P said. Sales of $2 billion decreased by 5.4%.

Q2
RESULTS