Claus Leads Dramatic Makeovers at A&P

JON SPRINGER

NAME:
Eric Claus

TITLE:
Chief executive officer, A&P

CHALLENGE:
To grow a company that has “shrunk and shrunk and shrunk.”

MIDLAND PARK, N.J. — In a business where trade secrets are frequently protected with paranoiac zeal, Eric Claus hides little.

“Anybody who wants to copy this store, they're welcome to do so,” said A&P's chief executive officer, strolling through the aisles of A&P's groundbreaking fresh store here. “We're moving on. We're on to a new generation already.”

Those stores, set to begin rolling out later this year, represent another step in A&P's evolution of the fresh store, which has reinvigorated locations like Midland Park and, by extension, long-suffering A&P itself.

Sales, traffic and profits are all up dramatically in Midland Park since the store — the first fresh prototype developed under Claus' leadership — opened last spring, he said. If the rollouts remain successful, the same could soon be said for the Montvale, N.J.-based parent company, whose recent history tells of money-losing stores and the many failed plans to fix them.

“This company has shrunk and shrunk and shrunk. It's about time it started to grow again,” Claus told SN during a recent interview. “Our EBITDA was on the decline. But we just had the best year-over-year operating income improvement we've seen in many years [in the fiscal third quarter]. We just have to keep building on that.”

A&P's renaissance in the Northeast — which includes aggressive remaking of the Food Basics discount stores and a new gourmet concept at Food Emporium — has been funded by the sale of its Canadian stores to Metro in 2005. That deal not only provided the capital to retire debt and invest in U.S. stores, but also brought the man who would lead those efforts in Claus. His appointment as CEO was announced concurrently with the Metro deal.

The former CEO of A&P Canada was a relative unknown when he arrived in the U.S. In two years here, he has revealed himself to be a creative merchant and a serious bean counter. His food and retailing tastes run European, but his leisure is strictly American, judging by the Harley-Davidson Fat Boy he rides. His approach to the notoriously competitive Northeast market, he said, is “to focus on ourselves and not on the competition.”

SWISS CHEESE LOVERS

A native of Montreal, Claus comes from a family of Swiss-born food lovers, he said. “My mother always had good cheese in the house,” he recalled. He began his retail career in the department store division of Steinberg's, the now-defunct supermarket chain run by Quebec retail pioneer Sam Steinberg, where Claus was at different times a store manager, a buyer and a merchandiser, eventually working his way into operations and management.

In 1997, Claus was named CEO of Co-Op Atlantic, a New Brunswick-based cooperative combining food, convenience and gasoline retailers; distribution; and agriculture. Atlantic, Claus said, was “a small company in pretty bad financial shape wedged between two giants,” referring to large Canadian chains Loblaw and Sobeys. Claus brought an innovative spirit that energized the co-op and its members, Atlantic Co-Op said. Highlights of his tenure included forging partnerships with co-ops worldwide, as well as introducing a discount store concept and a branded private-label meat program, all while under an especially tight budget.

“From growing up in the Canadian market and battling Loblaw all his life, you could definitely describe Eric as a street fighter,” Perry Caicco, a supermarket analyst with CIBC World Markets, Toronto, told SN. “His attitude was, ‘You don't take a back seat when you're No. 2 or No. 3.’ He's a street fighter and a savvy merchant.”

After nearly six years with Atlantic, Claus joined A&P Canada as its president and CEO in late 2002, helping that company perfect the fresh and discount box stores that he would eventually apply in the U.S. The Midland Park store, he said, is based on a Canadian decor package with certain offerings — for example, Tiffany Gate brand deli salads and Ace Bakery croissants — imported from Canada. The croissants, he said, weren't a Co-Op product but a Loblaw brand he long admired. Claus is such a fan of the breads, he introduced them at A&P with a double-your-money-back satisfaction guarantee.

The store also includes highlight products of A&P's various store banners. The cheesecake is a recipe from Long Island's Waldbaums chain. The fried chicken — the secret is frying at extremely high temperatures, Claus said — comes from Farmer Jack in Michigan. These divisions at one time operated independently of one another but have been collapsed into a single U.S. operating unit that not only saves A&P millions in annual costs but also allows for the consistent application of the common store formats across the chain's banners.

“[A&P] used to run its divisions separately, with each group doing its own thing,” he explained. “Waldbaums had a terrific cheesecake but didn't share it with anybody. I came in and said, ‘Forget about the banner names; we'll have different formats that work for each of them.’”

EXECUTION IS KEY

Observers are quick to note that A&P has a spotty track record when it comes to reviving itself. “They can have a nice store, but it's all about execution with them, and always has been,” said Richard Kochensperger, a professor of food marketing at St. Joseph's University, Philadelphia, told SN.

Claus insists the fresh stores work because they engage employees. The company has begun training programs to “certify” workers in their area of expertise. Concurrently, A&P has set out to capture certain commodity products — cut fruit, potatoes and, more recently, tomatoes in produce — as “signature” items it merchandises better than anyone else. “When you redo a store like this, you create a place that people can take pride in,” he said. “It's no fun to work in a substandard store.”

A&P is still a long way from solving all its problems, Claus said. At Midland Park, the wine store needs a better assortment, and the Lavazza-branded coffee shop hasn't taken off yet, he said. Elsewhere, he acknowledged the debut Food Emporium gourmet store cut too far into Center Store categories and that a planned hybrid concept at Farmer Jack was sent back to the drawing board after a poor start. Price perception among shoppers remains an issue A&P has to continue to chip away at, he said, despite some newly implemented programs. But these problems, he said, are bound to be a byproduct of change.

“Not everything you do is going to fire on eight cylinders,” he said. “If the financial analysts ran this [Midland Park] store, they might take the coffee bar out. Then they'd take something else out. But to me it's like having an expensive car. There may be features that you don't necessarily need, but if you strip it all out you're left with a basic Chevy.”

So Claus is moving ahead. The new fresh stores, set to debut in West Lake, N.J., and other locations this year, will target innovations toward the Center Store. “It will be very different,” Claus said. “No more high gondolas in Center Store, no long aisles. Chocolate and coffee departments within Center Store. It will be revolutionary.”