For A&P, Reach Was Greater Than Grasp

JON SPRINGER

MONTVALE, N.J. — Christian Haub understood A&P history, but in the end he could not escape it.

Christian Haub

A&P’s executive chairman could count at least two occasions when he helped to save his company from ruin — in the 1980s when he was a part of a new ownership group that revived a moribund franchise behind a “Proud New Feeling,” and again in 2005, when the spectacular sale of its Canadian operations kick-started an era that was to have brought industry-leading store innovations and a lucrative roll-up strategy.

Those latter goals, however, were met only partially by the time A&P — once again — reached a crisis point last week: A Chapter 11 filing that could very well end the ownership reign of Haub and the Tengelmann Group.

Industry observers contacted last week said that mistakes following the lucrative Canadian sale in 2005 — including a botched integration of Pathmark and a general lack of financial discipline — were ultimately at fault for the bankruptcy. But they agreed with Haub that the Canada sale could have been a springboard for success.

An A&P spokeswoman said Haub was not available for an interview last week. In a 2008 interview with SN, Haub reflected on the lessons of running a 150-year-old retailer.

“A company goes through ups and downs,” Haub said. “The important thing is what you learn from the difficult periods and the things that didn’t go so well, and how to recover. The lesson you can take when it comes to food retailing is, you have to reinvent yourself on a fairly regular basis.”

The Canada sale gave A&P a substantial budget for reinvention: Nearly $1.5 billion in cash and stock in Metro, which bought the properties from A&P. Eric Claus, a rising star from the Canadian division, was concurrently named A&P’s CEO. The company paid off a large chunk of its debt and set to spending much of the rest on updating a store base badly in need of capital, creating well-appointed “Fresh” store formats, which targeted an upscale clientele; hard-discount Food Basics stores, which aimed for a discount shopper; and in Manhattan, an elaborate “gourmet” remake of the Food Emporium chain.

Many of the remodeled stores showed appreciable gains in volume even as financial analysts voiced concerns about who was minding their cost. Among Claus’ first moves as CEO was promoting a new chief financial officer, Brenda Galgano, to replace Mitch Goldstein, who resigned after being offered a reduced role in the organization, sources said. Many analysts credited Goldstein for engineering the Canada sale — and for helping management to recognize the strategic importance of finance as part of the company’s business plan.

The following spring, A&P recognized its newfound momentum and rewarded longtime shareholders with a special dividend of $7.25 per share. One source last week said that $300 million would have been better spent reducing debt, although at the time many industry observers were detecting a growing attraction between A&P and its longtime rival, Pathmark.

Haub believed strongly that consolidation was an inevitability in the Northeast, and became determined to use A&P as its trigger. In a 2006 interview with SN, he insisted consolidation was right for shareholders, “but we want to control our own destiny.” He took this posture into negotiations with Ron Burkle of Pathmark and emerged in early 2007 with a $1.3 billion acquisition. Sources close to Burkle told SN at the time that the deal “could have gone either way.”

It would become clear in the months and years to follow that A&P paid too much and got too little from Pathmark. Officials discovered prices were too high, then dialed back advertising while they attempted to correct it. A merchandising glitch disclosed in 2008 resulted in $5 million in missed vendor allowances. In early 2009 Claus said Pathmark was sailing “rapidly off the rails” as the economic downturn had zapped the company’s core shopper base. Centralized processes imposed from Montvale in the meantime failed to mesh with Pathmark’s longtime practices. Officials nevertheless earned incentives based on a successful integration.

Haub reenlisted the help of Burkle, and the investors combined for a $150 million cash investment in the summer of 2009. Claus and his replacement, Ron Marshall, were fired. Subsequent cash-raising events — the sale of a group of stores in Connecticut and a sale-leaseback deal — failed to provide enough to keep the company afloat.

Observers last week insisted A&P was salvageable and expected a reorganized company might once again be in a position to play an important role in consolidating the grocery market. As A&P history would indicate, it will be a matter of learning from mistakes and reinvention.