A&P LAYS OUT EXPANSION, PROFIT STRATEGY

ELLIOT ZWIEBACH

MONTVALE, N.J. -- A&P here plans to solidify profitability in markets where it has strong market shares while maintaining its other locations "as a basis for possible future development," James Wood, chairman and co-chief executive officer, told shareholders in the company's annual report.

According to Wood, A&P's strongest markets are metro New York, Ontario and the Midwest.

Indeed, A&P said last week that its net income for the fiscal first quarter rose 4.2% to $22.8 million, or 60 cents a share, due in part to improvements at its Canadian, Michigan and Food Emporium operations.

In those markets, Wood said, A&P is following a basic four-point strategy to reshape the chain's image: replacing smaller stores with large superstores, featuring outstanding perishables departments, emphasizing private-label goods and tailoring each store's offerings to its local market.

Other markets include the Mid-Atlantic, New England, South, Southeast and South Central, where A&P plans to expand more slowly with smaller store prototypes, Wood said in the report.

According to the annual report, the company will build its 50,000-square-foot-plus prototype stores only in the stronger core markets, with 92% of sales by the end of 1998 coming from stores that have been opened or remodeled during the 1990s.

"The[se] new A&P superstores have accelerated the obsolescence of some existing stores, particularly in our core markets, which in the short term has created adverse sales and profits in the older stores," Wood said in the report.

"By the end of 1998, this short-term problem will be at an end." He said A&P plans to spend $310 million this year -- an increase of 4.4% over the $297 million spent in 1996 -- to open 40 supermarkets and make upgrades at other locations.

The annual report had these observations on various A&P divisions:

Ontario, where A&P converted 41 money-losing conventional stores into Food Basics, a price-oriented format whose "dramatic turnaround was A&P's biggest success story last year."

The company now operates 56 Food Basics, including 49 franchised units and seven corporate stores. The report said A&P will convert more than 20 additional units to the Food Basics format this year.

The chain's Canadian operation also includes 55 upscale Dominion stores in the Toronto metropolitan area and 114 A&P/Super Fresh stores, which emphasize perishables, outside Toronto.

Metro New York, where A&P said the 89-store Waldbaum's division showed improving sales trends throughout the year. The report said Waldbaum's has six new stores under construction -- the first new-store additions in several years -- as A&P attempts to reestablish Waldbaum's historic ethnic orientation.

The company said it opened nine new or replacement A&P stores in the metro area while closing older, outmoded locations, with 10 more stores scheduled for this year; and it expanded its gourmet-oriented Food Emporium chain into New Jersey.

The Midwest, where Farmer Jack has picked up three percentage points in market share over the past two years, the report noted, and where the upscale Kohl's chain in Wisconsin has maintained good results in a discount-dominated marketplace. The company said it plans to open seven Farmer Jack units and three new Kohl's this year.

Mid-Atlantic, where 69 Super Fresh stores in the Philadelphia area and 68 in the Baltimore/Washington area "are well-positioned for future growth," the company said, after adding 10 new stores last year and scheduling 10 more for this year.

A&P said it is investing selectively in new stores in areas where it has lower market shares, including New England, where it opened two new stores last year and plans three more this year.

South and Southeast, where A&P opened one new store in Atlanta and one in New Orleans last year and plans two more in Atlanta this year; and the South Central group in the Carolinas and Virginia, where it plans to emphasize perishables, according to the report. "Our plan is to maintain these historic A&P markets, which are small country stores in the main, as a basis for possible future development," the report said.

For the quarter, sales rose slightly to $3.10 billion, compared with $3.09 billion a year earlier. Comparable-store sales fell 1.6% from a year earlier. The drop was attributed to A&P's new larger format stores, especially in New Jersey, drawing business away from existing stores.

A&P's annual meeting is scheduled for July 15 in Mahwah, N.J.