GRAND UNION CUTTING WORK FORCE

ELLIOT ZWIEBACH

WAYNE, N.J. -- After closing 24 underperforming stores last year, Grand Union Co. here said it is implementing a special chainwide voluntary resignation incentive program that reportedly could reduce its store-level work force by 400 to 500 people.

The cost-reduction move would represent a drop of approximately 3% in Grand Union's 16,000-member work force.

According to Joseph J. McCaig, president and chief executive officer, the effort is intended "to induce higher wage-scale employees to accept a bonus package to voluntarily terminate their employment." The new program coincides with a number of other developments at Grand Union as it continues its financial comeback from its recent Chapter 11 bankruptcy protection. Among them:

The chain reported a drop in sales for the first quarter ended July 22 as a result of closing the 24 stores, but same-store sales moved in a positive direction.

The company has embarked on development of its first long-term strategic plan in years, which observers say may address areas including marketing and store growth.

The chain's new marketing program in its Northern region is helping reverse negative sales trends there, according to observers.

The previously disclosed switch in the Northern region from self-supply to C&S Wholesale Grocers, Brattleboro, Vt., is expected to begin to offset the costs of the marketing program during the current quarter, according to the company.

Grand Union operates 231 stores in six Northeastern states. It emerged from Chapter 11 on June 15 -- 11 weeks into the 16-week quarter. According to McCaig, the chain expects the voluntary resignation program to moderate store labor costs over the remainder of the year by approximately $4 million.

According to Ken Bann, a high-yield analyst for Lehman Bros., New York, "The ratio of in-store labor costs to sales rose by about 3% when Grand Union closed 24 underperforming stores and had to absorb the employees from those stores into other stores. "This [voluntary resignation program] is an effort to try to bring expenses down to more normal levels." According to a Grand Union spokesman, the company is developing a five-year strategic plan, "which is natural for a company that has just emerged from bankruptcy," he told SN.

However, he declined to discuss specifics because the company has just started developing the plan. According to Howard Goldberg, a high-yield analyst with Smith Barney, New York, "Because of its financial problems, Grand Union hasn't had the luxury over the last few years of being able to develop a mission statement that ties together the reasons it is in business, nor has it been able to devise long-term strategies concerning pricing, marketing and opening and closing stores."

Goldberg said any fundamental strategies Grand Union develops will have to focus on improving business in its Northern region [upstate New York, Vermont and New Hampshire], where it needs to develop programs to improve its pricing image, increase store size and position itself competitively against Hannaford Bros., Price Chopper and ShopRite affiliates there." Grand Union has already begun addressing its Northern region challenges with the introduction May 1 of a marketing program that includes lower everyday prices, an emphasis on perishables and strong sales promotion programs.

According to Bann, the effort has been very successful so far and has helped boost Grand Union's same-store sales from a 6.6% decline in last year's fourth quarter to a 0.1% gain in the first quarter of this year. Sales for the quarter fell 3.6% to $720.5 million. The quarter included an extraordinary gain of $854.8 million from discharge of debt; without that gain the company reported a loss of $38.9 million compared with a loss of $25 million a year ago. Grand Union attributed the sales decline to the sale or closure of 24 stores that were not replaced; it said the effect of the closures was partially offset by incremental sales at new stores and slightly improved same-store sales.

1ST-QUARTER RESULTS

Qtr Ended 7/22/95 7/23/94

Sales $720.5 million $747.7 million

Change - 3.6%

Same-store 0.1%

Net Income $815.9 million ($25 million)