IT TO PLAY KEY ROLE IN FORGING A NEW A&P

DENISE POWER

MONTVALE, N.J. -- The lobby of A&P's headquarters here tells two tales. The bright red, horse-drawn carriage, circa 1911, that dresses the foyer might evoke nostalgia of better days for the 140-year old supermarket company.

Or, it might personify the antiquated state of its information technology today. The large, glass trophy case -- empty, save for one rather lonely-looking piece -- represents the company's optimism for better things to come. A&P hopes to fill that case with more awards and trophies, evidence that the struggling company can deliver on its mandate to re-emerge as a much stronger player than it's been in the last decade.

There is much work to be done in the meantime, and Nicholas Ioli, senior vice president and chief information officer, knows it very well. "It's a huge, huge undertaking," he said. Prior to joining the Great Atlantic & Pacific Tea Company last year, Ioli played a key role in a number of "fix-it" situations elsewhere, but none "more daunting" than this, he told SN during an interview here.

Nonetheless, that fact doesn't hamper his enthusiasm that the project he characterizes as "aggressive, extremely comprehensive" will bring new life to the company. "If we went about incremental change, we believe the marketplace will have passed us by," he said. "If we are going to be a player, the change has to be strategic, comprehensive and it has to differentiate us in our industry.

"This is our chance to be the new A&P."

As it closes the book on Great Renewal 1, a transformation effort that shuttered underperforming stores and opened supercenters, A&P enters Great Renewal 2. Over four years' time, this latter effort will cost $250 million and result in the replacement of nearly every software application running today, systemwide.

"We are wiping the slate clean and starting from scratch," Ioli said. "We are moving in a whole new direction in terms of processes and the business model."

That new business model, which unseats the deal-making formula that permitted supermarkets to thrive years ago despite such skimpy profit margins, is being built around the customer.

"This is not about technology," he said. "This is about changing the company," and building a technology infrastructure to support those customer-oriented initiatives.

"A&P's focus is around customer intimacy. We still have to be good at operational excellence, and develop new products and services, but we want to be focusing our efforts on guiding the company to become customer-centric," he said.

"Now, saying all that, we come to this whole IT strategy to support it."

To achieve an understanding of customer needs on a market-by-market -- and eventually store-by-store -- basis, A&P will develop a customer database. This will be fully integrated with a new, robust item database -- without all the gaps in data that exist today -- and a financials/human resources database from Oracle, Redwood City, Calif. Together, these components will form the framework of intelligence upon which A&P's enterprise resource planning system will draw for decision support.

In other words, the information technology architecture under construction today will provide data with integrity, the knowledge to drive smarter decisions tomorrow regarding merchandising, purchasing, allocation and mix tailored to customers scattered across 16 states and Canada. A&P operates some 750 stores under 16 retail banners such as Farmer Jack, Waldbaum's, Food Emporium, Kohl's and Ultra Food & Drug.

"We'll be able to look at our customers' needs, wants and requirements, wherever we serve them," Ioli said. "Certainly, how we market that offer and how we deliver that through the stores will be different in Manhattan than it would be in the outskirts of Baltimore. It would be more highly ethnic in some of those areas where we have a highly ethnic concentration of customers."

For example, the merchandise offering in Ontario's Food Basics stores, which feature low pricing, would differ greatly from that in Food Emporium stores in Manhattan and upscale neighborhoods that carry gourmet foods and imported product.

This ERP system is not yet built, but A&P is investing heavily and partnering with technology vendors to create what Ioli calls "the first ERP system for grocery." He said A&P will be the first supermarket to implement the system, which will then later be brought to market.

The three databases for customer, item and financial information will integrate with a core retail management system from Retek, Minneapolis. IBM, Armonk, N.Y., will provide the systems integration necessary to bring into the picture "bolt-on" best-of-breed applications for a warehouse management system, from OMI International, and for transportation management, from Manugistics, Rockville, Md. Store systems will be provided by Tomax, CITY, and Softechnics, CITY.

This massive investment in technology represents a significant departure for A&P.

"Our systems are very old," Ioli acknowledged. "There weren't a lot of investments made so we're coming from a very antiquated base."

A former A&P information technology executive said, "A&P was very economical and those economies kept them going extremely well but there is that point on the curve where you have to take off and invest in systems. A&P is now well beyond that curve and is trying to catch up. They knew that five years ago when Christian [Haub, chief executive officer] wanted to do a project," but was stonewalled. A&P is 55% owned by Germany's Tengelmann Group.

The executive questioned the aggressive approach the chain was taking and said the company may be taking on more than it can handle. "It's like a war," he said. "If you open battle on multiple fronts, you can't win unless you've got resources to burn. And if you've got resources to burn, how can you make a profit?"

Ioli said although the strategy is aggressive, certain moves have been mapped out to deliver incremental benefits in the short term to help finance the larger capital investment.

For example, the warehouse management system software will be rolled out to all distribution centers in December or January, and there will be immediate benefits even though it will first linked with the legacy system. Later it will be hooked into the new retail management system

Ioli said A&P could have opted to do a big bang, and hook everything together at once, but chose not to. "We couldn't afford to do that because we needed to deliver some benefits to defray the cost of what we are talking about."

Ioli said all these changes were inevitable.

"The whole landscape is changing within the retail industry vertical," Ioli said. "We're faced with [incursions from] Wal-Mart, we're looking at erosion through other channels, the Web and the formation of all these exchanges. How do you deal with all that?

"There are many things happening right now that are forcing us to face up to that. We're going to need the enabling technology and process efficiencies to stay in this world and be competitive."