July 2008

A&P late last month announced that it plans to convert eight of its Super Fresh stores in the greater Philadelphia area to its new Pathmark Sav-A-Center banner and will also upgrade 16 other Pathmark stores to its newest price impact format.

Those stores that remain bannered as Super Fresh will also undergo upgrades to the chain’s new “fresh” format, which has already occurred at several stores in the Philadelphia area.

“These changes further illustrate the company’s ongoing commitment to the greater Philadelphia market,” stated Eric Claus, president and CEO. He added, “These conversions are the realization of our long-term strategic plan that leverages the addition of Pathmark to our A&P family of supermarkets and allows us to bring the most relevant format to our customers.”

The banner conversions will take place over the next 12 months and will be the first market-wide format change the Tea Company will undertake since it acquired Pathmark in December 2007 for $1.3 billion.

At this point, all stores in Maryland, Delaware and its lone Washington, DC unit on Yuma Street NW will continue to trade as under the Super Fresh banner, although sources have told us a determination about their future could be made within the next nine months.
Claus and A&P executive chairman Christian Haub have continually stated that they will utilize all of the chains banners (which also includes its core A&P name as well as Food Emporium and Food Basics) in an effort to maximize its potential throughout the metro New York, Delaware Valley and Mid-Atlantic regions.
That has come to mean that A&P and Super Fresh will be marketed as “fresh” perishables driven formats while Pathmark and Food Basics will focus on price.

In the past six weeks, the Montvale, NJ based chain has converted two Northern New Jersey Pathmark stores in Irvington, NJ and Edison, NJ to its new Pathmark Sav-A-Center format, a full service supermarket featuring deeper discounting, some SKU reductions and emphasis on price.
While A&P would not release the locations of the current Super Fresh stores targeted for conversion, several sources said that units that will be re-bannered include: Berwyn, PA; Boothwyn, PA, Walnutport, PA; and five locations in the city of Philadelphia (Cottman Avenue, Christopher Columbus Boulevard., Crittendan Road., Franklin Mills and South Street).

Those Pathmark units that will be upgraded and remodeled to become Pathmark Sav-A Centers include: Wyncote, PA; Upper Darby, PA; Glenolden, PA; Bristol, PA; Folsom, PA; Bensalem, PA; Fairless Hills, PA; Brookhaven, PA; and eight in Philadelphia (Aramingo Avenue, Broad Street, Chelten Avenue, Cottman Avenue, Frankford Avenue, Grays Ferry Avenue, Monument Avenue, and Oregon Avenue).

Sources have told us that while the remaining 27 stores in the eight county greater Philadelphia area will remain branded as Super Fresh units, there is no guarantee that they will remain that way after the first round of conversions made. There are also an additional 15 Pathmark units in that same eight county area that will continue trading as conventional Pathmark stores after the banner conversions are completed.

“A&P has struggled in the Philadelphia area for quite some time now,” said a source closely connected to the Tea Company. “With competition as fierce as it is and with very tough operators like ShopRite and Giant/Carlisle gaining share in Philadelphia, changing to a discount model makes sense and is very much in line with what the company had planned when it acquired Pathmark. However, it is very expensive to run multiple banners in a big market like Philadelphia.”

The source added that while other remaining Super Fresh stores and current conventional Pathmarks could be converted to the Pathmark Sav-A-Center format, there is no guarantee that will happen.

“I believe this first phase is a test whether the Great Atlantic & Pacific Tea Company should remain in Philadelphia for the long-term. I wouldn’t be surprised if several more stores are converted beyond the first phase and others are simply closed or sold,” our source speculated.

Another source noted that A&P will probably have to address its Maryland and Delaware stores in the near future, too,

“You could certainly make an argument that the Wilmington area stores (eight combined Super Fresh and Pathmark stores) and Eastern Shore units (nine stores) could remain open as Super Fresh units. But the stores around Baltimore are a greater concern,” our other source noted. “There are many stores in that area not performing particularly well and you have Wegmans, Wal-Mart SuperCenters and Harris Teeter entering the market as emerging growth factors. That puts the squeeze on A&P a bit more. If A&P management is serious about operating at maximum efficiency, then you have to wonder how long can they stand to lose market share to those chains ahead of them (Giant/Landover, Safeway, Shoppers), those emerging new companies and the growing alternate retailer channel.”

Currently, there are 25 Super Fresh stores in the Baltimore-Washington market. Additionally, we have learned that planned new stores for Rockville, MD and Annapolis, MD have been pulled from the real estate chart. Additionally, we have learned that Wakefern has had discussions with A&P about its B-W units, where the big co-op would presumably focus on its PriceRite discount model.
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