A&P TO BEGIN TEST OF PRICE-IMPACT FORMAT

MONTVALE, N.J. -- A&P here opened its first domestic store last week under the Food Basics banner, a limited-assortment format that has been successful for the company in Canada.The initial test of the price-impact format comes at a shuttered store in Passaic, N.J. It's predicted a second unit is to open in Paterson, N.J., in January. Some industry observers see the price-impact format as ideally

MONTVALE, N.J. -- A&P here opened its first domestic store last week under the Food Basics banner, a limited-assortment format that has been successful for the company in Canada.

The initial test of the price-impact format comes at a shuttered store in Passaic, N.J. It's predicted a second unit is to open in Paterson, N.J., in January. Some industry observers see the price-impact format as ideally tailored to a declining economy.

If the concept proves successful, A&P intends to roll out the format to many of its closed, underperforming or even newly built locations in urban areas, Richard DeSanta, A&P vice president of corporate affairs, told SN.

"We'd like this to succeed, but [before we go further], we'll go to school on these two locations and make decisions from there."

A&P's Canadian Food Basics format was launched in 1994.

"The company took an aggressive attitude and quickly converted many underperforming conventional A&P and Dominion stores to the Food Basics banner," said Perry Caicco, merchandising analyst, National Bank Financial, Toronto.

According to Caicco, Food Basics has captured about a 30% share of the Ontario discount-food market, second only to Loblaw's No Frills with 46%. "A combination of low pricing, great locations and strong store design made Food Basics an instant hit with customers," he said.

A&P will soon see if it can fly Food Basics in the United States. "This is a concept we see as a possible solution in certain locations and areas where it's not feasible to be operating the larger supermarkets that we have on the suburban side, " DeSanta said. "Observing the success we've had up in Canada, it's a concept that's been under consideration for quite some time."

The operation -- a no-frills, limited offering with 8,000 stockkeeping units sold at everyday low prices -- is faithful to the Canadian format, said DeSanta. The difference is in the merchandising mix, which will be tailored to local demographics.

The 25,000-square-foot store in Passaic is in a blue- collar, middle-income neighborhood where the predominant ethnic mix is Hispanic and Polish, a mix that will be reflected in the international food assortment and fresh produce.

Competition in the area is limited to a ShopRite store, other independents and specialty operators, DeSanta said. "We see this as something unique. There are small operators that emphasize price but don't offer an entire supermarket assortment. That is where we differ. It is a full weekly shop for anybody, but at a basic, no-frills approach."

Food Basics' grocery assortment consists of the top-selling brand in each category, complemented by A&P's private label.

"We are emphasizing the movement leader in each category and wherever possible it's an opportunity for our corporate brands because we think they support the whole concept very well," said DeSanta.

Perishables will be limited to packaged products, with no butcher, deli or scratch bakery. The store, however, features a "signature" produce department. "It's definitely the lead power department, located up front in the traffic pattern and relatively expensive. The emphasis is on fresh fruits and vegetables," DeSanta said.

With the no-frills approach, shoppers can reuse their own shopping bags or pay 3 cents for small plastic bags or 10 cents for large. Customers are expected to pack their own groceries.

A biweekly circular will feature selected specials. DeSanta noted such promotions will not compromise the EDLP structure. Some of the inventory is merchandised and displayed in open cut cases.

Debra Levin, principal, Morgan Stanley, New York, noted that Food Basics Canada has been effective in part because the stores have a different union contract from A&P's other Canadian banners. "It's a lower-cost contract vs. their A&P and Dominion stores," she said. "What makes Food Basics a low-cost operator is lower labor costs. Some of it is taking labor out of stores. They have fewer items, so they do not need as much labor. Also, people bag their own groceries."

A&P and Local 464A of the United Food and Commercial Workers Union, Little Falls, N.J., did negotiate a union contract with Food Basics, said John Niccollai, Local 464A president, adding that the contract is tailored to the format's specific needs.

"In a conventional A&P, there is [food] processing going on, and in Food Basics you don't," he said. "Where you have an operation that doesn't house meat cutters, you don't have meat-cutter rates. If you have an operation that doesn't encompass wrappers, you don't have wrapper rates."

On the other hand, he said grocery clerk pay rates are comparable to those of conventional stores.

"Part of the responsibility of the union is to provide a level playing field, and the best employers should prevail. They should prevail based upon their operation, not based on a difference in a union contract," Niccollai said.

Niccollai attended the Nov. 6 Food Basics grand opening where, he said, people were lined up 20 deep at the registers to check out. Of the concept, he said, "It will help our union members tremendously because it will be competition for many of these nonunion club stores that have come into our area."

Levin said she sees A&P's pilot test as in concert with the rapid growth through the industry of price-impact formats, such as Fleming's Food 4 Less, Fresh 4 Less and Yes!Less; Supervalu's Sav-A-Lot, Cub and Metro Shoppers Food Warehouse; and Aldi.

"The economy is softer now, which helps limited-assortment stores. But the bottom line is that there has been a market all along for these operators. It's been a very fast-growth business," she said.