A&P CITES GAINS FROM STRATEGY INITIATIVES

MONTVALE, N.J. -- A&P here said last it is beginning to see positive results from the series of strategic initiatives management has made over the last two years."We've begun to achieve traction on our [supply and business process] initiatives, but we must still work hard to achieve our goals," said Christian Haub, chairman, president and chief executive officer.. Without a significant downturn in

MONTVALE, N.J. -- A&P here said last it is beginning to see positive results from the series of strategic initiatives management has made over the last two years.

"We've begun to achieve traction on our [supply and business process] initiatives, but we must still work hard to achieve our goals," said Christian Haub, chairman, president and chief executive officer.. Without a significant downturn in consumer spending, we expect to reach a break-even point on earnings this year."

Haub made his remarks in a conference call with securities analysts following release of A&P's financial results for the second quarter and first half ended Sept. 8.

During the call, Haub and Beth Culligan, executive vice president and chief operating officer, cited the progress A&P is making on some of the strategic initiatives it is pursuing, including:

Implementing improved category management. "We're being more rigorous now in doing more category analysis and imposing more discipline, which is not what we did a year ago. So we're on a fast pace to catch up with the industry," Culligan said.

"The biggest change is our focus on product assortment, longer-term promotional planning and less emphasis on buying just to buy. Our goal is to work with vendors to grow sales together profitably by identifying cost drivers and conducting business more efficiently in an effort to reduce costs for both of us."

According to Haub, "We're being more proactive. We're not waiting for suppliers to give us information. By utilizing category management, we have our own data models that we look at to make our own decisions.

"And there's more integration between grocery categories and promotional plans. Consumers don't buy one category -- they buy for their household needs -- so we need to understand how to provide the best basket offerings we can."

Reexamining assortments in key grocery categories to be sure A&P's selection meets customers' needs, including more integration of corporate brands.

"Given the economic situation in the U.S., we believe opportunities for corporate brands will be greater as people start to trade down, and we have to be there," Culligan said, "so you will see more promotions and better positioning of corporate brands on the shelf. In the past we never really included corporate brands as part of our category thinking, but now it's part of our total look at each category."

Culligan said A&P's moves toward corporate-brand integration will be apparent shortly, though she declined to provide details. "But you will see more promotional efforts with corporate brands making a statement," she said.

Improving retail execution to provide more consistency in in-store merchandising. "In the past we didn't deliver on programs set up with vendors. But I think vendors would now say A&P is delivering at a higher level than in the past."

Haub said service levels are up 1% to 1.5% from a year ago, "and that has helped us achieve better in-stock positions on promotional items, on fast-turning merchandise and on slow movers. And though we've made progress in reducing service complaints about long lines and clerk attitudes, we're far from satisfied."

Seeking more merchandising opportunities as new systems come online, including a new transportation management system that has been implemented companywide and the rollout of a new warehouse management system that is under way.

Improving its store base. "We've made good progress in improving our store base with new operating standards," Culligan said, "including engineered labor standards in grocery and the front end, which has resulted in improvements in labor productivity and customer service, and improved service levels from the warehouse to the stores, which has resulted in improved in-stock conditions and lower inventory levels."

She said A&P has also reduced the number of underperforming stores, "and several are showing progress as a result of remedial programs. We're also spending more for remodels, and we will continue to open new stores while striking a balance with the number of remodels."

Last week's results showed sales up 4.4% to $2.6 billion for the 12-week quarter and 5.3% to $5.9 billion for the half, while comparable-store sales increased 2.7% in the quarter and 3.3% in the half.

Excluding costs related to strategic initiatives for both years, A&P said net income was $9.9 million for the quarter and $21.1 million for the half.

Gross margin increased to 29.03% for the quarter, up 53 basis points, Haub said, "and with new tools coming on line this year and next, we expect additional gross-margin gains through next year.

"However, although our performance was good, it was still far below the potential based on industry benchmarks."