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A&P Bankruptcy Reflects Worsening Retail Outlook

In the middle part of the last century, A&P was the Great Atlantic & Pacific Tea Company, with stores — literally — stretching from coast to coast. It was the era’s Wal-Mart.

This past weekend, the saga closed on a dark note with the chain, down to nearly 400 stores clustered in the Northeast, about $1 billion in debt. Analysts are abuzz with talk of which competitor might move in if A&P decides to sell off failing divisions like the price-impact banner Pathmark (acquired in 2007 for $653 million) for liquidate everything.

If one looks behind the curtain, they’ll find the gloomy outlook isn’t limited to A&P. Other mainstream, conventional formats are showing some cracks. The insight is nicely outlined in a report penned by a contributor to the Gerson Lehrman Group’s website, written in November.

The anonymous author notes that mainstream retailers are getting squeezed out of the market by specialty operators who offer a more compelling selling proposition. In short, the “something-for-everyone” conventional format is losing relevancy with the current generation of consumers who are diversified, ethnic, recession-bruised and much more knowledgeable.

Let’s take a look: There are top management shifts at several chains; Supervalu is delivering “very disappointing comparable-store sales numbers,” in the words of one analyst; Safeway had a negative first half and Kroger is exhibiting “slow” (but positive) momentum.

This assessment comes from SN’s own review of the first half of 2010, published in October. Indeed, the article (also mentioned in the Gerson Lehrman report) singled out Whole Foods — not part of the mainstream — after it “far outpaced the rest of the industry.”

The Gerson Lehrman author, in turn, points out that the only thing saving the large conventional chains that remain in play is not their business prowess, but their size and scope. Current success "is much more due to their market dominance, weak competitors, and ability to hold down margins than the inherent strength of their conventional superstore format,” the author wrote.

It would seem it’s only a matter of time before the others start faltering as well.

Next — Which formats are poised to grow? Take your pick. There are the mass merchandsers like Wal-Mart and Target (midway through a chainwide effort to add larger food departments); niche stores like Trader Joe’s, Aldi and Fresh Market (with a heavy emphasis on private label, fresh foods and whole health); ethnic operators like 99 Ranch Market and Han A Reum (H-Mart); and what the report calls “foodie emporiums” like Wegmans and H-E-B Central Market.

Lump in there the drug channel (many are adding extensive food sections) and dollar stores (ditto) and there emerges a full landscape of interesting, cogent options.

2011 will be a telling year. Whole Foods is on a tear, Aldi, Sprouts and Sunflower Farmers Market are all growing, Fresh Market is fresh off a hugely success IPO… The list of positives in the specialty format segment is much longer than the one for mainstream stores. It's tough to reconcile that level of good news with what's actually occurring on the conventional side.