NEW YORK — A&P envisions an integrated Pathmark as a full-shop complement to its Food Basics discount banner, Christian Haub, executive chairman of A&P, told attendees at the Goldman Sachs Global Retail Conference here last week.
A&P, based in Montvale, N.J., expects to win approval to purchase Pathmark later this month.
“We see Pathmark as a price-impact format — a format that does well in urban and ethnically diverse markets, and in markets where the consumer is not necessarily seeking the fresh solution but wants a competitive shop and a full-store offering,” said Haub, adding that Pathmark “gives us a format for every consumer in the market without overlapping.”
Haub said A&P expects to have clearance from the Federal Trade Commission to pursue its merger on or before Sept. 25, but said the FTC will likely require store divestitures that will need to be completed before regulators give their final approval.
Haub acknowledged that A&P has recently had to dial up its price competitiveness in response to an aggressive campaign by rival banner ShopRite, a 200-store cooperative also based in New Jersey.
“We don't think [ShopRite's price promotion] has much to do with the economy or the consumer, but rather, it's a move to opportunistically grab market share while they perceive A&P and Pathmark to be distracted with closing the transaction and executing the merger,” Haub said. “That's something we anticipated, we just didn't know when.”
He said A&P was obliged to step up its own promotional program in response.
“If we don't, then ShopRite achieves its objective and only becomes more aggressive,” he said.
Completing the merger with Pathmark, he added, would allow A&P an opportunity “to start behaving like a market leader,” Haub said, and take the fight to its competitors.
“We won't roll over like we might have done in the past,” he said.
John Heinbockel, the Goldman Sachs analyst who moderated the event, said the combined A&P and Pathmark organizations would create EBITDA growth and margins surpassing what either company could have achieved on its own. Many of the benefits will come as the result of taking out duplicate costs. A&P has targeted $150 million in synergies over two years, though Heinbockel speculated cost take-outs could reach $100 million in a year.
The analyst cautioned that results would likely be challenging in the first few quarters as the company focuses on integration and faces competitive reactions.
In response to a question from the audience, Haub said he fears SuperTarget more than Wal-Mart Supercenters, saying the former does a better job with customer loyalty and targets a demographic similar to A&P's “fresh” stores. While SuperTarget's food strength is mainly in Center Store, “I believe they will find a way to translate that [customer loyalty] to other areas as well,” he said. For the time being, however, a SuperTarget that located next to an A&P fresh store in Mt. Kisco, N.Y., helped the A&P store to post a 5% sales increase, as Target drew shoppers from wider distances.