IMPENDING consolidation among retailers in the fragmented Northeast was perhaps the industry's worst-kept secret as 2007 began. By the time the year ended, consolidation was indeed in full effect.
The signature deal there was the merging of A&P and Pathmark — a combination seen as years in the making by observers. In the months before the deal was announced in March, its participants spoke openly about the forces requiring additional scale and market strength.
Though it was making considerable progress in its goal to spark sales and profits behind a new fresh store format, A&P, Montvale, N.J., was badly in need of a better handle on its costs so as to afford those renovations. A&P was also vulnerable to pricing actions by higher-volume competitors. Carteret, N.J.-based Pathmark in many ways suffered an opposite problem: It had productive stores and a strong price image, but growth was nonexistent and profits had stalled. It, too, needed to reduce costs in order to invest in its store base — particularly to generate the more profitable mix of sales that A&P, for example, was achieving in its renovated fresh stores.
Papers filed following the announcement of the merger indicated that the rivals had in fact circled one another as acquisition targets in the past, and although A&P eventually was the buyer, “it could have easily have gone the other way,” one source told SN. Indeed, A&P had rejected a proposed buyout for about the same price it eventually paid for Pathmark, as well as a “merger of equals” proposed by Pathmark's owners in 2006.
The A&P-Pathmark merger was finalized in early December, creating a 450-store chain with sales of $9.4 billion and operations stretching from Metro New York to Baltimore. A&P said it would position Pathmark as a distinct format — what it called a “full-shop, price-impact” box that would complement its own pricier gourmet and fresh formats, as well as its limited-assortment discount store, Food Basics.
Though no specific plans beyond six divestitures mandated by federal antitrust authorities had been announced, A&P officials said they would utilize the company's various formats where they will be most effective, suggesting that some A&Ps would become Pathmarks or Food Basics sites, while some Pathmarks could be upgraded to the A&P name, and so on. Sources suggested that some stores would likely close or be sold to nonfood operators where necessary.
But the merger's benefits would have the biggest impact on the cost side. A&P said it was aiming to remove $150 million in costs over the first 18 months.
Competitors of A&P and Pathmark, in the meantime, did some repositioning — and, officials said, kept pricing competition high. Wakefern, the cooperative of ShopRite owners and the volume and price leader in New Jersey — said it would reach out to new wholesale customers not in its network, signing up Ohio retailer Heinen's. ShopRite also added to its strength by acquiring a number of former Stop & Shop locations in southern New Jersey. Stop & Shop, a competitor of A&P and Pathmark on Long Island and in New Jersey, by year-end was beginning to realize benefits from its price repositioning. Long Island-based competitor King Kullen is poised to become the beneficiary of mandated divestitures, mainly on Staten Island.