Price and Pride on the Skids

Can anyone revive A. & P. ?

When Jonathan L. Scott was brought in as an outsider in 1975, he appeared to be the man to shake up the insular A. & P. Chairman Scott, now 47, swung a cruel ax on "Grandma," as employees sometimes call the venerable food chain. He closed 1,700 stores, released 10,000 employees, borrowed heavily to revamp and enlarge the remaining 1,932 supermarkets. He hired 19 new executives, including Grant C. Gentry, who left the flourishing Jewel chain to become A. & P. president. Said Scott: "I have a philosophy that you should surround yourself with people better than yourself."

Now, more than halfway through Scott's "fiveyear plan" for making A. & P. solidly profitable, the results are dismal. Last month A. & P. reported that earnings in the quarter ended Aug. 27, the second period of its fiscal year, dropped a sickening 88% below a year earlier, even though sales rose 2.4%. After that news broke, President Gentry resigned. He has been succeeded by David W. Morrow, 46, who once worked with Chairman Scott at Albertson's, a food and drug chain based in Boise, Idaho. Though A. & P. is closemouthed about the profit crash and the executive shift, G.E. Manolovici of Bear, Stearns & Co., one of a mere handful of Wall Street analysts who bother to follow Grandma any more, says: "To me, as an outsider, this means they've got some terrible trouble over there."

Terrible trouble is commonplace at A.&P. Between 1966 and 1976 the chain's sales rose from $5.4 billion to $7.2 billion, but profits fell from $56 million to less than $14 million. They are likely to shrink this year to near invisibility. Even in 1976 A. & P. earned a mere tenth of a cent on each dollar in sales. The company yielded top sales rank in the supermarket business to Safeway (1976 volume: $10.4 billion) in 1973. Now it is close to being overtaken as well by Kroger (1976 sales: $6 billion). A. & P. shareholders are understandably disgruntled because they have received dividends in only two of the past five years (450 a share in 1974, 100 so far in 1977).

One trouble is that inflation currently is pushing up store operating costs --wages, electric bills, transportation charges--much faster than food prices. Other chains have raised profits nonetheless, largely because they started much earlier than A.&P. in replacing dim, crowded stores with modern markets that get more volume per sq. ft. of selling space and have many more branches in the prospering Sunbelt. A. & P.'s markets are still heavily concentrated in the economically depressed mid-Atlantic states. Says Analyst Fred Kopf of Reynolds Securities: "It would have been easier for A. & P. if the world had stood still."

An even worse problem is employee morale, which analysts agree is at a nadir. Scott has tried to get employees to change the stores' hidebound ways of doing things, at last allowing local managers some autonomy. The result so far has been confusion. The chain's expensive and somewhat mystifying Price and Pride ad campaign has been aimed primarily not at luring shoppers into the stores but at bucking up the spirits of workers. So far it has failed to spark much excitement.

A. & P. indeed has become a possible takeover target: at current prices, all 25 million of its outstanding shares could be bought for about $236 million--less than acquisition experts have been willing to pay for much smaller corporations. If they are not tempted, analysts think that Scott may yet make A. & P. profitable, but at the price of shrinking it to perhaps two-thirds its present size. That would be a blow to pride: the company would become, in effect if not in name, the Little Atlantic & Pacific Tea Co. qed

This file is automatically generated by a robot program, so viewer discretion is required.