Kroger Probably Will Not Bid on A&P
Another American retail legend is heading for the ash heap of history. The Great Atlantic Pacific and & Tea Company, the owner of the A&P supermarkets, has filed for Chapter 11 bankruptcy and plans to sell off all of its assets, The Wall Street Journal reported.
This is the second time A&P has filed for bankruptcy in the last five years and the end of the line for the chain, which was once America’s largest grocer. In its heyday in the mid-20th century, A&P operated 15,000 stores across the nation; today it only owns 400 stores, mostly located in the region around New York City.
News reports indicate that around 120 stores will be sold, 25 supermarkets will be shut down and 150 will be auctioned off. Around 28,500 people currently work at A&P. It is unclear who the buyer for the stores will be; Kroger Co (NYSE: KR) is an unlikely candidate.
The chain is being broken up because no buyer for the entire business could be found. That’s rather disturbing because A&P concentrated on selling to middle and working class shoppers. The company was also burdened with high labor costs and pension expenses.
Kroger Not Interested in A&P
Kroger CEO Rodney McMullen hates buying chains that need to be fixed and inheriting other people’s problems, Cincinnati Business Courier reporter Steve Watkins noted. Instead, the Cincinnati-based giant prefers to buy well-run companies like Harris Teeter or Fred Meyer.
Kroger also likes to operate in areas where it has a full ecosystem in place to support its stores. Currently, the grocer has no operations in the New York area, which has a crowded and very competitive grocery business. It is hard to see Kroger moving into a new region unless it could purchase a well-run local chain there.
More likely, buyers for the A&P locations include Walmart Stores Inc. (NYSE: WMT), which is expanding the number of smaller locations it operates, and Target (NYSE: TGT), which is considering entering the small-box arena. Also likely to jump in is the fast-growing, privately-held Aldi Inc., which is aggressively expanding its discount grocery business in the United States. Aldi owns another fast-growing grocer: Trader Joe’s.
Aldi plans to open 45 new stores in the United States by the end of 2016 and 650 new stores by the end of 2018, Business Insider reported. Trader Joe’s is planning to open 38 stores this year, according to CheatSheet.
A publicly-held company that might try to buy some A&P locations is Sprouts Farmers Market (NASDAQ: SFM), a fast-growing discount organic grocer. Sprouts often locates its markets in older stores vacated by competitors to save money. New York might be a natural location for Sprouts, which tends to market to a more upscale clientele. As I have noted elsewhere, Sprouts needs to greatly expand its number of locations in order to sustain its business model.
A&P’s demise is only the latest round in a rapidly changing and consolidating grocery industry. Expect to see a number of other historic grocers disappear over the next few decades. Also expect to see many more acquisitions as smaller and less healthy grocers die off. Many more shopping centers are going to be graced with empty supermarkets in the years ahead.
Disclosure: The blog writer owns shares of Kroger.
