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Executives

William Moss – Vice President & Treasurer

Christian Wilhelm Erich Haub – Executive Chairman of the Board, Interim President & Interim Chief Executive Officer

Brenda M. Galgano – Chief Financial Officer & Senior Vice President

Analyst

Karen Short – BMO Capital Markets

John Heinbockel – Goldman Sachs

[Bob Summers – Pilot Capital]

Jonathan Feeney – Janney Montgomery Scott, LLC

The Great Atlantic and Pacific Tea Company (GAP) F3Q10 Earnings Call January 12, 2010 11:00 AM ET

Operator

Welcome to the Great Atlantic and Pacific Tea Company’s conference call. All lines have will be in a listen only mode until the question and answer session. Today’s teleconference is being recorded. If you object, please disconnect at this time. For your information, a webcast is available on A&P’s website at www.APTea.com. Chairing today’s call will be Christian Haub, Executive Chairman and Interim CEO. Also participating on today’s call will be Brenda Galgano, Senior Vice President and Chief Financial Officer.

I would now like to introduce Bill Moss, Vice President and Treasurer who will read A&P’s Safe Harbor disclaimer.

Brenda M. Galgano

This morning’s presentation may contain forward-looking statements about the future performance of company is based on management’s assumptions and beliefs in light of information currently available. The company assumes no obligation to update this information.

These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from such statements including but not limited to competitive practices and pricing in the food industry and particularly in the company’s principle markets, the company’s relationship with its employees, the terms of future collective bargaining agreements, the cost and other effects of lawsuits and administrative proceedings, the nature and extent of consolidation in the food industry, changes in the financial market which may affect the company’s cost of capital or the ability to access capital, supplier quality control problems with the company’s vendors and changes in economic conditions with may affect the buying patterns of the company’s customers.

I will now turn the call over to our Executive Chairman, Christian Haub.

Christian Wilhelm Erich Haub

Welcome to our third quarter conference call. Before I let Brenda review our quarterly results in detail I would like to make some general comments about our performance and also update you on the status of our CEO search. At the time I took over the role of interim CEO 12 weeks ago, I knew that the company needed significant support and guidance and I reached out to Ron Burkle for his assistance. Very quickly he assembled and dispatched a highly qualified team of professionals that has been here basically around the clock working with me and the senior management team.

Together, we examined the company’s situation, determined what we had to change and then embarked on implementing a number of changes. We mutually developed a rigorous strategic assessment and a short term tactical plan which overall has been critical to stabilizing the business and providing a road map to putting us on a track for improvement for the next couple of quarters.

Although our third quarter results are clearly less than expected to say the least, I do however believe this quarter marks the turning point in our performance. As you can see from our numbers, this quarter has been especially challenging and the difficult economic environment driven by rising unemployment, deflation and the resulting price competition combined with consumer’s drastic change in spending behavior has severely impacted our industry and our business.

But, I also believe that some of our deterioration is due to our less than effective merchandising and marketing programs which did not meet the needs and expectations of our customers. Sales on a comparable store basis decreased significantly during the quarter driven by heavy deflation but also fewer customers buying less items as a result of the consumer’s very cautious approach to spending.

Our gross margin weakened significantly this quarter as well. The impact of deflation coupled with intensifying promotion and price competition in our markets contributed to this poor performance. Our promotion and pricing approach has not delivered. The good intention of achieving a significant sales lift to pay for the promotional investments did not work out as planned and consequently we decided that we had to change our approach significantly going forward.

One of the major factors contributing to our less than expected performance was the previous belief that the best way to compact declining sales was with ever hotter promotions. Our analysis found that we layered one promotional program on top of another in an attempt to capture more foot traffic but in fact, ended up confusing the customer. We basically spent too much money on too many different programs and in the end not having the right impact on the consumer’s purchasing decision.

The issue really was an almost exclusive focus on promotions instead of investing more in to better prices and creating consistency around our offer to the consumer. Let me give you a few specific examples, every week we would run a four day sales promotion on top of our weekly circular promotion and then add a midweek newspaper advertisement on an ad hoc basis where needed with some additional hot features. In addition, we promoted specialty loyalty programs by certain categories such as a baby club or a pet club in addition to our regular across the board loyalty program.

Then, we would market bi-weekly or monthly in store promotions across several additional categories. Some of this proliferation of promotional activity was certainly caused by chasing too many vendor dollars and taking every promotion offered to us regardless of consumer demand. But I also have to believe that we just overreacted to the economic and competitive environment and our promotional spending became less and less productive.

Another issue we discovered was our whole approach to managing our prices which turned out to be too slow, too complex and not really supporting our intended price positioning in the market. As a final example, our messaging and our ads and our stores became too cluttered and ended up being more noise rather than a clear communication of value. Consequently, consumers were confused and didn’t understand what we stood for anymore.

Fortunately, we were able to rapidly change all of this and build a new, more comprehensive customer based approach to our fourth quarter merchandising plans and our promotional programs and implement a whole lot of changes in our price management processes and strategy. The Yucaipa team is making a huge difference in all of these areas. In pricing for example, we have the people who previously developed the very successful pricing strategy for Food For Less and they have overhauled and will continuously improve our entire pricing process accelerating competitive intelligence and how we implement price changes, reducing our pricing complexity and defining a new, more effective pricing strategy that we’re in the process of implementing.

We also discontinued several unproductive marketing and promotional programs and redirected the spend to some of the new programs we have started in our effort to focus our promotional investment and simplify our promotional approach based on what consumers really want in terms of product and prices. We will be making further modifications during the fourth quarter as we want to shift some of our spending away from promotions entirely and in to better everyday shelf prices as well as better focus our advertising on the really excellent values we offer to consumers on a regular basis.

All of these changes however caused some disruption during the third quarter and interrupted the previous flow of the business and consequently hurt our quarterly results to some degree. But, we had no choice because what we were doing was not delivering the desired results. We of course, also access our costs and realized that we have so far not been able to align our cost structure with the new reality of this economic environment and as a result we have suffered from the overall negative sales leverage.

We have to become much more aggressive and determined to take significant expenses out of the business and lower our cost structure permanently. In order to offset some of the sales and margin declines we are experiencing currently, a company of our size should target at least a run rate of $150 million in cost reductions. We’ve begun to identify significant opportunities to achieve this objective and I’m sure this will become part of the new CEO’s turnaround strategy.

Let me also say a few words about our segment performance especially about our fresh business which experienced a significant decline in its results this past quarter. This segment took a big hit from the promotional investment approach I described earlier. The considerable margin investment I described with the failure to generate any kind of sales lift really impacted results and turned off our customers.

Another issue our review discovered was that through all of these promotional efforts, the approach between our fresh and our price impact segments became more and more homogenized and therefore were not really presenting the customer significantly distinct offers. This lack of distinction and differentiation further confused the consumer and probably hurt the fresh business disproportionately and is something we are also addressing as we speak.

Moving forward our immediate focus is to get more customers back in to our stores, generate more profitable sales and reduce expenses. Our view this interim period before a new CEO has been appointed is a critical time for the company to get its house in order. This transition period is an opportunity for us to make fundamental improvements to the business which will provide the new CEO with a more solid foundation to continue with the short term turnaround strategy we have developed and then add a long term growth strategy thereafter.

I believe we now have the right platform in place to drive the necessary performance improvements in the coming year. From here we will work together with the new CEO to ensure we ultimately achieve what we planned to accomplish when we made the acquisition of Pathmark, to become a powerhouse in the Northeast. This remains our goal for the next couple of years. For this, please bear in mind that while this quarter’s results are poor, they are not indicative of our future performance and do not constitute we base our projections on.

We have done a significant review of the business which turned up many areas in which we can and will do much better going forward. We implemented a lot of changes already during the third quarter and we are in the process of stabilizing the business and are already experiencing some of the improvements from the initiatives we executed. I am increasingly confident that we can deliver improved results in the fourth quarter.

Moving on, I’d like to update you on our search for a new CEO. The process is well underway with much progress being made towards finding the right candidate. We’ve been very diligent in focusing our efforts and identifying candidates that command the key competencies and experiences we are looking for. They include prior experience as a public company CEO with a track record of successful turnarounds. They have to possess a strong background in the food retail industry including all key functional areas and ideally a sound understanding of the Northeast marketplace.

I am very excited about the leading candidates that we have identified that have each expressed not only a strong interest in the company but also in this specific opportunity. At this point, I’m optimistic that we will have the new CEO in place by the beginning of our new fiscal year. Before I conclude, let me say a few words about the remainder of our fiscal year. Our objectives for the fourth quarter are to improve the negative sales trend from current levels, sequential improve EBITDA by a meaningful amount, preserve as much of our liquidity to fund our future growth initiatives and repay our debt obligations and last but not least, sign up a qualified CEO to lead the business.

I remain confident that we can make a huge difference in our performance and get back on track to realize a tremendous strategic value of the company and to capitalize on our leadership position in the Northeast. Our strong market position and our impressive real estate portfolio of stores are two strategic assets that are the underpinnings to the recovery of the company. We have a lot of sound strategies in place and our focus now will be on the right execution and the strengthening of our fundamentals.

I’m optimistic that the economic headwinds will subside somewhat in 2010 and we will see a turn from deflation back to moderate inflation and the beginnings of a recovery in unemployment which combined with new leadership will move our performance trajectory in to a positive direction. With that, I’ll turn it over to Brenda.

Brenda M. Galgano

Today we reported second quarter sales of $2 billion and a net loss from continuing operations of $502 million which includes non-cash charges of $413 million related to goodwill trademark and long lived asset impairments, $17 million related to closed stores and $16 million for mark-to-market adjustments related to financial liabilities. Before I get in to the details of our operating results, let me cover these onetime adjustments.

First, we recorded impairment charges related to Pathmark long lived and intangible assets based on updated valuations. Given the continued difficult environment and the decline in our Pathmark results, current fair market valuations are very low resulting in calculated valuations below our book values on certain assets. As such, we’ve recorded a total charge of $414 million to write down the value of certain Pathmark long lived assets, the Pathmark trade name and the value of goodwill for the Pathmark segment. Additionally, we have increased the liability for closed stores primarily within our Michigan markets which have been hardest hit by the recession.

Although we have noted an increase in commercial real estate activity, the offers we have recently received for subleases are at lower rates than past history and lower than the amounts that we had assumed in our liability. As a result, we have changed our subleased assumptions for many of our dark properties resulting in an increase in the required liability. We have recorded a total charge of $69 million to increase the liability to $261 million. Of the $69 million charged, $52 million is included in discontinued operations and $17 million is included in continuing operations.

Now, turning back to the results of operations, comparable store sales were overall negative 5.8% for the entire third quarter primarily driven by inflation so tonnage also trended negative mainly in the second half of the quarter. The peak of the negative ID sales was towards the end of the quarter with Thanksgiving sales being particularly disappointing. Relative to the ID sales at quarter end, the fourth quarter sales have picked up and are at about the level of the overall third quarter trend with the encouraging fact that the Christmas holiday sales were much stronger than Thanksgiving.

Excluding the non-operating items of $433 million this quarter, adjusted EBITDA was $36 million versus $78 million last year. Schedules three and four of the press release detail the non-operating items for both years. Third quarter ongoing gross margin excluding a LIFO credit of $1 million this year and expense of $1 million last year, decreased 116 basis points to 30.04%. Gross margins were impacted by more promotional sales and price investments as Christian previously discussed.

Third quarter adjusted SG&A increased 69 basis points from 30.37% to 31.06% driven by lower sales leverage on fixed costs mainly labor and increased marketing expenses as well as an increase of $3 million in non-cash pension expense due to changes in actuarial assumptions and an increase in non-cash stock compensation expense which was approximately $1million this year compared to income of $3 million last year. These cost increases were offset partially by a decrease in corporate administrative costs.

Capital spending for the quarter totaled $22 million, depreciation expense was $56 million. This compares to $26 million of capital expenditures during last year’s third quarter with depreciation of $61 million. During the quarter we completed one discount conversion in Bridgeport Connecticut and one liquor store remodel in Ledgewood New Jersey.

Turning to our balance sheet, excluding the preferred stock liability we ended the quarter with net debt of $1,285,000 which includes capital leases and real estate liabilities and is net of $190 million in cash equivalents and restricted cash. To date, we have not repurchased any of our convertible notes but may repurchase some in the first half of calendar 2010. We will continue to evaluate alternatives in this regard and will communicate our plans at the appropriate time.

Regarding the classification of preferred shares, 117 million are still classified in liabilities on our balance sheet as of the end of our third quarter. Based on applicable securities laws on the date of issue approximately one third of the preferred shares are convertible after one year of their issuance date. As I explained during our last call, in accordance with GAAP and until such time that shareholder approval is obtained, approximately two thirds of the preferred shares or the 117 million is classified as preferred stock liability on our balance sheet.

After the close of the quarter, we did receive the shareholder approval. As such, the preferred stock liability will be reclassified from liabilities and included within the other preferred shares on our balance sheet after the quarter. With respect to our equity share count, from an enterprise valuation respective, our total outstanding share count would approximately 90 million shares. Using 56 outstanding shares, which is after the reduction of the 2.5 million shares returned by Bank of America announced last week, we add 35 million in convertible preferred shares plus one million for in the money stock options, less two million shares still to be returned under the share lending agreement.

For the quarter, free cash flow was -$11 million consisting of adjusted EBITDA of $36 million offset by net cash interest paid of $25 million and cap ex of $22 million. The $68 million increase in net debt from last quarter resulted from the following: negative free cash flow of $1 million; payments against dark store liability of approximately $16 million; and seasonal working capital changes and other $41 million.

Liquidity at the end of the quarter was $405 million comprised of $218 million of availability under our credit agreement and short term investments of $187 million. Outstanding loans totaled $132.9 million and letters of credit totaled $203.8 million. As of the end of the quarter, we had a tax net operating loss carry forward of $591 million to offset future tax profits including operating profits and capital gains.

Year-to-date we’ve generated positive free cash flow of $9 million. For the year, we expect free cash flow to be neutral to slightly positive. We are focused on generating positive cash including working capital management and maintaining sufficient liquidity in this very difficult operating environment. I will now turn it back to Christian.

Christian Wilhelm Erich Haub

I want to close with a brief summary of what you’ve heard today. The past quarter marks an important turning point in the fortunes of the company. With the outstanding support of Yucaipa we’ve been able to identify significant improvement potential and we have moved quickly and decisively to institute critical performance improvement initiatives throughout the business that will improve results in the short term. I am confident that we will have a highly qualified and competent CEO in place at the beginning of our new fiscal year to lead the company’s turnaround.

A&P remains in a very strong strategic position and I believe that with the support of Yucaipa we will successfully manage through the current major recession and emerge a much stronger player in the Northeast supermarket industry. I remain confident about A&P’s future and look forward to realizing the full potential of the company and working together with Yucaipa to create significant shareholder value in the next several years.

This concludes our presentation and we are now ready to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Karen Short – BMO Capital Markets.

Karen Short – BMO Capital Markets

A couple of questions, I got on a couple of minutes late but I just wanted to clarify what you were trying to say in terms of your strategy on fresh. If I understand you’re moving fresh to be more of an EDLP type of operator, is that right? I mean I understand you talked about the confusion with your promotional activities on the customer but is it fair to say that fresh will be much more of an EDLP focus?

Christian Wilhelm Erich Haub

No, we didn’t say anything about that but what I did talk about was our analysis has shown that our exclusive focus on dealing with the current environments through promotions clearly didn’t work and it also led to a more and more homogenized approach between how the fresh business was going to market with its promotion similar to that of the price impact business and we believe that has contributed to a confusion on behalf of the customer. We have not talked on this call about our future strategy which we are in the process of developing but it’s not ready to be talked about but we definitely believe that our approach we’ve changed on a tactical basis in the fourth quarter and will probably change more on a strategic basis in to 2010 and beyond. But, what that is going to be in detail and how that is different between price impact and fresh we haven’t communicated yet.

Karen Short – BMO Capital Markets

Just out of curiosity, how many food basics do you guys have now?

Christian Wilhelm Erich Haub

I believe we have 13 in operations.

Karen Short – BMO Capital Markets

Is that potentially some more accelerated banner conversions? Is that potentially part of the strategy?

Christian Wilhelm Erich Haub

It’s one of the things we’re obviously looking at and I’m a big fan of the discount concept which really connects very well with the consumer in this environment because they recognize the tremendous value of lower prices on an everyday basis and clearly are willing to trade in less variety for lower everyday prices and the last three conversions that we have done have all exceeded our expectations so we continue to be very encouraged about more potential for this concept going forward.

But, just to repeat again, I think in the last 12 weeks we have been focused clearly more on the short term making the tactical changes to improve our sales, stabilize our margins, reduce our expenses while working on the longer term strategies particularly on a major cost reduction initiative but also layout the strategies for the fresh and the price impact business looking at our store base and what opportunities we have in conversions to any of our different formats. But, that’s obviously something we want to also continue with the new CEO once that person is on board.

Karen Short – BMO Capital Markets

So I guess to paraphrase, simplifying your promotions but maintaining a high/low stance at the fresh format you would say that you started doing that 13 weeks ago and by the beginning of the fourth quarter you had seen stability in the fresh?

Christian Wilhelm Erich Haub

I think we took a few weeks obviously to assess the situation which started 12 weeks ago, realized what was going on was not getting us the kind of performance that we needed. Then, the first thing was we stopped doing a number of things and certainly we knew that was not going to help the situation but we had to untangle all the different things that were going on and digging deeper and deeper and discovering what were all the unproductive things that were going on. Then, in the fourth quarter we started really with the modified approach and we are not done with that, we’re continuing to modify every week but we are pleased so far that we definitely believe the business is stabilized and we have our hands around the business and we’re seeing progress on many fronts and are much more encouraged by the most recent trends than what we saw in October and November.

Karen Short – BMO Capital Markets

You would still make that statement when you exclude the benefit of some snow storms?

Christian Wilhelm Erich Haub

Oh yes, definitely.

Karen Short – BMO Capital Markets

Then I guess turning to the $150 million target in cost savings, can you maybe elaborate a little bit more on where they will come from and what kind of timing you would have on achieving them?

Christian Wilhelm Erich Haub

Well, looking at the company and talking with Yucaipa and a few other people outside the company, I know my focus was first on a company of our size has to have significant cost reduction potential particularly in this recessionary environment. I think we pretty quickly concluded that that number is at least $150 million and probably can be larger.

There are many areas we need to look at, there are the obvious big buckets of labor optimization, supply chain optimization, administrative optimization, those are probably big buckets but there are plenty of other opportunities as well and this will not be just three things we’re going to be focused on but really reengineering the way we’re doing things, looking at how our processes are working and how efficient we are and we believe there is plenty of opportunity there. So it is going to be comprehensive but we are at the beginning stages of putting that plan together. I’m sure we’ll have more to talk about next time we get together.

Karen Short – BMO Capital Markets

Any preliminary idea of how your multi employer expense may be looking next year or what the status is on some of those funds?

Brenda M. Galgano

Karen, really not a lot of new news there. What we said in the past was we did not expect significant increases and to the extent that we did have some increases, that would be part of our negotiation of the total agreement and we would expect some relief in some other areas. So overall, we do not expect a significant change in our contributions.

Christian Wilhelm Erich Haub

To add to that we have a few settlements here in the last 12 weeks that I believe all were pretty favorable and certainly did not cause us to change that perspective that Brenda just outlined.

Karen Short – BMO Capital Markets

How many contracts do you have up for renewal this year?

Christian Wilhelm Erich Haub

I think there are three that are open right now and there will be a few more I think in the second half of the year but it’s not an A typical year of activity.

Karen Short – BMO Capital Markets

Then just lastly on the timing of the new CEO, you said you thought that the new CEO would be place by the beginning of the first quarter or would have been announced.

Christian Wilhelm Erich Haub

Be in place.

Operator

Your next question comes from John Heinbockel – Goldman Sachs.

John Heinbockel – Goldman Sachs

Can you talk about some of the things the Yucaipa guys have worked on with regards to price and promotion whether it be categories, or types of promotions, or my understanding is maybe some of your pricing is too high, some is too low, maybe you wasted some gross profit dollars on pricing you could get away with being higher. Can you give a little color on that?

Christian Wilhelm Erich Haub

I think everything I’ve described earlier is areas that they have been intimately involved with and have been very active. I mean we looked at the whole pricing side obviously in terms of where we price too high, where we price low, what are the opportunities there but also the processes of how quickly we get price changes done, how quickly the competitive information gets put in the system and how quickly we react to that, reducing the number of price zones that had become way too complex to manage. But, they have also been involved at looking at the entire private label program in terms of how well developed was that, how well was that executed, identified where we had not the entire assortment of private labels in our stores for example, we had some quick hit opportunities in there.

But then also looking at the entire promotional approach, how much were we spending, what were we spending it on, what results were we getting from that spend, going through all of our marketing and advertising activities and figuring out was the message the right message, did it get across? They also spent a lot of time looking at what our customers are telling us in terms of where are we doing well, where we are not doing well. Obviously we found I think a lot more improvement opportunities and they are helping us to formulate also what our ongoing plans are going to be for the first half of 2010.

They are also involved on the cost side looking at the supply chain, looking at short term opportunities for reducing the shipping expenses and some of the warehousing expenses that we’re incurring with C&S. Just a very comprehensive approach to the business.

John Heinbockel – Goldman Sachs

Is there anything they can do to speed up the distribution savings out of Woodbridge or we are stuck with the timeline that is out there?

Christian Wilhelm Erich Haub

We’re looking at everything, we’re not taking anything for granted. When you’re turning around a company like this you have to challenge yourself to look at everything. So whatever opportunity we think we can go after we will.

John Heinbockel – Goldman Sachs

With so many promotions in place how do you measure the effectiveness of the ROI of any single promotion? Doesn’t that all get jumbled up and it’s hard to measure that?

Christian Wilhelm Erich Haub

That’s true and that’s why also we felt we had to untangle and stop a lot of things and take a new fresh look at how we were using our promotional dollars and how we were using the promotional dollars we are being offered by our suppliers and understanding how much we were actually spending our own dollars that weren’t even funded by suppliers and found some opportunities there. But also, going to our consumers and we very quickly realized that they didn’t understand some of the things we were trying to do. We were getting too cute in some of our promotions that the consumers actually didn’t believe it was actual value.

We were putting them through too much stress in trying to figure out how to get to the value that we were saying we were offering and rather went to another store that offered something simpler and more straightforward. We didn’t try and quantify everything, we just came to the conclusion that some of this was just not working and we were better off starting to some degree from scratch than trying to piece together what we were doing previously.

John Heinbockel – Goldman Sachs

Then I guess finally when you look at the evolution of Pathmark, how closely will that come to Food For Less generally speaking?

Christian Wilhelm Erich Haub

I think we see a lot of parallels there and so does the Yucaipa team and we spent a lot of time understanding how that formula worked not just from a go to market perspective and pricing but also operationally because you need to get the cost structure to the right level to afford that kind of pricing and promotional positioning in the marketplace. It might not work for every location and every market that Pathmark operates their stores in today but we think it applies in a very large part of the market.

John Heinbockel – Goldman Sachs

If you look at the cost structure of Pathmark versus Food For Less – because Food For Less had a somewhat better union contract are the cost somewhat close or do you think you can get them close?

Christian Wilhelm Erich Haub

We can get them close, they are not close today and we have a lot of work to do on the supply chain side and on the labor side. We can evolve there and we don’t have to be right there from the get go and I believe even Food For Less evolved over time and wasn’t where it ultimately got to from day one but we know what the drivers are and we know how to go about that and we’ve discussed this already with all of our key constituents and there’s a strong belief that this can be a very successful undertaking and therefore we believe we can get there.

Operator

Your next question comes from [Bob Summers – Pilot Capital].

[Bob Summers – Pilot Capital]

Another question on the promotional activity, were these decisions that were driven more internally or were you responding to changes in the marketplace?

Christian Wilhelm Erich Haub

I’m not quite clear on how much that was in response to the marketplace. It think some of our internal analysis has shown that we probably drove the market to some degree and some of the price investment that we made probably caused competition to react to us and we drove down the market. So, I wouldn’t characterize the environment has having so dramatically increased in promotional activity and competition that just by trying to stay even it caused this kind of performance and this kind of impact. I attribute much more of that to our own approach that just didn’t work.

[Bob Summers – Pilot Capital]

Then this idea of consumer confusion, do you have a way of pinpointing when this started to materialize? Is this a recent phenomena or does it have roots going back a little bit further? I’m just trying to think about how quickly you can unwind this perceptional issue.

Christian Wilhelm Erich Haub

I think we’ve had this issue at Pathmark for quite a while because their performance deterioration has clearly been going on for much longer and our consumer research is showing that if you look on the timely interval how we suffered in price perception and value perception and it kept accelerating and getting worse. I think the fresh business, this has been a more recent phenomena and I think the going to market approach of just keep throwing more money at it and more promotional dollars at it and more programs at it started confusing that customer and hopefully that can be turned around more quickly.

Pathmark is probably a little bit more of a rebuilding , rebuilding that trust and that confidence in our stores and in our offers. On the other hand, we have a very captive audience there and we should be able to recover some of that. Some of the more recent results look encouraging.

[Bob Summers – Pilot Capital]

Then I also jumped on a little bit late, did you comment on the deflation and the traffic components of the comp?

Christian Wilhelm Erich Haub

Yes, we did. We think the vast majority continues to be driven by inflation. We know what the kind of market deflation is, add to that a little bit of our own deflation on top of that and I think the third quarter was a pretty good chunk of that just by driving prices down more and shifting more of the consumers spend in to promoted categories and it’s clearly been a cherry picker heaven when you were shopping.

[Bob Summers – Pilot Capital]

So traffic is positive?

Christian Wilhelm Erich Haub

No, traffic is not positive and that’s where I think our decision to make changes really came from the client traffic that we saw because that was a much clearer sign of whatever we were doing was turning away customers or customers believed they were finding a better shopping experience or a better value at our competitor’s stores.

Operator

Your next question comes from Jonathan Feeney – Janney Montgomery Scott, LLC.

Jonathan Feeney – Janney Montgomery Scott, LLC

Just a clarification, you said traffic was not up traffic was down, can you give us an order of magnitude of that?

Christian Wilhelm Erich Haub

We typically don’t but if you consider that our deflation impact was the vast majority of our same store sales decline that means the rest came from less traffic.

Jonathan Feeney – Janney Montgomery Scott, LLC

I was struck in your comments how a couple of times you talked about the strategic value of the store footprint and the strategic value of the business and there’s a lot of ways of interpreting that. I think there’s certainly the competitive advantage that comes with being sort of in these space constrained geographies but are you when you use the word strategic are you thinking about just The things you’ve talked about with Yucaipa and ways of monetizing those internally or are you considering perhaps asset sales or store closures or perhaps a combination or sale of the whole company in the next couple of years in that comment strategic as potential means of value creation right now?

Christian Wilhelm Erich Haub

There’s clearly pieces of both. The idea behind the combination with Pathmark was to create that market leadership position in the New York marketplace that we achieved and with market leadership should come performance improvements in terms of leading the market in a lot of different ways but also the store base and the combination of the A&P and the Pathmark store base give us really a unique footprint. In a very densely populated difficult to penetrate market we have very, very good positions in different markets.

Obviously economic impact of recession and a million more people unemployed in the New York marketplace clearly is going to affect everybody but once that recovers a lot of those locations will recover as well. But then, we’re making no secret around the perspective of further consolidation in the Northeast and further opportunities that we would be interested in. Obviously in order to pursue that we have to improve our performance and get the core business working well again and have a stronger foundation to pursue some of those opportunities from. So, we are very open minded to those strategic opportunities but that to me is a little bit in the longer term than in the short term.

Operator

This concludes today’s question and answer session. I would now like to turn the call back over to Mr. Christian Haub for any additional or closing remarks.

Christian Wilhelm Erich Haub

Thank you very much for your participation. We look forward to talking to you at the end of our fourth quarter and I’m looking forward in the meantime to let you know who our new CEO is going to be. With that I thank you for your time and have a wonderful rest of the day.

Operator

This concludes today’s conference. You may now disconnect.

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Source: The Great Atlantic and Pacific Tea Company F3Q10 (Qtr End 12/09/09) Earnings Call Transcript

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