A&P's Fruitcake Strategy

| About: The Great (GAP)

There is but one grocery chain that inspires literature. It’s the Great Atlantic and Pacific Tea Company (NYSE: GAP), this year celebrating its 150th anniversary.

In John Updike’s Kennedy-era short story “A&P” a 19-year-old clerk identifies with three scantily clad girls who come into an A&P in a small town in Massachusetts, and offend the manager. A great line:

I forgot to say he thinks he’s going to be manager some sunny day, maybe in 1990 when it’s called the Great Alexandrov and Petrooshki Tea Company or something.

Today, while the chain is still called A&P, it is thankfully run by Germans, not Soviets, and has 444 stores in the Northeast under brands like Waldbaums, A&P, Pathmark, Food Emporium and Super Fresh. At the time Updike wrote the story, A&P dominated the national grocery market. The colonial cupolas on its 4,300 supermarkets were as ubiquitous as Wal-Mart (NYSE: WMT), in every city large and small.

But in the 1970s, A&P fell apart. Not only did the chain not invest in new stores, they ditched a logo as classic as Coke’s. Instead of stylish graphics, they brought in cheap “Pride and Price” mascots and garish WE-O (we owe you more) promotions. The stores were allowed to run down.

There was hope for change in 1979, when the founding Hartford family’s interests were taken over by The Tengelmann Group (Tengelmann Warenhandelsgesellschaft KG) of Germany. Since then, it has been a roller coaster of a stock ride. The price, around $5 a share in 1980, went up as high as $62 in 1989 but is back at just under $4.

Why the ups and downs? While one could write many business case studies on it, I believe that one main reason they have suffered is that they have been obsessed with other grocery chain brands while mostly ignoring what was great, namely the classic A&P concept.

Instead of really nurturing its own unique set of in-store product brands, it is now a holding company that is a conglomeration of grocery store branded formats including A&P, Super Fresh, Food Emporium, Waldbaums and Pathmark (PTMK). While many of these are good brands, it is an insane strategy for a company with a brand as interesting and storied as A&P.

A&P owns Super Fresh, a grocery store format that my fellow college students in Richmond, Virginia nicknamed “Super Scary” because of its bad location, substance-abusing customers and run-down condition. A&P sort of renovated the store interior (a former Pantry Pride) but they never insisted that the potholed parking lot be filled in, and the store closed. In the 1990s, I watched as many of those cretinous Super Scaries became Farmer Jack, a format with odd cutout figures of hick farmers hung above the different sections. It was a really dumb version of Stew Leonard’s.

At the same time they added the different formats, they ditched A&P’s private labels in favor of brands like America’s Choice, Master Choice and Health Pride. Big mistake, as the A&P brand was built on an astonishing array of private brands, all crafted with care and thought. (The Eight O’Clock brand, now an independent company, sold for over $100 million just a few years ago.) The brands included Ann Page, Red Circle Coffee, Sail cleaners and detergents, Sultana, Cap’n John’s seafood items, Sparkle gelatin, Cheeri-Aid, White House evaporated milk, Our Own, Nectar tea, Ahoy liquid dishwashing detergent, Yukon Club beverages, Iona canned vegetables, Worthmore candies, Crestview small/medium eggs, Wildmere large eggs, Sunnybrook (extra large eggs and butter), Sunnyfield (pancake mix, flour), Penguin ice cream, Marvel bread and ice cream, Allgood bacon, Dexola shortening, Nutley margarine and Super Right meats.

While each of these brands were not worth $100 million, they were worth something, and they were all thrown out like week-old fish. But the store brands weren’t the only thing right about the A&P brand. What was good?

  • A&Ps always had a limited number of SKUs, which meant it was an easy store for customers to negotiate.
  • The stores were almost all the same, allowing for efficiencies in store plan.
  • Prices were important, but the approach was of a quality of Trader Joe. For instance, the coffee grinders at the end of the checkout were a symbol of A&P’s roots in coffee and tea, which A&P dominated.
  • A&P focused on presentation. The Regalo logo seen above was not just a logo, it was a complete branded produce program of A&P, where fruits and vegetables were meticulously sorted and stacked in gorgeous pyramids.

There are good signs at the company. The first good sign is that they have invested in a new A&P store model; while I haven’t seen it, the photos of their Holmdel, N.J. store look promising, though I have to argue with their promoting Starbucks inside of an A&P (it ought to be centered around the Eight O’Clock brand, not Starbucks). A&P has tried every trick to turn itself around in the last 30 years; it’s about time they are now investing in their 150-year-old A&P brand story in order to make themselves relevant in 2009.

This year is the 150th anniversary of A&P. Thankfully, they are also reintroducing products with A&P stories, leveraging that brand legacy, and receiving favorable press on trend-setting foodie websites like Roadfood.com and Epicurious. They offer a Hartford Reserve pie brand. And for Christmas, they re-introduced Jane Parker Fruitcake, reviving a yearly holiday tradition.

Now, we know that fruitcake is no strategy for a grocery chain. But it’s the right start.

Disclosure: no positions

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