Pathmark brings rich pharmacy history to A&P merger

Drug Store News, April 23, 2007 by Faye Brookman

TO form a stronger retail operation to compete with swelling competition in the New York, New Jersey and greater Philadelphia markets, Pathmark Stores agreed earlier this year to be acquired by The Great Atlantic & Pacific Tea Co. While both names have long and respected histories in their trade areas, Pathmark and A&P have been hit by encroaching competition over the last 10 years including superstores operated by Wal-Mart as well as such naturally-positioned retailers as Whole Foods Market. Pathmark, in particular, also has faced stepped-up competition at its pharmacy and health aids departments as more national drug chains have found its operating markets of New York, New Jersey, Philadelphia, Connecticut and Delaware fertile expansion grounds. Despite the new retailers vying for its shoppers, the chain has held the leading market share under a single banner name in the New York-New Jersey and Philadelphia metro markets. Laboring under losses, however, the chain needed new owners to maximize the power of the Pathmark logo.

The deal totals about $1.3 billion in cash, stock and debt and will create a 550-store, $11 billion supermarket chain with a healthy emphasis on pharmacy and OTC. The Tengelmann Group will remain A&P's largest shareholder. Pathmark's largest investor, Yucaipa Cos., will receive a stake in the combined companies. Christian Haub, executive chairman of A&P, will remain as executive chairman, with A&P's Eric Claus maintaining the role of president and chief executive officer overseeing the merged chains.

The marriage had been in the works for well over a year and is expected to help both retailers benefit from needed efficiencies of integration. In fact, A&P hopes to realize synergies totaling $150 million within two years thanks to chopping overhead costs, better use of warehouse facilities and, of course, greater marketing power. Among the streamlining will be the move from Pathmark's Carteret, N.J., office to A&P's in Montvale, N.J.

There's no denying the Pathmark name has people-pulling power in its trade area, especially for drug store fare, and A&P executives stated they intend to retain the nameplate.

In 1963, Pathmark started dabbling with both freestanding drug stores next to its food stores as well as opening pharmacy counters within its stores. A 64,000-square-foot prototype called Pathmark 2000, featuring a huge assortment of beauty aids, debuted in 1992, further strengthening the chain's pharmacy focus. Not surprisingly, the chain has a strong pharmacy heritage and many stores have the counter near the front of the store (where it can be gated off in 24-hour locations) as well as ample waiting rooms complete with health monitoring machines.

Earlier this year Pathmark instituted a pharmacy co-pay program called Pharmacy Advantage Club. Looking to link good eating habits and health, Pathmark introduced "Healthy Steps, a new program tapping the expertise of a registered dietician.

Pathmark operates 129 pharmacies in its 141 locations. Many executives coming through Pathmark's ranks have been pharmacists and its former chief, Jack Futterman, had served as chairman of the National Association of Chain Drug Stores.

A&P's experience in pharmacy is not as rich, although there are pharmacies in about half of its stores, which also operate under

the banners of Waldbaum's, Super Fresh and Farmer Jack. It is estimated together the two will have pharmacy sales of more than $700 million.

"Some of the things we have learned is that they have a very strong pharmacy program and with that comes a very strong health and beauty aids business," said A&P's Claus.. It is expected A&P's stores will eventually adopt some of Pathmark's pharmacy operations.

Pathmark

Headquarters: Carteret, N.J.

2006 sales: $4.0 billion

% change vs. 2005: flat

No. of stores: 141

No. of stores with Rx: 129

Avg. store size: 53,000 sq. ft.

Rx sales (est.): $400 million

% of sales from Rx: 10%

Sales per store: $28 million

Fiscal year ended January 2007

Source: Drug Store News