Pathmark purchase tough to swallow, consultant says

Westchester County Business Journal, Mar 12, 2007 by Phillippidis, Alex

The $11 billion supermarket giant to be created through A&P's acquisition of Pathmark doesn't appear strong enough to surmount the problems that brought both companies together, a supermarket industry watcher says.

W. Frank Dell II says The Great Atlantic & Pacific Tea Co. won't be strong enough to withstand competition from Stop & Shop owner Royal Ahold NV, Whole Foods Market IP L.P. or discounters like Wal-Mart Stores Inc. even after it completes its $690 minion purchase of Pathmark Stores Inc.

"Historically, putting two weak companies together just gives you one big weak company," said Dell, president and chief executive officer of Dellmart & Company Inc., a food and consumer products consultancy in Stamford, Conn. "Could it work? Yes. But it's going to take a different approach. What's needed is a fresh top-tobottom look for the combined company.

"The assets of the combined company consist of wornout stores. And while populations are always shifting, I don't think either A&P or Pathmark has been adjusting because neither have built many new stores in the last few years," Dell added.

Dell spoke March 5, hours after A&P formally announced the Pathmark acquisition it first disclosed a week earlier following news reports about the talks.

The acquisition brings 27 Westchester supermarkets under the control of the combined company - 22 markets under the A&P and The Food Emporium banners, plus another five Pathmark stores.

A&P said Pathmark would continue as a separate brand after the acquisition - a strategy Dell questioned.

"They should pick a banner and go with it. Quit being all things to all people. Get a culture and stick with it, and get rid of the layers of management," Dell said.

A&P said management layers would disappear through an unspecified number of headquarters job cuts, part of the $150 million a year in annual savings from efficiencies projected by the two chains. In all, the combined company win have some 550 supermarkets in New York and dime nearby states, plus corporate headquarters in Montvale, N.J., where A&P is now based.

A&P, which also operates Waldbaum's and Super Fresh markets outside Westchester, has 410 stores total and recorded $8.74 billion in sales in the year ended February 2006.

Headquartered in Carteret, N.J., Pathmark finished last year with $3.98 billion in sales at 141 stores.

In Westchester, Pathmark operates two Yonkers stores and one market each in Hartsdale, Mount Vernon and Port Chester. A&P runs three Greenburgh stores, two in Yonkers and one each in Bronxvdle, Croton-on-Hudson, Eastchester, Goldens Bridge, Hastings-on-Hudson, Katonah, Mamaroneck, Millwood, Mohegan Lake, Mount Vernon, Mount Kisco, New Rochelle, Peekskill, Port Chester Shrub Oak, Thornwood and Yorktown Heights.