Winning with WEO

"Weeeoooo!" For competitors of the giant A. & P. food chain, that cry has become as unwelcome as a Comanche war whoop in the Old West. A contraction of the slogan "Where Economy Originates," it has become a symbol of A. & P.'s relentless drive since 1972 to lure back disaffected customers and boost sales by paring prices. In the process the company has lost millions and left many experts wondering if the campaign was an act of corporate suicide. A. & P.'s rivals--Kroger, Grand Union, Bohack and most of the rest--suffered bloodbaths trying to keep their prices competitive in what became a war of the supermarkets. Now there are signs that the battle is over and that A. & P. has won--at least temporarily.

On sales of $6.7 billion in the fiscal year ending last February, A. & P. reported a profit of $12.2 million. That paper-thin margin is quite an improvement over the previous year's loss of $51 million on sales of $6.4 billion. Food-chain analysts believe that the main cause of A. & P.'s profit is that, having regained a satisfactory number of customers, the company is again raising its prices. For example, James Palmer, supermarket-stock analyst of Wall Street's Bregman Securities Co., reports that last fall A. & P. began hiking its prices substantially in the Midwest and Northeast. A recent comparison-shopping survey by the Croton Consumer Action Organization in New York's Westchester County found that a pound of Oscar Mayer bacon cost $1.39 at A. & P. v. $1.19 at Grand Union; a 9-oz. package of Birds Eye frozen green beans, 33-c- v. 31-c-; Kraft mayonnaise, 63-c- v. 69-c-; 5 lbs. of Florida oranges 89-c- v. 69-c-; a pound of Land O'Lakes butter, 93-c- v. 87-c-.

The WEO campaign was a bold and desperate attempt by A. & P. to regain the market share that it had lost because of stodgy management. For instance, it long continued to build small stores in cities, while its competitors followed the migration to the suburbs and located large supermarkets in huge shopping centers. Yet A. & P. was well positioned to open its price assault. Virtually debt-free, it had $60 million in cash reserves.

The chain's chiefs, Chairman William J. Kane and President Robert F. Longacre, had little to fear from shareholders. Two-thirds of the 24.8 million shares outstanding are held by members of the founding Hartford family and the John A. Hartford Foundation, headed by sympathetic former A. & P. executives. Thus there was little opposition when the company trimmed its prices so low at the outset of the WEO campaign that its gross profit margin slid to an estimated 12%, v. 18% for most discount food chains and 21% for conventional supermarkets. By last spring, the company's costly gamble was paying off as more and more budget-minded shoppers were buying at A. & P.

Skimpy Line. Whether A. & P. can hold its customers once they realize that bargains are fewer is open to question. Says Analyst Kenneth Sanders of Paine, Webber, Jackson & Curtis: "The company is doing better, but it still has a long road ahead." Many of the 3,680 A. & P. stores are still too small, though the company is closing its tiniest outlets and building 80 big supermarkets in this year's first half. A. & P. also continues to limit brand variety on its shelves, in part because of its heavy commitment to its own private house labels. This deficiency is most obvious in A. & P.'s relatively skimpy line of nonfood items--everything from film to beauty aids--which are likely to provide the biggest future sales growth for supermarkets.

A. & P. has two things going for it. Poor profits have slowed the pace of supermarkets' expansion in the U.S., and record crops this year are expected to fatten food supplies. As a result, almost all existing stores should increase their sales and profits. "Anybody with a piece of sense should be able to make money," says Analyst Camilla Dietz of Furman Selz Mager Dietz & Birney Inc. That seems to be the view of A. & P. management too. Since last spring, top executives and directors of the firm have been quietly increasing their holdings of the company's stock.

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