The Price of Grandma's Pride

Ann Page cooks up a diet of knockwurst and sauerkraut

YOU'LL DO BETTER AT A & P, insists the latest ad slogan of the not-so-Great Atlantic & Pacific Tea Co., whose $7.2 billion in sales make it the nation's third largest supermarket chain (after Safeway and Kroger). Last week one of West Germany's largest food retailers unexpectedly took the 120-year-old company at its word. The private Tengelmann Group made a friendly deal to pay $78.5 million to four holders of A & P stock, including heirs of the founding Hartford family,* for their 42% controlling interest in the ailing giant.

Affectionately known to employees as "Grandma," A & P, like many old ladies, has been showing her age. Supermarket chains generally have been battling slumping profit margins, changing food-buying habits and competition from smaller, more flexible independents and fast-food restaurants. The once unchallenged A & P was hurt because many of its center-city stores were uneconomically small and stuck in deteriorating neighborhoods, and it was late to open bigger, more modern markets in the more profitable suburbs.

Since 1971, A&P has cut the number of its stores from 4,400 to 1,800. Despite this reduction and a self-critical ad campaign that promised "to put price and pride together again," the company has either lost money or barely made a profit in every subsequent year. One reason is that A&P elected to close stores one by one in 36 states, with the result that it did not get the distribution savings of quitting an entire region. The cutbacks also left a lot of spare capacity at A & P's private-label, Ann Page food-processing plants.

Tengelmann's offer of about $7.50 a share, a small premium over the prebid market price of $6.75, values the company at $186 million. That is peanuts to pay for a stock that hit $39 a share eleven years ago, for all the remaining operating outlets, and for assets that have a book value of $17.50 a share--$434 million in all. A&P also has a huge net inventory of food and other salable goods; at last count, that was worth $300 million.

But Tengelmann is not shopping for cheap hamburger and canned corn to ship back to Germany. Erivan Haub, 46, the hereditary sole owner of the company, noted that he saw in A & P "an opening to the U.S. market where Tengelmann experience can be put to profitable use." Haub, who trained with the Chicago-based Jewel supermarket chain, promised to stay out of day-to-day operations and hinted, to the delight of A & P directors, that he might supply much needed capital. A full hands-off policy is neither likely nor desirable. Noted one U.S. food-chain executive in Hamburg: "Haub will surely offer suggestions, and they'll probably be good ones."

The German company can certainly teach A&P much. Though highly secretive about profits, the group owns more than 2,000 stores in Germany and Austria with annual sales of $2.7 billion, and it places stress on gourmet food lines as well as in-shop butchers and bakers. Says one admiring competitor: "Haub took a store in Berlin, reduced the number of articles for sale from 6,000 to 1,200 and found that sales actually went up." A&P, which must slim still further before it can hope to recover, will not miss the lesson that less can mean more.

* Playboy Huntington Hartford sold almost all his stake during the 1960s.

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