Source: The Philadelphia Inquirer (LoanWorkout.org) – -A tower of Frosted Flakes beckoned like blue toys at the entrance, with bounties of grapefruit and bananas just inside. But the picture of abundance at a local Super Fresh on Monday masked a heap of worry now that A&P, one of America’s oldest supermarket names, has tumbled into bankruptcy.
Thousands of jobs are on the line — as are the fates of dozens of area Pathmark, Super Fresh, and Food Basics stores — after the fabled corporation that owns the two chains, the Great Atlantic & Pacific Tea Co. Inc., filed Sunday for Chapter 11 bankruptcy protection.
“The way things are in this country, you just have to roll with the punches,” 30-year-old Aaron Courtney said as he stacked bell peppers at the Roxborough Super Fresh. “Whatcha gonna do?”
A&P, a onetime grocery powerhouse that has struggled for decades, finally buckled under the weight of debt — some of it resulting from its acquisition in 2007 of the Pathmark chain. A downturn in sales has endured even as the recession eases.
In its filings in U.S. Bankruptcy Court in the Southern District of New York, the company listed assets of $2.5 billion and liabilities of $3.2 billion as of Sept. 11. It blamed declining sales, a failure to renegotiate a key supply contract, and the high cost of its labor force as among the reasons for its bankruptcy filing.
A&P’s debts include millions of unsecured dollars owed to local vendors, including specialty distributor Haddon House Food Products of Medford, which stands to lose $10.6 million, and Stroehmann Bakeries Inc., which is owed $1.3 million.
Although A&P’s troubles have been building for months, every move of the company, based in Montvale, N.J., from this point on will be watched closely, given what is at stake for workers, commercial real estate, and the industry.
A&P employs 41,000 people in the Mid-Atlantic region, 40,000 of whom are unionized, with an estimated 5,500 in the Philadelphia, South Jersey, and northern Delaware regions.
Some industry experts say grim days might lie ahead for Pathmark and Super Fresh workers, particularly if A&P sells stores to nonunion competitors who have no interest in retaining the old staff.
“With bankruptcy, a lot of questions: Does the union have to remain in place? What happens with the underfunding of the pension plans? Where do those moneys go?” asked Jeff Metzger, publisher of Food Trade News, whose monthly newspaper tracks the local supermarket scene.
Metzger said employees were “in for a life-changing experience, unfortunately.”
A similar outlook for workers came from the halls of the Food Marketing Department at St. Joseph’s University, whose campus has buildings that were constructed, in part, with donations from the family of key A&P bondholders, the Haub family.
“I’d be thinking that the future is not certain at all,” said food-marketing professor Richard George, describing how he would view the bankruptcy if he were an employee.
During the last year, competing chains have put together lists of Pathmark and Super Fresh sites they’d like to add to their roster, Metzger said.
“I’m not sure anyone wants to keep this thing going as a business,” said George, given persistently declining profit, and sales that are down more than 8 percent.
Wendell Young IV, president of United Food & Commercial Workers Local 1776, represents about 1,500 local workers. His union hoped the stores would remain intact in spite of the bankruptcy.
“We’re very concerned about it. It’s a lot of people’s jobs — good jobs, decent pay, decent benefits,” Young said. Losing stores and jobs “would be such a blow, not only to these people and their families, but to Greater Philadelphia, Pennsylvania. . . .
“But the goal here is to not see that happen,” Young said.
Some in the industry expect that the debtor will sell stores, despite its stated intent to streamline the business, trim its debts, and emerge from bankruptcy as a going concern.
For a company founded in 1859, bankruptcy marks a dramatic turning point. At its height in the 1930s, A&P had 15,737 stores. Today, even after costly acquisitions of other chains, it operates just 395 supermarkets and other retail outlets, though each is much larger than those in operation during the 1930s.
Faced with competition and changing shopping habits, the company’s struggles became acute in the 1970s. It underwent an out-of-court restructuring in 1982, and that same year the A&P name was replaced in the Philadelphia area by Super Fresh.
It acquired several chains after that, but its ability to upgrade stores and compete on a high level became truly hamstrung, analysts said, after its December 2007 acquisition of 141 Pathmark stores for $1.4 billion. That deal was completed with about $475 million in loans. A year later, the stock market plummeted, and consumer spending sank.
As its fortunes were declining in August 2009, the company raised $162.2 million by selling preferred stock to private-equity giant the Yucaipa Cos., headed by Ron Burkle, and Tengelmann Warenhandelsgesellschaft KG (Tengelmann), a German company run by the family of Karl-Erivan W. Haub.
In July, A&P hired its third new chief executive in five months. In August, it hired a chief restructuring officer, Frederic F. Brace, who laid out the reasons for bankruptcy in filings made with the court.
The company cited its debt load, underfunded employee pensions, expensive health and welfare programs, “and high store labor costs as a percentage of sales,” Brace wrote.
“The Debtors believe their collectively bargained wage, pension, and health-care obligations place them at a competitive disadvantage and are unsustainable at existing levels,” Brace wrote.
The corporation also said it planned to break leases at stores it had already shut down, but where it had been unable to find new tenants. It also blamed “unfavorable” contracts with C&S Wholesale Grocers Inc., the distribution company that supplies about 70 percent of the inventory found in the company’s stores.
A&P also faced a Dec. 15 deadline to pay $13.4 million in debt obligations.
For employees like Courtney, the favored approach is to take things day by day. If jobs are lost, he said, the task at hand is clear, if not easy: “I’m going to have to go out and find another means of doing an honest living.”
Contact staff writer Maria Panaritis at 215-854-2431 or email@example.com.
To see more of The Philadelphia Inquirer, or to subscribe to the newspaper, go to http://www.philly.com/inquirer.
Copyright (c) 2010, The Philadelphia Inquirer
Distributed by McClatchy-Tribune Information Services.
For more information about the content services offered by McClatchy-Tribune Information Services (MCT), visit www.mctinfoservices.com.
A service of YellowBrix, Inc.