A&P:The Not-So-Great RenewalBy Kim S. Nash | Posted 2004-02-05 Email Print
A once-great chain stumbles.
Four years ago, Great Atlantic & Pacific Tea Co., once the largest supermarket chain in the U.S., was about where Albertson's is today.
A&Pas the company is commonly knownisn't as big as Albertson's and Albertson's hasn't lost the millions of dollars that A&P has, but Wal-Mart has hurt them both and both have endured pinched margins due to flabby supply chains and outdated information technology.
In 2000, A&P launched a giant technology makeover, just as Albertson's now has. A&P's goal then, like Albertson's today, was to modernize store operations, financial reporting and human-resources management; get rid of old custom-built mainframe applications; and create more-efficient supply-chain and logistics systems. A&P intended to spend big on software and hardware to cut costs, regain market share and discover new riches in groceries.
A&P hired IBM and Retek, a Minneapolis software maker, for a four-year, $250-million technology overhaul. The vendors were to install new warehouse and transportation systems as well as category management, merchandising, financial and human-resources software.
The project was part two of A&P's grandly named Great Renewal initiative to get the company back to glory. Great Renewal Part One, a 1998 plan to close poorly performing stores, had failed to renew A&P. Even after closing 165 stores in 1998 and 1999, sales in its remaining 750 stores continued to be flat. Overall, annual sales plodded from $10.2 billion in 1998 to $10.6 billion in 2000.
Goals for Great Renewal Part Two weren't specific but hit on key metrics, such as higher margins, lower expenses, and to stop red ink. The project was supposed to save $325 million in annual costs the first year, then $100 million per year after that.
It wouldn't be a cake walk. IBM, Retek and A&P wanted to build an enterprise resource planning (ERP) suite tailored to the way the supermarket business worked, rather than just any old retailing endeavor.
At the time, none of the big ERP vendorsfrom SAP to Oraclehad attempted that, in part because selling groceries is one of the most complicated businesses going, with one of the slimmest profit margins. Off-the-shelf software wasn't written to manage retail goods with sell-by dates.
The systems didn't allow for buying goods in one form and selling them in another. The technology couldn't handle some products being shipped back to suppliers if not up to standardsor being thrown out if they spoiled.
ERP software at a clothing store, for example, tracks data on the same red sweater from manufacturer to warehouse to store to customer. Sweaters don't change or rot.
But in groceries, a side of beef may be shipped from a farm to a refrigerated distribution center where it's cut into and sold as roasts, steaks or burger patties. Unlike milk and butter, sweaters have no expiration date after which they have to be removed from store shelves.
A&P was Retek's first major U.S. grocery contract. Nick Ioli, at the time A&P's chief information officer, told a reporter that the project was "a huge, huge undertaking."
By mid-2001, A&P had posted $21.6 million in quarterly losses. By February of 2002, the company reported a net loss of $71.9 million for its fiscal year ending February 2002, up from a loss of $25.1 million the previous year. And it reported a profit of $14.2 million in fiscal 2000.
CEO Christian Haub said in a conference call in the middle of 2001 that he was "disappointed" with how the company was executing its plans. In 2002, Ioli was replaced as CIO by John Metzger, who had been head of logistics. The company then dropped the "Great Renewal" name, instead using the simpler "business-process initiative."
A year ago, A&P, IBM and Retek put out a press release saying the project was complete and complimenting each other profusely. They declined to talk about it further. The grocer still won't talk and has instructed IBM and Retek to keep quiet as well. Ioli could not be reached for comment.
A&P continues to struggle. It lost $194 million in fiscal 2003; sales dropped 1.6% compared to the year before. A&P stock trades at $8.31, less than half of what it was when Great Renewal Part Two was announced.