A&P Files for Second Bankruptcy in Five Years

7/20/2015

It appears that a major piece of Americana will be gone within a short period of time. The Great Atlantic and Pacific Tea Company, better known for over 150 years as A&P, is likely going out of business for good. The company filed papers late Sunday night for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court for the Southern District of New York in Manhattan. For years, A&P was the largest supermarket chain in the U.S., and by 1930, it was the world’s largest retailer, with over 15,000 stores and over $1 billion in annual sales. In a sense, it was the Walmart of that time, with smaller companies complaining that A&P was forcing small grocers to close shop throughout the country. In modern days, however, the company has been priced-out by stores like Walmart and warehouse outlets like Sam’s and Costco, while also being outflanked by high-end grocery chains like Whole Foods. Sunday’s filing is the second bankruptcy in less than five years, following a 2010 Chapter 11 filing that the company blamed on the recession mixed with the increased competition. The company also blamed its 2007 acquisition of Pathmark and the $1 billion in debt it accumulated due to that transaction.

In Sunday’s filing, the company listed debts of $2.3 billion and assets of $1.6 billion. Although A&P plans to stay open during the bankruptcy proceedings, court papers indicate that the company is asking the court to allow it to close 25 stores immediately. The company has also lined-up bids on 120 of its 296 stores from competitors Acme, Stop & Shop, and Key Foods for a combined pricetag of $600 million at an upcoming bankruptcy auction. The company employs about 28,500 employees, including about 12,500 in stores involved in the selloff. In addition to its namesake locations, A&P also operates Pathmark, Food Basics, Superfresh and Food Emporium locations. Fortress Credit Corp. has offered $100 million debtor-in-possession financing to help smooth the transition. 90 percent of A&P’s workforce is union however; no potential purchasers have agreed to accept the union contract or employees’ pension obligations. The company is also seeking to renegotiate contracts with employees and suppliers immediately to avoid further “catastrophic” losses. If it is not able to reach successful resolutions, the company will seek court orders so the company can close its dealings by October. The buyers are also expected to resolve any lingering issues with the employees’ union as well.

Although A&P managed to emerge from its previous bankruptcy in 2012 by receiving private financing from Goldman Sachs among others, the company has failed to become profitable since. A&P reported a $305 million loss between February 2014 and February 2015. In addition to increased competition, the company cited legacy costs and inflexible union contracts as the major causes of the most recent bankruptcy filing. The company noted high labor expenses and the cost of leases on properties on which stores have been closed as eliminating any chance for profitability. This comes even though the employees union agreed to wage and benefit cuts in the 2010 bankruptcy, under the premise that they would be restored to previous levels once the company was again operating successfully. A&P also hired liquidation specialist Hilco to find buyers for the remaining 150 stores not currently under bid. The Montvale, New Jersey-based company opened in 1859 by merchants George Huntington Hartford and George Gilman. Although beginning initially as a mail-order business, they also opened a store in New York the same year, growing to 70 stores by 1878.

Sources:

North Jersey.com – Joan Verdon

Reuters – Supriya Kurane and Yashaswini Swamynathan

Wall Street Journal – Dana Cimilluca