Troubled US grocery retailer A&P has revealed a raft of changes alongside its second-quarter results, pinning many of its turnaround hopes on its new executive team.
Over the past couple of months, A&P has made a series of changes to its executive team, appointing a new chief administrative officer, vice president of merchandising and marketing and vice president of operations following the appointment of Sam Martin as president and CEO in July.
Executive chairman Christian Haub described the changes as a “new culture” for the retailer and that the team is “moving quickly to implement its turnaround strategy”.
The attempt to revive the business comes amid continued losses for the retailer. Losses from continuing operations more than doubled over the second quarter, reaching $143m against $63m the previous year.
The plan, which Haub described as “comprehensive and much needed” consists of five building blocks which include the new management team, strengthening liquidity, reducing structural and operating costs, improving the value proposition for customers and enhancing the customer experience in stores.
A&P is negotiating an agreement with its existing banks and several new lenders to add a new loan to its existing asset-backed facility. CFO Jake Brace said the moves will “give us the liquidity we need to implement the turnaround plans” and is expected to close by 1 November.
Additionally, A&P is considering further sale-and-leaseback transactions as well as the sale of additional non-core and non-performing assets, although Martin said it would be “unlikely to be of the same scale” as the 25 stores closed and seven sold over the previous quarter.
The company is in talks with unions to reduce labour costs, and has already reduced headcount, saving roughly $10m a year. It is also working with suppliers, seeing the potential for a 100 basis point saving ($83-100m) in supply and logistics costs.
Additionally, it is negotiating with its wholesaler C&S to reduce costs, a move which Martin described as a “win-win opportunity”, adding that there was a lot of duplication across the distribution centres following the company’s merger with Pathmark in 2007.
Speaking about the mistakes the retailer has made with its customers, Martin said: “We need to be more customer focused, we’ve been working on the vendor side, not the customer side. We’ve been inwardly focused instead of outwardly focused.”
As part of this new customer focus, the retailer is looking to leverage its loyalty card data, segmenting the customer-base to offer more targeted promotions, as well as using the information to refine its product mix and pricing. Martin said he is focused on “understanding what moves the needle”.
Brace was cagey around making any forecasts on when the retailer’s fortunes would improve and would not be drawn into the exact financial boost the cost-cutting schemes across labour and operations would achieve. However, he did not dispute the $140m cost savings that analysts on the earnings call suggested the retailer might achieve.
However, Martin was a little bit more positive, saying that A&P’s third-quarter comparable sales are showing some improvement and that “the third quarter should see progress on this burn rate”, adding that the improvements were largely down to “better marketing, better plans and improved execution in stores”.
When asked if Martin had the skill to manage so many changes in such a short time, Martin responded by saying: “I have a tremendous team of highly skilled professionals around me”.
Martin, A&P’s second CEO in six months, remains optimistic that the plan he is initiating will deliver a turnaround, but does not expect change to come rapidly. “We don’t expect to see a jump” he said, expecting progress to come in “fits and starts” but was insistent that there will be “improvement over time”.