Grocery chain the Great Atlantic & Pacific Tea Company (A&P) has entered into an agreement to transfer its US distribution operations and some warehouse facilities and related assets to C&S Wholesale Grocers, it said today (Wednesday).

The transition of property and operations is expected to begin in July and be completed in the autumn.

The agreement follows A&P's 10 May 10 announcement of plans to focus on future northeast US retail development by realizing the value of its Canadian company, divesting its Midwest operations, and pursuing supply chain and other cost reductions.

The company said the new long-term supply and logistics arrangement is expected to produce an estimated $40m in annualized savings, based on C&S's logistics expertise and purchasing efficiency, and the removal of internal costs associated with self-distribution.

"This agreement will expand our successful 20-year relationship with C&S," said Christian Haub, chairman and CEO of A&P. "It is a key step in our ongoing effort to reduce costs overall, and specifically to align our infrastructure to the 'New A&P' that will result from the completion of our announced restructuring plan. In addition, C&S's best-in-class expertise will enable our management to focus exclusively on the development and expansion of our fresh and discount retail formats."

The Company said that due to the scope of C&S's existing distribution network, A&P-operated facilities in Edison, New Jersey and The Bronx, New York will not be transferred as part of the transaction, and are slated to be closed. A&P is also pursuing the sale of its Michigan warehouses separately, as part of its Midwest divestiture plan.

A&P said that it expects to incur costs of $65-75m, related to the distribution changeover during the first half of this fiscal year. Including a one-time reduction in working capital and the sale of certain assets as a part of this transaction, the Company anticipates an immediate positive impact on cash.

 "While we regret the impact of this decision on the associates most affected, we emphasize its necessity for the long-term viability of our company," Haub said. "It is consistent with our objective of returning to profitability by fiscal 2007, and growing our business in our core northeast markets going forward."