A&P closings a boon for many landlords

Publish Date: July 23, 2015


A&P, the country’s first traditional supermarket chain, said this week that it would sell off or close its 296 remaining stores and dissolve the company in the months following its Chapter 11 bankruptcy filing late Sunday. That raises the inevitable questions of the fate of the retail real estate occupied by this Northeast U.S.–centered chain, which operates under the A&P, Best Cellars, Food Basics, Food Emporium, Pathmark, SuperFresh and Waldbaum’s brands.

The move will mark the end of the line for an iconic brand that grew to operate 4,200 stores at its peak roughly a century after its 1859 founding as the Great Atlantic & Pacific Tea Co. Incursions by specialty grocers and large general-merchandise retailers slowly eroded A&P’s share in core markets, combined with its own inability to evolve with a fast-changing industry landscape, according to Jim Hertel, a grocery industry consultant with Willard Bishop. “It used to be mostly ShopRite and A&P in the Northeast, but then Whole Foods, Walmart and Stop & Shop came in, and you had a situation where the pie was getting shaved thinner and thinner,” he said. A&P further lost its competitive edge as the big chains negotiated economies of scale with food suppliers, according to Hertel. Resultant sales declines caused A&P to cut costs, often resulting in poorly maintained, poorly staffed and poorly stocked stores, he says.

Though A&P’s struggles after a previous Chapter 11 bankruptcy in 2010 have been apparent, “the timing and severity of the announcement this week did take some people by surprise,” said Matthew Harding, president of Levin Management, a North Plainfield, N.J.–based real estate services firm, which has five A&P stores in its portfolio. “Because supermarkets are typically a shopping center’s anchor, closings can have a significant effect on the center.”

Significant buyer interest has allayed some fears. Three chains agreed to pay an aggregate $600 million for 120 of the stores. Acme Markets, a subsidiary of Albertsons, is acquiring 76 stores in Connecticut, Delaware, Maryland, New Jersey, New York and Pennsylvania. Stop & Shop, a subsidiary of Dutch supermarket operator Ahold, is buying 25 stores in Greater New York, while Key Food, a Staten Island, N.Y.–based co-operative of independently owned supermarkets, is to acquire 19 stores across New York and New Jersey.

The agreements are not yet final, because they are subject to court approval and pending auction. A&P, which has lined up $100 million in debtor-in-possession financing, will continue to operate the stores until the deals close, except for 25 underperforming ones it is closing almost immediately. All the stores will be rebranded.

Landlords of A&P’s top supermarket locations are likely to benefit from the new industry blood that fills the voids, “though secondary locations may be a challenge,” according to Harding. Candidates will include specialty grocers, fitness chains and large off-price retailers, he says.

“A&P has a legacy of established and proven real estate, which is the biggest asset it has right now,” said retail consultant Jeff Green, who heads an eponymous firm in Phoenix. Most locations are positioned to support sustainable supermarket operations, he says. “Not only are the locations suited for other grocers to take over, the stores are right-sized for today’s retail environment,” he said. “A&P never oversized its stores like some competitors.”

A&P President and CEO Paul Hertz said in a prepared statement that the company believed an outright sale of stores in a Chapter 11 was “the best way for A&P to preserve as many jobs as possible and maximize value for all stakeholders.” Roughly 90 percent of A&P’s workers are union members, and there are about three dozen separate collective-bargaining agreements in place, which the company has said became unsustainable as sales fell. Buyers will purchase the stores only if free of such liabilities, A&P says. The company, which employs about 28,000 workers, hired restructuring adviser Hilco Real Estate to monetize the balance of the A&P sites, which measure between 24,000 square feet and 60,000 square feet.

“This will be a silver lining for some landlords,” noted Harding, “but a big question for others.”

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