A&P's $250M IT Plan Shunned by Wall Street

Grocer says supply-chain system key to resurgence; investors downgrade rating

The Great Atlantic & Pacific Tea Co.'s announcement of a four-year, $250 million systems overhaul sent the supermarket chain's stock rating into a tailspin last week.

The project, to develop a supply-chain and business operations system, will cut fiscal 2000 profits by as much as $1.50 per share, A&P said, from about $3.

Nonetheless, the company should save $325 million over the four years by lowering costs and improving product availability and raise pretax operating profits by $100 million per year once it's complete, A&P said.

A&P is hoping that the overhaul will transform core business processes and is looking to engage in business-to-business e-commerce with its suppliers and use store-specific data to tailor purchasing, President and CEO Christian Haub said in a statement.

A&P executives couldn't be reached for comment.

But Lehman Bros., a New York investment company, estimated the toll on earnings to be higher than A&P estimates -- at closer to $2 per share -- and changed Montvale, N.J.-based A&P's stock rating from Neutral to Buy.

"By making these investments," Lehman financial analyst Meredith Adler said of the planned systems overhaul, A&P managers "are taking value away from shareholders."

The chainwide information technology implementation re- places a "hodgepodge of systems cobbled together over 20 years," said John Goedert, a senior vice president at Retek Inc., which is providing software for the project.

"A&P wants to move quickly into (creating and using an online) exchange and business-to-business initiative," he said.

Retek, in Minneapolis, will deliver retail merchandising software, including supermarket-specific software, to individualize store offerings, and IBM will contribute hardware and professional services, Goe-dert said.

Ongoing Campaign

The IT overhaul is just the latest move in A&P's campaign to revitalize the troubled chain, which includes A&P, Food Emporium and SuperFresh stores, said Marvin Roffman, president of financial management firm Roffman Miller Associates in Philadelphia.

Since 1998, A&P has sold off more than 100 "underperforming" stores. And last month, it reorganized management into regional divisions.

But the turnaround has been slower than hoped for, according to Adler. Against growing competition fueled by an aggressive rate of chain consolidation, A&P must find a global partner in order to survive, she said.

When A&P finds that partner, it will have to convert to that partner's systems, rendering the planned "risky" investment redundant, Adler said.

But increased efficiencies resulting from the overhaul could ultimately make A&P more attractive to potential partners, Roffman said.

Founded in 1859 in New York, A&P was an American institution for much of the past century. In 1950, its annual sales were second in the U.S. only to General Motors Corp., according to the company.


Copyright © 2000 IDG Communications, Inc.

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