Can IT save A&P, the granddaddy of grocery chains?
AT THE TURNof the century, dappled gray horses pulled A&P's red wagons through the streets of lower Manhattan in a marketing scheme designed to lure shoppers to the store. Decades later one of those shiny red wagons adorns the lobby of the grocery chain's headquarters in Montvale, N.J. -- a nod to the supermarket company's glory days, but also a glaring reminder of its image as an old-fashioned outfit that has fallen dangerously behind its competitors. While its biggest rivals are benefiting from years of investments in IT and other areas, A&P now faces a life or death test.
The 142-year-old grocer, known officially as the Great Atlantic & Pacific Tea Co., has put its future on the line with a four-year, $250 million systems and supply chain overhaul that will ultimately replace close to 95 percent of its current applications. Saddled with an antiquated IT infrastructure and facing threats from new grocery entrants such as Wal-Mart Stores, discount club stores and convenience stores, A&P had little choice but to take an ax to its legacy systems and outdated business practices.
Now, the company faces an uphill battle -- and a tide of skepticism from Wall Street investors -- as it prepares to implement an ERP-type system it hopes will transform A&P from old-time grocer to a high-tech retailer equipped to compete. "This is virtually 'Bet the company,'" says Nicholas L. Ioli Jr., senior vice president and CIO, who was brought in a year-and-a-half ago to oversee the IT project. "If we're going to be a player in the industry, we've got to leapfrog our competition. We're talking strategic change."
A&P's a famous brand -- to your grandparents. In 1912, A&P stores instituted "cash and carry" transactions at a time others kept customer tabs. A&P was among the first grocers to make its own products like A&P Bokar Coffee (which Cmdr. Richard Byrd carried on his 1929 Antarctica expedition). The company launched Woman's Day magazine in 1937. And at its loftiest, A&P's revenue in 1950 was second only to General Motors. But that was then.
|CEO Christian Haub embarked on a supply chain overhaul soon after joining A&P in 1998.|
The company has struggled for the past decade to remain competitive with such grocery giants as The Kroger Co., Safeway and Ahold USA, a unit of the Netherlands' Royal Ahold, posting stagnant sales and neglecting its network of cobbled-together legacy information systems. In the late 1980s and early 1990s, the company made several large, ill-advised acquisitions that put a further drag on profits. In 1998, Christian Haub, the then 34-year-old scion of the family that owns Germany's Tengelmann Group, which owns 53 percent of the company, took over as CEO. He quickly closed more than 100 stores and opened "superstores" in an effort he optimistically called "Great Renewal." Results weren't as "great" nor was the "renewal" as swift, as some on Wall Street had hoped, and Haub soon embarked on the plan to overhaul the company's stumbling supply chain, which was severely handicapped by outdated technology and ineffective business processes.
A&P, which operates 750 stores in 16 states, the District of Columbia and Ontario, Canada, and includes the A&P, the Food Emporium and Waldbaum's marquees, is far from alone in its decision to invest heavily in IT in an attempt to turn its struggling business around. Other industries, including manufacturing and airlines, are also making full-scale, public efforts to use IT to get closer to customers and Web-enable their supply chains. For the grocery business, which struggles with razor-thin margins and increasing competitive pressures, an integrated, ERP-like system could bring even more marked benefits, Ioli says. Still, A&P's complex IT plan for the traditionally non-techy grocery industry poses great risk.
Those in the industry are watching closely. "If A&P does succeed, it will reinforce the inclination of grocery chains and their senior management boards to bet their thin margin businesses on IT investments," says Greg Girard, an analyst at AMR Research in Boston.
Defying the skepticism, A&P has embarked on a shared-risk partnership with IBM and the Minneapolis software company Retek. While the vendors involved are banking on A&P's success to further their reputations in the retail sector, the supermarket chain hopes the effort will catapult it from industry laggard to market leader.