Newlyweds Taylor and Anthony Aloi of Nanuet shop at the Fairway Market there. Photo by Peter Carr/lohud.
A&P’s bankruptcy resulted in tectonic shifts in the supermarket industry
The supermarket industry is already being drawn and quartered, and when A&P went defunct earlier this year competitors bickered and bargained over the properties left behind by one of the nation’s oldest supermarket chains.
Fueled in part by the sale, at unheard-of low rents, of some of the nation’s most sought-after A&P stores, the grocery landscape in the Lower Hudson Valley looks different only a few months later.
“The supermarket scene has never been so turned over,” said Martin Deitch, a White Plains-based commercial real estate broker who has been in the business for nearly 40 years. “You have the biggest turnover in retailers that I’ve ever seen.”
The local transformation comes just as the grocery industry nationwide is in the midst of a seismic shift in how people shop, what they buy, who competes for the business and even the definition of a supermarket.
Nannette Bogaevskaia 22, of Mount Kisco chooses a mouthwash at the new Stop & Shop in Mount Kisco. The store was formerly an A&P.Photo by Tania Savayan/lohud.
A generation ago, A&P and other supermarkets held a virtual monopoly on selling groceries to the American family. Their biggest business concern at the time was warding off competition from a similar supermarket down the street.
But the competition has widened to now include a multitude of food retailers — large, small, mainstream, specialty, discounters, warehouse clubs and even pharmacies all looking to grab a piece of the market.
“It’s death by a thousand cuts,” said Jim Prevor, a Florida-based industry analyst and self-dubbed “perishable pundit.” “None of these are direct competitors, but all of them take a percentage or two of your business.”
Overall, the U.S. grocery industry, which generates annual revenues in excess of $587 billion, has grown over the past five years by an annualized rate of around 1 percent, according to research firm IBISWorld. A stronger economy has given shoppers more disposable income and, in general, Americans are shopping more frequently than before.
“If you polled a typical under-35-year-old and asked how many different places they bought milk over the past three months, they’ll tell you they bought milk in probably six different places,” said retail expert Paco Underhill, whose Envirosell, Inc., consults with supermarket chains and makers of the packaged goods they sell. “They bought it in a grocery store, in a convenience store, in a drug store or a farmer’s market. But even Home Depot is stocking milk now in some stores.”
But while shoppers may be buying more, many are still looking for the best deals and willing to go store to store for the best prices.
Lucia Paris, 34, of West Haverstraw, is one of them. While there’s a Stop & Shop and a ShopRite near her home, she said she’s willing to drive an extra couple of miles to the Ideal Supermarket where she’s found better deals.
“You have to,” she said. “You need to save money.”
Monica Marrow of Greenburgh packs her car with groceries outside Stop&Shop in North White Plains. Photo by Tania Savayan/lohud.
The mentality that price is king has already changed the grocery business and led to the rise of discounters, such as Walmart, now considered the largest seller of food items in the country.
“It wasn’t until the ‘90s that they got into groceries and now they’re enormous,” said Michael Powell, a supermarket consultant with the Los Angeles-based firm Shook Kelley. “They can go to Walmart and know they’re getting the everyday low price. That’s their value. It has already changed the industry.”
Aside from price, industry analysts and most supermarket operators said they also see potential growth in the specialty-food category, which includes natural, organic and locally sourced products.
Local grocer John DeCicco Jr., whose family operates several supermarkets throughout Westchester and Putnam counties, said his customers are so-called foodies with discerning tastes willing to pay a little more for quality.
“We’re a lot more quality-oriented and more stringent on the specification of the product that’s coming into the store,” he said. “For example, all of our meat now — meat, chicken and pork — is all antibiotic and hormone-free. We made that big conversion over the last year.”
DeCicco said that, because he is a mid-sized local operator, he can offer some higher-quality products, like meats, to his customers better than some of his larger competitors.
“Every operator has their niche and each one is different in each store,” he said. “We’re pretty demanding in the specification that we have, that there isn’t that volume of that quality to satisfy the big players. It just doesn’t exist. I think that, being the niche player that we are, with the size that we are, we have to source those specific brands, source those specific products better than the bigger players can.”
Another category seen as having growth potential are supermarkets operated by Wegmans and Trader Joe’s, both of which offer their own lines of food specialties that can’t be bought anywhere else and inspire intense customer loyalty.
“That’s the type of food outlets that are growing,” said Ana Lai, a New York-based analytical manager for real estate at Standard & Poor’s. “There’s more demand for that specialty.”
Online grocery ordering, which includes companies such as FreshDirect, is another area expected to grow. More retailers are expected to enter the space, though at a slower pace than initially anticipated.
“Many of the stores are trying to figure out how to enter online,” said Kristina Koltunicki, another New York-based analyst with Standard & Poor’s. “People are just starting to invest in this infrastructure.”
Perhaps due to the growing market pressure, some large operators have acquired or merged with their competitors.
Idaho-based Albertsons recently merged with California-based Safeway to become the second largest grocer in the country behind Kroger Co. One of Albertsons’ subsidiaries is Pennsylvania-based Acme Markets, which struck a deal to buy 70 A&P stores earlier this year, including 14 in the Lower Hudson Valley.
The merger between Albertsons and Safeway brought a new infusion of capital that made such a bulk purchase possible, said Prevor, the Florida analyst. It allowed Acme to expand from its Pennsylvania base north into already-established stores in New York and Connecticut, he said.
“The owners behind that have substantial experience in buying supermarkets and fixing them up,” he said. “They also have experience in how to dispose of supermarkets if they’re not working.”
Citrus at the new Stop&Shop in Mount Kisco. Photo by Tania Savayan/lohud.
When A&P started in New York in 1859, its business was limited to operating as a tea shop and mail-order business. Known as the Great Atlantic & Pacific Tea Co., the company quickly expanded into multiple stores and became among the first grocers to market and manufacture its own line of food items, starting with baking powder in 1880. The strategy allowed A&P to price its products much lower than everyone else by cutting out wholesalers and the cost of paying commission.
By 1929, A&P tripled the number of stores it operated to 15,418 and became the first retailer to reach $1 billion in sales. But while the company is a recognized pioneer in the grocery business, initiating strategies competitors have come to emulate, such as creating the first store loyalty program, it fell behind in adapting to consumers’ changing spending patterns and tastes.
Amount paid by Acme Markets and Stop & Shop for 95 of the nearly 300 A&P store leases across the country, including 15 in the Lower Hudson Valley.
Number of grocery stores with 4,000 square feet of space or more in the Lower Hudson Valley. (Westchester: 242, Rockland: 68, Putnam: 18)
In the end, the company, which tried to reset its business in 2010 when it filed for bankruptcy the first time, could not dig itself out of more than $2 billion in debt and decided to sell out to competitors instead.
Powell, the Shook Kelley supermarket consultant, sees constant evolution on the horizon for the industry.
“Things will keep changing: not rapidly, not overnight,” he said. “The grocery store has been around for quite awhile and there’s still a lot of space, a lot of flexibility to adapt to where the culture is going.”
Staff writer Peter D. Kramer contributed to this report.