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Great Atlantic And Pacific Supermarket Chain Files Chapter 11, Cites Excess Leverage And Margin Pressures Among Bankruptcy Causes

Tyler Durden's picture




 

And another one bites the dust. Montvale, NJ based grocery chain Great Atlantic and Pacific has filed for bankruptcy, pretty much as had been expected for the past week. The 101-year-old operator of 395 supermarkets and other
stores, filed for bankruptcy after failing to turn around its
business amid increased competition from wholesale clubs and
drugstores. A&P, based in Montvale, New Jersey, listed assets of $2.5
billion and debts of $3.2 billion in its Chapter 11 filing today
in U.S. Bankruptcy Court in White Plains, New York. The company
has 41,000 employees, 95 percent of whom are covered by union
agreements, according to the filing. And among the reasons for the filing, most notably ridiculous leverage incurred with the stupid purchase of Pathmark 3 years prior, is, you guess it: margin pressure. "Margin pressure imposed by declining operating cashflow has amplified the bottom line effects of the Debtors’ leveraged balance sheet and significant legacy costs....A&P, like many supermarket operators, continues to cope with the recent economic decline and reduced customer spending while running on narrow profit margins and facing intense competition." What? Reduced consumer spending? Margin pressure? Huh? Not according to the Chairman, who says inflation and margin collapse is merely in the eye of the beholder: the economic central planners would never allow this, and any bankruptcies that prove the contrary should be ignored and promptly forgotten.

Expect some serious weakness in grocery and supermarket stores tomorrow as a little piece of reality creeps it way into what we earlier classified as one of the most overbought markets in the five years.

Full first day affidavit below. Read it closely - many more such comparables will soon come to the fore as the Chairman succeeds in pushing input costs higher.

 

 

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Mon, 12/13/2010 - 00:06 | 800955 Bring the Gold
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Thanks TD for all you do. Cheers.

Mon, 12/13/2010 - 00:19 | 800965 Terminus C
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Indeed, I am continually amazed by the velocity of information on this site.

 

Is this going to cause knowledge inflation?

Mon, 12/13/2010 - 00:31 | 800987 Ras Bongo
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Your comments are a waste of space and I junked you for that.

Mon, 12/13/2010 - 00:34 | 800991 Terminus C
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my very first junk...

 

Thank you kind sir.

Mon, 12/13/2010 - 08:53 | 801243 AnAnonymous
AnAnonymous's picture

Oblivion?

Mon, 12/13/2010 - 15:45 | 802300 RockyRacoon
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I added mine just for fun.  I thought your comment rather neutral, but you seemed to find some glee in the junking.

Mon, 12/13/2010 - 16:24 | 802461 akak
akak's picture

Rocky, I junked Terminus because he apparently enjoys receiving them, and then I junked you for junking him for no good reason.  Then, just for good measure, I junked myself as well. 

I will now go eat some junk food, and watch some junk TV (but I repeat myself).

Mon, 12/13/2010 - 17:33 | 802714 RockyRacoon
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Yeah, junk TV is rather redundant...

I junked you only in the best of the Holiday Spirit.

Mon, 12/13/2010 - 00:21 | 800968 SparkySC
SparkySC's picture

Hasn't this occurred before? LOL

Mon, 12/13/2010 - 00:45 | 801000 Edmon Plume
Edmon Plume's picture

"The Debtors have experienced significant margin pressure and constrained liquidity as burdensome contracts, store labor, a leveraged balance sheet, and other legacy obligations continually increase their fixed and variable cost structure."

Any need to point out the obvious problems with "store labor" and other "legacy" obligations?  Color me cynical.

Kinda sucks to have an in-house labor union albatross, but it's even worse when your entire supply chain is infected:

http://supermarketnews.com/retail_financial/teamsters-strike-ap-depot-1101/

Hope they enjoyed the meaty years of negotiating better contracts, because now they're dogfood.  Including the upstream supply chain that now will have fewer delivery contracts, and themselves were already burdened with financial problems.

TBTF!  Bring on the bailouts.  If amtrak can suck the public tit for decades, why not A&P?  Food's at least on maslow's hierarchy.

Mon, 12/13/2010 - 02:02 | 801074 UGrev
UGrev's picture

How do you have the nut to strike AFTER a chpt 11 filing? 

Hooker: "Hey sugar.. 20 bucks for a blow job"... 

John: "Sorry, no money"...

Hooker:" Fuck you , I'm not giving you a blow job!"...

John:"I didn't ask for one"...

Hooker: "Well fuck you anyway"...

Logic fail? 

Mon, 12/13/2010 - 08:32 | 801222 ToNYC
ToNYC's picture

 

This sounds like most marriages. No money, no honey. If I could do myself and grow my own, no need to pour cement.

Mon, 12/13/2010 - 00:48 | 801003 DisparityFlux
DisparityFlux's picture

This Chapter 11 filing now begs the question, who would benefit more for it not to be approved?  Is A&P too big to fail?

Mon, 12/13/2010 - 00:53 | 801006 mark mchugh
mark mchugh's picture

I'd rather see a supermarket chain bailed out than a bank.

Mon, 12/13/2010 - 00:59 | 801012 Edmon Plume
Edmon Plume's picture

Why?  Part of the "problem" is competition from warehouse food clubs, etc.  It's not like a company disappears and leaves a gaping hole, unless there's a concomitant reduction in demand for goods, which in food, and right now, just ain't likely to happen.

I'd rather see neither be bailed out, for the reason cited.

Mon, 12/13/2010 - 11:01 | 801445 Jerry Maguire
Jerry Maguire's picture

This is a classic.  A paradigm of what's become of us.  A&P trotted along providing a real, fundamental product and service - food at grocery stores - for more than a century.  Sometimes well, sometimes not so well, but for a long time nothing actually threatened to put them out of business, until the casino economy, which extracts huge amounts of paper value from actual economic activity while returning nothing, finally got them. 

And no, we don't bail out real businesses, we just reset the game button, which costs a lot more but, see, now the game is the thing.  We've lost sight of everything else.

http://strikelawyer.wordpress.com/2010/12/11/money-ii/

Mon, 12/13/2010 - 00:54 | 801007 dark pools of soros
dark pools of soros's picture

you got Target and WalMart cheap labor shoveling food to the Zombies...  why even have any workers at all?? close the stores and just helicopter drop rice and milk .. then you can get rid of the SNAP cards too

 

it's all about the bottom line right??  hell just poison 80% of the population and be done with it

 

  

Mon, 12/13/2010 - 01:01 | 801017 Edmon Plume
Edmon Plume's picture

Poison?

With their rash-approved genetically modified food stuff, and crap on the shelves with ingredients that you can't even pronounce, that's exactly what they've been doing for decades, to 100% of the population.

When's the last time you bought a supermarket apple that actually had any taste?

Mon, 12/13/2010 - 01:21 | 801040 QQQBall
QQQBall's picture

They do not have any taste. The really weird part is the really cheap ones that look great, have I believe been zapped with radiation. I left a few in my fruit bowl and the outside didnt' age for the long time, but the insides were getting bad. Also, even right after purchase. I think theyare zapping those apples so that they can store and ship a bumper crop longer... I get almost all my fruits & veggies from the local farmers market and much of that is organic. 

Mon, 12/13/2010 - 01:44 | 801061 Edmon Plume
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I've had that same experience many times with lots of fruits and veggies.  WTH are they doing to them?

Read B. Kingsolver's Animal, Vegetable, Miracle.  One theme is modern food is grown for transport and shelf life, not consumption.  Consumers are into appearances, not substance.  As long as your guests comment on how shiny the apple is, doesn't matter that it tastes like chalk, eh?

Mon, 12/13/2010 - 03:21 | 801104 Seer
Seer's picture

And lack of nutrients, when compared to similar items from/of the past.  As is everything else, BIG production compromizes quality.

Mon, 12/13/2010 - 09:57 | 801311 pazmaker
pazmaker's picture

I despise chalky apples... yuck!!   We have some apple orchards a few miles up the road (western NC) and they are delicious!

Mon, 12/13/2010 - 09:20 | 801264 hardcleareye
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In the last few years I have had more time and have started buying local grown veggies (at "harvest" when it is dirt cheap) and meat...  I have pulled out my grandmother's hand written canning and preserving instructions (written around 1900) and started putting up food..  what a difference in the taste and quality... compared to what is available in the stores.

My garden it getting bigger every year.  My overall food cost has gone down.  We have a large extended family and I serve a good home cooked dinner every night. The local grass fed lamb and beef are wonderful....

It takes time, I am retired, I could not do these things if I worked 40 plus hours a week.

Mon, 12/13/2010 - 08:01 | 801204 Dental Floss Tycoon
Dental Floss Tycoon's picture

Pol Pot was ahead of his time.

Mon, 12/13/2010 - 08:32 | 801224 Unholy Dalliance
Unholy Dalliance's picture

Sicko! Why don't up just up and join the enemy.

Mon, 12/13/2010 - 00:58 | 801010 caconhma
caconhma's picture

"The company has 41,000 employees, 95 percent of whom are covered by union agreements".

Chapter 7 bankruptcy filing would be more appropriate. I wonder, who lends them money?

A&P situation is not any different from GM and Chrysler. Does it mean Obama and FED will bail them out?

Mon, 12/13/2010 - 09:59 | 801312 pazmaker
pazmaker's picture

JPM is their lender.

Mon, 12/13/2010 - 01:15 | 801030 Oh regional Indian
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What some might percieve as the shake out of weak hands, others will see as a move towards the dreaded C word.

Rations from government warehouses, approved nutrition basket of goods, only if you are a SNAP dragon, tattoo, chip and all.

The slip and slide into proto-fascism is now is full swing and there is nothing you can do about it. The time for any overt collective actions are now past.

SOmeone mentioned in the A&P post recently that America could "easily" absorb 30% food inflation.

I think we are going to see such delusions tested, soon.

Winter is definitely upon us.

Here in India, certain perishables are seeing 30% moves in a single day.

ORI

http://aadivaahan.wordpress.com

Mon, 12/13/2010 - 01:28 | 801047 Terminus C
Terminus C's picture

How are people in India reacting to those fluctuations?  Food price increases are very hard on the poor.

Mon, 12/13/2010 - 01:58 | 801069 Oh regional Indian
Oh regional Indian's picture

Terminus, very interestiing thing happening. Before the advent of TeeVee, there would have been blood on the streets, riots, the works. Onions are (or at least used to be) the bell-weather. If they got expensive, people were out on the streets.

Not anymore, now people scale back purchases, grumble and watch the nightly nautch performances, wake up, slave and come back for another night of soothsaying.

The cost of cable TV is the only
item" that seems to be inflation proof.

At some point though, I see Onion riots again. It used to bring governments down.

ORI

Mon, 12/13/2010 - 01:16 | 801032 Seer
Seer's picture

Backroom squeeze going on, they weren't signing on to the Homeland Security narc on consumers program that the likes of WalMart has signed on to.  Damn union folks, not wanting to sign up for That fascist program, the nerve!

Mon, 12/13/2010 - 09:01 | 801246 hardcleareye
hardcleareye's picture

At first read I thought your post was the "Tin Foil Hat" type... but googled it and found this...

Secretary Napolitano Announces Expansion of "If You See Something, Say Something" Campaign to Walmart Stores Across the Nation

http://www.dhs.gov/ynews/releases/pr_1291648380371.shtm

 

Mon, 12/13/2010 - 11:10 | 801455 Bring the Gold
Bring the Gold's picture

You know, now more than ever the wingnuts are being vindicated. More than any other group of prognosticators the "Tin Foil" crowd has been dead on. Main Stream folks have been by contrast dead wrong again and again.

Some examples:

in 2002 wingnuts said "Patriot Act" will never be rolled back. MSM "objective types" said "oh no there are sunsets provisions."

In 2002, wingnuts claimed we were torturing in Gitmo. MSM types said "No America doesn't torture.'

In 2002, wingnuts said we are slipping into fascism. MSM types said "No that can't happen here you are a wingnut and unpatriotic."

In 2007 Wingnuts said a global crash was coming. MSM types said "No we've reached a plateua of prosperity."

Throughout the 2000's wingnuts at GATA claimed PM manipulation. MSM types mocked them as idiots and bought more equities and RE.

Just a handful of examples. Yes the wingnuts have been wrong, but not as often as MSM zombies.

My point is today's conspiracy theory might be tomorrow's reality. Best look into things before you assume that a "far out" theory is dead wrong. Einstein said "Condemnation without investigation is the highest form of ignorance".

Does that mean shapeshifting Aliens are real? No of course not. It means though you damn well better look into claims of creeping and not so creeping fascism.

How about those VIPR squads and mobile Backscatter vans being set up by TSA and DHS. If you aren't a tad creeped out you are either a willing brownshirt or a fool.

Mon, 12/13/2010 - 01:59 | 801071 akak
akak's picture

And among the reasons for the filing, most notably ridiculous leverage incurred with the stupid purchase of Pathmark 3 years prior, ...

I am sure that if they had used that leverage to purchase Chinese solar stocks instead of Pathmark, A&P would be sitting in the catbird seat today.  Right Leo?

Mon, 12/13/2010 - 02:38 | 801092 mt paul
mt paul's picture

mmmm

margin compression 

with a lovely

lemon and basil reduction ...

Mon, 12/13/2010 - 03:08 | 801098 bankonzhongguo
bankonzhongguo's picture

AP is serviced by C&S.  The restructuring will no doubt leave some of the AP brands up for sale and one third of all stores closing as part of the sell off.  Fewer stores - higher prices. AP sells is own brands  but again does not MAKE its own food.  Its no different than that mom and pop store that closes when the Wal-mart opens in Anytown USA.  Most of AP employees are part time. 

Mon, 12/13/2010 - 03:28 | 801109 Id fight Gandhi
Id fight Gandhi's picture

How the fuck does whole foods stay in business? Moldy marked Up produce on this organic kick are on.

Mon, 12/13/2010 - 08:39 | 801229 UGrev
UGrev's picture

The way things are going, it's going to push people into buying direct from local farms or farmers markets if they haven't already. 

Mon, 12/13/2010 - 04:00 | 801125 ArsoN
ArsoN's picture

It be fun to know how those claims are trading and who's buying (guessing Wilmington Trust isn't sitting on 600mm+ of A&P debt).  Also interesting (although not surprising) that their major expense are leases on empty stores.  They can't sublease the space out ...just in case anyone was still wondering how the commercial real estate market was doing.

Mon, 12/13/2010 - 08:00 | 801203 ZackLo
ZackLo's picture

They don't call them zombie banks for nothing......they lend and lend and lend to speculators...It's so crazy to see resident evil in a philosophical context...and tragic.

Mon, 12/13/2010 - 08:32 | 801225 ToNYC
ToNYC's picture

 

If it were not for the threat of bankruptcy, all these dead business models would be zombies in our path.

Mon, 12/13/2010 - 08:41 | 801233 pragmatic hobo
pragmatic hobo's picture

this sounds like a scheme to bust union.

Mon, 12/13/2010 - 09:39 | 801286 waterdude
waterdude's picture

This shouldn't be news. A&P have been hanging on by the teeth for some time.  Tengelmann finally decided to quit recapitalizing them. The best trade here is long ahold (AH NA) as they'll have less competition in 7 core states and have a decent short at buying some assets on the cheap.  Given excess cash on the balance sheet, any rehab of those assets would be eps accretive.

Mon, 12/13/2010 - 10:36 | 801397 centerline
centerline's picture

Grocery stores, if located right and operated right, can pass some of the input costs onto the consumer.  Right now, the only real movement in the commercial construction sector is new and remodeled grocery stores.  If margin compression is big factor in what killed A&P, imagine the squeeze in other industries that do not have the flexibility.  This A&P thing speaks volumes about margin compression in general.  So many business are one major unavoidable capex incident away from failure.

Mon, 12/13/2010 - 13:07 | 801753 lamont cranston
lamont cranston's picture

Some time back a local radio station in Charlotte said that Park N' Shop was going to merge with A & P, with the renamed chain to be Park N' Pee.  Looks like their union thugs and JPM got that wish all over their legs.

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