retail news in context, analysis with attitude

by Kevin Coupe

I read a lot of periodicals, but I have to admit that one I don't look at with any degree of frequency is Lebensmittel Zeitung, the German publication.

But apparently I should. Because an MNB reader sent me a link to a recent Lebensmittel Zeitung interview with Christian W. E. Haub, currently the Co-Chief Executive Officer of Tengelmann and the former CEO and chairman of the Great Atlantic & Pacific Tea Co. (A&P).

In that interview, he made the following observation:

"The new insolvency at A&P comes as no surprise for those who know the US trade. The reorganisation of the company in 2012 was only done half-heartedly. The new investors held on to too many loss-making outlets and kept all of the head office open. They also neglected to reduce cost structures, such as logistics and wages.

"Pay structures had been negotiated with the unions so that wages would have reached their original level again in three years. For all these reasons, and also because price levels were too high in the stores, A&P wasn't able to withstand the competition ... I expect the whole company to exit the market by the end of the year. The final demise of one of America's most traditional food retailers is very sad and particularly for those who work there."

And then, he offered the following defense of his company's ownership and management of A&P:

"The facts are that Tengelmann was able to achieve a positive return on invested capital for the whole 30 years it owned the company. During this time we also came to really understand the American consumer market, which is proving very advantageous today for our new investments in young consumer goods companies."

Well, I'd just like to say that I'm really happy for those young consumer goods companies that are benefitting from all the education that Tengelmann got at A&P. But it also strikes me that the last statement is staggering in its lack of self-awareness ... because I don't think there many folks out there would argue with the observation that during Tengelmann's tenure, A&P suffered from a lack of strategic creativity, an inability to execute on any sort of vision, a deficit in competitive juice, and a dysfunctional culture in which top management isolated in a New Jersey headquarters that might as well have been isolated by a moat.

The question I'd ask is how Tengelmann was able to achieve positive ROI ... because it certainly was not by creating a fleet of stores relevant to an evolving consumer class, a fleet designed to disrupt the marketplace and capture the imagination of shoppers.

The folks at Tengelmann may want deniability when it comes to the company's stewardship of A&P ... but it strikes me as implausible deniability at best.
KC's View: