Banking Against A. & P.

Like an angered heavyweight who decides to slug instead of box, the huge A. & P. food company has been weighing into competitors for the past year with a pulverizing cut-rate price policy called Where Economy Originates, or WHO. By paring its markups from 20% to 13% on total sales, A. & P. aims to regain consumers whom it had been losing to more inventive food merchandisers. Fighting back, A. & P.'s rivals are offering big price cuts of their own as well as 24-hour service and more nongrocery goods. The clash is spilling red ink all over supermarkets in the East and Midwest, and if it continues some firms could well collapse.

Hit by WEO (pronounced we owe), Kroger, National Tea and some other chains are reaching the limits of their normal borrowing capacities. According to Supermarket News, profits for the 48 largest supermarket chains totaled only $22.6 million in the last quarter, an astounding drop of 76% from the equivalent period last year. Losses were posted by five of the top ten--Kroger, Food Fair, Acme and National Tea, as well as A. & P. itself.

Now A. & P.'s competitors have gained a powerful ally, the First National Bank of Chicago, which is calling on other bankers to take a more understanding position in making loans to help struggling supermarket chains ride out A. & P.'s assault. Two weeks ago, Jay Doty, vice president of a First National loan division, told a gathering of 700 bankers in Chicago that "this cutting of corporate throats is conceivably what A. & P. intended." Doty estimated that A. & P. began its drive with $60 million in cash reserves plus $100 million in bank credit lines, and that at its present rate of loss it could continue price paring for another year and a half without outside financing. To avoid a wipeout of some food chains, Doty urged bankers to help well-managed supermarket companies hold out.

Doty argued that if A. & P. becomes dominant east of the Mississippi, it will be able to raise its prices with relative impunity. First National is extending especially liberal credit terms to two national supermarket chains (it refuses to identify them). In Doty's view, bank-loan officers should take a lenient position with faltering food chains, assessing the firm's chances for survival, its record of profitability and the location and attractiveness of its stores. So long as the A. & P. offensive continues, Doty also urges, troubled supermarkets should "reduce overhead to an absolute minimum, postpone maintenance and modernization outlays, reduce or pass up dividends and improve inventory control."

Doty, who believes that even for A. & P. the WEO drive is misguided, says: "When all this is over, A. & P. will hardly be better off than it was before. Its market share will be greater, but it will not have updated its outmoded stores, it will not have moved to better locations. Thus in three or four years A. & P. will again see its share of market fall." For the moment, though, consumers paying steep prices for food can take some comfort in the knowledge that prices would be even higher without the battle of the supermarkets.

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