Turnaround Strategies: A&P’s IT Overhaul Going Slow

The Problem: Outdated systems.

A&P, one of the oldest and most venerable names in the grocery industry, has struggled for the past decade to remain competitive with such grocery giants as Kroger, Safeway and Albertson’s, posting stagnant sales and neglecting its network of cobbled-together legacy information systems. The 143-year-old grocer, known officially as the Great Atlantic & Pacific Tea Co., also faces threats from newer grocery entrants such as Wal-Mart, discount club stores and convenience stores. (See “Food Fight,” Oct. 15, 2002.) When Nicholas L. Ioli took over as CIO in 1999, he found that most of the company’s applications, which hadn’t been updated in 12 to 15 years, were written in custom code, Cobol and CICS (customer information control system). What’s more, 85 percent of them were accessed through terminals hooked to two IBM mainframes, one in New Jersey, the other in Maryland.

The Solution: A massive systems overhaul, including training employees.

Perhaps no other grocery chain has staked its future on IT as completely as A&P. The Montvale, N.J., grocery retailer came forward two years ago with a bold plan to invest $250 million in new systems and business practices. Instead of working in the secrecy that grocery chains are known for, A&P Chairman and CEO Christian Haub came out publicly with the plan, dubbed Great Renewal II, which he described as make or break for the company. At the core of the IT overhaul is a shared risk partnership with IBM and the Minneapolis software company Retek to build an ERP-like system?the first of its kind for the grocery industry. Retek was to build core retail applications for purchasing, merchandising and inventory management and would also include a data warehouse and demand forecasting application that would eventually be integrated with a warehouse management system and store systems. Oracle was to be used for financials and human resources.

The Situation Now:

More than a year after CIO profiled A&P’s Great Renewal II program in its Feb. 15, 2001, cover story, “Can IT Save A&P?” the project has hit some bumps.

Ioli, the company’s CIO, was replaced in February by John E. Metzger, previously an A&P senior vice president. (Ioli declined to comment on anything related to A&P, including the reasons for his departure.) Metzger says the company is well past the midpoint of the project, including the implementation of a merchandising system designed by Retek. The company is just starting to implement Retek’s data warehouse that will give A&P information on profitability of promotions, SKUs and vendors.

“This is an extraordinarily high-priority project,” Metzger says, noting that the bulk of the implementations will be complete in less than a year. Metzger also acknowledges that Wall Street has yet to sanction the project. “They’re all watching closely,” he says. A&P’s share price remained on the low side in August, sinking to a 52-week low of $10.70 after the company reported weaker sales figures for the first half of 2002. (The company’s stock slid still further in September.)

Leadership:

CIO Ioli was replaced in January 2002 by Metzger.

Challenges Ahead:

Making good on promises. Two years ago, CEO Haub predicted that A&P would save about $325 million during four years by lowering costs and improving product availability. He also said pretax operating profits would rise by $100 million per year once the overhaul is complete in 2004. A&P also faces the huge challenge of training its employees to use the new systems. “The largest issue now,” says Metzger, “is getting employees to adjust to the new technology and business processes. It’s not a matter of loading new technology into a box. Training is a huge part of our effort.”

What the Experts Say:

“The expectations they built for Wall Street have not been matched,” says Tom Murphy, president of Peak Tech consulting in Colorado Springs, Colo., and former vice president of information systems at Kroger. “They are making progress but they’ve clearly found that the technologies are harder to implement than they thought.