great atlantic & pacific tea Annual_Report_2007

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great atlantic & pacific tea Annual_Report_2007

  1. 1. 2 0 0 7 A N N U A L R E P O RT
  2. 2. A&P IS NOW A TRUE CONTENDER 2007 HAS BEEN A MOMENTOUS YEAR FOR A&P, NOT ONLY DID THE COMPANY DELIVER IMPROVED OPERATING RESULTS BUT IT ALSO COMPLETED THE STRATEGIC TRANSFORMATION OF CREATING A FOCUSED NORTHEAST CONCENTRATION, ENVISIONED AND PLANNED OVER THREE YEARS AGO. BACK IN 2004 THE COMPANY REALIZED IT HAD TO TRANSFORM ITSELF IN ORDER TO GROW STOCKHOLDER VALUE AND SUSTAIN A SUCCESSFUL BUSINESS FOR THE LONG TERM. IN ORDER TO DO SO, THE COMPANY EM BARKED ON A PATH TO ACHIEVE THE LEADING POSITION IN CORE NO RTHEAST MARKETS BY DRIVING CONSOLIDATION, CONSEQUENTLY DIVESTING NON-CORE MARKETS, WHILE AT THE SAME TIME IMPLEMENTING A FORMAT DRIVEN STRATEGY AND ELIMINATING REDUNDANT OVERHEAD BY CREATING A CENTRALIZED ORGANIZATION FOCUSED ON DRIVING TOP LINE SALES GROWTH AND ACHIEVING IMPROVED PROFITABLITY. “ONLY A MAN WHO KNOWS WHAT IT IS LIKE TO BE DEFEATED CAN REACH DOWN TO THE BOTTOM OF HIS SOUL AND COME UP WITH THE EXTRA OUNCE OF POWER IT TAKES TO WIN WHEN THE MATCH IS EVEN.” -MUHAMMAD ALI 1 2
  3. 3. Dear Fellow Stockholders: I am very pleased with our progress this past year, as the HIGHLIGHTS OF THE YEAR INCLUDE: The Pathmark integration provided the basis for our Company has realized numerous accomplishments that latest format innovation, Price Impact. Instituting quick were diligently planned and efficiently executed. These “merchandising hits” in our new Price Impact banner has THE ACQUISITION OF PATHMARK; STRATEGIC achievements represent our continuous progression toward already shown promising results with early returns. Designs are sustainable profitability. already in place for a store refresh concept for select Pathmark MARKET DIVESTITURES FOR REALIGNMENT locations that will cost-effectively modernize the stores while OF THE BUSINESS IN THE NORTHEAST CORE; Thanks to the hard work and dedication of our associates and enhancing both our price image and the Fresh experience. management, we successfully completed the close of the In early February, we premiered our first Pathmark refresh in CONSISTENT PROGRESS ON FUNDAMENTAL Pathmark transaction. The integration is progressing smoothly Jersey City, New Jersey with much success. The 2008 programs RETAIL KEY PERFORMANCE INDICATORS; with each milestone set thus far achieved, without any major and updates planned for this customer base will leverage the obstacles. To ensure a seamless business transition, numerous SUCCESSFUL RENOVATIONS IN OUR FRESH, format’s growth potential. meetings were immediately held to bring together all major DISCOUNT, AND GOURMET STORES; AGGRESSIVE Pathmark and A&P teams including Pathmark store managers. The Food Basics stores which represent our Discount format are PRIVATE LABEL PENETRATION GROWTH RATE; The collective energy garnered from this coming together has also experiencing very strong, year-over-year sales growth as quickly made us Better Together and further fueled the drive to evidenced over the last four consecutive quarters. This top line THE STRONGEST COMPARABLE STORE SALES build our business. Our teams are now more than ever deeply growth has greatly enhanced bottom line improvement. INCREASES FOR ONE YEAR, IN OVER 8 YEARS focused on attaining the projected synergies anticipated. The Plans are currently being executed to expand this base of intense preparation and concentration on targets, provides stores in 2008. support to our belief that the $150 million of synergies is well within our grasp. Early assessments of potential synergies are Solid growth is also clearly evident in the Manhattan market, already presenting results consistent with projections. where The Food Emporium has exceeded expectations. The As we continue to dynamically innovate latest two renovations have been met with positive results. The product offerings across all formats, our I am especially pleased to announce the successful completion “food2go Fresh” product line recently launched is providing Fresh programs began introducing Starbucks and signing of our logistics contract with C&S Wholesale customers a large variety of convenient and tasty prepared cafes in select locations. The stores offer a full Grocers in March 2008. This innovative ten-year agreement gourmet selections. This program has had overwhelming beverage menu, as well as Starbucks cookies, combines our previously separate A&P and Pathmark success in meeting our customers’ needs for delicious, fresh pastries and other baked selections. Four supply contracts. It is especially significant in that it fully cuisines that fit effortlessly into their busy lifestyle. This format in-store cafes were launched this year and are aligns our distribution operations, procurement practices continues to meet customers’ needs for premium foods with doing very well, with more planned for 2008. and warehousing facility goals. It is also expected to create expansion plans for the next two years. This has been a year of substantial progress increased efficiencies across our distribution network which has positioned the Company well to improving service levels to all stores, and enabling both the INNOVATIONS continue capturing leadership share as the Company and C&S to achieve substantial cost savings. The success of these formats is primarily due to our new market is primed and ready. We remain intent mindset which fosters the development of innovations on our targeted plans and strategic mission, The key aspects of this agreement are: internally, as well as exploring new opportunities through with increased momentum from Pathmark’s • An innovative new business model strategic partnerships and acquisitions. This is clearly evident integration. Reflecting on this busy year, I am • A dedicated network of distribution centers in our substantially enhanced private label program. In 2007, especially proud to see many long planned • Coordination and collaboration of resources we commenced the complete revamp of the America’s Choice programs and goals come to fruition. And • Reduction of on-hand inventory brand with a new logo and packaging. Further we began I look forward to reporting back to you the • Improved in-stock levels introducing America’s Choice products in Pathmark with success of achieving our projected synergy • Best-in-class service levels with improved speed-to- resounding positive feedback. Additionally plans are underway savings in 2008. market delivery to transform Pathmark’s “Savings Plus” private label brand and • Cost reductions which will result in savings for customers leverage the new product line across most of our formats. This I want to take this opportunity to personally has fueled excitement for aggressive development of dynamic thank the executive management team for FORMAT DRIVEN OPERATIONS products for launch next year. their effective leadership, our associates and As the only retailer in the Northeast to execute across four management for the passion they bring to In October, we acquired Best Cellars, a New York City-based differentiated formats, we are focused on effectively serving their jobs and their tireless efforts and to retailer renowned for uniquely merchandising “Great Wines all of our customers. With clear market segmentation across Christian Haub, our Executive Chairman and for Everyday” by flavor profile rather than by origin. Best various regions in the Northeast operating under multiple the Board of Directors whose support has Cellars pioneered a simple concept of offering great wines for banners, as well as a target consumer base, we continue to enabled us to reach the next level. everyday enjoyment with food, sold at reasonable prices in invest capital in our store base, which now includes Pathmark. an engaging and customer-friendly environment. Best Cellars’ marketing strategy enables customers to shop for beer, wine Due to our new effective price strategy in Fresh, we are better Sincerely, and spirits intuitively, based on taste. Acquiring Best Cellars positioned against our competition and are winning new played an important role in marrying our Fresh food programs customers week after week. The Fresh renovations continue with beer, wine & spirits creating one more innovative reason to play an integral role in our strategic transformation. The to choose A&P. Early in the coming year we will open the first positive financial results of increased sales and margins clearly stand alone A&P Best Cellars store. illustrate that we are on target with our mindset to deliver a Eric Claus superior Fresh store offering. In September, we premiered our President and Chief Executive Officer “walking street” style environment proto-type in Park Ridge, New Jersey to overwhelming customer response. 3 4
  4. 4. WITH THIS TRANSACTION WE HAVE NOW ACHIEVED THE NUMBER ONE POSITION IN THE NORTHEAST REGION BASED ON MARKET SHARE. their guidance, advice and counsel competitiveness – we expect to and successful concepts that 2007 has been a momentous during this very challenging but realize integration synergies of have generated positive sales and year for A&P, not only did we at the same time exciting period at least $150 million within the earnings; outsourcing distribution deliver improved results from our in A&P’s history. My most sincere next 18 to 24 months – creating and gaining significant cost operations but also completed CHAIRMAN’S REPORT TO STOCKHOLDERS thanks also goes out to our substantial value for stockholders, advantages and supply chain the strategic transformation in valued associates, who with their and providing opportunities for efficiencies; centralizing creating a focused Northeast diligent efforts have supported growth and development for our administration and reducing concentration of stores, their Company through all these associates. overhead costs dramatically. envisioned and planned over Dear Fellow Stockholders: changes. Finally, I want to thank In 2008, our focus will be The completion of the three years ago. Back in 2004 our outstanding management on the successful integration Pathmark transaction has certainly the Company realized it had to I am pleased to report to you that we have team for their commitment, hard of Pathmark while at the same been the highlight of a very busy transform itself in order to grow work and enthusiasm. Under time weathering the challenges year. I am very pleased with the stockholder value and sustain accomplished many of the goals we had the leadership of our CEO, Eric of a changing economic overall outcome of the process. a successful business for the Claus, they have accomplished environment. We have moved This merger could not have come long term. We embarked on set for ourselves and the completion of the a remarkable turn-around and quickly and effectively to integrate at a better time for the Company. a path to achieve the leading Pathmark acquisition has certainly been the transformation and although a lot the businesses based on a The addition of Pathmark’s skilled position in our core Northeast of work still remains to be done comprehensive plan developed talent, expansive store portfolio, markets by driving consolidation, capstone of our strategic transformation. this team deserves a tremendous by our integration team. To date formidable brand strength and consequently divesting our non- amount of credit and praise for the Company is on track with fervent consumer reputation core markets, while at the same their achievements. significant benefits already being completes our consumer-centric, time implementing a format I’m looking forward to realized from the acquisition. go-to-market strategy. The driven strategy and eliminating continued progress in 2008 and We are well positioned to deal acquisition is significant not redundant overhead by creating beyond as we integrate Pathmark, with the effects of a slower only in the fact that it creates a a centralized organization implement our format driven economy. I am confident that our highly competitive Company focused on driving top line sales strategy and look for additional management team is fully capable which positions us to achieve growth and achieving improved ways to grow our business and of delivering on the full potential sustainable profitability but profitability. create value for our stockholders. of the Pathmark acquisition and also in the immeasurable value The results in our retail the ongoing roll-out of our format derived from bringing together operations have steadily improved Sincerely, strategy. two iconic American grocery during the last three years. This The last several years have chains. The integration provides past year has seen the strongest seen a tremendous amount us the lead position in the largest top line sales trend in many years. of change at A&P. We have consumer market – the New Our overall improved performance truly transformed our great York metropolitan area, while is directly attributable to the Company and realized significant also significantly increasing the skills of our proven leadership Christian Haub stockholder value during this time. combined Company’s share team and the new mindset in our Throughout this process our Board Executive Chairman in the greater Philadelphia organization which has driven the of Directors worked tirelessly to market. In addition, the merger operating progress in our business support our transformation and will transform A&P’s financial by implementing a multiple I couldn’t be more thankful for performance, efficiency and format strategy built on proven 5 6
  5. 5. Table of Contents 9 A Year In Review 15 Format Driven Strategies 17 Vision & Innovations: A New Mindset for the New A&P 19 Key Performance Highlights 21 Community Relations 23 Sustainability 24 Executive Management Team 25 Board of Directors Annual Report for year ended February 23, 2008 Stockholder Information 7 8
  6. 6. SOMETIMES CHASING THE PRIZE CAN SEEM FRUITLESS. 9 14
  7. 7. 25 APRIL 2007 A&P announces NET INCOME 19 JULY 2007 OF $27 Company Annual 7 SEPTEMBER 2007 MILLION Meeting 13 MARCH 2007 SuperFresh store opens in for fiscal year ended A&P sells 6,350,000 shares Philadelphia 30 AUGUST 2007 February 24, 2007 of Metro to purchase A&P signs an agreement Pathmark 30 MAY 2007 27 FEBRUARY 2007 to operate Starbucks Christian Haub presented stores in select A&P A&P announces with the Children’s Health locations negotiations to acquire Fund’s Corporate Award Pathmark 21 MAY 2007 5 MARCH 2007 PGA Beef Program Launches 1 AUGUST 2007 A&P announces agreement to Four Company Executives acquire Pathmark named “Top Women in for $1.3 billion Grocery” by Progressive Grocer Magazine 7 JULY 2007 A&P announces sale of Midwest stores 10 11
  8. 8. 8 JANUARY 2008 27 SEPTEMBER 2007 A&P announces Park Ridge, NJ A&P third quarter opens - first dramatically 8 MAY 2008 3.1% 26 JANUARY 2008 redesigned Fresh store 17 OCTOBER 2007 INCREASE A&P announces SuperFresh celebrates 25th A&P announces fourth quarter 3.0% Anniversary with a $25,000 second quarter in comparable store sales 3.2% shopping spree give-away INCREASE 27 NOVEMBER 2007 INCREASE in comparable store sales The Federal Trade Commission in comparable store sales accepts consent agreement for operating results A&P to aquire Pathmark 16 FEBRUARY 2008 17 JANUARY 2008 Pathmark Gospel Choir 15 NOVEMBER 2007 Executive Management Team and Competition A&P acquires Best Cellars Board of Directors ring the closing 3 DECEMBER 2007 15 SEPTEMER 2007 bell at the NYSE Pathmark acquisition A&P announces sale 10 MARCH 2008 complete of 21 New Orleans-area Sav-A-Center stores A&P and C&S Wholesale Grocers sign an Industry-Leading Agreement W I T H G O O D I N F O R M AT I O N A N D T H E R I G H T P E R S P E C T I V E , T H E P R I Z E I S A L O T C L O S E R T H A N Y O U T H I N K . 12 13
  9. 9. FORMAT DRIVEN STRATEGIES DISCOUNT FRESH PRICE IMPACT GOURMET Food Basics A&P, Waldbaum’s, SuperFresh Pathmark The Food Emporium “Lower Prices Everyday” “Price Impact” “The World’s Finest Gourmet” “Best in Fresh, Simplified Red Tag Savings” The Food Basics banner’s Discount approach appeals to The Pathmark banner is becoming a destination price The Food Emporium’s new European-style “shops within a A unique destination of high quality fresh products with an extensive, a growing market with its value priced items for those leader, where the customer basket is impressionably store” feature a dazzling array of decadent gourmet delicacies value driven pricing program is the winning combination for our that must save as well as those that like to save without less expensive than conventional supermarkets. It ranging from the finest imported cheeses to the most exclusive Fresh format banners. A&P, SuperFresh and Waldbaum’s stores feature compromising on quality and freshness. This bright and offers a full selection of the products customers need handcrafted chocolates. The best food products from around the merchandising excitement with enticing signature products highlighting modern urban layout features an assortment of local- most at low prices, with national brand products and world are available in this trendy store, all in a high-style setting. the best in fresh products including produce, meat, seafood, deli and ethnic foods with the best service, quality and price. Own Brand alternatives. With designated deal zones But it isn’t all decadence. The Food Emporium doubles as the delicious baked goods, with many products made on the premises. This and treasure hunt items throughout the store, it neighborhood grocer in Manhattan, offering a wide selection of Fresh format not only offers the full traditional grocery offerings but also delivers value and an impactful shopping experience. grocery products. a host of fresh, prepared, natural/organic and specialty food products all under one roof. 15 16
  10. 10. INNOVATION: INNOVATION: Best Cellars Decadent 27 Layer Croissant with real Bringing food & wine Irish Butter together…with a unique flavor profile PRIVATE LABEL: VISION+INNOVATIONS In 2004 The Great Atlantic and Pacific Tea Company developed a Seafood Joe - The freshest seafood straight mission to strategically transform the business. The goal was to from the sea not only return the Company to profitability but also to become a market leader in all geographic locations we serve. Success of this goal depended on innovating the way we meet customers’ INNOVATION: needs and deviating from old ways of thinking. A NEW Fresh Vine Ripened Tomatoes that taste like you just picked them yourself MINDSET FOR THE NEW A&P INNOVATION: Pharmacy Live Better! In order to be effective in this mission the Company needed to move quickly and with directed purpose in every aspect of the Wellness Program business. The new mindset was integral to the achievement of our goal and was based on strategically transforming our: Helping people make better Innovations , Promotion, & Private Label choices PROMOTION: See Red & Save Promotion PROMOTION: INNOVATION: Weekly Circulars Park Ridge Fresh Store Winning customers with a Dramatically redesinged variety of ways to save store format like you’ve never seen before PRIVATE LABEL: National Brand quality for less 17 18
  11. 11. C O M PA N Y O V E R V I E W KEY PERFORMANCE HIGHLIGHTS 2. GROWING REVENUE AND PROFITABILITY THROUGH FOUR COMPLEMENTARY TARGETED FORMATS; STRONG OPERATING MOMENTUM FROM SUCCESSFUL NEW FORMAT ROLL-OUT AND NEW MERCHANDISING INITIATIVES 3. EXPERIENCED MANAGEMENT TEAM WITH PROVEN TRACK RECORD # BOTH OPERATIONALLY AND STRATEGICALLY 1 4. EXPECTED ANNUAL SYNERGIES OF $150 MILLION 30 1. THE NEW A&PMARKET LEADINGPOSITION IN THE COUNTRY’S LARGEST IS THE FOOD RETAILER IN THE NORTHEAST > million in WITH THE #1 SHARE miscellaneous CONSUMER MARKET. 80 > million #1 Market Share 4 Powerful Formats reduction in in the #1 market in the country in one concentrated market administration costs Exceptional real-estate portfolio Best in Fresh coupled with in the largest and most densely 40 Best in Center Store populated market in the country > million reduction in cost of goods sold 447 STORES : $9.4* BILLION IN SALES *on a Pro-forma basis 19
  12. 12. DONATIONS FUNDRAISERS In 2007, the Company Finally, the STORES RAISED $195,000 In-store fundraisers are another critical element of the contributed to local events FOR ST. JUDE’S DURING THE MONTH OF Company’s commitment to its primary partnership. In 2007, THE COMPANY RAISED NEARLY such as the NJ March of Dimes OCTOBER through the St. Jude’s Pumpkin register $750,000 FOR THE MDA through its many RIDE and Harvest Ball, a “Share fundraiser. Two of the top yielding District Managers Our Strength” fundraiser fundraising activities (The Shamrock Campaign, Aisles and Store Managers flew to St. Jude’s Hospital in in Baltimore dedicated to of Smiles Program, The Golf Outing). Representatives Memphis to receive plaques for their outstanding ending childhood hunger. of the Company also appeared on the MDA Telethon efforts. The Company also provided in Las Vegas, New York and Baltimore. Alex’s Lemonade Stand is another cause near THE COMPANY RAISED MORE THAN donations to Variety Children’s and dear to the hearts of associates, as Alex hosted $550,000 FOR THE CHILDREN’S HEALTH Charity Telethon to support one of her first stands outside the SuperFresh Store FUND (CHF) through a cash register fundraiser pediatric care in local hospitals in Wynnewood, PA. IN 2007, ALL BANNERS such as the Oncology Suite PARTICIPATED IN ALEX’S LEMONADE for donations to the mobile health units, participation C O R P O R AT E S O C I A L R E S P O N S I B I L I T Y at Memorial Sloan Kettering STAND FUNDRAISING EFFORT AND in the 20th Anniversary Gala and support of the COMMUNITY Cancer Center, Cody House COLLECTIVELY RAISED $179,500 FOR Hampton Home & Garden Show CHF Sunflower sale. and others, as well as Youth THIS CHARITY IN ONE WEEKEND. Services such as The Variety RELATIONS Boys & Girls Club of Queens and Felix Millan Little League. In addition, the Company also operates the Waldbaum’s Foundation, established in 1999 is an initiative dedicated to the fight against breast cancer. THE WALDBAUM’S In 2007, the FOUNDATION RAISED Company MORE THAN $375,000 FROM ITS STORES raised over LOCATED IN QUEENS, BROOKLYN, $2.5 million STATEN ISLAND, AND LONG ISLAND. for charitable organizations. PATHMARK The newest addition to the A&P Family of Supermarkets, the Pathmark banner, has been extremely active in the community supporting charities such as the Alzheimer’s Memory Walk, The American Cancer Society’s Making Strides Walk, Make-A-Wish Foundation, Children’s Miracle Network, and The Juvenile Diabetes Research Fund to name just a few. Throughout its rich and storied history, The Great Atlantic were designated based on their ability to promote the SPONSORSHIPS & Pacific Tea Company has always been a responsible health, education and welfare of women and children. THESE ARE THE MUSCULAR DYSTROPHY The Company sponsors a number of activities that benefit our primary charities. corporate citizen enthusiastically giving back to the ASSOCIATION (MDA), THE CHILDREN’S For example each year A&P partners with Acosta to bring food, fun and a festive communities it serves. The Company’s extensive atmosphere to the MDA Summer Camp in Spring Valley, New York. Management HEALTH FUND AND THE ST. JUDE’S Corporate Social Responsibility program includes and associates work together serving food and assisting with the day’s activities. CHILDREN’S RESEARCH HOSPITAL. fundraising efforts, donations and sponsorships as well Another program is THE WALDBAUM’S LONG ISLAND JUNIOR SOCCER as a strong commitment to sustainability. For many Through these collective efforts the Company raised CHALLENGE WHICH THE COMPANY HAS SUPPORTED FOR 12 years, associates have participated in and contributed to more than $2.5 million. In addition to these charities, the YEARS AND BENEFITS OVER 22,000 CHILDREN from Nassau and a variety of organizations. To maximize the Company’s Company’s supermarket banners support a number of Suffolk counties. focus and resources, primary charitable partnerships locally based organizations. ELIZABETH HAUB FOUNDATION, ST. JUDE’S, SECOND HARVEST FOODBANK, MDA, OPERATION SHOEBOX, CHILDRENS HEALTH FUND, ALEX’S LEMONADE STAND 21 22
  13. 13. S U S TA I N A B I L I T Y A C R O S S T H E C O M P A N Y 2007 A&P ANNUAL REPORT | EXECUTIVE MANAGEMENT TEAM T H E E L I Z A B E T H H A U B F O U N D AT I O N The Great Atlantic & Pacific Tea Company understands that being an upstanding corporate citizen and giving back to the community means more than just partnering with other organizations in support of important philanthropic causes. For the Company it also means leading the change for the well-being of our most valuable asset – our environment. A&P is committed to preserving the environment, reducing litter and lessening the flow of plastics into the waste stream. Critical to this effort is our re-usable shopping bag program in support of the Elizabeth Haub Foundation’s conservation efforts. The Foundation, established more than 30 years ago is an international, non-profit organization that supports legislation addressing environmental concerns such as the World Charter for Nature of the United Nations. SINCE 2006 THE PROGRAM HAS BEEN OFFERING CUSTOMERS RE-USABLE, ENVIRONMENTALLY FRIENDLY, DESIGNER QUALITY SHOPPING TOTES AT THE LOW COST OF .99 CENTS. A portion of the sales from these stylish totes is donated to the Foundation to help curb the use of disposable waste plastics and conserve paper resources. In addition to supporting and helping to curb the use of disposable waste plastics and consumption of paper resources, the Company’s tote program provides customers with the ability to support plastic reductions through incentives. Shoppers that use a Haub tote or re-use a paper bag get .02 cents off sustain ability FROM INCEPTION THROUGH THE END OF 2007, PROCEEDS FROM THE SALE OF THE ELIZABETH HAUB BAGS HAVE RESULTED IN THE DONATION OF NEARLY $250,000 TO THE FOUNDATION. their shopping order and .01 cent off each re-used plastic bag. In addition, all of replacement and new store locations have white thermoplastic polyolefin the Company’s stores contain recycling bins to allow shoppers to return plastic roofing. This material absorbs less heat thereby lessening the need for grocery bags, dry-cleaning bags, and shrink wrap. increased air conditioner usage during the summer. Over the previous Our commitment to reducing the Company’s carbon imprint is not five years we have significantly focused on higher efficiency heating and limited only to our re-usable bag program. The Company has an internal cooling systems replacing existing systems in most of our remodeled store committee of cross-functional leaders who consistently seek opportunities locations. HANS HEER ERIC CLAUS JENNIFER MACLEOD ALLAN RICHARDS IN ADDITION, A&P HAS CONCENTRATED ON back row, to find environmentally-friendly products and practices. Committee SENIOR VICE PRESIDENT PRESIDENT & SENIOR VICE PRESIDENT SENIOR VICE PRESIDENT left to right LEADING THE CHANGE BY BUILDING THREE STORE members have been instrumental in developing numerous eco-conscious & THE FOOD EMPORIUM CHIEF EXECUTIVE MARKETING & HUMAN RESOURCES, LOCATIONS IN NEW JERSEY WHICH HAVE 300KW GENERAL MANAGER OFFICER COMMUNICATIONS L A B O R R E L AT I O N S , programs including lowering lights and adjusting temperatures to utilize L EGAL SERV ICES & SOLAR POWER SYSTEMS. These stores use solar energy to less power during peak times. In addition, the stores have developed SECRETARY comprehensive practices to conserve our natural resources by enacting provide approximately one third of their electrical power which has efficiency controls on energy and water usage. resulted in significant electrical reductions on the local power grids. The BRENDA GALGANO REBECCA PHILBERT PAUL WISEMAN The program also seeks further opportunities to improve the resource Company also has two co-generation stores in New York. These locations front row, efficiency in our stores. TO THAT END, THE MAJORITY OF SENIOR VICE PRESIDENT SENIOR VICE PRESIDENT SENIOR VICE PRESIDENT feature a rooftop micro-turbine generating system that combines heat and left to right CHIEF FINANCIAL MERCHANDISING & ST O RE O P E RAT I ONS OUR STORES HAVE HIGH EFFICIENCY FLUORESCENT power through a micro-turbine generating system which provides energy OFFICER SUP P LY AN D LO GI ST I CS LIGHTING AND A CENTRALIZED SYSTEM FOR savings and reduces demand on the local grid. CONTROL ENERGY MANAGEMENT. Further, the refrigerated A&P continues to explore new ways to bring sustainable practices to every aspect of our business. IN 2008 THE COMPANY fixtures throughout our stores are monitored to avoid overstocking which WILL INTRODUCE ADDITIONAL INNOVATIONS IN blocks proper circulation of air and reduces energy efficiency. ENVIRONMENTALLY-FRIENDLY MERCHANDISE When store locations are updated, the Company reviews AND OPERATIONS PRACTICES. environmentally friendly construction options. As part of this update, all THE DRAMATIC RESULTS FROM THIS PROGRAM’S PROCESS OF LOWERING STORE LIGHTING LEVELS ALONE HAS SIGNIFICANTLY LESSENED OUR IMPRINT EQUIVALENT TO THE REMOVAL OF 1,058 CARS FROM THE ROAD. 23 24
  14. 14. 2007 A&P ANNUAL REPORT | BOARD OF DIRECTORS 2 0 0 7 A & P A N N U A L R E P O R T | S T O C K H O L D E R I N F O R M AT I O N AMERICAN STOCK TRANSFER AND TRUST COMPANY 59 Maiden Lane New York, NY 10038 Telephone 1-800-937-5449 www.amstock.com STOCK LISTING: New York Stock Exchange Ticker Symbol: GAP INDEPENDENT AUDITORS: PricewaterhouseCoopers LLP 400 Campus Drive P.O. Box 988 Florham Park, NJ 07932 EXECUTIVE ADDRESS OFFICE: Two Paragon Drive Montvale, NJ 07645 SAFE HARBOR STATEMENT: This Annual Report contains forward-looking statements about the future performance of The Company, which are based on management’s assumptions and beliefs in light of the information currently available to it. ANNUAL STOCKHOLDER MEETING: Date: Thursday July 17, 2008 Time: 9:00am (EDT) Location: The Woodcliff Lake Hilton 200 Tice Boulevard Woodcliff Lake, NJ 07677 GREGORY MAYS DAN MAUREEN JOHN BARLINE EDWARD LEWIS back row standing, INDEPENDENT MEMBER OF THE INDEPENDENT KOURKOUMELIS TART-BEZER left to right MEMBER OF THE BOARD SINCE MEMBER OF THE INDEPENDENT INDEPENDENT BOARD SINCE JULY 9, 1996. BOARD SINCE MEMBER OF THE MEMBER OF THE DECEMBER 3, MAY 16, 2000. BOARD SINCE BOARD SINCE MAY 2007. MARCH 21, 2000. 15, 2001. The Company assumes no obligation to update the information contained herein. These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from such statements including, but not limited to: statements about the expected future business and financial performance of The Company resulting from and following the JENS-JÜERGEN BOBBIE GAUNT CHRISTIAN ANDREAS front row seated, merger; competitive practices and pricing in the food industry generally and particularly in The Company’s principal markets; INDEPENDENT BOECKEL HAUB GULDIN left to right The Company’s relationships with their employees and the terms of future collective bargaining agreements; the costs and other MEMBER OF THE MEMBER OF THE MEMBER OF THE MEMBER OF THE BOARD SINCE BOARD SINCE BOARD SINCE BOARD SINCE effects of legal and administrative cases and proceedings; the nature and extent of continued consolidation in the food industry; MAY 15, 2001. APRIL 29, 2004. DECEMBER 3, MAY 1, 2007. changes in the financial markets which may affect The Company’s cost of capital and the ability of The Company to access capital; 1991. CURRENT supply or quality control problems with The Company’s vendors; and changes in economic conditions which affect the buying EXECUTIVE CHAIRMAN. patterns of The Company’s customers. 25
  15. 15. Table of Contents Executive Chairman Letter to Stockholders................................................. 3 President and Chief Executive Officer Letter to Stockholders ..................... 5 Management’s Discussion and Analysis...................................................... 8 Consolidated Statements of Operations ...................................................... 46 Consolidated Statements of Stockholders’ Equity and Comprehensive (Loss) Income ..................................................... 47 Consolidated Balance Sheets...................................................................... 49 Consolidated Statements of Cash Flows ..................................................... 50 Notes to Consolidated Financial Statements ............................................... 51 Management’s Annual Report on Internal Control over Financial Reporting 117 Report of Independent Registered Public Accounting Firm ......................... 118 Five Year Summary of Selected Financial Data .......................................... 120 Executive Officers........................................................................................ 122 Board of Directors........................................................................................ 122 Stockholder Information............................................................................... 123 Company Profile The Great Atlantic & Pacific Tea Company, Inc. (“We,” “Our,” “Us,” “A&P,” or “our Company”), based in Montvale, New Jersey, operates conventional supermarkets, combination food and drug stores, and limited assortment food stores in 8 U.S. states and the District of Columbia under the A&P£, Waldbaum’s¥, Pathmark£, Best Cellars£, The Food Emporium£, Super Foodmart, Super Fresh£, and Food Basics£ trade names. 2
  16. 16. EXECUTIVE CHAIRMAN LETTER TO STOCKHOLDERS Dear Fellow Stockholders: 2007 has been a momentous year for A&P, not only did we deliver improved results from our operations but also completed the strategic transformation in creating a focused Northeast concentration of stores envisioned and planned over three years ago. Back in 2004 the Company realized it had to transform itself in order to grow stockholder value and sustain a successful business for the long term. We embarked on a path to achieve the leading position in our core Northeast markets by driving consolidation, consequently divesting our non-core markets, while at the same time implementing a format driven strategy and eliminating redundant overhead by creating a centralized organization focused on driving top line sales growth and achieving improved profitability. I am pleased to report to you that we have accomplished many of the goals we had set for ourselves and the completion of the Pathmark acquisition has certainly been the capstone of our strategic transformation. With this transaction we have now achieved the number one position in the Northeast region based on market share. The results in our retail operations have steadily improved during the last three years. This past year has seen the strongest top line sales trend in many years. Our overall improved performance is directly attributable to the skills of our proven leadership team and the new mindset in our organization which has driven the operating progress in our business by implementing a multiple format strategy built on proven and successful concepts that have generated positive sales and earnings; outsourcing distribution and gaining significant cost advantages and supply chain efficiencies; centralizing administration and reducing overhead costs dramatically. The completion of the Pathmark transaction has certainly been the highlight of a very busy year. I am very pleased with the overall outcome of the process. This merger could not have come at a better time for the Company. The addition of Pathmark’s skilled talent, expansive store portfolio, formidable brand strength and fervent consumer reputation completes our consumer-centric, go- to-market strategy. The acquisition is significant not only in the fact that it creates a highly competitive Company which positions us to achieve sustainable profitability but also in the immeasurable value derived from bringing together two iconic American grocery chains. The integration provides us the lead position in the largest consumer market – the New York metropolitan area, while also significantly increasing the combined Company’s share in the greater Philadelphia market. In addition, the merger will transform A&P's financial performance, efficiency and competitiveness – we expect to realize integration synergies of at least $150 million within the next 18 to 24 months – creating substantial value for stockholders, and providing opportunities for growth and development for our associates. In 2008, our focus will be on the successful integration of Pathmark while at the same time weathering the challenges of a changing economic environment. We have moved quickly and effectively to integrate the businesses based on a comprehensive plan developed by our integration team. To date the Company is on track with significant benefits already being realized from the acquisition. We are well positioned to deal with the effects of a slower economy. I am confident that our management team is fully capable of delivering on the full potential of the Pathmark acquisition and the on-going roll-out of our format strategy. The last several years have seen a tremendous amount of change at A&P. We have truly transformed our great Company and realized significant stockholder value during this time. Throughout this process our board of directors worked tirelessly to support our transformation and 3
  17. 17. I couldn’t be more thankful for their guidance, advice and counsel during this very challenging but at the same time exciting period in A&P’s history. My most sincere thanks also goes out to our valued associates, who with their diligent efforts have supported their Company through all these changes. Finally, I want to thank our outstanding management team for their commitment, hard work and enthusiasm. Under the leadership of our CEO, Eric Claus, they have accomplished a remarkable turn-around and transformation and although a lot of work still remains to be done this team deserves a tremendous amount of credit and praise for their achievements. I’m looking forward to continued progress in 2008 and beyond as we integrate Pathmark, implement our format driven strategy and look for additional ways to grow our business and create value for our stockholders. Sincerely, Christian Haub, Executive Chairman 4

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