The bankruptcy of A&P that was announced last month will create a retail ripple effect that will shake up neighborhood shopping centers throughout North Jersey.
The bankruptcy filing by Montvale-based Great Atlantic & Pacific Tea Co. (A&P), which operates A&P, Pathmark and Food Basics stores in North Jersey, means 30 store properties in Bergen and Passaic counties are likely to change tenants, or become vacant.
In some cases, that means a North Jersey shopping center will get a stronger supermarket tenant that will boost the fortunes of the smaller shops in the center. In other cases, merchants face the prospect that the supermarket, which plays a crucial role in the vitality of a shopping center, will be vacant for some time, or be replaced by a non-supermarket tenant.
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“There’s a reason why these supermarkets are called the anchor tenant,” said Matthew Casey of Matthew P. Casey and Associates, a New Jersey-based real estate analysis firm specializing in supermarket properties. A strong supermarket, Casey said, can attract 10,000 to 20,000 customers a week to a shopping center. “The small pizza guy, the liquor store, the dry cleaner and the Verizon Wireless store, they all feed off that customer traffic,” he said.
That dynamic is one reason why, when supermarkets close, they tend to be replaced by other supermarkets. Some leases even promise the dry cleaner or the bagel store owner that the large anchor spot will always be occupied by a supermarket.
But food-industry and real estate experts say that the past trend of supermarkets replacing supermarkets isn’t likely to hold true in this case.
“There’s going to be a thinning of the herd in terms of net numbers,” said Jeff Metzger, publisher of Food Trade News.
The poor condition of many of the older A&P stores; the store sizes — which are smaller than typical modern supermarkets; and the many other food competitors already in North Jersey make the available stores less attractive to other supermarket tenants, Metzger said. “Some will end up becoming something other than a food store, and some will just remain dark,” he said.
Three supermarket chains – Acme, Stop & Shop and Key Food — have submitted bids for 14 A&P owned stores in Bergen and Passaic counties.
The Pennsylvania-based Acme supermarket company wants seven A&P stores — in Allendale, Fort Lee, Mahwah, Midland Park, Park Ridge, Saddle Brook and Woodcliff Lake — and three Pathmark stores, in Bergenfield, Edgewater and Elmwood Park. New York-based Key Food is trying to enter North Jersey with a bid for three Food Basics stores, in Fairview, Glen Rock and Paterson. Stop & Shop included just one Bergen County store, the A&P in Closter, in its bid for 25 properties.
The other 16 Bergen and Passaic properties are stores A&P is seeking buyers for as part of the bankruptcy process, or that it plans to close immediately. The Bergen and Passaic A&P, Pathmark and Food Basics stores will remain in operation during the bankruptcy and sale process, with the exception of the two Pathmarks in Clifton that are on the immediate closing list.
At the 16 properties where bidders haven’t been identified, landlords are trying independently to line up prospective tenants, and neighboring merchants are worrying about the possible impact if the supermarket space becomes empty.
At Township Liquors in Washington Township, located next door to the A&P in the Washington Town Center shopping plaza on Pascack Road, owner Sanju Patel is hoping for information about the fate of the adjacent supermarket. His wish, he said, would be to see a strong supermarket chain replace A&P. His chief worry, he said, is that the store could be empty if A&P leaves. “Local residents want a food store nearby,” said Patel, adding that shoppers often combine a trip to the A&P with a visit to his store.
If A&P leaves, without a replacement, he said, his sales would decline 40 percent. But if a stronger chain, such as ShopRite, moved in, he estimates it would boost his business by 90 percent.
Another Washington Town Center tenant, Robin Droescher, opened Bark Place, a dog-grooming salon, in a space a few storefronts away from the A&P in June, one month before A&P announced it had filed for bankruptcy. Droescher’s shop, which offers some of the same ambience and amenities of hair salons for humans — appointments for services and “crate-free” waiting areas for the dogs — is more of a destination, and not as dependent on impulse purchases by passing supermarket shoppers.
But Droescher said having a good supermarket in the center, and other in-demand merchants, helps her customers, because they can do grocery shopping and other errands while waiting for their dog to be groomed.
Other bidders for A&P properties are expected to emerge over the next two months, with the bankruptcy auction scheduled for the end of September.
The bids by Acme, Stop & Shop and Key Food don’t automatically mean the 14 stores will convert to those brands. The Bergen and Passaic stores those chains have selected could go to other buyers if another company submits a higher bid.
The Rochester, N.Y.-based upscale grocer Wegmans, the Midwestern powerhouse Kroger, and New Jersey-based rival Wakefern-ShopRite are the chains most mentioned by shopping-center merchants as sought-after replacements for A&P’s stores. But the odds of one of those chains taking a former A&P space in North Jersey aren’t good.
Several industry experts said they expect owners in the Wakefern-ShopRite grocery cooperative to eventually take some locations, but that many of the sites won’t be the right fit.
“ShopRite’s kind of the stalking horse in the wings right now,” said Craig Rosenblum, a partner at Willard Bishop LLC, a consulting firm that specializes in the food-service and supermarket industries.
The A&P properties have several problems that could prevent ShopRite and other chains from bidding on them. One, Rosenblum said, is many of the A&P leases expire within a few years, meaning that anyone who takes over those stores could face steep rent increases in a short time. Another, he said, is “a lot of these stores are just too small for a much larger traditional grocer to come in there.”
While specialty grocers Whole Foods and Trader Joe’s typically take smaller spaces than a ShopRite or Stop & Shop, those chains move cautiously and don’t open stores unless the demographics are perfect, and most of the A&P sites don’t appear to be a fit, industry insiders said.
Wegmans, which has been trying to open a store in Woodcliff Lake for several years, typically builds stores that are 120,000 square feet or larger, more than twice as big as the average A&P or Pathmark store available for bidding.
Kroger, the nation’s largest supermarket chain, also is an unlikely candidate, the experts said. “Kroger would like to be in the Northeast, but they don’t want to be in with a piecemeal, substandard operation,” Metzger of Food Trade News said.
New Hampshire-based C&S Wholesale Grocers, A&P’s wholesale supplier and its largest creditor, also could take over a number of A&P stores in order to keep them in business until buyers can be found, and protect an important account. In 2001, after the Grand Union supermarket company filed for bankruptcy, C&S purchased 192 Grand Union stores, eventually selling 162 of them.
“The wild card here is C&S,” said Greg Wank, chairman of the food and beverage services group at accounting firm Anchin Block & Anchin. The question, he said, will be whether C&S takes over the stores themselves, or steers the stores to grocers it sells to, such as Stop & Shop, Safeway, which has stores in Pennsylvania, or smaller, independent grocers.
Acme submitted the largest overall bid for A&P-owned stores, offering to buy 76 properties in five states. The current owner of the Acme chain, the private equity firm Cerberus, has improved its operations, and is expected to open stores that are a big improvement over the old Acme stores North Jersey residents are familiar with.
The Acme bid in general is good news for North Jersey landlords and shopping centers because it “puts another active supermarket player into the market, at a time when there isn’t a very long list of supermarket tenants looking for space in northern New Jersey,” said Matthew Harding, president of Levin Management, which owns or operates 95 shopping centers, including several in North Jersey.
For some landlords, Harding said, getting a new supermarket operator could be a benefit. “You might end up with a better supermarket operator, somebody who’s got some new life and reinvestment to bring to the store,” he said.
Levin Management has five centers with A&P-owned properties, and the company, like most landlords, Levin said, is reaching out to other retailers to see if any retailers are interested in the spaces.
The open A&P spaces are coming on the market at a time when “the real estate market is fairly tight overall in terms of occupancy, so it will put some new space back on the market,” Harding said. “The fact that all of this is happening now, while the supply of available space is relatively tight, is a good thing,” he said.
Date: August 2, 2015