Great a&P Essay

2288 WordsNov 8, 201110 Pages
Q1. As of the date of the case (assume = Jan. 27, 2004): a) What is Great Atlantic & Pacific Tea’s (A&P’s) ‘business model’? A&P is a retail food chain in North America that operates under various trade names (i.e. Super Foodmart, Farmer Jack, Dominion, etc.). The business focuses on sales volume, inventory turnover and effective cost control as the products are sold at low margins in a very competitive market. A&P’s business model focuses primarily on acquisitions and divestitures. As the company has room for growth, it expands by building or acquiring more stores. Once the company is in need of extra cash, it divests assets to include store closings and complete sales of a trade name. b) Which…show more content…
Mitch Goldstein probably drew from this information to state that A&P has no large financial obligations until 2007. Q4. How did A&P get into its current situation (current = as of the time of the case)? In what sense is it not surprising that it is where it is? (1 pt) In FY2000, A&P started into a spiral of negative cash flows which continue and have resulted in negative retained earnings in the first nine months of FY2003. This industry’s high competitiveness and low margins are impacting A&P’s ability to meet its high sales volume target. Wal-Mart’s quick expansion in recent years has contributed to this effect. In response to negative cash flows, A&P launched its asset disposition initiative in order to generate cash to cover expenses. Having just divested several assets through closures or sale of stores, A&P generated proceeds in an attempt to reverse the negative cash flows. Specifically, the sale of Eight O’Clock Coffee business generated proceeds of $107.4 million and a gain of $75.1 million ($43.6 million after tax). Although these sales have generated proceeds and made the 3rd quarter financial statements appear as an improvement over previous quarters (smaller net loss), A&P is still in a state of financial distress. The asset divestiture initiative is only a one time solution as A&P has not actually
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