A&P settles lawsuit with Food Basics franchises

In Canada, A&P acted as wholesaler to more than 60 Food Basics franchisees, some of whom sued it in Ontario Superior Court, accusing it of crushing their profits by holding back supplier rebates and other deals extracted from grocery manufacturers. In a low-margin business, such items can make the difference between success and failure.

The Globe and Mail
October 2, 2004

A&P settles lawsuit with Food Basics franchises
John Saunders

Great Atlantic & Pacific Tea Co. Inc., better known as A&P, has reached a $32-million (U.S.) deal with 29 current and former Food Basics franchisees in Ontario to end a lawsuit that dimmed a bright spot in its struggling grocery business.

About half the settlement, which is subject to court approval, represents the cost of buying back stores from franchisees who joined the class action, the company said.

The Food Basics banner, under which ailing A&P stores became individually run discount supermarkets along the lines of Loblaw Cos. Ltd.'s No Frills stores, has been so successful it was exported to the United States, where A&P's retail unit is headed by expatriate Canadian Brian Piwek. The U.S. stores are company-owned, however.

In Canada, A&P acted as wholesaler to more than 60 Food Basics franchisees, some of whom sued it in Ontario Superior Court, accusing it of crushing their profits by holding back supplier rebates and other deals extracted from grocery manufacturers. In a low-margin business, such items can make the difference between success and failure.

A&P disputed the claim and filed a counterclaim seeking to recover subsidies it said it provided to the franchisees. The suit, launched in 2002, was scheduled to go to trial this month.

A&P chairman Christian Haub said in a statement: "The resolution of this matter enables us to continue growing our strong discount business in Ontario with a larger complement of corporately-owned stores, while at the same time strengthening our continuing franchise stores."

GAP (NYSE) rose 3 cents to $6.13.


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