A group of Lehman's retail analysts met with Eric Claus, A&P's new chief executive officer as of late last year, and toured the company's new Fresh Store concept in Midland Park, NJ. The prototype has expanded offerings in perishable and prepared foods as well as upscale non-food products than other A&P stores, the report notes.

A&P management told Lehman that it could remodel 140 of its 400 units into Fresh Stores within the next two years, up from the four it has currently revamped. Stores in higher-income areas will take precedence the portfolio's remodel.

Another chain that management focused on in the meeting was the 11-unit Food Basics USA. Next month the company is opening a new prototype in Glassboro, NJ for that chain, which has so far underperformed, A&P management told Lehman analysts. The new stores, 24 of which are planned to open this year, will have about one-third of the products found in a conventional supermarket and focus on private-label brands and local ethnic offerings.