The financial free fall of The Great Atlantic & Pacific Tea Co.—owner of A&P, The Food Emporium, Pathmark, Waldbaum's and other chains—has its local rivals salivating.

“We are just observing right now,” insists billionaire John Catsimatidis, who owns the Gristedes chain. But industry-watchers say the one-time mayoral candidate is keen to take over some of the ailing supermarket giant's real estate. So, too, are at least a half-dozen others, including Fairway Market's co-owner, Howard Glickberg.

“If Food Emporium came up for sale, it would be a real estate opportunity for us,” says Mr. Glickberg, whose company is rapidly expanding in the area.

In fact, an implosion of 151-year-old A&P could be a windfall for its competitors. Buildings large enough to accommodate supermarkets are scarce and highly sought-after in the city. A&P's five-borough portfolio of 48 such properties under the Waldbaum's, Food Emporium, Pathmark and A&P banners is one of the largest in the city. The Montvale, N.J.-based grocer has a total of 429 stores across eight states in the Northeast.

While some rivals are biding their time hoping to snap up individual locations—or even entire chains, should they hit the market—many others are not waiting. They are circling the foundering giant, chipping away at its market share.

Target turns grocer

Target, for example, just opened a fresh-grocery division at its new store in East Harlem and plans to do the same at others in New York. The discount department store is spending big money on an advertising blitz to get the word out about its foray into fruits, vegetables and meat.

“Target is taking advantage of A&P's weakness in New York City,” says supermarket consultant Burt Flickinger.

Once one of the most-admired food retailers in the country, with more than 15,000 stores in its heyday in the 1930s, A&P has been struggling for many years, but it was caught completely flat-footed over the past decade as newer competitors like Whole Foods Market and Trader Joe's redefined the supermarket business.

Over the past 12 months, A&P has replaced two chief executives. A third, Sam Martin, was appointed late last month. A former chief operating officer of OfficeMax and Wild Oats Markets, respectively, Mr. Martin has a herculean task ahead of him.

The company has lost money for seven straight quarters. In its most recent fiscal quarter ended June 19, the grocer reported a loss of $122.6 million, compared with a loss of $65.2 million in the same quarter of 2009.

In late July, Standard & Poor's lowered the company's credit rating to deep into junk territory, CCC, because it has too little cash on hand. “While many supermarkets have experienced profit pressures over the past year, performance at A&P has generally been worse than industry averages,” wrote S&P analyst Charles Pinson-Rose.

Mr. Flickinger predicts that the company could face a cash crisis by next February. An A&P spokeswoman says the company's turnaround plan includes the sale of noncore assets, and that's exactly what has its competitors salivating.

Some observers suggest that A&P may sell off Food Emporium. That chain boasts 16 Manhattan stores. Mr. Flickinger notes that they are the most upscale in the company's portfolio and are outperforming its other brands.

“A&P should sell its weakest operating companies, but its history is to sell its crown jewels,” he says. In 2005, it did just that, selling its highly successful A&P Canada subsidiary to help it pay down debt.

At this point, the situation is so dire that union officials are worried.

“We are concerned about stores closing, layoffs and the lack of customers,” says John Durso, president of Local 338, which represents 7,000 A&P, Waldbaum's and Food Emporium employees.

Mr. Durso and his peer, Pat Purcell at Local 1500, which represents 6,000 Pathmark employees, are pinning their hopes on the abilities of billionaire supermarket magnate Ronald Burkle, whose Yucaipa Cos. firm invested in A&P more than a year ago and currently ranks as its third-largest shareholder.

The union bosses have had discussions with Yucaipa executives, who are now advising A&P. Last year, the company brought two Yucaipa officials onto its board of directors.

The local unions would like to see A&P open new stores in neighborhoods the city has identified as underserved, where the locations would qualify for financial incentives. To do that, however, the chain would need to raise capital, and that would mean big asset sales.

“This is a great opportunity for A&P to take advantage of these programs,” says Mr. Purcell.