Let’s raise our glass and once again salute those engaged and sensitive private equity firms who invest in businesses that they have little interest in adequately refinancing to ensure future improvement and perhaps even success.
Yes, I know that sounds somewhat counterintuitive, but time and time again (especially in the retail grocery business), hedge funds and investment firms look to bottom feed on struggling retailers, content to take advantage of cash flow (and perhaps real estate) while giving the everyday decision makers only marginal tools to improve the results of the previous (usually inept) owners.
Such is the case with Fairway Market. And if you believe the New York Post (and in this case we do), Fairway will file its second Chapter 11 petition by the end of the month. Not shocking, since its current owners, Goldman Sachs Group and Brigade Capital Management (which recently acquired GSO Capital’s stake) have continued to provide little capital and even less direction since the “not like any market” retailer declared its first bankruptcy in 2016.
The first meltdown came largely at the hands of Charles Santoro, co-founder of private equity firm Sterling Investment Partners which in 2007 acquired a controlling stake in Fairway from the original founding family, the Glickbergs, who started the company as a fruit stand in Manhattan in 1933.
Promising a significant expansion of Fairway’s unique brand, the company went public in 2013. Before filing for Chapter 11 protection in May 2016, Fairway never made a profit and saw its same store sales diminish because of a lack of capital coupled with the entry of new competitors in Manhattan and Brooklyn. Santoro’s “expansion” vision couldn’t even successfully extend beyond the city of New York. New stores on Long Island and in Nanuet, NY; Stamford, CT and Woodland Park and Paramus, NJ have proven to be underwhelming or have closed.The behavior of Sterling, GSO (part of the large Blackstone Group), Goldman Sachs and now Brigade Capital is remarkably similar: promise success and do little to ensure that success is even possible.
Lack of instinct and restrictive funding might work in other businesses, but it can rarely be effective in an industry as labor and capital intensive as retail food. When the Glickberg family ran Fairway they worked tirelessly to grow (while also preserving) a concept that separated itself from every other retailer in New York. Good pricing, strong customer service, excellent associate relation and a unique and changing product mix created a reputation that the company earned the as a great merchant. Today’s Fairway offers significantly fewer items, higher prices, diminished customer service and uninspired merchandising.
The former and current group of investment bankers who own the 14-store operator should be classified as anti-merchants. They have zero native intuition about the business and have almost assured its doom by not investing the capital and conscience needed for necessary growth or resurrection.
Abel Porter, who’s been CEO of Fairway since 2017, has done a good job in providing leadership and direction, but a combination of Sidney Rabb and George Jenkins couldn’t have fixed the company without better ownership guidance and significantly more resources.
So now it seems as though time is almost up. Reportedly a prospectus issued in September yielded no takers who would buy all or most of the company’s stores. That’s not to say there aren’t interested parties. The company’s five Manhattan locations and its store in the Red Hook section of Brooklyn (despite the opening of a new Wegmans three months ago) will attract interest, but likely at a price less that Goldman Sachs and Brigade were seeking.
However, with more than $170 million in debt, a Chapter 11 filing, a store auction and then liquidation to follow is probably the likeliest scenario for Fairway going forward.
It’s truly a shame to witness the demise of what was truly one of the best retailers in the country. However, don’t expect anyone from the PE community to shed any tears. It’s just another transaction to them.
‘Round The Trade
Multiple sources are reporting that food delivery service Grubhub is listening to acquisition offers and Albertsons, Ahold Delhaize and especially Walmart are interested in at least kicking the tires.
Target, which has been on a great run of lately, reported disappointing holiday sales. The Minneapolis mass merchant had projected same store sales to increase in the range of 3 percent to 4 percent, said the its comp store revenue for November and December only grew 1.4 percent (although food and beverages were up 3 percent). “After three strong quarters this year and a record-breaking holiday season in 2018, we had some ambitious plans heading into the season. While we knew this season was going to be challenging, it was even more challenging than we expected. It was a tough miss, especially how hard our team worked all season long,” said CEO Brian Cornell.
Borden Dairy has filed for Chapter 11 bankruptcy protection citing declining sales (on reduced overall consumer consumption) and increasing pension obligations which has contributed to the Dallas, TX-based dairy firm’s growing debt. One of the country’s oldest dairies (its history dates back to before the Civil War), Borden said in its bankruptcy filing that its 2019 loss was $42.4 million. In November, the nation’s largest milk producer – Dean Foods – also filed for Chapter 11 protection.
Local Notes
Hickory, NC-based wholesaler Merchants Distributors, Inc. (MDI) has begun supplying the eight-store Family Owned Market (FOM) group of Central PA independents – John Herr’s, Martin’s, Yoder’s, Oregon Dairy and newest member Saubel’s (four stores). The move was first announced in September. This will be an interesting process to watch, especially since MDI will be draying product nearly 500 miles and FOM will be their largest customer in the Mid-Atlantic. However, Jim Kidwell, director of marketing for the group which began in 2003, expressed confidence about the move when he told us, “MDI is currently running about 30 trucks to this area weekly, supplying its existing customers and utilizing backhaul opportunities, so I’m confident they can handle any logistical issues, I’m also optimistic that we’ll be able to get the same level of coverage – both at headquarters and in the stores – from the brokers and vendors.”
From the obit desk, a show biz personality who first gained “fad fame” in the 1950s has also passed away at the age of 86. Edd Byrnes, who would appear in 85 films and TV shows in a career that spanned nearly 45 years, will always be associated with only one of those roles – as “Kookie” in the popular TV series “77 Sunset Strip” (1958-1964). Byrnes was slated to appear in only one episode of the private-eye series, but his appearance as a fast-talking hipster, with great hair and his own vocabulary (“a dark seven” – a bad week; “buzzed by germsville” – to become ill; and his most popular phrase, “baby, you’re the ginchiest “ – high praise), became so popular, he was added to the series’ cast which also included Efrem Zimbalist, Jr. and Roger Smith. In fact, Byrnes’ coif was so impressive that in 1959, he and singer/actress Connie Stevens recorded the hit song, “Kookie, Kookie, Lend Me Your Comb” which sold more than a million copies and climbed to number four on the Billboard charts.