Food Trade News

For the second time in four years, Fairway Group Holdings (Fairway Market) has filed for Chapter 11 bankruptcy protection in the Southern District of New York Bankruptcy Court. This time it appears that the 14-store Manhattan-based foodie merchant which bills itself as “Like No Other Market,” will end up like many other failing supermarkets as it seeks a sale of its entire operation.

Fairway, founded in 1933 by the Glickberg family, had been seeking a sale of its entire company since September when primary private equity firm owners, Brigade Capital (33.6 percent equity); Goldman Sachs Specialty Situations Group (29.9 percent equity); and FS KKR Capital Corp. (22.1 percent equity) decided that they could not find a path to continue operations.

Part of that decision lied in the fact that Fairway had substantial labor and pension responsibilities, something that it inherited from the previous majority owners, Sterling Investment Partners when it rescued the once-great merchant out of bankruptcy in 2016.

In its filing on January 23, the petition noted that Village Super Markets, the second largest member of Wakefern Food Corp., had successfully achieved “stalking horse” status for Fairway’s five Manhattan stores (Harlem, Upper West Side, Upper East Side, Chelsea and Kips Bay) and its new perishables distribution center (PDC) in the Bronx which opened in 2015, for $70 million. Village made its initial foray into Manhattan last year when it acquired three Gourmet Garage specialty stores. As the “stalking horse” for those five Manhattan units and its PDC, Village would enter the bankruptcy auction process with lead bidder status

The petition also noted that although the Village offer would be free and clear of existing labor and pension liabilities, it would be obligated to negotiate with Fairway’s labor unions. Village’s current 30 ShopRite stores in New York, New Jersey, Pennsylvania and Maryland are already organized.

No successful bidders were named for Fairway’s other nine units including three in the City of New York – two in Brooklyn, and one in Douglaston, Queens. Other units are located in Stamford, CT; Plainview, NY; Westbury, NY; Pelham Manor, NY; Paramus, NJ; and Woodland Park, NJ. The retailer also operates four free standing liquor stores. Fairway closed an underperforming store in Nanuet, NY in September. In general, the struggle of the company’s suburban locations, an expansion strategy accelerated by Sterling Investment Partners, has been a key reason for Fairway’s failure over the past seven years.

In its filing, Fairway has proposed a series of auctions to determine the final outcomes of its stores beginning on March 13 and continuing into early April. The filing said it hopes the entire process can be completed by May 27.

In the meantime, all 14 stores remain open because Fairway received $25 million in Debtor-In-Possession (DIP) financing to temporarily continue operations.

“We would like to extend gratitude to our employees, vendors, distributors and customers for their support, dedication and loyalty over the years. It has always been Fairway’s priority to ensure our patrons are provided with the most optimal grocery experience, with the freshest foods and best-quality products, and our employees feel appreciated. After careful consideration of all alternatives, we have concluded that a court-supervised sale process is the best way to meet our objectives of preserving as many jobs as possible, maximizing value for our stakeholders, and positioning Fairway for long-term success under new ownership,” said Abel Porter, Fairway CEO in a statement.

“The scale advantages that extremely large grocers such as Amazon, Walmart, Target, Costco, BJ’s, Stop & Shop, CVS, Walgreens, Aldi, Lidl, Dollar General and Dollar Tree have over regional grocers like Fairway cannot be overstated,” Porter added. “These larger grocers all have investment grade credit ratings, which makes their cost of capital meaningfully lower and affords them extraordinary capacity to invest in lower prices, higher wages, more advertising, more effective modern technology and further growth, all of which enhance the probability a consumer will become and remain their customers.”

Not only do many of Fairway’s competitors enjoy greater financial leverage, they also enjoy freedom from union contracts and existing pension funds. Approximately 80 percent of the company’s 3,000 associates are organized. Many of those workers belong to UFCW 1500 based in Westbury, NY.

However, in the bankruptcy filing, it was clear what the root was of Fairway’s real problem – its balance sheet. The specialty retailer lost $68.8 million on revenue of $643.3 million over the 52 weeks ending December. 1. While gross profit on sales was $227 million and EBITDA was $23 million, its operating expense, including interest and cost of promotions, created the substantial loss. Additionally, comp store sales declined by approximately 5 percent in the 52 weeks ending January 12.

After extending their labor agreements for nearly four months with Giant Food and Safeway, United Food and Commercial Workers Local 27 (Baltimore, Eastern Shore and Delaware) and Local 400 (Washington DC, Virginia and Maryland suburbs) have tentatively agreed to a new contract with Giant, the unit of Ahold Delhaize USA based in Landover, MD which operates about 155 stores in the region.

However, unable to reach satisfactory progress levels in their view, both Locals announced they will seek a strike authorization vote from the approximately 11,000 clerks and meatcutters who work at Safeway’s Eastern division’s approximately 110 stores.

Both votes will be held on March 5 at the Gaylord Hotel (Local 400) in Oxon Hill, MD and at Pimlico Race Course (Local 27) in Baltimore.

The decision to vote on both a proposed new Giant pact and to take a strike vote against Safeway was made at a press conference and rally held on February 19 at Safeway’s store on 4^th St. SW in Washington, DC.

UFCW officials are recommending ratification of Giant’s proposed offer and rejection of Safeway’s offer along with a strike authorization caveat if Safeway’s offer is not improved. Of course, Safeway could improve its offer in the next two weeks which could potentially negate a strike authorization vote.

Giant and Safeway (ranked first and second respectively in market share in the Baltimore-Washington market) have been negotiating separately with the two unions since its most recent contracts expired on October 26.

After bargaining new contracts collectively for nearly 40 years, both chains elected to negotiate separately during its 2016 bargaining which resulted in new three-year pacts with both retailers. That individualized negotiations process continued with these contracts.

A critical issue from the outset has been how to develop a collective agreement about how to reduce the $1.1 billion underfunding of their joint multi-employer (FELRA) pension plan. Giant has given written assurances that its approximately 15,000 store level associates will have their FELRA plan benefits protected during the next three years. At presstime, Safeway has made no such written promise.

Some predict that the FELRA plan could become insolvent as soon as next year.

Kroger and Ocado, a world leader in technology for grocery ecommerce, announced late last month that Frederick, MD, will be the latest location for a customer fulfillment center (CFC).

“Kroger is incredibly excited to construct one of our industry-leading customer fulfillment centers in Maryland in relationship with Ocado to bring fresh food to our customers faster than ever before,” said Robert Clark, Kroger’s senior vice president of supply chain, manufacturing and sourcing. “Through our strategic partnership, we are engineering a model for the region, leveraging advanced robotics technology and creative solutions to redefine the customer experience.”

Kroger has partnered with Ocado to accelerate its ability to provide customers with anything, anytime, anywhere. The CFC model – an automated warehouse facility with digital and robotic capabilities – will be used to serve customers across the region.

“We are excited to bring Kroger and Ocado’s latest automated warehouse to Frederick. This site will be key to delivering amazing grocery experiences to households across Maryland, Pennsylvania and the District of Columbia. It will also create fantastic job opportunities for engineers looking to work alongside state-of-the-art robotics and automation,” said Luke Jensen, CEO of Ocado Solutions. “The warehouse will be a key component of the seamless fulfilment ecosystem that Kroger is developing for customers across the United States. Ocado’s proven technology will allow Kroger to achieve the lowest cost-to-serve in the market, combined with the best freshness, accuracy and service.”

“We are thrilled that these two respected companies have chosen Maryland as the location for a new high-tech, innovative Mid-Atlantic hub,” said Governor Larry Hogan. “This is a big win for Frederick County and yet another shining example that Maryland truly is open for business.”

“This is excellent news for Frederick County,” said Frederick County Executive Jan Gardner. “We are thrilled to welcome Kroger and Ocado. Their high-tech innovative business will bring life to a vacant distribution facility, will add hundreds of new jobs, and make an investment of tens of millions of dollars in our community. County staff worked closely with the businesses for many months, facilitating a smooth process for permits, water and sewer, and other details. We were pleased to fast-track the project and want Kroger and Ocado to know our support will be ongoing. We are pleased to welcome them to our growing e-commerce business community. Frederick County is a great place to do business.”

This new 350,000-square-foot CFC will accelerate Kroger’s ability to expand its products to a larger footprint. Upon completion, 400 new jobs will be created with up to 100 more added later as the service area of this facility expands.

The facility will be located at 7106 Geoffrey Way in Frederick, MD. The site confirms an earlier announcement identifying the Mid-Atlantic region as one of the first shed locations. It is expected to become operational 24 months after the site breaks ground and will service several markets, including Washington DC, Baltimore and Philadelphia.