US grocer returns to bankruptcy
Fairway Group Holdings Corp has gone bankrupt for the second time since 2016, overwhelmed by its lingering debt load and cutthroat price competition in the grocery business.
The New York-based grocer filed for Chapter 11 bankruptcy on Thursday with an agreement to sell five stores and a distribution facility to Village Super Market Inc, owner of 30 ShopRite supermarkets.
“The deal, with a purchase price of about $70 million, will act as a so-called stalking-horse bid that sets a floor for other potential offers in an auction,’’ chief executive officer Abel Porter said in court papers.
“Fairway will continue talking with other potential suitors and may agree to transactions for other stores,’’ he said.
Village Super Market was one of two stalking-horse bidders to emerge, Porter said, without naming the other.
Fairway enjoys iconic status in New York, its traditional base, because of its wide selection of quality meats, cheeses and produce along with regular groceries at 14 stores.
But it has struggled to bounce back from its 2016 bankruptcy — the result of too much debt after a private equity buyout, and the advent of Whole Foods, Trader Joe’s and Fresh Direct.
Those rivals have nibbled away at Fairway’s dominance of gourmet and organic grocery sales while struggling to repay $227 million to lenders, including Goldman Sachs Group Inc, KKR & Co and Brigade Capital Management LP.
Comparable store sales, a common measure of success, fell 5% in the 52 weeks ending Jan 12.
On the plus side for potential buyers, Fairway occupies prime locations in Manhattan and Brooklyn and has a loyal following of shoppers, with long lines that sometimes wind back into the store and the aisles.
The five stores Village Super Market has agreed to buy are in the Upper West Side, Upper East Side, Kips Bay, Chelsea and Harlem, court papers show.
“The sale plan will keep open the more successful urban locations that employ hundreds of people,’’ said Fairway’s investment banking adviser in an e-mailed statement.
Fairway filed for Chapter 11 protection in 2016 after losing money in every quarter since its 2013 public offering. It emerged under control of its lenders, with debt reduced to about $84 million from almost $300 million.
In court papers filed on Thursday in Manhattan, Fairway listed liabilities of $289 million and $158.9 million in assets.
The Chapter 11 bankruptcy allows the company to keep operating while it works out a recovery plan.
A group of the company’s lenders, including Goldman and Brigade, have agreed to loan Fairway $25 million to help fund the bankruptcy case, according to court papers.