Edmonton dessert maker goes out of business
Saxby Foods owner blames local retailers
Saxby Foods, a local dessert manufacturer that opened in Edmonton in 1994, went out of business on Tuesday.
The receiver, PWC, changed the locks on Saxby’s south-side manufacturing plant on short notice.
“They changed the locks and shut the business down, literally as we were making cakes,” said founder and owner Jonathan Avis.
All 110 Saxby workers lost their jobs. Avis has fielded calls from other food plants about employing some of them, but he predicted that many former employees will be forced to take pay cuts.
Avis blamed the bankruptcy on local retailers outsourcing their valueadded business to the United States, along with the global recession and cash-flow problems. “What started Saxby’s demise was the relentless pressure by retailers to squeeze margins and ship business,” he said.
Large, American-based stores like Walmart and Costco buy most of their value-added food products from American manufacturers, forcing the Canadian competition to reduce their own costs — usually by importing goods from those same American manufacturers, according to Avis.
“This whole buy local movement is the right initiative. The problem is the retailers haven’t got any conscience about buying local to sell to local consumers. It’s a facade,” said Avis. “It’s a con job.”
That problem became especially acute around 2008, he said, when big accounts for Saxby’s like Sobeys started looking south for dessert manufacturers. Annual revenue fell to $11 million for the year from an average of $16 million.
In 2010, Saxby diversified into organic milk packing for distribution to retailers in Western Canada behind a $1.8-million loan from the provincial government’s Agriculture and Financial Services Corporation. Saxby also signed a five-year distribution deal for the milk with Safeway.
As of Saxby’s bankruptcy, about half of its AFSC loan remains outstanding, according to Avis. The four years remaining on the Safeway contract won’t be honoured. Alberta organic milk producers will need to work with Saputo, the only remaining major organic milk processor in Western Canada.
Despite rebounding revenues after 2008, cash flow problems and increasing U.S. competition forced Saxby to enter restructuring talks with BMO last year.
After appointing bank-mandated supervising accountants from PWC and filing a restructuring plan in late December, Avis thought negotiations were going well. Then BMO decided to close the business on short notice, he said. The business plan included details on Saxby’s negotiations to supply Costco’s Canadian stores with an English trifle dessert and on expanding the Safeway milk deal.
“They did a secret analysis of the burn rate, which is how much money you’re losing. In their infinite wisdom, they decided that even with all of the things I was going to do, there was a risk that I wasn’t going to pull it off,” Avis said. “We were never shown their calculations, never shown how they arrived at the decision to close the business. It was all done behind closed bank doors,” he said.
BMO, owed $6 million from Saxby according to Avis, had not responded to a request for comment during working hours Wednesday.
“It’s a local tragedy that could have been averted, said Avis. “We need to improve the process of how small businesses reorganize themselves with the ultimate powers of secure creditors.”
Saxby’s filing with the Office of the Superintendent of Bankruptcy Canada lists total liabilities at $10 million and total assets at $6 million.