(Bloomberg) -- Fairway Market is working on a bankruptcy plan that would keep at least some of its stores open by selling the business to the owners of another grocery chain, according to people with knowledge of the situation.
Fairway has been negotiating with Village Super Market Inc., owner of the ShopRite chain, to buy some of Fairway’s assets through a court-supervised process, said the people, who asked not to be identified discussing a private matter.
Village would serve as the stalking-horse bidder whose initial offer would set the floor on any other bids for Fairway, the people said. New Jersey-based Village, whose stores are predominantly in the suburbs, could reject some of the leases on Fairway’s 14 stores and renegotiate terms on others, using the Chapter 11 bankruptcy process, one of the people said.
The situation is fluid with details still under negotiation, and talks could still break down, the people said. The timing of a bankruptcy filing could change based on how the discussions progress, they said. Sticking points include the fate of Fairway’s liquor sales due to state regulatory issues.
Strategic Effort
A representative for Village didn’t immediately respond to messages seeking comment. Fairway declined to comment beyond an earlier statement that flatly denied a New York Post report that the company was planning to shut down all its stores and liquidate the chain.
The company “has been engaged in a strategic process and expects to soon announce a value-maximizing transaction that will provide for the ongoing operations of stores,” Fairway said in its statement. All 14 stores remain open for business and Fairway’s lenders remain “extremely supportive” of the company’s efforts, Fairway said.
A Chapter 11 filing would be Fairway’s second trip to bankruptcy in recent years after filing for court protection in 2016. The chain enjoys iconic status in New York City, its traditional base, because of its wide selection of quality meats, cheeses and produce along with traditional groceries.
Debt Burden
But it has struggled to bounce back from its prior bankruptcy -- the result of too much debt 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. 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.
Moody’s Investors Service has said Fairway’s stores are too concentrated in one region and too close to each other, and its small overall size makes it hard to compete with bigger supermarket rivals. As the national chains expanded, Fairway began its own migration, opening stores in the suburbs of New Jersey, Long Island and Connecticut, where it goes head-to-head with price-chopping megamarkets. It defied speculation by keeping most of those suburban stores open after its first bankruptcy.
Nathan Glickberg founded Fairway’s forerunner in 1933 as a fruit and vegetable stand before the business settled into a storefront on Manhattan’s Upper West Side, according to the chain’s website. In the 1970s, Nathan’s grandson Howie added groceries and specialty foods to the offerings, as well as expanding floor space.
Public Offering
Fairway filed for Chapter 11 bankruptcy in 2016 after losing money in every quarter since its 2013 public offering. It emerged under control of its lenders with its borrowings reduced, and another debt overhaul was conducted in 2018 to ease the burden again.
It still wasn’t enough, and the company put itself up for sale last year, when owners Brigade Capital Management LP and Goldman Sachs Group Inc. began soliciting bids. Blackstone Group LP’s GSO Capital Partners owned a large stake after Fairway left bankruptcy in 2016, but later exited its position.
Advisers to Fairway include the restructuring law firm Weil Gotshal & Manges LLP and investment bank PJ Solomon Securities LLC. They didn’t immediately respond to requests for comment.
--With assistance from Nicole Bullock.
To contact the reporters on this story: Katherine Doherty in New York at kdoherty23@bloomberg.net;Eliza Ronalds-Hannon in New York at eronaldshann@bloomberg.net
To contact the editors responsible for this story: Rick Green at rgreen18@bloomberg.net, Dawn McCarty
©2020 Bloomberg L.P.
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