FLORIDA, N.Y. -- Big V Supermarkets here said it has filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code to implement a major financial and operational restructuring.
The restructuring involved, in part, Big V's decision to change suppliers -- ending its 41-year membership in Wakefern Food Corp., Elizabeth, N.J., and signing a 15-year supply agreement with C&S Wholesale Grocers, Brattleboro, Vt. -- which prompted Wakefern to file suit against C&S in Superior Court in New Jersey last week.
Industry observers told SN Big V's decision to restructure and pull out of Wakefern could position the 39-store operator to be acquired, possibly by Ahold, Zaandam, Netherlands, or Pathmark Stores, Carteret, N.J.
Officials at Ahold and Pathmark declined comment last week on the speculation. Ahold reportedly was interested in acquiring Big V several years ago, but the potential deal fell apart because of Big V's membership in the Wakefern cooperative.
Big V officials told SN last week, "The company is not for sale, and Big V has never had formal conversations with any company regarding a sale."
In filing its suit last week, Wakefern said it is seeking to enjoin C&S from enforcing its supply and distribution contract with Big V, as well as compensatory and punitive damages.
Officials at C&S could not be reached for comment.
A Big V spokesman told SN: "We believe it is meritless and an attempt to thwart Big V's reorganization. We also believe it's a clear violation of the 'automatic stay' provisions of the U.S. Bankruptcy Code, and we will take appropriate action."
He said the retailer believes the lawsuit is a violation, even though Big V is not the party being sued, "because we are one of the parties to the contract Wakefern is challenging." Wakefern said the lawsuit seeks an injunction against the wholesaler, plus unspecified damages, "for actions that wrongfully induced Big V to enter into a supply contract + and tortiously interfered with Wakefern's longstanding stockholders agreement with Big V."
Wakefern also alleges that C&S aided and abetted Big V's breach of contractual and fiduciary duties to Wakefern and the members of the Wakefern cooperative.
According to Wakefern, Big V is its largest member-customer, accounting for 13% of warehouse sales, or approximately $715 million of its $5.5-billion-plus volume. Big V said its volume totals $850 million, with the total pulled from Wakefern somewhat higher than the 13% figure.
James Toopes, president and chief executive officer of Big V, said the bankruptcy filing is aimed "at reducing our costs significantly, enhancing our cash flow and otherwise strengthening our business -- actions we believe are essential and unavoidable at a time of fierce competition in our core markets."
He said that increased competition and weakening economic conditions have affected cash flow, although the company remains profitable, "which means there is a solid foundation on which to build the company."
The company expects to emerge from bankruptcy in about six months, Toopes said.
Wakefern said last week Big V is obligated to pay "a substantial fee for loss-of-volume" -- a contention with which Big V said it disagrees. Company officials declined to elaborate last week.
According to Thomas P. Infusino, chairman and chief executive officer of Wakefern, "We assume Big V will honor its contractual commitments to Wakefern. However, in the event Big V does not, Wakefern will take all appropriate actions to enforce its rights.
"What we are defending here is our cooperative structure.
"Across our nation, you are seeing the ongoing demise of the independent grocer and small, family-held businesses in general. The supermarket industry has seen unprecedented consolidation in recent years, especially from multinational companies.
"Our cooperative structure allows smaller operators to reap the same benefits and purchasing power of larger chains, and it ensures that the American consumer has a competitive landscape from which to shop and receive the personalized service they expect."
Infusino said Wakefern has survived loss of volume in the past, "and we will once again prove the power of the cooperative structure by recouping this volume over time."
He said Wakefern lost half its volume in 1967 when Supermarkets General, predecessor company to Pathmark, withdrew its membership. "We made up that volume," Infusino said, "resulting in the development of an even stronger commitment to the cooperative structure."
Toopes said Big's V's "longstanding relationship with Wakefern has yielded many benefits for both our organizations, (but) we have determined that departing from the coop is in Big V's best interest as we plan for the future."
He said the withdrawal from Wakefern is expected to result in annual cost savings "totaling tens of millions of dollars" -- though he declined to cite a specific dollar figure -- while providing Big V with additional flexibility.
"The cost structure at C&S is significantly lower than the structure at Wakefern," Toopes told SN. "As a cooperative, Wakefern is designed to serve small members competing with large chains. We believe the costs of receiving product from C&S, plus the incremental costs in people and systems to make us independent of Wakefern, will be more than offset by the savings."
Toopes said the change in suppliers will also enable Big V to be more flexible in its marketing, "though our marketing plan will be similar to what we're doing now. Big V's strength is price perception, variety and private-label value, and we plan to accentuate and improve on those strengths."
Toopes said Big V will work closely with Wakefern to arrange a smooth and orderly transition in distribution, marketing and back-office functions over the next several months.
In a press release last week Wakefern pointed out the Chapter 11 filing relates only to Big V and not to other ShopRite operators. Wakefern said it provides buying, warehousing and distribution services for 205 ShopRite stores in the Northeast; if Big V leaves, the cooperative said it will have 40 members operating 166 stores.
Wakefern said it provides comprehensive services to its customers, "(and) when utilized properly, these services have allowed our membership to achieve unparalleled success while providing them substantial savings," Infusino said.
As a result of pulling out of Wakefern, Toopes said Big V will change the name on its stores from ShopRite -- a Wakefern trademark -- to Big V Supermarkets over the next three to six months.
He said the company has hired advertising and marketing specialists to assist in the rebranding process.
"As we roll out our new name and house brands, we will emphasize our continued commitment to being the price leader and a strong service provider in our core markets," Toopes said. "We also will highlight Big V's long history and deep roots in the communities we serve."
Of Big V's 39 stores, 31 are located in the Hudson River Valley in New York state; six are in New Jersey; and two are in Pennsylvania, with a third store scheduled to open in January and two other locations under construction. Of the seven stores scheduled for closing, five are in New York (Catskill, Hopewell Junction, Hyde Park, Newburgh and Poughkeepsie) and two are in Pennsylvania (Eynon and York).
Big V said the leases on three of the stores -- in Hopewell Junction, Hyde Park and Poughkeepsie -- were sold to a developer prior to the Chapter 11 filing for $8.7 million. The company said it has not yet determined plans for the other four
The actual store closings are expected to occur over the next two to three months, Toopes said. He also told SN it's possible additional stores may be closed.
"While closing these [seven] stores was a difficult and painful decision to make, it will result in significant cost savings, thereby strengthening the company's overall financial performance, and will allow us to focus our resources on the stores with the greatest potential," Toopes explained.
"We intend to work closely with government leaders, outplacement specialists and others to try to minimize the economic and social impact of the store closings on the affected associates and communities."
Big V will try to place as many employees as possible from closed stores into other locations, he added.
To enhance its liquidity, Big V said it has obtained a $25 million interim debtor-in-possession commitment from CIT Business Credit.