WAYNE, N.J. -- Grand Union here filed for Chapter 11 protection again last week -- its third bankruptcy since 1995 and the one that could potentially lead to the demise of the 127-year-old banner.
The company said it filed a voluntary petition for Chapter 11 protection in U.S. Bankruptcy Court in Newark, N.J., "to facilitate the planned sale of the company and provide for additional funding during the sale process."
Grand Union said the filing will enable it to continue to conduct business as usual, provide service to its customers and meet its financial commitments to vendors and employees during the sale process.
The company said it has secured a commitment for $60 million of debtor-in-possession financing from Lehman Commercial Paper, one of its existing lenders -- a loan that must be approved by the bankruptcy court.
An organizational meeting to select a creditors committee has been scheduled for Thursday in Newark.
According to Gary M. Philbin, president and chief executive officer, "This was a difficult but unavoidable decision in view of our recent financial performance and the need to obtain the funds to continue to provide service to our customers and meet our ongoing commitments during the sale process."
He said C&S Wholesale Grocers, Brattleboro, Vt., has agreed to continue to provide Grand Union with its regular flow of merchandise, "and other suppliers are expected to continue regular shipments to our stores."
Philbin said the company has received "expressions of interest from several parties, and [we] continue to be in discussions with potential purchasers of the company in whole or in part. We believe Chapter 11 protection will enable us to move forward with the sale process in an orderly manner and hope to have an agreement to sell the company shortly."
In an interview with SN, Jeffrey P. Freimark, Grand Union's chief financial offer and chief administrative officer, said company executives are not sure how the bankruptcy will end, although he said it will certainly end with the sale of the company.
However, no one is sure whether that sale will involve the whole company going to a single buyer, with the Grand Union name intact, or a selloff of groups of stores to a variety of buyers, with the Grand Union name disappearing, Freimark said.
"The best-case scenario would be for the company to remain intact and continue on a going-forward basis with a new owner. Right now we're working with a number of different parties that have expressed interest in the company, and our focus is on maximizing value for our shareholders."
He said he's unsure what timeframe the process will take, "though we hope to resolve things sooner rather than later, ideally by the end of the year."
The selling process could be complicated by retailer concerns about the Federal Trade Commission, Burt Flickinger told SN.
Flickinger, who heads Reach Marketing, a consulting company based in Westport, Conn., said the FTC's hardline stance on several proposed mergers in the last few months -- including Ahold's bid to buy Pathmark, Harris-Teeter's interest in some Hannaford stores in North Carolina and Kroger's deal to acquire Winn-Dixie stores in Texas and Oklahoma -- may have a negative impact on efforts to sell Grand Union.
"Regional chains need to combine to build their size and scale against supercenters and club stores, but the FTC refuses to consider Wal-Mart and Costco as supermarket competition. The Grand Union bankruptcy should force the FTC to look differently at these mergers, though I don't know that it will."
If the FTC looks at market share on a county by county basis, then it would be possible for companies like A&P, King Kullen, White Rose, Foodtown, Pathmark and ShopRite to acquire some Grand Union units, Flickinger added.
One securities analyst, who asked not to be identified, also cited problems caused by the FTC. "Someone in the Northeast market ought to have died a few years ago, and because no one did, there remain too many second-tier players, each of whom is stopping the others from gaining a clear advantage.
"Unfortunately, the FTC has said this kind of structure, with a bunch of companies with relatively small shares, must continue forever, although it means everyone remains unprofitable. If Grand Union is sold piecemeal, that situation could change, but if most of the stores go to a single buyer, the problem could continue."
Grand Union operates 197 stores in New Jersey, New York, Pennsylvania, Connecticut and Vermont. It has opened four new stores and sold four over the last six months and returned 10 stores in Vermont and New Hampshire to Penn Traffic at the end of a 10-year lease.
Freimark said he anticipates "a very limited number" of store closings later this month.
He said vendors have tightened their credit terms and their open-to-buy programs in the last few months, but none has put Grand Union on a cash-only basis. "However, it was the fact we were looking at a continued reduction in terms that led us to seek court protection," Freimark said.
Asked what went wrong, he replied, "Grand Union expended capital on a number of new stores, as well as on renovations, that have not generated the type of returns we anticipated. The business plans as constructed were entirely appropriate, but the lack of returns led to a contraction of available credit that created additional pressures for the company."
Since August 1998 Grand Union said it has spent nearly $90 million on capital projects, including nine new or replacement stores, one of which, in Plainview, N.Y., opened in November 1999 and closed at the end of June; of the other eight, four replacement stores were in existing markets and four new stores were in new markets.
In addition, the company said 44 stores were enlarged or remodeled, with capital invested primarily to improve perishables offerings and decor as well as to increase selling space -- improvements that ranged from $250,000 to $8 million per store, depending on store size and the goal of the project, according to the company.
All 197 stores also received a new time management system, personal computers and routine general repairs and upgrades, it added.
Freimark said Philbin met with district sales manager last Monday night, the day before the filing, to advise them of the situation. The day of the filing Grand Union distributed notices to the stores and the vendor community, and both Philbin and Jim Santamarina, vice president, operations, spent the next few days in the stores "meeting with as many people as possible to bring them up to date as best we can and to address their concerns."
In the letter to vendors, distributed over Philbin's signature, the company said the contraction of vendor credit terms and limits over the past several months "resulted in an accelerating loss of liquidity and the prospects of continuing reductions" that led to the Chapter 11 filing.
Grand Union's Most Difficult Chapter: 1995-2000
Following is a timeline of key events for Grand Union over the last half-decade, a period in which it entered bankruptcy three times.
January 1995: Grand Union files voluntary petition for Chapter 11.
February 2000: Harris removed as chairman and CEO, succeeded by Gary M. Philbin, former president and chief merchandising officer.
May 1995: Roger Stangeland succeeds Gary Hirsch as chairman and chief executive officer.
May 2000: Grand Union releases year-end results, which show sales down 3.6%, operating cash flow down 29% and same store sales down 0.14%. Company announces plans to close 16 underperforming stores.
June 1995: Grand Union emerges from bankruptcy with $1.6 billion debt reduced to $800 million.
July 2000: Grand Union hires Merrill Lynch to assist in financial planning and Alvarez & Marsal to explore strategic alternatives.
August 1997: J. Wayne Harris leaves A&P, succeeds Stangeland as chairman and CEO.
July 2000: Nasdaq deletes Grand Union listing.
June 1998: Grand Union files second bankruptcy, envisions five-year turnaround.
Aug. 14, 2000: Grand Union eliminates 170 positions at Wayne, N.J., headquarters and administrative offices in Upstate New York.
August 1998: Grand Union emerges from second bankruptcy with $600 million debt eliminated, anticipates spending $65-68 million a year on new stores and remodelings.
Aug. 17, 2000: Grand Union first-quarter results show sales down 4.3%, same store sales down 2.7% and operating cash flow down 45.5%.
November 1999: Harris says Grand Union will accelerate capital spending to $100 million a year with plans to build 16-18 new stores and complete 20 remodels over next 12 months.