Skip navigation

TRIAL BEGINS THURSDAY TO HALT BIG V DEFECTION

FLORIDA, N.Y. -- Big V Supermarkets here is scheduled this week to face off in court against Wakefern Food Corp., Elizabeth, N.J., in a case likely to shape the future of the 32-store Big V chain.Set to begin Thursday in U.S. Bankruptcy Court, Trenton, N.J., the trial will determine the retailer's rights and obligations as it seeks to end its 41-year relationship with the member-owned Wakefern cooperative.Big

FLORIDA, N.Y. -- Big V Supermarkets here is scheduled this week to face off in court against Wakefern Food Corp., Elizabeth, N.J., in a case likely to shape the future of the 32-store Big V chain.

Set to begin Thursday in U.S. Bankruptcy Court, Trenton, N.J., the trial will determine the retailer's rights and obligations as it seeks to end its 41-year relationship with the member-owned Wakefern cooperative.

Big V has been working its way through a Chapter 11 financial reorganization, but those efforts are being complicated by the legal entanglements that have slowed the process.

James Toopes, Big V chairman, president and chief executive officer, said the company originally expected to be out of Chapter 11 by June, "but we now anticipate it will be several months before we are ready to file a plan of reorganization with the court," he told SN.

"We hope to emerge as quickly as we can, but we think it will be sometime in the next six months -- though there's still a lot of uncertainty because of the upcoming trial."

Court documents indicate Wakefern views the potential loss of its largest customer -- which it says accounts for 13% of its $5.5 billion volume -- as a serious threat to its own survival.

Wakefern has also filed suit against C&S Wholesale Grocers, Brattleboro, Vt. -- Big V's alternative wholesaler of choice -- for allegedly interfering with its relationship with the retailer. No date has been set for that complaint to be heard.

Both suits were filed last summer after Big V announced it had signed a 15-year supply-and-distribution agreement with C&S, pending termination of its pact with Wakefern.

Toopes declined to discuss any legal issues during an interview with SN, although he said he believes a deal with C&S is a "critical linchpin" to Big V's long-term survival.

The contract between Big V and C&S that resulted in the lawsuits is no longer in force, following a ruling by the bankruptcy court early in June that the termination fee of $1.5 million contained in the contract was inappropriate under bankruptcy law -- a ruling that prompted C&S to terminate the agreement.

However, observers said Big V is continuing to discuss new supply arrangements with C&S and other wholesalers, pending the outcome of the trial.

Despite the financial and legal pressures, Toopes said the outlook for Big V is positive.

"We're doing well," he told SN. "Sales are approximately $968 million, with both sales and operating cash flow running at or above plan, and same-store sales running positive, despite the impact of 15 competitive openings last year, and each store is generating positive cash flow."

Big V is particularly excited about two new prototype units that opened earlier this year -- both 80,000-square-foot stores with expanded perishables, expanded garden centers, expanded general merchandise, including a large electronics departments and expanded groceries.

Big V operates 32 stores under the ShopRite banner, including 26 in upstate New York, five in New Jersey and one in Pennsylvania. It was founded in 1942 and remained a publicly held company until 1987, when it was acquired by management and First Boston Corp. in a leveraged buyout; three years later, the company was acquired by investment funds controlled by Thomas H. Lee Co., a Boston-based investment firm.

Toopes declined to say whether the current investors will remain with the company or if Big V will go public once the Chapter 11 is completed.

Earlier this year, Big V closed seven stores -- five in New York and two in Pennsylvania -- most of which were unprofitable, Toopes said. "We don't anticipate any more store closings," he added.

Big V filed a voluntary bankruptcy petition late last year "to reduce our costs significantly, enhance our cash flow and otherwise strengthen our business -- actions we believe are essential and unavoidable at a time of fierce competition in our core markets," the company said at the time.

According to Toopes, increased competition and weakening economic conditions have affected cash flow, although Big V remains profitable, "which means there is a solid foundation on which to build the company."

The chain had initially contemplated a prepackaged Chapter 11, which would have required advance agreement by all creditors, Toopes said. However, when that consensus did not materialize, the company decided to pursue a more traditional Chapter 11, he indicated.

He declined to discuss details of the reorganization plan that is under internal discussion, "but C&S is the critical linchpin," Toopes told SN.

According to Toopes at the time of the bankruptcy filing, "Our long-standing relationship with Wakefern has yielded many benefits for both 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 Big V's withdrawal from Wakefern is expected to result in annual cost savings "totaling tens of millions of dollars" -- although he declined to cite a specific dollar figure -- while providing the retailer with additional flexibility.

"The cost structure at C&S is significantly lower than the structure at Wakefern," Toopes explained. "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."

Wakefern officials declined comment last week. However, in a statement last December, when Big V publicly announced its decision to switch to C&S, Wakefern officials defended their system. "The cooperative structure allows smaller operators to reap the same benefits and purchasing power of larger chains, and it ensures that American consumers have a competitive landscape from which to shop and receive the personalized service they expect," Thomas P. Infusion, chairman and CEO of Wakefern, said.

Despite the lawsuits, Big V is still buying the vast majority of its groceries through Wakefern -- though on different terms, Toopes said.

"Obviously, our relationship with Wakefern has changed because the circumstances have changed, but we're working with them on a professional basis," he said.

"Now we're prepaying for all shipments, which has forced us to do more planning and cash management than we did in the past. In addition, we've lost the benefit of terms, and that's something we're dealing with on a day-to-day basis."

The money to pay its bills comes from cash generated by the stores, plus a $29 million debtor-in-possession facility Big V secured early in its bankruptcy, he added.

Toopes said Big V has kept employees informed of financial developments through store-level meetings and weekly conference calls from executives to store managers. "As a result, the associates are more focused on serving customers than worrying about what's happening with the bankruptcy," he said.