ON EXITING CHAPTER 11

ROBERT VOSBURGH

SYRACUSE, N.Y. -- Bob Chapman, president and chief executive officer of Penn Traffic, certainly has his work cut out for him as the retail-wholesale grocer works through Chapter 11 bankruptcy. Indeed, no one may be better qualified: Chapman, 53, has spent his entire 36-year food industry career with Penn Traffic, initially working at P&C and later overseeing Penn Traffic's wholesale and franchise operations -- a business segment that's expected to be a major growth area. Most recently, a U.S. Bankruptcy Court judge granted Penn Traffic a three-month extension to file its reorganization plan, and now has until July 28 to file its plan. The company has announced improving financial results, with operating income on continuing operations in April at $2.1 million. Currently, Penn Traffic serves 109 corporate and franchised stores under the Bi-Lo Foods, P&C and Quality Foods banners; it also serves 41 wholesale accounts in upstate New York, Pennsylvania, Vermont and New Hampshire. The combined operation employs approximately 8,500 people.

SN: When do you expect Penn Traffic to file a reorganization plan? There have been several deadlines already, the most recent April 29.

Chapman: We have said all along that we are determined to complete our reorganization as quickly as possible, while taking full advantage of this chance to make a fresh start and reposition Penn Traffic for the future. We intend to exit Chapter 11 a stronger company, and the best characterization of the plan is that it will help us accomplish that objective. While in reorganization, we have made many difficult decisions that have strengthened the company, including closing the Big Bear division and a number of other underperforming stores. We were able to generate more than $100 million in proceeds from asset sales related to the division closing, which we used to help pay down our secured debt.

SN: It's been said your tenure as the company's vice president of wholesale-franchise operations is a valuable asset to build the wholesale side of Penn Traffic. How do you see the company's share of sales as a retailer vs. as a wholesaler?

Chapman: We intend to grow both our retail and our wholesale business, and we intend to be one of the strongest supermarkets wherever we operate. Keep in mind that all of the current Penn Traffic stores have been tough and resilient competitors in the market they serve.

SN: It's been a little over two months since you were named president and CEO. What changes have you prioritized in the way Penn Traffic does business?

Chapman: From the day I took over, I have been stressing our five core fundamentals of supermarket operation: friendly, clean, fresh, well-stocked and good prices. They are our five priorities, and we believe that our customers are noticing improvement in all five areas. Everything that our 8,500 employees are doing is focused on improving in those five areas. We communicate to our employees frequently about ways they can pursue excellence in these five fundamentals. Since I became president, we have begun or enhanced programs focused on all five areas. We have remodeled four stores, and made small improvements to signs and displays in virtually all our other stores. And we have begun our "Courtesy is Contagious" program, which rewards employees for their courtesy and tells customers in the stores that they take priority over everything else.

SN: What center store initiatives might Penn Traffic consider to keep that department competitive in its market?

Chapman: If we attempt to compete on pricing only, we will lose the battle to the warehouse stores and supercenters. Our center store initiatives therefore focus on all five of our core fundamentals: friendly, clean, fresh and well-stocked, as well as good prices. An important part of our center store strategies remains offering the highest-quality store-label products. Our largest competitive advantage in the center aisle, and throughout the store, is our employees, who are hard-working, knowledgeable and customer-centered.

SN: Perishables has been called the principal growth area for any retailer. What programs do you currently have in the fresh categories?

Chapman: Over the past few years, we have introduced many exciting innovations to our produce, meat, bakery and deli departments, including:

A full line of Gold Label choice beef.

Restaurant-quality prepared meals that run the gamut from chicken fricassee to risotto with Italian herbs to Chinese.

The Fresh Market Cafe, offering authentic Parisian baguette sandwiches, fresh-brewed Country Mill coffees, brick-oven pizza, European desserts, pastries and Old World crusty breads baked fresh every day using the finest ingredients.

A larger selection of organic produce.

Our fresh market format, which we have introduced in the Syracuse, N.Y., and Erie, Pa., areas, intensifies this focus on high-quality perishables that appeal to a growing number of shoppers.