Exclusive: Porter takes over as Fairway CEO

Industry veteran Abel Porter has been named the new president and CEO of Fairway Markets, replacing Jack Murphy, SN has learned.

Porter, a former CEO of Smith’s Food and Drug and president of Foodland Supermarkets, is tasked with rebuilding performance of the iconic New York supermarket chain in the aftermath of several years of financial struggle culminating in a stay under Chapter 11 bankruptcy last year.

In an exclusive interview with SN, Porter said the opportunity to lead the storied brand and its high-volume stores drew him out semi-retirement, and he pledged to work toward “regaining credibility” with Fairway’s customers, employees and suppliers.

“I am very fortunate to have this opportunity,” said Porter, who said he worked alongside Murphy in a consulting role for Fairway before the board of directors quietly named him to succeed Murphy this month. “Fairway is an iconic brand in the largest market in the country, with some of the highest sales-per-square-foot of any supermarket. We have great employees who’ve been with us for a long time. We have a unique offering of organic, natural, specialty and conventional products, and great perishables, all under one roof. That’s a very unusual combination in New York, and something that Whole Foods and Trader Joe’s can’t do.”

Fairway however has struggled to turn its destinations into profits. The company lost more than $300 million and racked up $267 million in debt in the five years heading to last May’s pre-packaged Chapter 11. For the fiscal year ended March 29, 2015, the latest full-year reported, Fairway lost $46.5 million on sales of $798 million across 15 New York metro stores. Average net sales per square foot per week were a robust $1,041, but down from nearly $1,500 in 2011 and comparable-store sales were falling as a result of competitive openings, chiefly by Whole Foods.

Sources trace Fairway’s financial troubles to heavy debts and high costs amassed while under the control of its previous owner, Sterling Investment Partners, which acquired a majority stake in the company from its founding family in 2007 and subsequently pursued an aggressive growth strategy despite operating in the red. Fairway raised $159 million in a 2013 IPO that envisioned the possibility of hundreds of stores along the East Coast, but it grew to only 15 locations by the time of its Chapter 11 filing last spring which wiped out stockholders.

Burt P. Flickinger III, managing director of New York’s Strategic Resource Group, said Fairway has been further beset by millions in legal and professional fees related to its bankruptcy. “That money should have gone to pricing and back into the business,” he maintained.

Reorganization under Chapter 11 last summer cut Fairway’s debts in half, while its debtors became its owners and trade vendors and employees were paid in full. Today the company is owned by a consortium led by Blackstone Group’s GSO Capital Partners.

Murphy was brought in under the chain’s previous owners to address its cost and sales crises in late 2014. Like Porter, Murphy also took the role out of retirement. Porter credited Murphy for having stabilized the company and “foundational” work to trim costs both before and after its bankruptcy. Under Murphy, Fairway achieved more cost-efficient labor contracts and pulled out of several deals to build high-profile stores while pursuing a strategy for neighborhood-focused units at a lower cost, like the one that opened in January in Brooklyn’s Georgetown neighborhood. That store, Porter said, was off to a very strong start.

According to Flickinger, “Jack Murphy did what he could at Fairway but he was dealt a horrible hand.”

Porter spent nearly 20 years at Smith’s Food and Drug in his native Utah, where he worked his way from stock boy to president and CEO. He later served from 2001 to 2014 as president of Honolulu-based Foodland Supermarkets, helping that chain modernize its approach. Porter also serves on the board of Associated Grocers of Salt Lake City. Although Porter makes his home in Salt Lake City, he said he was now spending about 75% of his time in New York.

Porter said his priorities at Fairway include cleaner, better merchandised stores, faster checkouts, improved stock conditions and expanded e-commerce. He also plans new advertising that he said would restore faith in a brand shaken by its well-publicized financial troubles. He also said Fairway needs to put more attention on particular customer cohorts like Asian and Kosher shoppers.

“There’s no silver bullet,” Porter said. “We just need to build on our strengths, and be sure we can execute at a high level. Our focus will be getting credibility back with our customers and I think we have the team to do that.”

Porter said the company would continue to operate its Bronx, N.Y. warehouse and commissary, despite acknowledging a recent New York Post report that said it had explored the possibility of selling the unit. The facility opened in 2015 with the capacity to serve 60 to 80 stores. The Post report said Fairway has been unable to jump-start sales following its exit from bankruptcy, and that it was looking to selling the Bronx facility as a means to trim costs ahead of debt service due later this year. Porter however pointed to advantages in cost and quality of central prep for fresh and prepared meals that are a signature of its stores.

“I’m not going to say the floodgates are open,” Porter said in regard to costs. “We are going have to be very careful how we spend, because we have some limitations. But we’re going to get better at inventory control, make sure we’re getting the turns we need in perishables and the deals we need from vendors. We owe it to our people to give them security. They have hung in there through a lot, and been very creative.”

According to Flickinger, Porter is “one of the best procurement people in North America,” and lauded his success in taking corrective actions at Smith’s when that chain had overspent resources on expansion in the 1990s, and for the turnaround in Hawaii. Flickinger however was quick to add that Fairway could be Porter’s biggest challenge, citing its high costs, heavy competition and a need for support from a supplier community burned by recent financial implosions at A&P and Associated Wholesalers Inc. Flickinger also expressed reservations about Porter’s commute, saying such cross-country arrangements historically have rarely ended well.

 “I think this hiring should be very good news for vendors but there’s not a lot time,” Flickinger cautioned. “Vendors will need to decide by the June who they’re going to support for the holiday season and if they start tightening terms, that could a very tough challenge for Fairway.”