MEGAFOODS DROPS FLEMING COS. IN TEXAS; SIGNS GROCERS SUPPLY

MARK TOSH

MESA, Ariz. -- Megafoods Stores here switched from Fleming Cos. to Grocers Supply of Houston as the principal supplier for its 35 Texas stores late last week.

In the meantime, Fleming Cos., Oklahoma City, resumed shipment to Megafoods' 36 warehouse-style stores in Arizona, California and Nevada.

Megafoods, as reported, filed for Chapter 11 bankruptcy protection Aug. 17 in Phoenix. At the time, it said an ongoing dispute with Fleming precipitated the bankruptcy filing.

Fleming, according to company officials, restarted a supply agreement Aug. 18 with Megafoods non-Texas units on a modified, cash-on-delivery basis.

Fleming had stopped supplying all 71 Megafoods stores briefly during the companies' dispute over payment terms and conditions. The distributor said Megafoods' stores accounted for annual sales volume of about $335 million.

Fleming had not resumed shipping products to Megafoods'

35 conventional Handy Andy supermarkets in San Antonio as of the middle of last week and Fleming officials said the two companies were still negotiating new supply terms.

Late last week, however, Megafoods announced it was changing suppliers for its 35 San Antonio-area stores.

"The switch has been contemplated over the past few months due to the tremendous operating leverage and buying capabilities of Grocers Supply," Mike Crain, president of Handy Andy, said in a statement. "A cost analysis has shown the switch will result in a lower cost of goods to Handy Andy, inclusive of freight and fees."

Terms of the new supply deal were not announced.

Grocers Supply, which is privately owned, has annual sales volume of more than $1.4 billion and is the largest distributor of retail food products in Texas, according to Megafoods.

Local observers in Texas said the Handy Andy stores were operating as usual, but three of the stores were expected to close as part of Megafoods' reorganization.

Megafoods' non-Texas stores also were attempting to maintain a "business as usual" posture. Fleming's Phoenix division restarted distribution to Megafoods non-Texas stores Aug. 18. "We're serving in Phoenix and we're in discussions to see if we will resume in Texas," John Thompson, vice president and treasurer of Fleming, told SN earlier last week. He said Fleming was not shipping to Handy Andy because it had not been paid.

"We would expect the same type of terms [in Texas], cash before delivery," he said. Fleming said it was owed $6.5 million by Megafoods at the time of the Chapter 11 filing.

Safeway, Oakland, Calif., continued to ship dairy products to the Megafoods' non-Texas units from its Phoenix distribution center. Officials at Safeway said the supply agreement with Megafoods was "ongoing," but declined to provide any further details of the supply arrangement.

In its Chapter 11 filing, Megafoods listed estimated assets of $213 million and liabilities of $179.4 million. The liabilities total excluded disputed, contingent and unliquidated claims; and other liabilities not on the consolidated and unaudited financial statements.