MEGAFOODS REPORTED IN TALKS TO SELL 23 UNITS

ELLIOT ZWIEBACH

MESA, Ariz. -- Megafoods Stores here has discussed selling its 23 price-impact stores in Arizona to Smitty's Super Valu, Phoenix, a number of trade observers told SN last week.

Smitty's was acquired by Yucaipa Cos., Los Angeles, earlier this year. Industry sources said Yucaipa, through its ownership of Smitty's, would be a logical buyer for Megafoods' Arizona stores if Megafoods opts to sell.

Megafoods, as reported, filed for Chapter 11 bankruptcy protection Aug. 17.

Archie C. Fitzgerald, director of investor relations for Megafoods, said he was not aware of any discussions between Megafoods and Smitty's. Dean M. Miller, chairman, president and chief executive officer of Megafoods, could not be reached for comment last week.

Ron Burkle, chairman of Yucaipa Cos., declined to comment on the reports.

Megafoods here was on the verge of closing three more of its Handy Andy conventional stores in Texas.

Fitzgerald said Megafoods "is contemplating" closing three stores in San Antonio, all of which are operating with limited inventories and limited hours.

"At present, no other stores have been identified for closings," he said.

Megafoods earlier this month closed all eight of its stores in California and a single unit in Henderson, Nev. It continues to operate 35 Texas stores, 23 Arizona stores and three units in Nevada.

At the time of its Chapter 11 filing, Megafoods said an ongoing dispute with its primary supplier, Fleming Cos. of Oklahoma City, had contributed to its financial difficulties. The company has said it intends to take legal action against Fleming.

Megafoods has resolved some of its difficulties with Fleming, which has resumed supplying the company's non-Texas stores.