PARENT FIRM OF NATIONAL MARKETS FILES FOR CHAPTER 7

DON YEAGER

ST. LOUIS (FNS) -- Family Co. of America here, which operates under the National Markets banner, said last week it filed for bankruptcy under Chapter 7 and will seek to liquidate its assets.

The privately held chain was created three years ago in a purchase of stores cast off by locally based Schnuck Markets. Following last week's Chapter 7 filing, a court-appointed liquidator immediately began conducting 25%-off sales in the firm's remaining 17 area supermarkets.

Although a schedule of assets, liabilities and amounts due creditors has not yet been filed with the bankruptcy court, sources said that Fleming Cos., Oklahoma City, is the largest secured creditor.

National's exodus from the market leaves Schnuck, Shop 'N Save and Dierbergs Markets as the principal competitors here.

Family Co. was founded in 1996 by James Gibson, a former financial consultant, as a vehicle to buy 23 stores from Schnuck -- stores that were part of the purchase of 57 original National stores from Loblaw Cos. Ltd., Toronto.

In approving the Schnuck acquisition, the Federal Trade Commission required Schnuck to sell 24 stores -- a combination of original National units, plus some Schnuck locations. Twenty-three of those units were sold to Family Co.

The firm subsequently closed six of the units, charging among other things that Schnuck had sabotaged the stores by failing to stock shelves with enough merchandise. An arbitrator issued a ruling in March, but both sides declined to comment on the decision.

Local sources speculate that unhappiness with the arbitration decision, along with poor financial performance, led Family Co. to opt for liquidation. Company officials could not be reached for comment last week.

Last week Schnuck offered to pay $295,000 for the prescription files of the bankrupt company. Schnuck also offered to pay 99.55% of the cost of the inventory of the 12 pharmacies involved in the liquidation. Bankruptcy Judge James J. Barta scheduled a hearing today to consider the Schnuck offer and any others.

In an interview with SN last month, John Geisz, a Family Co. spokesman, said he was not aware of local reports that some suppliers here had put the chain on a cash-only basis.

He told SN at the time that there have been some holes in the stores' shelves "from time to time," which he attributed to the decision late last year by Fleming to close its Sikeston, Mo., distribution center and shift that volume to its Kansas City facility.

Geisz said Fleming's Kansas City product supply center carries different stockkeeping units and product codes and is located more than two hours farther from here than the Sikeston facility. "There's not a big difference in the products, but the changeover did result in a change in all stocking codes, and that's made for a lot of extra work," he said.

"As a result, we've had some shelf space begging for stock from time to time, but it's a logistical problem and more of a day-to-day thing" than an ongoing challenge, he explained.

Geisz also told SN the distribution changes were hindering the chain's efforts to improve its image.

He said two of the chain's stores were converted to the Gibson's Markets banner in November, reflecting the name of the majority owner, in an effort to showcase a more perishables-oriented format "to counteract the strength of Wal-Mart Supercenters in grocery and general merchandise."

The stores offered more signature departments, Geisz explained, including Gibson's Farmer's Market (the in-store produce sections), Thumann's Deli, Prestige Angus beef and a locally based prepared-foods program.

Geisz said at the time the company hoped to rename all its stores as part of an effort to upgrade the chain's image. "National is an old name here that's known for small stores and poor real estate," he said.

Asked why only two stores had been converted, Geisz explained, "Some stores need some remodeling, and our plan is to continue to convert stores to the Gibson's name as time permits."

Asked in March about a 30% cutback in personnel, Geisz said, "Every grocery chain in St. Louis reduces its staff during the first quarter. That's what we all do when we go into the slow season at this time of year.

"We felt we could transfer certain duties to other employees. It's more efficient to do it that way, as long as the people can handle the added tasks."

He also acknowledged cutbacks in the company's TV budget, explaining that no new ad flights were scheduled for the first quarter "because we wanted to get through the adjustments in our supply situation and get the stores converted to the new name before we begin anything. We plan to resume TV ads as soon as we get the Gibson's name on all stores."