BIG BEAR FUTURE IN DOUBT

ELLIOT ZWIEBACH

SYRACUSE, N.Y. -- Penn Traffic Co. here said last week it is considering selling or closing its 67-store Big Bear division in Ohio and West Virginia.

Big Bear accounts for 40% of Penn Traffic's sales, or about $920 million of the chain's 2002 sales of $2.3 billion, industry observers told SN.

"Big Bear probably accounts for an even greater amount of cash flow, which raises the question of whether Penn Traffic can survive without Big Bear," one observer told SN. "The answer may depend on the terms of the sale because if a buyer takes Big Bear's debt along with the stores, then what's left will require less cash flow to hang on."

Another observer said the 60% of the sales base that would be left "would have to face some pretty good operators in upstate New York, including Wal-Mart and Wegmans, and it would be tough to survive as a $1 billion independent company against those retailers."

Penn Traffic has been operating under Chapter 11 since May 30. Of the 41 stores Penn Traffic has said will close by year's end, 12 are Big Bear stores. It also operates stores under the Bi-Lo, Quality and P&C banners.

According to Steven G. Panagos, the chain's interim chief executive officer, "We are considering a number of strategies, including the sale or closing of the entire Big Bear division."

Penn Traffic said it asked the U.S. Bankruptcy Court last week for permission to sell 11 Big Bear locations in central Ohio to Kroger Co., Cincinnati, for $20 million, exclusive of the stores' inventory.

It also set an auction for Dec. 3 at which other companies will be allowed to try to outbid Kroger for some or all of the 11 stores and also to bid on other Big Bear assets, including stores, leases and three Columbus-area distribution centers, the company said.

It also said it is seeking court permission to hire an affiliate of Kimco Realty Co. to market and sell Big Bear store leases, as appropriate.

"It will be business as usual at Big Bear until we sell or close any store," Panagos said. "We intend to keep our Big Bears stocked and staffed, and maintain the highest level of customer service. We will showcase these stores and their hard-working employees to the companies that are thinking about buying them."

Since it filed for Chapter 11 -- its second filing in four years -- Penn Traffic has closed one store and announced the closing of 41 more by year's end. Prior to those closings, the company operated 211 supermarkets and a wholesale food-distribution business serving 75 licensed franchises and 42 independent operators.

James A. Demme, Penn Traffic chairman, told SN upon his appointment in September that he believes the company has a viable future because of its "strong core operations, solid brand names, enviable market share in most of its markets, dedicated employees and a seasoned management team."