Chesterton Tribune

 

 

Strack owner sites online competition, changing consumer tastes in bankruptcy

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By KEVIN NEVERS

Central Grocers Inc.--the majority owner of Strack & Van Til--is attributing its dire financial straits to its inability to compete on the online playing field as well as to consumers’ changing tastes.

In its May 4 Chapter 11 petition, filed in the U.S. Bankruptcy Court for the District of Delaware, Central Grocers pointed to three market pressures in particular:

* A lack of liquidity preventing the company from investing in “new technology and e-commerce.” As a result, it’s lost swaths of market share to “online giants like Amazon and Google, innovative companies focusing exclusively on food delivery, and modern grocery stores that offer online ordering and delivery services to their customers.”

* Consumers’ own changing tastes and their demand “for a ‘gourmet’ shopping experience complete with offerings of natural, organic, and gluten-free foods.” Central Grocers, according to the Chapter 11 petition, has “been at a competitive disadvantage to companies that have the financial flexibility to devote greater resources to sourcing, promoting, and selling the most in-demand products.”

* A “recent, drastic spike in ‘food deflation,’” that is, the plummeting of food prices “to unprecedented levels.” In 2016--and for the first time since 1967, the petition noted--consumers paid less for their groceries than they did in the previous year. “Such intense food deflation has produced a heavier than normal promotional environment, as many retailers have reacted to market conditions by engaging in aggressive price wars to maintain competitive edge.”

The cumulative result of these pressures: Central Grocers put its total assets (book value) at $262 million but its total liabilities at $232 million.

The “linchpin” of the company’s Chapter 11 strategy, as the petition puts it, is the sale of up to 19 of Strack & Van Til’s groceries, operating in Indiana and Illinois as Strack & Van Til, Ultra Foods, and Town & Country. A “strategic buyer” who will serve as a stalking-horse bidder has been identified, and Central Grocers expects a stalking-horse agreement to be executed “in the near term” in advance of an auction of the company’s assets.

Under a stalking-horse agreement, a debtor company offers the stalking-horse bidder certain protections prior to an auction. The stalking horse’s bid then becomes the minimum bid of the auction. Should the stalking horse subsequently be out-bid by another party, the debtor company can pay so-called “break-up fees” to the stalking horse as well as reimburse it all expenses incurred to date.

As Central Grocers emphasized in the petition, however, time is absolutely of the essence, given the company’s “accelerating cash burn.” Should Central Grocers be unable to sell its assets “free and clear of liabilities within (its) proposed timeline,” the company “could be left with no other option but to commence a fire-sale liquidation of (its) assets,” the petition stated.

That cash burn has been exacerbated by a “severe trade contraction,” as the company’s vendors have begun tightening trade terms, which has “constricted (its) ability to access inventory and ratcheted up the pressure on its already weakened liquidity position.” On top of that, “the spread of news of the company’s financial challenges” has prompted “an unprecedented level” of defections among the company’s cooperative members. “Many members have terminated their supply agreements with (Central Grocers Inc.) without paying down outstanding balances owed for food delivered.”

The company’s strategy going forward is, accordingly, three-pronged: the sale by auction of the core Strack & Van Til stores, along with Central Grocers’ distribution center and any other marketable assets; the “orderly wind-down” of those Strack & Van Til stores for which a buyer can’t be found; and the liquidation of inventory at the closing Strack & Van Til stores and the distribution center.

Central Grocers has already identified a total of 14 “underperforming” Strack & Van Til stores for near-term closure. The company did not specify which ones, however. Closing those stores is expected to generate approximately $2 million in monthly savings and the sale of their assets approximately $15 million in gross proceeds.

Central Grocers is also seeking the Bankruptcy Court’s okay to abandon--should no buyer of those 14 stores be forthcoming--the unexpired terms of those buildings’ leases and any other “surplus, obsolete, non-core, or burdensome assets” associated with them.

Strack & Van Til is the largest employer in Northwest Indiana, the petition said, with a workforce of 4,250 and a monthly gross payroll of $8 million. It also has total assets (book value) of $183 million and total liabilities of $141 million, with annualized sales in 2016 of $905 million, or about 51 percent of Central Grocers’ sales volume last year.

 

 

Posted 5/11/2017

 
 
 
 

 

 

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