Chapter 11 filing for Valu Food Independent grocer says move aids shift to prepared, fresh foods

Grocery chains

November 19, 1998|By Sean Somerville | Sean Somerville,SUN STAFF

Valu Food, a Baltimore-based independent grocer struggling to find a niche in a field of ever-growing rivals, said yesterday that it has filed for Chapter 11 bankruptcy protection.

Louis Denrich, the company's president, called the move part of a restructuring intended to focus the grocer's attention on selling prepared foods.

"We felt this was a very good way to shore up ourselves for the future, to set up a strong financial structure going forward," he said.

In documents filed in U.S. Bankruptcy Court in Baltimore, the company estimated that it owes its 20 largest unsecured creditors about $3.5 million. Putting its total number of creditors at 200 to 1,000, Valu Food said its assets and liabilities are each between $10 million and $99 million.

The filing by Valu Food -- which does business under the corporate names Valu Food Inc. and So-Lo Foods Inc. -- followed a week in which the grocer announced plans to focus on fresh and prepared foods and said it would close seven stores -- four of its 14 supermarkets and all three of its specialty grocery stores -- by the end of the month.

Valu Food lists as its five largest creditors Cloverland-Greenspring Dairy, which is owed $706,997; Coca Cola Enterprises, $236,180; Nearby Eggs Inc., $224,813; McKesson Pharmacy Systems, $213,629; and Rainbow Distributors Inc., $197,147.

Several creditors did not return calls seeking comment yesterday.

Denrich said creditors have been supportive. "I've been on the phone with many of them today," he said yesterday. "We expect minimal interruption of service. Almost without exception, they just want to get back to servicing us."

Denrich said one benefit of Chapter 11, the ability to get out from under leases, will be felt almost immediately. He said Valu Food has been spending $100,000 a month on leases for four or five stores that have been closed.

He also said Valu Food has about $2 million available in financing from Minneapolis-based Supervalu Inc., a wholesale grocery supplier to Valu Food.

"I think we're stronger now than we've been in a long time," Denrich said. "Not only that, we have a plan."

'Fresh store'

The chain, with stores in Baltimore and in Baltimore, Howard, Cecil, Anne Arundel and Harford counties, has started putting its "fresh store" concept into practice in some stores. The idea is to present a wider selection of fresh produce, develop higher standards for quality and handling of produce, redesign signs and logos, and create a new tag line: "Making it easier to save."

The company also will add sections to display and sell hot and cold prepared foods in all of its stores, and will upgrade its delicatessen and meat departments.

The closings announced last week will bring Valu Food down to 10 stores from a peak of 23 in 1996. The chain, which once had 1,200 to 1,300 employees, will have 800 to 850, Denrich said. Sales, which were about $150 million last year, are expected to be between $100 million and $115 million this fiscal year, Denrich said.

Industry observers question whether Denrich can pull off a transformation. Jeff Metzger, publisher of Food World, a trade publication based in Columbia, said it typically costs $1 million to $2.5 million to remodel a single store.

"If he wants to take 10 stores and re-engineer them into a totally new stores with a new marketing and merchandising philosophy, I think $2 million is a good starting point," Metzger said. "But he's going to need a more substantial financial base."

The transformation means higher risk because the products are perishable and the work is more demanding, Metzger said. "It takes more skill to run a service deli than to put the Clorox on the shelf," he said.

"Has a chance"

Benjy Green, a partner in B. Green and Co., which runs Food Depot retail stores and wholesale stores, said, "He certainly has a chance to recover. I wonder out loud if he has the right amount of money to pour into refreshing his stores and does he have enough money to make the 're-imaging' successful."

He said Giant Food, which is trying to improve its image, appears to be spending a lot of money on advertising. "You can't go too long without seeing a lot of their advertising, whether on radio or TV or in a circular," Green said.

That might be tougher for a smaller company, according to Metzger. "In a general sense, the hill gets deeper for independents than for a corporate chain," he said.

Denrich said the company has much of the necessary equipment and that it plans to borrow more money when it emerges from bankruptcy, which he estimated could be in the next eight weeks.

Another concern is the patience of creditors.

"I don't think a lot of the suppliers were surprised by this," Metzger said. "Some of payables were outstanding for several months."

Some creditors remember Farm Fresh Inc.'s bankruptcy, which left them with 25 cents on the dollar, Green said. "Some vendors might not want a replay of that," he said.

Pub Date: 11/19/98

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