Valu Food closing its last 6 stores

Bankruptcy auction scheduled Tuesday

Grocery chains

March 22, 2000|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

Independent grocer Valu Food, battered by competition and its own outdated supermarkets, is going out of business and selling its stores.

The last six Valu Food stores will close within two weeks, Louis Denrich, president of the chain, said yesterday.

The 24-year-old chain, once one of the largest independent grocers in the Baltimore area, has struggled for more than a year to emerge from bankruptcy. It has closed its weakest locations -- 11 stores in all -- launched a turnaround effort and filed a reorganization plan that aimed to get the company out of Chapter 11 by the end of this month.

But the Baltimore-based retailer was dealt an irreparable blow by its main lender and wholesale distributor, Minneapolis-based Supervalu Inc., Denrich said.

"They said they could no longer support our plan or reorganization," said Denrich, adding that the chain had closed its Howard County stores last year under the direction of Supervalu. "We thought we had a deal with them. We never thought a few months later they were going to pull the rug out from under us."

A U.S. Bankruptcy Court-approved auction to sell the six Valu Food leases is scheduled for Tuesday at the downtown Baltimore offices of Saul, Ewing, Weinberg & Green, the law firm representing Valu Food in the bankruptcy, said attorney Joyce Kuhns. Any bids accepted Tuesday will be subject to Bankruptcy Court approval during an April 6 hearing, she said.

Food Lion, Mars and Stop, Shop & Save are among the retailers that have expressed interest in Valu Food stores, located in Essex, Fullerton and Parkville in Baltimore County; Gardenville in Baltimore City; Elkton in Cecil County; and Hanover in Anne Arundel County. The chain is selling off its inventory at a 30 percent discount, Denrich said.

Valu Food, which had 23 stores at its peak and 17 prior to filing for bankruptcy protection, has 300 employees, many of whom have found jobs with competitors such as Food Lion, Denrich said. As recently as two months ago, the grocer appeared poised to emerge from Chapter 11 proceedings as a leaner, potentially profitable chain.

A Dec. 31 reorganization plan, filed in Bankruptcy Court in Baltimore, set a strategy for digging out from under about $12 million in unsecured debt and about $7.4 million in secured debt.

The plan called for the grocer to repay Supervalu, the primary secured creditor, nearly $1.2 million in financing provided after the bankruptcy filing and minimum annual payments of $600,000. It also had called for Denrich Associates, a real estate affiliate of Valu Food, to continue repaying a $1.6 million loan to Crestar Bank for which Value Food Inc. is a guarantor, as well as giving unsecured creditors 80 percent of excess annual net cash flow over a three-year period.

By the end of January, however, Valu Food had lost the support of Supervalu -- support that was crucial to winning reorganization approval, Denrich said. He complained that Supervalu has become, in essence, a competitor since purchasing Richfood Holdings Inc., the former owner of rival Metro Food Markets, in September. Attempts to find a new lender and supplier or a company to merge with failed.

"We are selling off the stores as part of the Chapter 11 proceedings to pay off as much debt as we can," he said. "This is not what we wanted to do. This is what we were forced to do. We had no choice."

Representatives of Supervalu could not be reached for comment yesterday.

"When the Bankruptcy Court released financials in the fall, two of the stores were still profitable," said Jeff Metzger, publisher of Food World, a Columbia-based trade journal. "When [the court] issued updated financials in early January, they were not profitable. Supervalu decided its investment was too risky to back."

Denrich blamed Valu Food's initial troubles on the increase in competition from rival grocers expanding in the area with bigger stores and more upscale amenities, as well as on nongrocery retailers such as mass merchants selling more food.

"We always had a good price image, but the customers were shopping at newer and larger stores," Denrich said.

To combat the competition, Denrich had closed weaker stores to focus on the better-performing locations. Changes to the remaining stores, including upgrading perishables, meat, deli and seafood departments and a fresher look, helped boost sales growth, he said.

But it wasn't enough.

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