Phoenix: Basha's Files for Chapter 11 Protection

Bashas’ seeks time to stay in business

By Howard Fischer

CAPITOL MEDIA SERVICES 7/14/09

PHOENIX — Bashas’, the state’s largest privately owned grocery chain, is seeking pro­tection from creditors to give the company some financial breathing room — and time to figure out how to stay in busi­ness against some larger na­tional competitors. In legal papers filed late Sun­day in U.S. Bankruptcy Court, Bashas’ Inc. said it has about $200 million in assets and close to $245 million in debt.

But company President Mike Proulx said Monday the aim is not to liquidate or even offer the 77-year-old family owned company for sale. In fact, Proulx said he believes the chain, which operates the Food City and AJ’s Fine Foods mar­kets in addition to its signature stores named after the founding family, will be able to pay off everything it owes to creditors — eventually.

Proulx said, though, the Bashas’ chain that now has 158 stores is going to be different.

First, there are going to be fewer stores. Edward “Trey” Basha, the company’s senior vice president and grandson of one of the chain’s founders,said the 15 store closures already an­nounced this year are likely only the beginning. That change will mean the layoff of about 1,000 workers, bringing the number of employees below 10,000.

But he would not speculate how big the operation will be by the time Bashas’ emerges from bankruptcy, expected to be sometime early next year.

Proulx said the idea of a smaller chain will require a change in corporate thinking.

“In the past, where we had the luxury of good sales and growth in this state, we proba­bly kept some stores open, some locations open, longer than we should have,” he said. “In to­day’s environment, we don’t have that luxury anymore.''

Must shed some leases

Burt P. Flickinger III, manag­ing director of Strategic Re­source Group, said it is impor­tant for the chain to get out from under some of its fixed lease costs.

Flickinger, a consultant with whom Bashas’ shared its bank­ruptcy plans in advance, said some landlords have refused to provide breaks in rent or com-mon-space charges. He said the latter is particularly important in new shopping centers where Bashas’ went in as an anchor tenant but the other shops were never filled.

With the bankruptcy filing, “Bashas’ has the ability to reject the leases that don’t make sense,” he said.

As of Monday, only 35 of the company’s 158 stores currently open are in buildings owned by Bashas’.

Basha also said the family-owned chain needs to make itself more competitive against larger national grocers like Wal­Mart, Safeway and Kroger, which operates the Fry’s grocery stores. He acknowledged that Bashas’ regular prices on many items are higher.

Consider: The regular price of a bag of Pepperidge Farm cookies is $2.69 at Wal­Mart and $3.29 at Fry’s; customers at Bashas’ pay $3.79, though Safeway charges the same amount.

“Part of what will change will be our pric­ing structure going into the future,”he said.

Some of that already is occurring.

Basha said time was when the 14 AJ’s stores, which cater to upscale customers looking for gourmet foods, would simply charge what they considered appropriate. He said that, for the first time ever, cus­tomers are finding items advertised on sale.

Three factors blamed

Food City, which caters largely to a His­panic customer base, has a lower-price structure. And Proulx said that is a good place to be, given that 30 percent of the state population is Hispanic, and growing.

But Food City, too, is facing new compe­tition through Rancho Markets and others going after the same demographic group.

Proulx blamed three factors for the need to seek bankruptcy relief.

One, he said, is the national credit crisis which has made it harder to get cash.

Second is the state’s soft economy.

“Arizona goes from back in the day from . . . three years, four years ago, from one of the fastest-growing states in the nation to stagnant growth, unemployment climbing every day,” he said.

And Proulx also laid some of the blame at the feet of the United Food and Commercial Workers union, which has been engaged in a protracted battle to unionize the company's more than 150 stores. That fight has spilled over into court, with Bashas’ charging the union is engaged in a scheme to defame the chain.

Proulx said he believes Bashas’ is in a better position to survive than other chains that have disappeared, including ABCO, Mega Foods and Southwest Markets. Part of that, he said, is the fact that even before the filing, Bashas’ had obtained $45 million in “debtor in possession” financing to allow the stores to stay in business while it goes through bankruptcy — a deal he said those other grocery chains did not have.

Flickinger said, though, tough competi­tion will remain, especially with Wal-Mart which he said has “site-saturated” the state with both its “big-box” stores with grocery sections as well as its smaller neighborhood markets. Wal-Mart also has some of the benefits of a locally run operation with its Casa Grande distribution center.

But Flickinger said Bashas’ has “tremen­dous customer loyalty.” And he said local suppliers will support the move.