Fairway is a beloved institution in New York.
But yesterday the 14-store supermarket chain filed for bankruptcy. According to the New York Times, a Westport company is to blame. The newspaper says:
The origins of Fairway’s struggles date to 2007, when the company sold an 80 percent stake to Sterling Investment Partners, a private equity firm based in Westport, Conn., for $150 million, including $71 million in debt on the company’s balance sheet. Under Sterling, the company expanded into new markets, opening stores in New Jersey, Connecticut and Long Island.
That expansion plan became more aggressive after 2013, when the company had an initial public offering of stock at $13 per share. At the time, Fairway executives extolled the company’s unmatched sales of $1,754 per square foot.
But Fairway’s success in New York — which was largely driven by its two stores on the Upper East Side and the Upper West Side, both high-income locations — could not be replicated elsewhere.
“This is another insidious example of private equity killing a business,” said (Mark) Cohen, the (director of retail studies at Columbia Business School). “These guys caused them to open stores that maybe were completely ill-advised.”
The rapid growth brought new challenges for a company that had never managed a regional chain, which required a reliable roster of suppliers and complicated logistics to stock stores with perishables, the main revenue driver at Fairway, before they spoiled….
The expansion failed to generate enough sales to pay down Fairway’s debt. Searching for new revenue, it slowly implemented a new pricing model: Long known for value, Fairway raised prices.
Despite filing for bankruptcy in 2016, there were no real changes — no renogotiated store leases or union contracts, no evaluation of stores. In addition, legal fees at more than $1,000 per hour mounted. Sterling then “walked away from Fairway,” The Times said, adding:
M. William Macey Jr., managing partner and founder of Sterling Investment Partners, said in a statement that the private equity group invested in Fairway “to provide liquidity sought by the family owners, and to support their and management’s objective to expand Fairway’s platform.”
Sterling, he said, assisted Fairway “through a consensual reorganization supported by the company’s management, owners and creditors in which all employees, including union employees, were retained, all vendors were fully paid, all stores remained open and the company was left well capitalized under its new owners.”
Sterling “had no involvement” with Fairway after its 2016 reorganization, Mr. Macey said.
(For the full New York Times story, click here.)