Fairway Market Files for Bankruptcy Protection

January 24, 2020

By Azi Paybarah, Andrea Salcedo, Matthew Haag and Amie Tsang

Speculation of the grocery chain’s possible closings set off lamentations on social media, though some said the chain had lost its luster. Fairway has struggled financially for years, having declared bankruptcy in 2016.

Fairway Market, the nearly century-old supermarket chain that is a New York institution, is known for its hard-to-find global offerings, low prices and no-frills demeanor.

It has also been regularly dogged by speculation of its financial health.On Thursday, it filed for Chapter 11 bankruptcy protection just under four years after declaring bankruptcy and receiving financing from Blackstone, the private equity firm.

The company filed papers saying that it had accepted an initial bid from Village Super Market to buy as many as five Fairway stores in New York and its distribution center for about $70 million. But the deal was described as a stalking horse agreement, meaning other businesses may bid for the properties.Village Super Market runs about 30 stores in the northeastern United States, including ShopRite supermarkets and Gourmet Garage outlets.

Fairway also said that the bankruptcy court would run a supervised sale process for its remaining stores. The company said that it had the support of its lenders and that it would continue to operate its stores during the sale process.

“After careful consideration of all alternatives, we have concluded that a court-supervised sale process is the best way to meet our objectives of preserving as many jobs as possible, maximizing value for our stakeholders, and positioning Fairway for long-term success under new ownership,” Abel Porter, the chief executive of Fairway, said in a statement.
A report this week that the company’s demise was imminent stunned many New Yorkerswho considered the store a battle-tested survivor of the unforgiving retail landscape.

Opening as a fruit and vegetable stand in 1933, Fairway became a destination on the Upper West Side of Manhattan, where fiercely loyal shoppers endured cramped aisles and the occasional pushing for access to its selection of artisanal breads, French cheeses and fresh seafood.
But the company’s decision to expand beyond Manhattan and open stores in the suburbs hobbled it financially, and it has struggled to find its footing since. Fairway has also been hurt by the arrival of Whole Foods and Trader Joe’s in the city and the growth of competition from online delivery services like Amazon and Fresh Direct, among others.

The news of Fairway’s potential end set off lamentations on social media and on the streets of New York, though there were some who said the chain had lost its luster.“I dislike Fairway because ever since they sold it to a corporation, the quality of the fruits and vegetables is terrible,” said Eleanor Mason, who lives on the Upper West Side and described herself as a former Fairway regular.

On Wednesday, she went to the Upper West Side Fairway branch for just a few items. “I buy very little and I use it immediately,” she said. “The prices have gone up considerably, and the quality has gone down considerably.”
But another Fairway customer, Merle Gonchar, who said she had been shopping at Fairway since moving to the Upper West Side in 1997, called the store a neighborhood anchor.

“We are really low on supermarkets,” said Ms. Gonchar, whose cart was filled with kosher meat, coffee and split pea soup. “Yes, there is online ordering, but a lot of people prefer to come to the supermarket.”
And Boikar Treore, a manager in the seafood department, said he could not believe that the store could close. “You see the mood over here?” he said “No one is stressed. We are like we are regularly.”

About 2,300 Fairway workers in the New York area are represented by UFCW Local 1500, according to Aly Y. Waddy, the secretary-treasurer of the union.

The Fairway in Harlem is one of the largest supermarkets in the neighborhood. Iris López, a retired nurse who lives in Washington Heights, said she goes to that store about twice a month.

“The produce is fresh. The people are knowledgeable. It’s clean,” Ms. López, 75, said while pointing to the loaf of Challah bread and the ball of mozzarella cheese in her cart. “If they ever close this store, I think I would cry.”

For years, Fairway seemed to occupy an emotional space in New York’s psyche. After Hurricane Sandy destroyed parts of the city in late 2012, the reopening of the Fairway store in Red Hook four months later was greeted as a momentous triumph. Local residents, nearby business owners and lawmakers turned out for the event.At the time, Howard Glickberg, the store’s vice chairman for development, said the company “made a decision when this happened that when we came back, it wouldn’t just be about Fairway. It would be about Red Hook.”

The challenges facing Fairway are part of a nationwide shakeout in the supermarket industry.

Amazon’s $13 billion purchase of Whole Foods has threatened to upend the grocery business. Unions representing grocery workers have seen a decline in membership. And many struggling groceries are owned by private equity companies that have loaded the stores with debt.

Over the last five years, a series of major chains across the country have filed for bankruptcy, including A. & P., Winn-Dixie, Bi-Lo and Marsh Supermarkets, as well as Fairway.

“It’s not a level playing field,” Mr. Porter, the Fairway chief executive, said in a 2018 interview. “Competing against Amazon is like competing against the government or a military commissary.”

Still, Burt P. Flickinger III, a consultant for retail chains, said that Fairway’s stores in New York City, excluding its location in Red Hook, Brooklyn, were among the leading grocery stores in the city. They have a loyal following and an outsize influence in the market, with many consumers going out of their way to shop there, he said.

“It has the highest sales per square foot of any mainline food retailer chain in New York City,” said Mr. Flickinger, whose company, Strategic Resource Group, has analyzed the grocery store market. “The core stores are very viable and very cash-flow positive.”

Fairway’s larger stores in Manhattan, such as its locations on Broadway and in Harlem, each drive annual sales that would rival the combined revenue of a dozen smaller grocery stores, Mr. Flickinger said.

The main problems for Fairway, he said, were its two suburban locations in New Jersey and its branch in Stamford, Conn. They have lagging sales and expensive leases, he said, as does Fairway’s store in Red Hook, which is in a hard-to-get location far from public transportation, and pays about $1.5 million a year in rent.

Mr. Flickinger said he believed that Fairway could emerge as a successful chain through a Chapter 11 bankruptcy that addresses its suburban locations. “Parts are doing extremely well and should be saved,” he said.

David Yaffe-Bellany contributed reporting.