WINN-DIXIE AND TOPS OWNERS COULD PREPARE FOR BANKRUPTCY

Two U.S. supermarket chains are readying bankruptcy filings, according to people with knowledge of the matter, a sign of the mounting pressures in the grocery industry.

Bi-Lo LLC, the company behind the Winn-Dixie chain, is preparing for a filing as soon as March, according to the people, who asked not to be identified because the process isn’t public. The owner of Tops Friendly Markets, meanwhile, could potentially seek court protection from creditors as soon as this month, people familiar with that situation said.

With low margins and ample competition, the grocery business has always been challenging. But now the industry is contending with a more aggressive push by big-box retailers and Amazon.com Inc., which acquired Whole Foods last year to give it a larger brick-and-mortar presence. The moves threaten to force older chains to either consolidate or revamp their operations.

As part of the upheaval, Bi-Lo is planning to shut almost 200 stores — either before or after its filing — one person said. The business, which went bankrupt in previous incarnations in 2005 and 2009, may still find a way to restructure its debt out of court.

Bi-Lo is laboring under more than $1 billion in debt following its 2005 buyout by Lone Star Funds. The company and its creditors have held talks to discuss a possible debt-to-equity swap, as well as alternatives such as asset sales, Bloomberg reported last year.

Lone Star declined to comment. A representative for Bi-Lo parent companySoutheastern Grocers didn’t immediately respond to a request for comment. Tops declined to comment.

Niagara Falls Roots

Tops was founded by Italian immigrant Ferrante Castellani, who opened its first store almost a century ago in Niagara Falls. The Williamsville, New York-based chain runs about 170 grocery stores with more than 14,000 employees in the Northeast, according to regulatory filings last year.

Buyouts by Morgan Stanley — and later by the company’s own managers — left Tops straining to keep up with debt payments. And the industry’s intense competition made it hard to offset the burden by raising prices.

Another blow to sales came when the U.S. government cut food-stamp subsidies, whose users contribute about 10 percent of annual revenue. Since then, the Trump administration has contemplated even more reductions.

Morgan Stanley Private Equity bought Tops from Dutch retailer Koninklijke Ahold NV in 2007 for $310 million. Tops expanded quickly under its new owner, from 71 outlets in 2007 to more than 150 by 2013, and operating results initially improved.

But same-store sales began to stall, and debt was used to help finance at least $375 million in dividends for its private-equity owners. Management bought out Morgan Stanley in 2013 through another leveraged transaction.

At Bi-Lo, Lone Star piped in $150 million when the grocer exited Chapter 11 the first time, and invested $275 million to help fund the purchase of Winn-Dixie in 2012. But it probably will still come out ahead, having paid itself at least $800 million since 2012, along with management fees it’s collected, according to regulatory filings.

Southeastern Grocers, based in Jacksonville, Florida, says it’s the fifth-largest supermarket chain, with more than 700 stores and 50,000 employees. It also operates the Harveys and Fresco y Mas chains.

By Lauren Coleman-Lochner and Eliza Ronalds-Hannon

Source:  Bloomberg, February 2018