Food Fair Inc., of Philadelphia, operator of Food Fair and Pantry Pride supermarkets and J. M. Fields discount stores yesterday filed a petition for reorganization under Chpater XI of the federal bankruptcy law.
Food Fair President Jack Friedland said the company has no plans to close any of its stores and is "not bankruptcy" but is "facing a temporary liquidity problem."
Under Chapter XI of the bankruptcy laws and continues to operate, in business and contines to operate, but does not have to pay its creditors immediately.
With sales last year of $2.4 billion, Food Fair is the nations' 16th largest retailer, running about 450 supermarkets, 79 discount stores and related businesses. Food Fair has eight Pantry Pride stores in the Maryland suburbs of Washington and is the second largest food chain in the Baltimore market, controlling about 20 percent of the food business there.
Last year the company's $2.5 million pre-tax profits amounted to only 1 percent on a $10 order, against a 25 per pretax profit on a $10 sale at Giant Food, one of the industry's more profitable supermarket companies.
Food Fair said the company was forced to file for protection under the bankruptcy law because it suppliers had refused to give it normal credit terms, cutting off the flow of new merchandise that is essential in the supermarket and mass merchandising business.
The Chapter XI petition filed in U.S. District Court in New York City said Food Fair had total assets of $492 million, unsecured debts of $279 million and public debts of $42 million.
The bankruptcy filing had been expected since Friday when trading of Food Fair stock was suspended by the New York Stock exchange because of a pending announcement.
Yesterday morning - before the petition was filed - Moody's Investors Service lowered its ratings of the company's 8 3-8 percent debentures from Ba to B, and its 4 percent debentures from B to Caa.
In the bankruptcy petition, Food Fair blamed most of its troubles on the J. M. Fields discount stores which it said "began to lost substantial amounts of money" three to five years ago.
Food Fair pured "in excess of $100 million" into the discount stores, the petition said, "These intercompany advances undermined the operating base of Food Fair."
"The drain on Food Fair's cash flow caused by the Fields operation has left Food Fair with insufficient amounts of cash", the company said. Without cash, Food Fair was unable to qualify to maximum discounts on purchases of new goods, making it impossible to increase profitability, the company said.
"Food Fair has lost volume by reason of its inability to fully stock its supermarkets," the company admitted.
A series of management changes at J.M. Fields have restored the discount chain to profitability, but the lack of credit has "impeded" the turn-around, Fields Vice President John R. Lilly said, in the bankruptcy filing.
Once the bankruptcy filing has relieved the company of the immediate obligation to pay its debts. Food Fair's profitability can be restored "within a short period of time," the company official claimed.