Bashas' here to stay, family says

Bashas’ family members are confident their 77-year-old grocery chain will survive its bout with Chapter 11 and the family will remain deeply involved with the company.

The Chandler-based company, which is the 15th-largest privately held supermarket chain in the nation, filed for Chapter 11 reorganization late Sunday in U.S. Bankruptcy Court in Phoenix.

Loyal shoppers upset by Bashas' bankruptcy

Bashas' plans to close more stores

At a press conference Monday, Senior Vice President Edward “Trey” Basha and Chief Operating Officer Mike Proulx expressed their belief that creditors will be repaid and the company will emerge smaller but stronger from Chapter 11 in early 2010.

“We are confident that our family of stores is here to stay,” Basha said. “We’re not winding down operations, and it is not our intention to sell to another entity.”

However, the company is closing 10 underperforming stores, three in the East Valley, as it cuts costs.

The company has lined up $45 million in short-term financing, called debtor-in-possession (DIP) financing, to pay bills through the reorganization period. Also the company is working to arrange long-term financing once it emerges from Chapter 11, Proulx said.

According to court documents, the DIP lender is Grace Funding Group LLC.

Although Bashas’ will have to pay suppliers going forward, Chapter 11 will give it breathing room to work out arrangements to repay or reduce current debts. Also it can use bankruptcy to reduce some of its costs such as renegotiating shopping center leases.

Overall, the company lists about $195 million in secured debt and close to $50 million in unsecured debt, against about $200 million in assets.

According to court filings, major creditors include Cardinal Health, $2.75 million; Phoenix Coca Cola Bottling Co., $2.5 million; Frito-Lay Inc., $1.2 million; Shamrock Foods, $1.06 million; Kalil Bottling Co., $1.03 million; and Pepsi-Cola Phoenix, $1 million.

The long-term financing could a key to whether the family can retain control. If a larger competitor such as Safeway or Kroger offered a high bid for the company, they might want their own brand names on the stores and their own people running the show.

Proulx said that scenario is possible but unlikely in the current economic environment.

“We’re not overly concerned because of our DIP funding,” he said.

“That tells them (Bashas’ creditors) they will be paid going forward. That’s very important to creditors.”

Basha added the DIP loan gives “the family the ability to control the operation.”

He expressed confidence the company will be able to return to profitability by cutting the size of the business and stretching out debt payments.

But he said the family-owned chain needs to make itself more competitive against larger national grocers like Wal-Mart, 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 Wal-Mart 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 there was a time when the company’s 14 AJ’s stores, which cater to upscale customers looking for gourmet foods, would simply charge what it considered appropriate. He said that, for the first time ever, customers are finding items advertised on sale.

Food City, another unit of Bashas’ that caters largely to Hispanic customers, 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 from Pro’s Ranch Markets and others going after the same demographics.

Despite the tough competition, Proulx said the company intends to remain in Arizona, where all but two of its 158 stores are located.

“All of our energies and resources are dedicated to Arizona,” he said. “We love the desert. We love squeezing water out of a cactus.”

Proulx conceded the company probably kept some underperforming stores open too long during the boom years, believing that growth would eventually make them profitable. When economic times turned sour and the anticipated growth didn’t happen, that strategy backfired, he said.

“If we had a crystal ball, we would have made some different decisions,” he said.

In addition to the weak economy, he said other reasons for the bankruptcy filing were the national credit crisis, which caused credit to tighten; and efforts by the United Food and Commercial Workers union to organize company employees, which interfered with operations and defamed the company.

Despite the bitter union battle, the UFCW issued a mild statement Monday, saying it “stands ready to engage in constructive dialogue with the company” as it goes through Chapter 11.

“A thriving retail industry is good for workers, business, and communities. We hope Bashas’ uses this opportunity to address the concerns of all these stakeholders as it considers how it should emerge from bankruptcy,” the union said.

Bashas’ history dates to 1932, when Eddie Sr. and Ike Basha opened a general store in Chandler in the middle of the Great Depression. Since the late 1960s Eddie Jr., has directed the growth of the company, He became a major figure in the state, even running for governor. But poor health has caused him to turn operations over to other family members.

Bob Kammrath, a Phoenix-based retail consultant, said many questions remain to be answered as the company moves through Chapter 11.

“It’s not a prepackaged thing like GM and Chrysler,” he said, adding that the desires of the DIP lender are likely to be paramount during the restructuring.

The top priority for Bashas’ should be to pay suppliers going forward so that stores can stay well stocked and continue to attract customers, he said.

“If customers start seeing half-empty shelves, people will stop going there,” he said.

Kammrath also anticipated the 10 store closings will not be the last, especially if concessions can’t be negotiated with landlords. But the grocery chain has plenty of leverage, he said.

“In most of the places where they operate, they are the anchor store,” Kammrath said. “And if the anchor stores goes out, who is going to replace them in this economy?”

But shopping center developers have problems of their own with many tenants unable to pay rents due to the recession. 

“That’s why the next wave will likely be foreclosures of shopping centers,” he said.

Kammrath thinks it’s unlikely that a major competitor will want to buy Bashas’. Those already in the market like Kroger and Safeway would face antitrust problems, he said. And outsiders would be reluctant to enter a market that is so competitive when the state’s economy is weak, he said.

Capitol Media Services contributed to this report.

Stores Bashas’ plans to close July 21:
• Bashas’ store at Chandler and Kyrene (6085 W. Chandler Blvd., Chandler, 85226)
• Bashas’ store at Cooper and Ray (1919 E. Ray Road, Chandler, 85225)
• Bashas’ store at Greenfield and Baseline (4321 E. Baseline Road, Gilbert, 85234)
• Bashas’ store at Tatum and Bell Roads (4727 E. Bell Road, No. 39, Phoenix, 85032)
• Bashas’ store in Green Valley (18785 S. Interstate 19 Frontage Road, Green Valley, 85614)
• Bashas’ store in Page (687 S. Lake Powell Blvd., Page, 86040)
• Bashas’ store in Prescott (1761 E. Highway 69, Prescott, 86301)
• Food City sore at 59th Street and Mohave Street (1648 S. 16th St., Phoenix, 85034)
• Food City store at 43rd Avenue and Glendale Avenue (4335 W. Glendale Ave., Glendale, 85301)
• Food City store at 43rd Avenue and Thomas Road (4338 W. Thomas Road, Phoenix, 85031)

Top 10 unsecured creditors
Cardinal Health -- $2,758,378
Coca-Cola Bottling Co. -- $2,560,560
Frito Lay Inc. -- $1,188,134
Shamrock Foods -- $1,068,196
Kalil Bottling Co. -- $1,035,068
Pepsi Cola -- $1,007,583
Source Interlink Distributing -- $659,738
Swire Coca-Cola USA -- $588,916
Holsum Bakery Inc. -- $536,613
Kellogg Sales  Co. -- $501,997
Source: Bankruptcy Court filings