Why are so many organic grocers landing in bankruptcy court?
Reckless expansion and heightened competition for natural and organic foods were factors behind the recent bankruptcies of Fairway, Earth Fare and Lucky’s Market, but each chain faced unique challenges.
Fairway, a New York institution known for its wide selection of cheeses and cheap produce, filed for Chapter 11 on Jan. 23. The bankruptcy was attributed to debt taken on from a leveraged buyout (LBO) in 2007, an ensuing aggressive and unsuccessful expansion into the suburbs, and newer competition ranging from Costco to Whole Foods. The chain reached a deal to sell to five of its locations to Village Super Market, which operates stores under the ShopRite and Gourmet Garage banners. Fairway is seeking buyers for the remaining nine locations.
Lucky’s, a Colorado-based chain with an ambition to make organic foods affordable, filed for bankruptcy on Jan. 27. In 2016, Kroger became Lucky’s majority shareholder and its store count more than doubled. The collapse was blamed on an aggressive expansion into Florida, where it faced Publix and other newcomers such as Sprouts, Fresh Thyme and Earth Fare. A greater focus on natural and organic foods by Walmart, Aldi and others further reduced differentiation. In December, Kroger said it would divest its investment. Plans call for shuttering 32 of its 39 stores and selling the rest to the chain’s original founders.
Earth Fare, a North Carolina-based chain known for its commitment to clean eating, filed for bankruptcy on Feb. 4, a day after announcing plans to close all its 50 stores. Earth Fare also faced increasing competition against organic and conventional chains, and with aggressive expansion, the chain opened locations in overly-competitive markets. The failed stores, expensive modernization efforts and significant capital improvements on legacy stores “caused a strain on liquidity,” according to court documents. Owned by Oak Hill Capital Partners since 2012, the chain was unable to refinance its debt.
The filings come as Sprouts is slowing growth to focus on profitability. Whole Foods, meanwhile, has reduced produce prices since being acquired by Amazon.com to spur growth. Amazon recently reported a lack of sales growth at physical stores for its 2019 fourth quarter and full year.
- Fairway Market Secures Financing For Voluntary Chapter 11 To Facilitate Sale Of Assets – Fairway Market/PRNewswire
- NY grocer Fairway files for bankruptcy protection, will close some stores – CNBC
- Fairway, Unable to Fend Off Rivals, Files for Bankruptcy – The New York Times
- Fairway Market braces for another bankruptcy filing – New York Post
- Kroger-Backed Lucky’s Market Files for Bankruptcy – The Wall Street Journal
- This grocery store wanted to compete with Whole Foods. Now it’s going bankrupt – The Mercury News
- How a beloved organic grocery chain collapsed – CNN
- Earth Fare files for Chapter 11 bankruptcy – Supermarket News
- This is how much money Earth Fare owes some of its biggest creditors – Asheville Citizen-Times
DISCUSSION QUESTIONS: What common themes do you see behind the bankruptcies of Fairway, Lucky’s Market and Earth Fare? Should the filings call attention to new pressures or growth concerns facing organic and natural food categories?