New Jersey-Based Firm Files for Chapter 11 Bankruptcy Protection During Pandemic – by Linda Moss, CoStar News – August 24,2020
The owner of Kings Food Markets and Balducci’s Food Lover’s Market has accepted a $75 million stalking-horse offer for the two regional chains, yet another example of gourmet grocers continuing to be battered by bruising new competition and the pandemic.
KB US Holdings, based in Parsippany, New Jersey, filed for voluntary Chapter 11 bankruptcy protection Sunday and announced its deal with TLI Bedrock for its Kings and Balducci’s specialty markets. There are 35 brick-and-mortar locations in New York, New Jersey, Connecticut, Maryland and Virginia. The buyer is looking to acquire 30, according to court documents.
TLI Bedrock, headquartered in New York City, is an investment fund with Lawrence Benenson as a partner. The Chapter 11 case was filed in the U.S. Bankruptcy Court for the Southern District of New York. As part of the bankruptcy process, higher and better bids than TLI Bedrock’s will be solicited. The deadline for bids is Oct. 2.
In conjunction with the sale process, KB said it has a commitment for roughly $20 million in debtor-in-possession financing from its existing secured lender. With court approval, the new financing, combined with cash generated from the company’s ongoing operations, will be used to support the business throughout the sale process, according to KB. The two chains employ more than 2,100 workers.
Kings and Balducci’s now join specialty supermarket chains Fairway Market and Dean & DeLuca in seeking bankruptcy protection this year. Balducci’s, Fairway and Dean & DeLuca are all iconic retail names for New Yorkers, but that wasn’t enough to help them surmount the challenges created by the current environment.
In court documents, KB blamed an ongoing surge in competition for Kings and Balducci’s as one reason for the Chapter 11 filing. It now faces rivals such as Whole Foods, a rise in online ordering via outlets such as Amazon because of the outbreak, big-box stores such as Costco, Walmart and its pickup service, international players such as Aldi, and meal-kit providers. KB also said it has been saddled with added costs to institute the store-safety measures mandated by the coronavirus.
“You have to look at the economic climate, COVID and the evolution of specialty grocers,” said Darren Tristano, CEO of consulting firm FoodserviceResults. “COVID has pushed many consumers, especially older more affluent consumers, to move toward online shopping. Look at Amazon and how Whole Foods is really moving in that direction. … It’s harder to compete with online and pickup services like Walmart is offering now. And younger consumers are moving to the Trader Joe’s and other more hip Gen Z, millennial-friendly outlets.”
Possible Replacement for Macy’s
In a report issued Monday, the ratings firm DBRS Morningstar said Tysons Galleria, a super-regional mall in McLean, Virginia, owned by Brookfield Properties, was “in advanced talks” with Balducci’s as a tenant to help fill a former Macy’s location.
Officials at KB and Brookfield didn’t immediately respond to emails seeking comment. Tristano said it’s unlikely there would be an Balducci’s expansion taking place right now.
KB said it has sufficient liquidity to meet its go-forward business obligations and will operate its business as usual and pay its business partners for goods and services provided on or after the Chapter 11 filing date.
“We are pleased to be moving forward with a sale so we can position Kings and Balducci’s for even greater long-term success,” KB CEO Judith Spires said in a statement. “During this COVID crisis, our associates and communities have demonstrated not only the viability but absolute necessity of our markets in their communities. Our sales and service have never been stronger; we are confident we will emerge from this process without missing a beat, well-positioned for future stability and success.”
Decades of History
Kings is an upscale market chain serving customers with 25 stores throughout New Jersey, New York and Connecticut. It was founded in 1936 with its initial store in Summit, New Jersey, and expanded with “new stores along the railroad lines that traverse the New York City suburbs,” M. Benjamin Jones, KB chief restructuring officer and senior managing director with Ankura Consulting Group, said in a court filing. The chain’s forte is offering locally sourced, organically grown products.
In 2009, Kings acquired Balducci’s, which “was founded as a fruit-and-vegetable stand in Brooklyn, New York, in 1915 by a young immigrant from Bari, Italy named Louis ‘Pop’ Balducci,” according to Jones. In 1946, Balducci and his son Andy opened their first retail store in Greenwich Village. The chain now has 10 locations in Connecticut, Maryland, New York and Virginia.
Four years ago this month KB purchased Kings and Balducci’s. In the 52 weeks ended July 25, KB reported $589.4 million in sales and a gross profit of $236.4 million, according to Jones. But a rise in sales during the pandemic hasn’t helped KB’s prospects in the long term, according to Jones.
“Although the company’s liquidity has improved during the COVID-19 pandemic, the company recognizes that its current liquidity is only temporary, and that it must seek a permanent solution to address its historical liquidity constraints,” Jones said.
Since 2018 KB has had multiple defaults to its secured lenders, with $114.2 million in outstanding debt obligations, he said. Following “extensive negotiations with various potential bidders” and discussions with its advisers, KB on July 13 entered into a stalking-horse asset purchase agreement with TLI Bedrock.
“The COVID-19 pandemic has further intensified the industry headwinds KB has faced,” Jones said.
