NEW ORLEANS -- Schwegmann Giant Super Markets here voluntarily filed for Chapter 11 and said it plans to sell all 24 stores.
Schwegmann said it will continue to operate the stores until they are sold "to maximize their value to creditors."
The bankruptcy filing put on hold the sale of six Schwegmann stores to Sav-A-Center, the locally based division of A&P, Montvale, N.J. The sale, which was announced in early March, had been scheduled to be completed last Monday but reportedly faced postponement because of an objection from one of the chain's lease-holders, local sources told SN.
The developments represent the failure of Schwegmann's owner -- Kohlberg & Co., Mount Kisco, N.Y. -- to reverse the declining fortunes of the chain, which it acquired in February 1997 after 128 years of family ownership of Schwegmann.
"The filing was necessary, in part to implement the prompt closing of the sale of six stores to Sav-A-Center," a Schwegmann spokesman said last week. "The Chapter 11 filing facilitates the sale of those stores because it will now be up to the bankruptcy judge to assign leases to prospective buyers over any third-party objections."
In a statement issued the same day as the filing, Sav-A-Center said, "Despite the delay, we do have a bona-fide business agreement and are prepared to fulfill it when these matters are resolved."
The Schwegmann spokesman said the company will seek buyers for the other 18 stores and attempt to complete the bankruptcy "as expeditiously as possible," noting there is no specific time frame.
The company "will try to keep on track with the sale of the six stores to Sav-A-Center and then look for prospective buyers for the remaining 18 stores," the spokesman said. "The key for us will be to keep the stores operational so creditors get the maximum value of the assets."
Schwegmann was in court last week seeking approval for a financing package that would enable its stores to conduct normal operations.
Tom Arledge, president and chief operating officer of Schwegmann since last October, could not be reached for comment last week.
According to the company spokesman, filing for Chapter 11 will allow the company to remain in operation, with employees on the job, to enhance the asset value of the store base. In addition, it will help raise cash for creditors by facilitating the sale of the six stores to Sav-A-Center, helping to locate buyers for the other stores and enabling the company to dispose of assets under court supervision, he added.
The spokesman said Kohlberg "tried very diligently to turn around what has ultimately been a failing business."
When Kohlberg acquired the chain, Schwegmann had 26 stores, ranging in size from 22,000 square feet to 250,000 square feet, with annual sales of $400 million. The spokesman declined to pinpoint current volume last week.
Local observers said Schwegmann had been profitable until mid-1995, when it acquired 28 stores here from National Tea Co., St. Louis, a division of Loblaw Cos., Toronto.
Schwegmann was anticipating a $500 million sales increase from the acquisition, observers said. But when the Federal Trade Commission forced the company to divest 11 stores and to close seven others, Schwegmann was unable to achieve the anticipated sales increases to pay down debt, they noted, and the resulting drain on capital left the company unable to pay all its bills, prompting vendors to impose credit limits that resulted in half-empty shelves for an eight-month period in 1996 and a sales drop of 10%.
It was at that point that Kohlberg acquired Schwegmann for an estimated $150 million and pledged to pump $14 million into the operation.
The spokesman declined to speculate on what problems the company's previous owners had encountered but said last week, "It's my understanding that the company tried to expand too much and too quickly, and it stands to reason that it would never have been sold [to Kohlberg] if it had not had those problems."
He also said the company has been hurt by "the encroachment of food sales through alternative distribution channels, with such tough competition that local prices are running about 11% below the national average."
After Kohlberg acquired Schwegmann, the company hired new top management; introduced extremely hot promotions; upgraded the quality of its perishables offerings; eliminated two-thirds of its headquarters staff; sold its grocery and frozen-food warehouses to Supervalu, Minneapolis; and shifted to buying from the distributor.