Experts: Bashas' to emerge leaner, stronger - East Valley Tribune: News

Experts: Bashas' to emerge leaner, stronger

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Posted: Tuesday, July 14, 2009 5:18 pm | Updated: 2:23 am, Sat Oct 8, 2011.

In seven to 10 months, consumers can expect to see a Bashas' chain of grocery stores with fewer numbers and more concentrated in the Valley and Tucson metro areas as it emerges from Chapter 11, analysts say.

Loyal shoppers upset by Bashas' bankruptcy

Bashas' here to stay, family says

In seven to 10 months, consumers can expect to see a Bashas' chain of grocery stores with fewer numbers and more concentrated in the Valley and Tucson metro areas as it emerges from Chapter 11, analysts say.

But opinions differ on whether Bashas' will keep its AJ's Fine Foods and Food City brands catering to the upscale and Hispanic markets, respectively.

Much will depend on whether the company can renegotiate shopping center leases and make other cost reductions, grocery industry watchers said.

The Chandler-based company filed for Chapter 11 bankruptcy reorganization late Sunday, and the first hearing in the case is scheduled for Wednesday at U.S. Bankruptcy Court in Phoenix.

The company, which listed about $245 million in debts and about $200 million in assets, said it was driven to the court's protection by tough competition from larger companies such as Wal-Mart and a tight credit market, among other factors.

Loyal shoppers upset by Bashas' bankruptcy

Bashas' here to stay, family says

Bashas' plans to close more stores

Bashas' officials expressed confidence their company will successfully reorganize and emerge stronger than ever with reduced costs and renegotiated debt terms.

The company said it has lined up $45 million in interim debtors-in-possession financing from Grace Financial Group LLC to carry it through the reorganization.

Burt Flickinger III, a New York City-based consumer-industry consultant who has closely followed the company, predicted Bashas' will only shrink slightly, closing about 17 of its 158 stores, although the exact number will depend on whether the firm can negotiate lower lease rates with shopping center owners.

"At this point Bashas' is holding four aces, and landlords don't even hold a pair," he said. That's because landlords would have a hard time in the current weak economy finding new anchor tenants to fill space abandoned by Bashas', he said.

Bashas' suppliers such as Proctor & Gamble and PepsiCo also have an incentive to work with the company because they will want to keep a competitor in the Arizona market, he said.

"They don't want a world dominated by Wal-Mart, with its excessive procurement power," he said.

Bashas' largest creditor, Cardinal Health, which supplies medicines to pharmacies inside Bashas' stores, declined to comment specifically on the case. "But in general when our customers go through difficult times, we are committed to work with them and serve their patient needs," said Cardinal Health spokesman Troy Kirkpatrick.

Coming out of Chapter 11, Flickinger believes Bashas' could resume growing and reach 200 stores by 2015.

He added that AJ's and Food City remain strong formats and, after temporary cutbacks, will also grow as the state comes out of recession.

Bashas' status as the only major Arizona-based grocery will help it through tough times, as loyal customers will want to see the local company survive and thrive, he said.

But Flickinger said the company probably will concentrate its operations in the Phoenix and Tucson metro areas and de-emphasize rural Arizona because the two urban areas will be the biggest beneficiaries of an economic rebound.

Bob Kammrath, a Phoenix-based retail industry consultant, isn't sure slimming down a little will be enough to bring Bashas' out of Chapter 11. He said more drastic actions such as jettisoning the Food City operation may be necessary.

He noted that many previous attempts to serve the discount and Hispanic markets have failed, including Southwest Supermarkets and Megafoods.

"I think they have to get away from the idea they can succeed where everyone else has failed," Kammrath said. Looking to the future, he sees Wal-Mart as dominating the discount sector while Kroger-owned Fry's, Safeway and Bashas' divide the full-service market. A few other companies such as Fresh & Easy will occupy niche positions, he said.

Dennis Hoffman, professor of economics at the W.P. Carey School of Business at Arizona State University, believes Bashas' lack of geographic diversification will hurt the company even if it successfully reorganizes.

It's larger multi-state competitors that can subsidize Arizona operations during economic downturns from profits in other states, while Bashas' - with all but two of its stores in Arizona - doesn't have that option.

And Hoffman isn't sure Bashas' will be able to profit from a marketing strategy that plays up its Arizona roots.

"It's a choice for consumers," he said. "Will they pay a few bucks more to support the locally born and bred store, or will they go to the megastore and stand in line and save the money?"

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