Winn-Dixie slips toward Chapter 11

[Aessotariq]

Posted on Wed, Feb. 23, 2005

WINN-DIXIE

S. Fla. strategy could revive grocery

Winn-Dixie filed for bankruptcy protection as its vendors cut off shipments without cash payments. But experts doubted a reorganization would help it rebound.

BY ELAINE WALKER

[email protected]

Winn-Dixie will scale back and focus on key markets, including South Florida, where its 92 stores have been remodeled.

Winn-Dixie bought itself some time and money by filing for bankruptcy protection and hopes to model itself in the image of its South Florida stores, which recently have undergone expensive makeovers.

But industry experts remain skeptical about the long-term future of the supermarket chain that was born in Lemon City [Miami].

The Jacksonville-based company, which is one of South Florida's largest employers, will have to scale back its operations as it attempts to fight off the competitive squeeze from Wal-Mart stores and Publix Super Markets.

Faced with increasing losses and pressure from suppliers, Winn-Dixie filed for Chapter 11 bankruptcy protection late Monday night in a New York bankruptcy court with plans to reorganize. The company also secured an $800 million loan from Wachovia Bank that will enable the doors to remain open, at least for now, at the chain's 920 stores.

Under Chapter 11, a company is allowed to reorganize its debt under court supervision.

''The environment is against them,'' said Mitchell Corwin, an analyst with Morningstar in Chicago who covers the industry. ``The supermarket industry has to shrink, and the weaker players will be the first ones to go. It's more likely than not, that Winn-Dixie doesn't survive.''

A scaled-down Winn-Dixie is expected to focus on its core markets, including South Florida, where its 92 stores are being upgraded and remodeled as part of a new ''neighborhood market'' strategy. Winn-Dixie has tailored the product mix and displays in those stores to the communities and has tried to improve customer service.

The South Florida focus is only fitting since Winn-Dixie's roots lie in Miami, where William Milton Davis and his sons bought the Rockmoor Grocery in 1925.

Chief Executive Peter Lynch, who took over the helm in December, said the company will evaluate every store's performance and announce a plan in the next month or 45 days for shrinking the company.

''It will be fewer stores and fewer people,'' Lynch said in an interview Tuesday night after spending the day meeting with some of the company's 79,000 employees. ``We've already been working on a turnaround plan. This gives us a little more energy to get it moving.''

While Lynch declined to elaborate on how extensive the closings will be, industry analysts expect there will be limited closings in South Florida and throughout the state.

Winn-Dixie has already asked the bankruptcy court for approval to terminate the leases of 150 stores that have already been closed, as well as two warehouses. These moves are expected to save the company an additional $60 million a year.

`HIGHLY SKEPTICAL'

But analysts aren't convinced this will be enough, especially since supermarket companies have a habit of filing for bankruptcy protection multiple times and rarely emerging with a successful reorganization. It could be just a matter of time until Winn-Dixie is forced into a Chapter 7 bankruptcy, which calls for liquidation, analysts said.

''We remain highly skeptical that these moves, encouraging as they are, will deliver an ultimate turnaround at the company,'' wrote John Heinbockel, industry analyst with Goldman Sachs. ``Even after these cost savings, Winn-Dixie will still be an unprofitable company.''

While Winn-Dixie has been struggling for several years, the noose really tightened around the company's neck during the past week as many of its largest suppliers began demanding cash upfront for shipments.

``Once you lose the vendors' confidence, it's game over,'' said Evan Mann, a high-yield analyst with Gimme Credit, a New York-based independent research firm. ``The credit you get from vendors is the lifeblood of any retailer.''

Suppliers got scared after Winn-Dixie reported a loss less than two weeks ago of $399.7 million for the second quarter, compared with $79.5 million during the same period last year. The company also revealed that its available cash and credit supply were dwindling.

Winn-Dixie reported total assets of $2.2 billion and liabilities of $1.9 billion, as of Jan. 12.

TRADE CREDITORS

The company's bankruptcy petition lists its largest trade creditors as Kraft, owed $15.1 million; Pepsico, $14.6 million; and Procter & Gamble, $6.1 million. The largest institutional creditors are the holders of the $300 million in bonds due in 2008. Capital Research and Management Co. is owed $45 million and Vanguard Group, $23.6 million.

The bankruptcy filing changes the game for Lynch, who was expected to be given at least until the end of the fiscal year to stem the bleeding.

`CAN GET THINGS DONE'

Lynch has already claimed an early success in his neighborhood store strategy. Valentine's Day sales were up 38 percent over last year.

''When we focus and we show people the right way, we can get things done,'' he said.

As an incentive to improve the company's performance, Lynch was given three million shares of the company stock, which made him the largest individual shareholder.

But the company is likely to be removed from the New York Stock Exchange, where it was the first Florida industrial corporation listed and has traded since 1952. Trading in Winn-Dixie was halted Tuesday. The stock closed at $1.47 on Friday, compared with its peak of almost $60 per share in 1998.

SHAREHOLDERS HURT

The bankruptcy filing could leave shareholders with little or no value. That move is particularly devastating for the descendants of Winn-Dixie's founder, William Milton Davis. Individually and through the family's investment company DDI Inc., the Davis family owns the largest portion of the company, 36 percent, or 51.7 million shares.

A statement issued by E. Ellis Zahra Jr., president of DDI, called the filing a ``difficult day in Winn-Dixie's history.''

Still, said Zahra, who is not a family member, ``we firmly believe this is the best option for the long-term health of Winn-Dixie.''

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[StevenRocks]

Every company that files for bankruptcy says they're going to change, but very few actually do.

I wish them the best, but putting a dress on a pig just makes it a dressed-up pig.

[wolfdawg54]

I am sorry that Winn-Dixie went bankrupt. It is a shame for the jacksonville community. It may recover but I am sure that it will be a much smaller business.

[JaxNole]

I wish them the best, but putting a dress on a pig just makes it a dressed-up pig.

<{POST_SNAPBACK}>

But what if it's a really nice dress, like a Vera Wang?

[Urban_Legend]

FIXING WINN-DIXIE

CEO tours model store in Ponte Vedra and talks about some changes

Winn-Dixie CEO Peter Lynch is greeted by Betsy Wilson who thanked Lynch for work he has done at the Ponte Vedra store.

By TIMOTHY J. GIBBONS

The Times-Union

Winn-Dixie stores will start offering better selection, better quality and better customer service, all of which the company needs if it is to survive, Chief Executive Officer Peter Lynch said during a tour Wednesday of the Ponte Vedra Beach store, where the company's new approach is being rolled out.

Building upon upgrades pioneered in its stores in the Miami-Fort Lauderdale market, Winn-Dixie plans to change its stores department by department over the next year, initially upgrading model stores in each region and then spreading the changes throughout the rest of the company.

The Ponte Vedra Beach store, a newer location with amenities such as a gift center and expansive wine selection, is one of 85 model stores where the new approach is being debuted. "We took a store that was OK and made it a whole lot better," Lynch said.

Winn-Dixie operates 920 stores in eight states and the Bahamas, although it might close some locations as it works to come out of Chapter 11 bankruptcy it entered into in mid-February.

The Ponte Vedra Beach store was the first in the Jacksonville area to undergo the upgrade, with company and store executives focusing their attention on the produce department and merchandising display at the front of the supermarket.

Changes were made to the produce department first -- including increasing the amount and variety of fruits and vegetables -- because it didn't require a lot of money and has the largest impact on how customers view the store, said Lynch, acknowledging that the stores have had a "dingy image."

"It's got to be inviting," said Lynch, who is also president of the company. "Customers have got to feel good when they come in."

Now, rather than the "sparse" look the store has had in the past, customers are greeted with displays of Easter lilies and overflowing displays of fresh bread and fruit.

The increased display of seasonal merchandise has already helped the bottom line, Lynch said, with Valentine's Day products selling 38 percent better this year than last year.

Changes will be made to the other departments of the chain's stores over the next year, including the bakeries, meat departments and delis. Larger changes to the infrastructure of the stores, such as upgrading the lighting and adding more freezer cases, could take up to three years.

The stores are also working on upgrading customer service, spending more time on training and letting managers increase the number of employees they have working.

"If you do those two things," Lynch said, "things will get better."

The changes being made aren't new ideas in the industry, said Lynch, who came to Winn-Dixie toward the end of 2004 with the charge of revitalizing the ailing company. Lynch made his name as a turnaround specialist while he was president of Albertson's Inc.

Instead, Winn-Dixie is focusing on implementing best practices throughout the industry, with Lynch spending at least two days a week in both his company's stores and those of his competitors.

"I have no problem stealing a good idea," he said. "A lot of what I do is questioning why we're not doing things -- taking things that are broken and fixing them."

Winn-Dixie has put flowers out by the entrances of its stores, like the one in Ponte Vedra Beach, to make it more pleasing to the customer coming to shop.