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Bankruptcy Wave Hits Whole Foods Competitors

Big companies. Essential products. Burgeoning delivery options. It would make sense that the supermarket business might be immune from the cross-currents of retailing in 2020. But that’s not the case, especially if you compete with Whole Foods.

Three regional players in the organic food retail business — where Whole Foods and parent Amazon rule — have declared bankruptcy over the past month. The latest is Earth Fare, which, one day after announcing it was closing all 50 of its stores, filed for Chapter 11. The Fletcher, N.C.-based natural foods retailer is the third significant U.S. food retailer to have filed for Chapter 11 bankruptcy so far this year — and, like predecessors Fairway and Lucky’s Market, it did so after trying to find a buyer. Earth Fare, according to industry reports, was said to have had as many as 100 new-store projects in its development pipeline late last year. But location selection, low volumes and competition turned things sour, and the company found itself behind in payments to suppliers. One distributor is reportedly owed $9.6 million by Earth Fare.

Colorado-based Lucky’s, which is backed by Kroger to the tune of $300 million, tried to fight competition by expanding into Florida. However, Lucky’s growth in the Sunshine State “coincided with, among other things, increased competition in the grocery industry, including expansions from competing chains such as Sprouts Farmers Market, Fresh Thyme Farmers Market and Earth Fare,” according to filings. “As a result, notwithstanding the growth in sales, the portfolio of company stores was unable to achieve sustainable four-wall profitability.”

Fairway, a 14-store chain in greater New York City, fell victim to a different dynamic: private equity. Its Chapter 11 filing, according to local reports, has its roots in 2007 when owners the Glickberg family sold an 80 percent stake to private equity firm Sterling Investment for $140 million. Four generations of the family had owned and operated a handful of Fairways in New York City, starting with a fruit-and-vegetable stand that opened in 1933.

Meanwhile, the chain that is widely considered Whole Foods’ closest competitor is on the ropes. Sprouts Farmers Market has seen its stock dive by more than 20 percent since the beginning of the year. The one-time high-flying company — which at 340 stores is larger than specialty rivals but still much smaller than Whole Foods with 500 locations, is trading at historical lows, surrendering about $1 billion in market capitalization vs. the same week a year ago, and about $4 billion less than investors valued it in 2015.

“The outlook for small and regional grocers is becoming increasingly challenging in a rapidly changing digital food retail landscape,” Kelly Bania, analyst at BMO Capital Markets, wrote in a research note to clients.

While regional players struggle, interlopers continue to strengthen. Target continues to leverage its Shipt acquisition, which delivers not only products in the Good & Gather private label grocery line, but this week added Office Depot to its delivery partners. The mega-retailer says shoppers in stores are adding at least one food item to their baskets. When they do, their basket sizes are two times larger.

The number of supermarkets in the United States declined by 1.3 percent last year to under 25,000 as SuperValu, Southeastern Grocers and Tops shuttered stores, according to Inmar Analytics. The number of U.S. supermarkets will decline by 6 percent in the next five years, the firm predicted.

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