Affiliated Foods Southwest Inc., a wholesale food distribution company, said it filed voluntary Chapter 11 bankruptcy Tuesday.
The company employs 530 people at its Little Rock warehouse. Most of them will be let go over the next month, Affiliated’s Al Miller told ArkansasBusiness.com.
"We met with our employees today at about 11 a.m. and about half of those were released," Miller said. The employees remaining will continue to idle the company.
Affiliated said the governor’s dislocated worker task force will begin meeting with employees "at once" to provide assistance.
Workers were seen leaving Affiliated’s warehouse on Monday with boxes of personal belongings. None would speak on the record, but most said they were taking belongings home in anticipation of the company closing its doors.
The company, which said last week that a sale or merger of the company was possible, announced its bankrupcty in a statement e-mailed to the press. It said "relationships with its primary lender group have continued to deteriorate, with product inventories being reduced drastically, which have resulted in losing a number of key customers."
It said that under those conditions, its board decided to file bankruptcy.
The company said it will also select corporately owned stores, and is currently soliciting buyers for its remaining stores.
If the stores "are sold off, it will not affect [the stores’ employees’] employment," Miller said.
The company’s remaining assets will be sold in bankruptcy, Miller said. Affiliated has been in discussions with possible buyers for some time, he said. Associated Wholesale Grocers Inc. of Kansas City, Kan., has been in contact with Affiliated about the assets, Miller confirmed.
"AWG is certainly a candidate to buy the assets of Affiliated Foods," he said.
AWG representatives declined comment.
In the past three weeks, Affiliated has depleted inventory at its Little Rock warehouse and was unable to fully supply its customers, Miller said. It notified partners a few weeks ago to enter secondary supplier contracts with other wholesale companies. Those secondary suppliers will now become primary suppliers, Miller said, ensuring what he called a "seamless" transition.
Affiliated operates corporate retail stores, including Harvest Food and Piggly Wiggly locations, with 900 employees. The company said it is now selling those stores. Some stores are planning to close, according to report Monday by Arkansas Business news partner Today’s THV.
The company lists between 1,000 and 5,000 creditors in its bankruptcy filing, according to U.S. Bankruptcy Court documents. The company lists between $10 million and $50 million in assets and between $100 million and $500 million in liabilities, according to the filings.
In its statement, Affiliated reported $730 million in revenue for fiscal 2008, down from the $763.2 million it reported for fiscal 2007.
Company President Randy Arceneaux had agreed on Monday to speak with Arkansas Business on Tuesday, but had not returned messages left for him today.
Tough Times
The company’s decision comes after a tumultuous spring and winter.
- The company bounced checks in March, causing U.S. Bank, Affiliated’s primary lender, to cut credit temporarily. The credit was restored shortly thereafter, and Affiliated hired the Keystone Group of Chicago to help the company reorganize and restore cash flow.
- At least one vendor has filed suit in March against the company seeking payment of a past due bill; the lawsuit was settled. Affiliated has also filed suit against at least one company it supplies.
- In early March, Affiliated promoted Randy Arceneaux to president, replacing John R. Mills. Mills had served as president, chairman and CEO since 2004, when he took over the leadership roles from Jerry Davis. The company has not filled the CEO position.
- In February, the company’s board elected David Hendrix to become chairman. Hendrix and his brother, Doug, own Family Market LLC and Summerwood Partners LLC, which operates the Big Red convenience store chain. Both are headquartered in Bryant.
The Cause
The company got into trouble after extending credit to its co-op members. The practice was a valuable service to members looking to expand, "but in the process, we often tied up capital," Al Miller, who retired as executive vice president but returned following a management shake up in March, told Arkansas Business previously.
The company has filed suit against Food King Inc. and its operators, Robert and Janet Hudson of Maumelle. The company is seeking unpaid bills from several Food King properties and payment on a loan, which the Hudsons are past due on, according to documents filed in Pulaski County Circuit Court. In total, Affiliated is seeking about $1.7 million. The Hudsons have filed an answer to Affiliated’s complaint contesting its debts, according to filings.
On March 20, Dole Fresh Vegetables Inc. filed a complaint against Affiliated in the U.S. District Court in Little Rock, claiming Affiliated owed the produce company $100,000 for goods delivered. Dole voluntarily dismissed its case March 25.
Downhill Slide
When a wholesale grocery company has a cash flow problem similar to Affiliated’s predicament, it most often means drastic changes will occur, said Jim Brooks, of Oklahoma State University’s Robert M. Kerr Food & Ag Products Department.
Bouncing one check "can start a downhill slide," Brooks said. "It just sort of begins to inch downhill and begins to speed up each time someone wants to put them on" a cash on delivery payment schedule.
The problem almost always spells doom for the company, Brooks said, with options including selling assets, Chapter 11 reorganization or working with lenders to supply additional funding.
Extending credit to members can be a valuable resource for any company, but any trouble a customer has repaying loans only makes Affiliated’s situation worse.
"Affiliated considered that as income. And when that stops, that just tightens the noose," Brooks said.
The company reported 2,700 employees and revenue of $763.2 million for the fiscal year ending June 30, 2007, according to Arkansas Business’ 2008 list of the state’s 75 largest companies. Revenue fell from $773 million for the same period in 2006, $797 million in fiscal 2005, and $873 million in fiscal 2004. The company services grocers in Arkansas, Louisiana, Mississippi, Oklahoma, Tennessee and Texas.
Other Entities
There are eight corporations listed on the Arkansas Secretary of State’s Web site as sharing Affiliated Foods’ address and being in good standing. All list John Mills, the former president, and All Miller, the former secretary, as officers, and Mills as registered agent. The corporations are:
- Small Business Investment Capital Inc.
- Mechanical Refrigeration & Air Conditioning Inc.
- Supermarket Developers Inc. Retail Store Division
- Southwest Grocers Insurance Services Inc.
- Shur-Valu Stamps Inc.
- Convenience Store Supply Inc.
- Consolidated Warehousing Inc.
- Supermarket Investors Inc.
The full statement from Affiliated Foods
Affiliated Foods Southwest, Inc. a wholesale food distribution company providing product, services and technology for independent food retailers in a 6-state area for over 50 years filed for Chapter 11 bankruptcy today. The company reported $730 million in revenue for fiscal 2008.
Affiliated announced on March 14, 2009 plans for reorganization due to cash flow difficulties, with the company’s primary lender US Bank temporarily cutting off credit, furthering the liquidity setback. Over the past 7 weeks the company has replaced management and installed reorganization procedures, including negotiations with other food wholesalers for a buy-out. During that time relationships with its primary lender group have continued to deteriorate, with product inventories being reduced drastically, which have resulted in losing a number of key customers. Under these conditions the Board of Directors was compelled to file for bankruptcy protection and to maximize the value of assets for liquidation.
The distribution center located southwest of Little Rock on interstate 30 currently has 530 employees. The Governor’s dislocated task force will begin meeting with these employees at once to provide assistance. Affiliated operates a number of corporate retail stores with 900 employees at those locations. Currently those stores are being sold and should provide continued employment.
The company services over 400 supermarkets in Arkansas, Louisiana, Mississippi, Oklahoma, Tennessee and Texas. These independent grocers have been given advance notice that they should secure secondary suppliers, due to Affiliated’s decrease in service level of product. This will allow these supermarkets to now make those secondary suppliers their primary source of supply, which will allow continued customer service in their markets. For this reason the company believes these independent grocers should be able to provide the same high quality service to its customers they have provided in the past.
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