Grocery chain Fairway, as it heads through Chapter 11 reorganization, must reassess locations and draw new customers

Photo: Buck Ennis
Fairway was a welcome newcomer in Manhattan, but after Whole Foods arrived, the chain’s fortunes sank

There will be cheese. And olive oil and fresh flowers. Fairway’s reorganization isn’t expected to be a contentious one. After filing for Chapter 11 on May 2, the grocer pledged to continue paying in full all employees, suppliers and landlords. The only parties who figure to suffer big losses are Fairway’s lenders, most of whom have already have agreed to swap their debt for shares in the reorganized company.

“There’s not going to be a lot to fight over,” said Peter Schaeffer, a retailing expert and principal at financial advisory firm GlassRatner.

Going forward, Fairway has to decide which of its 15 locations should be closed and how to lure customers back into the others.

The company said last week that it does not plan to close any stores, but the grocer has not made a profit since its initial public offering three years ago. It clearly needs to reassess after its ambitious expansion. Schaeffer said the Fairway in Woodland Park, NJ, could be closed because the location doesn’t fit with the upscale image that the grocer presents in the city.

Perhaps an even harder problem is persuading New Yorkers to take a fresh look at Fairway. The store rose to prominence a decade ago because its high-quality everyday and gourmet items presented a refreshing contrast for Manhattanites resigned to tired old A&P or Sloan’s. When Fairway opened a market in a former Barnes & Noble on East 86th Street in July 2011, its arrival was greeted as manna from heaven.

“I’m starting to see subway ads for the new UES Fairway,” one person tweeted, according to DNAInfo. “Yay for new grocery options! Rumor is, it’s going to be the BEST one so far!”

But after a Whole Foods Market set up shop a block away last year, customers abandoned that Fairway in droves.

Companywide, sales at stores open more than 12 months fell in 2015—including a painful 7.5% drop in the quarter ended last Dec. 27—and Fairway said a “competitive opening on the Upper East Side” was a big reason for that.

Fairway executives intend to use its sojourn in bankruptcy court to cut its $279 million debt burden in half and free up resources to invest in its business and win back the shopping carts of New Yorkers. Wish them luck.

A version of this article appears in the May 9, 2016, print issue of Crain’s New York Business.