Larry’s Asks for Bankruptcy Protection
By George Anderson
Last year, Larry’s Markets was planning to add up to 15 new stores. Yesterday, the Kirkland, Wash.-based grocery store operator filed for federal bankruptcy protection so that it can continue to keep stores open and pay employees until it can sell its six locations.
The upscale grocer, which first opened in 1945, has undergone restructuring and management changes in recent months but the moves were not enough to offset its debt load and deal with increased competition in the markets it serves.
Bert Hambleton, a grocery industry consultant out of Issaquah, Wash., said Larry’s problems may have been the result of the company losing its identity in recent years. With competitors popping up on all sides including Trader Joe’s and Whole Foods on one end and Wal-Mart Supercenters on the other, Larry’s tried to keep its specialty image while going to conventional grocery store marketing techniques such as price/item ads.
“They tried too many things, contradictory things,” he told the Seattle Times.
Larry’s CEO Mark McKinney is hoping that an investor will see the equity built up in the Larry’s name and continue to operate the stores under that banner.
“It’s a great opportunity for somebody to come in and make the company even better,” he told the Seattle Post-Intelligencer.
Mr. Hambleton doesn’t think it likely that Larry’s will find a single buyer for its six locations.
“I suspect that Larry’s Markets as a brand is probably done,” he said. “They (buyers of the stores) would be doing it so they could get the real estate.”
Moderator’s Comment: What do you think brought Larry’s to this point? What lessons are there for other independent
grocers from Larry’s failure? – George Anderson – Moderator
Undoubtedly, increased competition hurt Larry’s. But what about its management? They tried LoBucks, which was outside their core competency and failed. They had a recent plan to open 15 more stores to get out of debt? How can a 6-location chain open 15 stores to reduce debt? Sometimes news stories garble the details, but if those facts are true, then the management doesn’t seem realistic.
The commentator above is accurate, along with all three highlighted reasons outlined for this survey – bottom line: it’s a management issue. Poor operational management married with intense competition will bankrupt any business. Another point: many will focus the issues on the “customer side” as to the main reasons a retailer fails, however, a keen operator must also effectively manage the procurement/vendor opps. Our opinion regarding Larry’s downfall relates to an avoidance of properly identifying efficiencies and streamlining the supply side.
I have never been to a Larry’s. But when a group of stores that has been in business since 1945 is filing for bankruptcy, something very very wrong has happened. Obviously the wrong people are in management. Grandiose ideas of adding 15 stores one day and filing for bankruptcy the next probably has little to do with competition and a lot to do with incompetent management. We just saw the same thing recently with Marsh when it fell in to the wrong family member’s hands. It doesn’t take long for the wrong people to undo decades of hard work. Hopefully a skillful operator can be found who can unlock the value of this established group of stores.
It is the question of whether effective management of existing resources i.e. six stores can remain so by adding the financial liability of 15 new stores. Unless there are no corrective measures of all facets of business operation, including financial discipline, there is little chance to be revived by addition of new stores.
It is more important to analyze the reasons for the financial crisis after 60 years business performance. Under competitive markets there are always great challenges; to add new customers and investment on quality merchandising with better terms or return on infrastructure investment, etc. Therefore, they need to get into store specific profitability analysis & revive the same, or shutdown the same if all the earlier initiatives have failed. The shutdown stores’ infrastructure can be reinvested into a new store model with additional marginal funding to revive business volume. In the end, volume of business alone can’t make a healthier bottom line but the quality of retail management can.