Fairway is still in the rough
The supermarket chain has amassed about $300 million in net losses over the past five years.
Photo: Buck Ennis
Fairway Market in Red Hook, Brooklyn.
In January, Crain's published an article about Fairway Market's financial problems and observed that a share of the company's beaten-up stock cost less than a half-gallon of Fairway-brand organic milk. Eight months later, the share price has fallen further, to $2.16, so now you'd have to sell about two shares to pay for the milk. The embarrassing price-to-dairy ratio underscores the challenge facing CEO Jack Murphy, who was brought in last fall to turn things around at
the popular yet troubled retailer. He has installed new management, cut costs and reconfigured stores so merchandise is easier to find and reach. He's also planning to open a store in TriBeCa and a second in Brooklyn, replacing an old Waldbaum's.
the popular yet troubled retailer. He has installed new management, cut costs and reconfigured stores so merchandise is easier to find and reach. He's also planning to open a store in TriBeCa and a second in Brooklyn, replacing an old Waldbaum's.
"Fairway is now getting in a place where we are really able to compete," Mr. Murphy told analysts on a conference call in early August. "I expect that within the next 12 to 18 months, all of these initiatives are going to propel Fairway into positive territory on the top line."
Mind you, that seems like a long time to turn around a chain of just 15 stores. But Fairway, which has piled up about $300 million in net losses over the past five years, has deep problems that can be summed up in two words: Whole Foods. Sales at Fairway's Upper East Side location fell by 15% after a Whole Foods opened nearby in February. In Brooklyn, Fairway's Red Hook store suffered a similar kind of hurt after a Whole Foods opened in Gowanus in late 2013.
To lure back shoppers, Fairway is offering discounts to people who provide their cellphone numbers. The promotional effort may pay off eventually, but for now, comparable-store sales continue to erode and fell by a larger-than-anticipated 5.3% in the quarter ended June 28. Total sales dropped by 2%, to $194 million, and the company posted a $14 million net loss.
Other indicators look worrisome. Free cash flow, which is cash flow after store-opening and other costs, turned negative last fiscal year, according to Credit Suisse. The company has scrapped plans for a Hudson Yards location. It is heavily indebted, with $250 million in long-term obligations on its books--the legacy of a 2007 leveraged buyout in which the store's founding family sold its business to a private-equity firm.
Fairway's Upper West Side store is still one of those only-in-New York experiences, and locals will be forever grateful that the chain provided an alternative to dismal A&P and Gristedes. But now that Whole Foods and Trader Joe's have moved into the city—and with Wegmans on the way—it's not clear if there's still a way for Fairway
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