ILMA Compoundings - November/December 2020 - 32

BUSINESS HUB

Family Business
Ownership Succession:
Learning From Others
By Rob Sligh

O

n Jan. 23, Bloomberg
reported that Fairway Market
was planning to file for
bankruptcy - again. It was sad for
the three-generation, 14-store family
grocery chain in New York and its
customers. If only the family could
turn back the clock. Were there other
options? If so, what lessons can they
offer for family business continuity?

THE STORY
Bloomberg opinion writer Joe Nocera
noted that Fairway, a treasured New
York institution, was founded in 1933.
By 2007, it had grown from one store
on Manhattan's Upper West Side to
four stores - three in New York City
and one on Long Island. The stores
were supermarket size but eclectic, with
50 brands of olive oil, dozens of varieties of olives, cheese, smoked salmon,
imported beer and who knows what
else. It was quintessential New York.
On a per-square-foot basis, the four
Fairways were among the highest-grossing grocery stores in the country.
Howie Glickberg, grandson of the
founder and CEO, was one of three
partners who owned the majority of
Fairway Market. The other two were
ready to cash out. Others in management who held small equity stakes were
also looking for a payday. Glickberg
needed to find a source of liquidity. He
made a deal with Sterling Investment
Partners, a private equity firm.

32

NOVEMBER/DECEMBER 2020

Sterling invested $150 million into
the company in return for an 80%
ownership stake. The majority of that
investment was debt that landed on
Fairway's books. Three Sterling partners joined the Fairway board, and
they hired a new CEO. None of them
had grocery experience.
Sterling had big ambitions for
Fairway, planning to turn it into a
national chain with hundreds of stores
that would compete with Whole
Foods and Trader Joe's.
By 2012, Fairway was up to 12
stores, including some in suburban

| COMPOUNDINGS | ILMA.ORG

New Jersey, where the company's
urban cachet didn't necessarily translate. The expansion eviscerated
company profits while adding millions
in debt to its balance sheet.
To raise cash, Sterling turned to the
public markets in 2013, raising $177
million. More than $80 million went
to pay dividends to Sterling preferred
shareholders, and an additional $7.3
million went to management.
By 2014, Fairway was up to 15
stores. The company was a mess. It
took months for suppliers to get paid.
Scalable processes and systems were


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ILMA Compoundings - November/December 2020

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