Irvine Ranch Market Files for Bankruptcy : Grocery Chain to Stay Open While Reorganizing

Irvine Ranch Farmers Market, an upscale grocery chain with 11 stores throughout Southern California, filed Friday for protection from its creditors under federal bankruptcy laws.

The Costa Mesa-based company--known for its fancy produce and fresh meats--blamed an overly rapid expansion for its problems. The chain’s stores will remain open as it reorganizes its debts.

Documents filed late Friday in U.S. Bankruptcy Court in Santa Ana listed liabilities of $17.5 million owed to more than 200 creditors, including vendors, lessors and institutional lenders.

Since 1968, Irvine Ranch has expanded from an 8-by-12-foot plywood shed along a rural road in Orange County to a dozen gourmet markets scattered from Northridge to San Diego.

Founder Jon Hubbard, 44,--who started selling groceries as a youngster--owns 80% of the company. The remainder is held by Kroger Co., a major supermarket company and a creditor.

Irvine Ranch’s attorney, Marc J. Winthrop, said Irvine Ranch’s gourmet specialty stores “have almost uniformly been successful.” He traced the bankruptcy to “very high start-up costs from an aggressive expansion program.”

Beverly Center Most Successful

The chain now has three stores in Los Angeles, seven in Orange County, one in San Diego and one in Texas. The flagship is a $4-million, 63,000-square-foot store in the Fashion Island shopping mall in Newport Beach. But the most successful is the Beverly Center store in Beverly Hills, which has become a kind of yuppie haven for those with disposable income and tastes ranging from fresh tarragon sprigs to chicken teriyaki.

Winthrop said the markets will continue to operate as the company undergoes reorganization. The filing “will give (the chain) a breathing spell . . . and allow it to reject unprofitable leases and equipment leases and restructure its debt,” he said.

Winthrop acknowledged that it is far too early to tell whether creditors will receive full payment for Irvine Ranch’s outstanding debts.

The court papers filed Friday do not list the amount of Irvine Ranch’s assets. Winthrop said those figures would be supplied within 30 days.

The filing came as no surprise to Irvine Ranch’s creditors, who began seeing signs of financial strain as early as two years ago.

The Bagel Place in Santa Ana, for instance, quit doing business with Irvine Ranch in 1986 because of the company’s poor payment record. “They don’t pay their bills,” said Fred Walger, the Bagel Place’s chief financial officer.

According to Walger, the chain at first “strung us along” for 60 days before paying, then gradually stopped paying altogether.

Four to five months ago, Irvine Ranch canceled its advertising on KABC radio and in small regional newspapers. At about the same time, some personnel were laid off, while other employees found their workloads doubled as positions were consolidated.

Five Lawsuits Filed

Five lawsuits have been filed in Orange County Superior Court by creditors, listing a total of $1.3 million in unpaid debts, interest and penalties.

Winthrop said Irvine Ranch also is behind in its rent at virtually all locations.

Irvine Ranch is not affiliated with the Irvine Co., a major Orange County developer. In fact, the Irvine Co. has sued the grocery chain for more than $322,200 in maintenance charges, utility charges and other costs associated with the Irvine Ranch stores at Fashion Island and Walnut Village Center in Irvine. Both centers are owned by the Irvine Co., which recently negotiated a repayment schedule with Irvine Ranch.

In a prepared statement Friday, Richard Sims, president of the Irvine Co.’s Investment Properties Group, praised the Irvine Ranch concept. “It is our expectation that both stores will remain open and there will be no disruption of service to customers,” Sims said.

The bankruptcy filing lists Kroger, the chain’s 20% owner, as its major creditor, with about $5 million in unsecured debt.

Far West Commercial Credit is the major secured creditor, with $1.2 million in debt. Citicorp is another major secured creditor, holding obligations of about $600,000 for leased equipment such as cold storage lockers and delicatessen cases.

Hubbard Not Reached

Hubbard could not be reached for comment late Friday.

But industry insiders suggested that problems other than over-expansion contributed to the chain’s woes.

“They’ve got some good locations and some dogs,” said one retail expert. “But their stores also required a lot of service, where it’s hard to supervise what’s happening. When everything is packaged and goes out the door, you can keep much closer supervision (on inventory control) than when you’re chopping up salads all the time.”

The chain’s salad bars and deli counters offer far greater profit margins than the average Ralphs, Vons, or Hughes. But these products have found their way into more conventional supermarkets as well.

“It’s a difficult business,” said one retailer. “And there are a lot of good markets around.”