Return to Price-Conscious Marketing Planned : Liquor Barn Files for Chapter 11

The Liquor Barn chain has filed for protection from creditors to reorganize under Chapter 11 of the bankruptcy code and plans to return to the original price-conscious marketing that made it the nation’s largest liquor retailer.

The filing in federal court in Oakland is designed to give executives at the troubled chain time to develop and seek court approval for a new financial plan. The court Wednesday approved a $12-million line of credit from Security Pacific, a reserve designed to enable the chain to maintain operations, said C. John Thompson, head of Liquor Barn.

Thompson, who joined the company in July and became president two weeks ago, said he does not plan to close any of the chain’s 78 stores in California or lay off any of its 1,000 employees. The chain sold its only stores outside the state--16 in Arizona--earlier this year.

The filing Tuesday ends weeks of speculation about the health of San Leandro, Calif.-based Liquor Barn, rumors born in the wake of management changes and, more recently, an increase in empty shelf space at some Liquor Barn stores.

Questions about the viability of Liquor Barn were first raised after Majestic Wine, a British wine retailer, bought it from Safeway 14 months ago. Majestic recently lost controlling interest when a group of American and British financial institutions acquired 66% of the chain.

The financial problems began last year when Majestic’s managers set out to replace Safeway’s no-frills approach with a more upscale approach, according to Thompson. Under Majestic, service was increased and the selection was reduced.

“I think that the company was moving toward a more upscale marketing and that turned out to be a fairly costly process,” Thompson said. “Originally, we confused our customer base and we lost some customer sales.”

Thompson said the chain would revert to Safeway’s approach of marketing.

“The Liquor Barn that our customers are used to is the type of operation we intend to run: broad selection and best price,” Thompson said.

Majestic managers also blundered because they did not understand the trendiness of the California beverage market, according to Steven Boone, who managed the Liquor Barn chain for Safeway.

“The California market is heavily influenced by what’s hot in the industry,” said Boone, now president of Cost Plus, the Oakland-based specialty retailer of home furnishings. “Liquor Barn customers are in tune with what is in fashion in wine. . . . They (Majestic) replaced a lot of popular California wines with European wines.”

However, Boone said, Majestic also miscalculated by paying too much for the chain. Majestic reportedly paid about $110 million--about $90 million financed with loans and other debt instruments--for Liquor Barn.

Paul Gillette, publisher of the Los Angeles-based newsletter California Beverage Hotline, also said the cost--particularly the debt from the buyout--created financial strains for Majestic.

“Their first mistake was paying more for the chain than it was worth,” Gillette said. “Turning the chain into wine specialty stores wasn’t necessarily a mistake. They just didn’t handle it well. They didn’t promote the changes. No one was there to explain to the press what was going on. . . . They (Majestic) were like Baby Huey. They came waddling into the market very clumsily and they didn’t do anything right.”

The cost of running the operation was probably another major factor, according to John Frederikson, a San Francisco-based wine economist. Frederikson said Safeway could operate the chain less expensively because it had greater warehouse capacity--enabling it to get better volume-based discounts--and a large trucking fleet. Also, Safeway, other major food chains and drugstore chains have also taken sales from Liquor Barn, Frederikson said.

“Safeway took a stand after selling Liquor Barn and established their own glamorous wine shops,” he said. “They set up mini-Liquor Barns and told the consumer, ‘Why go to Liquor Barn when you can get it at Safeway?’ ”

Increased competition is leading to consolidation in liquor retailing, said Max Kerstein, publisher of the Beverly Hills-based Beverage Bulletin. Specialty stores--even chains specializing in products--have not been able to compete with larger food and drugstore chains, he said.

“Retailing is falling into the hands of the mega-giants,” Kerstein said. “I think it (Liquor Barn) is salvageable if they recapture the former identity.”