Expansion Blamed as Irvine Market Files for Chapter 11

Irvine Ranch Farmers Market, an upscale grocery chain with 11 stores throughout Southern California, filed for bankruptcy protection Friday.

The Costa Mesa-based company--known for its fancy produce and fresh meats--blamed its problems on an overly rapid expansion.

The petition under Chapter 11 of the U.S. Bankruptcy Code, filed 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. Under Chapter 11, a company continues to operate under existing management while it attempts to work out a plan to pay its creditors.

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

Founder Jon Hubbard, 44, owns 80% of the company. The remainder is held by Kroger Co., a major supermarket company and a creditor.

Yuppie Haven

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

The chain 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.

The filing “will give (the chain) a breathing spell . . . and allow it to reject unprofitable leases and equipment leases and restructure its debt,” Winthrop said.

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 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 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 could not be reached for comment late Friday.

But industry insiders suggested that problems other than overexpansion 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.”