The woes of the Mega supermarket chain and its parent company Alon Blue Square worsened Tuesday as major suppliers said they would suspend deliveries to the group’s other retail arms including grocers AM:PM and Eden Teva Market.
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But Mega, which saw many of its suppliers cut off deliveries this week, may be getting some relief as it tries to reschedule its debts with suppliers and banks and continue to operate. Sources said Antitrust Commissioner David Gilo would probably let the suppliers negotiate as a group, easing the way to a debt agreement.
Alon Blue Square turned to the courts Monday with a petition to call a creditor meeting over a debt-relief plan. Mega, Israel’s second-largest supermarket chain, owes suppliers 705 million shekels ($187 million). It owes banks another 538 million.
But legal experts said the petition meant Alon and Mega could suspend payments until the court held a hearing. As a result, Israel’s biggest food companies would not continue supplying Alon subsidiaries.
The list includes Strauss Group, Temp and Osem as well as importers of cigarettes and food products.
The news sent Blue Square shares down 1.4% Tuesday to 8.97 shekels. Over the last seven trading sessions, as Mega’s troubles mounted, the Tel-Aviv listed stock had dropped more than 17%.
Besides AM:PM and Eden Teva Market, Alon operates Alonit convenience stores at its nationwide network of Alon filling stations. Alon Blue Square owns AM:PM and Alonit outright and 51% of Eden Teva Market, which sells organic and natural foods. But all three retailers make their purchases through Mega or were to begin to, putting the suppliers at risk of never seeing their money.
“I don’t think we’ll be supplying Mega for at least the coming week, which will create a shortage at its stores,” said one food executive who asked not to be named. “I don’t think Mega will collapse, but we have a situation in which suppliers aren’t ready to continue deliveries of merchandise without getting assurances from the owners that they’ll be paid.”
The executive said Alon Blue Square would have to contribute money to the chain’s rescue plan, whose terms were agreed on with unions last week. Besides closing stores and firing employees, it calls for Alon to provide a 120-million-shekel credit line to Mega.
Gilo’s likely decision to remove antitrust obstacles to debt talks is based on the assumption that without the negotiations Mega could fail. Under this thinking, suppliers would almost certainly demand immediate payment, risking Mega’s ability to survive and removing a major competitor.
The talks with suppliers would be conducted through the manufactures and farmers associations.
But Mega is likely to face tough terms from suppliers. Shraga Brosh, the chairman of the Manufacturers Association, said Alon Blue Square would have to put up money to assure Mega’s survival.
“As suppliers we will help as much as possible,” he said. “But that will only be after the owners do what’s required of them and inject cash.”