Historic food brand explains Chapter 11 bankruptcy, outlines next steps

Sometimes a single catastrophic event can lead to an unexpected disaster.

In business, a company can operate profitably for decades and then something happens that puts the company's future in doubt. It might be a lawsuit or an unfortunate bet on a big product that fails to deliver.

Related: Why a huge food and grocery brand filed Chapter 11 bankruptcy

Blackberry, for example, allowed Apple to take over the smartphone market by not introducing a new model of its famed phone for multiple years. It may be hard to imagine now, but during one period having a Blackberry was a status symbol. But complacency, or perhaps incompetence, ended those days and devastated the company.

Freirich Foods, which was founded in 1921, has been a success story for most of its 103 years. The company grew from its original base in Long Island City, N.Y., into a major player that partners with brands including BJ's Wholesale Club,  (BJ)  Giant, Price Chopper and Fresh Market up and down the East Coast. 

It has been a family affair, with multiple generations being part of the business.

"The Freirich family prides itself on innovation and bringing new products to the marketplace – while still maintaining decades of traditional know-how and flavor," the company says on its website. "One example: Freirich is the only major deli meat processor that produces dry open-oven roasted products, just the way one would prepare them at home – given the time."

Now, the storied brand has filed for Chapter 11 bankruptcy protection. In an email to its business partners, CEO Paul Bardinas explained what happened and outlined what's next for the company.

Freirich bankruptcy due to one terrible event

Freirich filed for Chapter 11 bankruptcy on March 20. The company was pushed to make that decision due to one unexpected catastrophic event.

"Our Chapter 11 filing was a result of a large one-time financial loss ($7,000,000) due to the mishandling of 1.2 million pounds [of] our product by a third-party cold-storage facility," Bardinas wrote. "This significant loss, which we are seeking to recover, left us with little choice but to seek the court's protection to safeguard our business, employees, and business partners as we proceed with that effort." 

On the bankruptcy form companies must fill out when they file for Chapter 11 protection, Freirich checked off a debt range of $10 million to $50 million. The CEO wanted to make clear that its actual debt was in the low end of that range.

"Our debt has never exceeded $10.5 million, and, in fact, for most of every year we would operate debt-free. We only tapped our credit line in the first quarter to fund our St. Patrick's Day production," he explained.

The timing of the company's product loss was a major part of why it had to file for bankruptcy.

"Unfortunately, this loss did occur at the worst possible time, when we did borrow a significant amount of money to finance our St. Patrick’s Day retail corned beef operations and inventory, and it affected a significant portion of that corned beef," Bardinas added.

What's next for Freirich Foods?

Bardinas' letter to business partners tried to paint a bright future for the company. 

Today, Freirich Foods, Inc. is taking the extraordinary step of filing for voluntary Chapter 11 protection under the U.S. Bankruptcy Code. This was not an easy decision for our company, and was made only after careful consideration of its implications for our employees, business partners, and financial stakeholders.

The company, a family-owned small business that has operated successfully since 1921, employs one-hundred people and was, until very recently, solvent and profitable. We deeply value our employees, vendors, and customers, and have always strived to build a reputation for quality, reliability, and integrity.

He explained the product loss and how that forced the company to file for Chapter 11 bankruptcy. He also shared what that process will look like for the company.

"Bankruptcy protection will enable our company to safeguard our business, employees, customers, and partners while we seek to recover our financial loss and propose a plan to restructure our debt, renegotiate contracts, and streamline the company in order to emerge from this process with a much stronger balance sheet," he wrote.

The CEO also reassured his company's partners that the company expected to make it through the bankruptcy process and continue to operate.

"Please know that Freirich Foods is still in business and we plan to fill orders, pay critical vendors, and provide the quality, reliability, and integrity we've worked so hard to provide to you in the past," the executive wrote. "We are continuing normal business operations under the same management team and your contacts will remain the same."