* Most jobs saved, to reopen as New Era Orphanides *
Suppliers owed some 85 mln euros by Orphanides Supermarkets, the one-time darling of the Cyprus stock market, are expected to take over most of the operations of the chain and rename it “New Era Orphanides” (NEO) to try to turn it around and recoup their losses within ten years.
The initial rescue plan foresees a 12-month period where the suppliers will have full control over the entire business in order to bring it back to profitability.
In a stock exchange filing, the company, that has been dropped from the CSE Main Market and placed in the Special Category, said that a memorandum of cooperation has been reached between founder and primary shareholder Christos Orphanides on the one hand, and Georgos Georgiou, representing most of the suppliers, on the other.
The deal calls for the suspension of all activities of Orphanides Public Co. and the transfer of “the largest part of its supermarkets” to the new company controlled by the suppliers that will rehire staff and buy the stock.
NEO will pay Orphanides Public or the banks at least 2% of the turnover of each supermarket and 0.1% in royalties and rights, with Christos Orphanides and his company maintaining the right to buy back the debt and the entire business any time after the first year, having already repaid suppliers and the banks, that are owed about 140 mln euros.
Laiki Popular Bank, that carried most of the Orphanides debt on its books, had initially objected to the appointment of UK-based Andreas Andronikou as administrator because of his close ties to Christos Orphanides, and instead urged suppliers to come up with a rescue deal. Press reports suggest that Laiki and other banks have given NEO their blessing.
“We are saving thousands of jobs, ensuring the viability of tens of other companies and providing a new and efficient model with NEO,” Georgiou said in a statement.
He said that the aim is to restart the supermarkets as soon as possible, adding that NEO’s profitability is expected to be satisfactory so as to ensure the repayment of debts well within the ten-year plan.
Georgiou added that an independent consultancy is working on a new business plan and that the new venture will be headed by a 7-man executive team, four of whom will represent the suppliers.
END OF AN ERA
Orphanides Supermarkets accumulated debts of about 235 mln euros after a 26-year journey that saw the founder start with the flagship store in Larnaca and expand to a chain of nearly 30 large and small Express outlets around the island.
Having embarked on a drastic cost-cutting plan a year ago with redundancies and pay cuts, chairman Chris Orphanides blamed banks in mid-December for the demise of his chain, saying that lack of liquidity and strict controls by the Central Bank’s cheque clearing system drained his company of operating funds.
The company shut down 11 stores due to lack of stock supplies, while Orphanides also accepted responsibility for “mistakes of the past”.
The company, that embarked on an aggressive expansion plan in 2007 with the aim of opening smaller Express outlets to beat low-cost rivals Carrefour and Lidl, claims that its property assets alone worth 340 mln euros more than cover the debt.
Some of the 1500 staff who faced layoffs gathered in front of parliament and Laiki head offices in Nicosia to protest the company’s closure, saying they were being thrown on to the street.
Andronikou had said last month that the aim was to find a buyer for the company as soon as possible, prompting the suppliers and the banks to take action for fear of losing their debt.
The public company reported a loss of 17.7 mln euros in the first three quarters of the year.
Another supplier, who has not sold any goods directly to Orphanides for some time, told the Financial Mirror last month that the problem arose from some of the very large properties, such as the 10,000 sq.m. store in Strovolos.
“No one has stores any bigger than 5-6,000 sq.m. nowadays. In both Larnaca and Limassol, Orphanides has upper-floor shop space that customers rarely visit, while the projects cost millions to build.”
He added that the company was “just about surviving” and was using the cash flow from suppliers and borrowing from banks.
“Both Laiki and Bank of Cyprus want to let the company go and are trying to induce the suppliers to take over the administration, while Chris Orphanides will be limited to collecting the rent from the supermarkets in order to pay down his personal debt to the banks.”
“What did they get wrong? Two basic fundamentals of business: they didn’t differentiate themselves from their competitors and they didn’t care about their customers,” explained business rescue consultant Mike McCormac.
“Thinking about differentiation, Lidl is distinctive because of its focus on price. Alfa Mega is distinctive because of its focus on choice and service. What was Orphanides distinctive for? I can’t think of anything that set it apart from its competitors,” he wrote in an article published in the Financial Mirror.
“Thinking about customer service, Lidl excels in offering its customers value. Alfa Mega excels in the way its staff smile and go out of their way to help customers.
“What about Orphanides customer service? I can’t remember seeing any of its staff smile – and they certainly were not coached to help customers. I suspect Orphanides is also unique in having a customer loyalty programme where it rarely communicated with its customers – and certainly made no attempt at personalisation.
“So if you’re planning on buying Orphanides as a turnaround opportunity, focus on creating a differentiated position customers want first. Where is the gap that Lidl and Alfa Mega have missed? Then focus on making the customers the centre of everything you do.”
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