"Mom, how did stores look under socialism?"
"I’ll take you to Familia and you’ll see."

Just a few weeks ago, this joke would not have looked out of place. Sausages looked lonely on store shelves and a tired, but candid, shopkeeper said: "We have no blue cheese. Nor white cheese. We did not pay, so we get no deliveries."

The situation is changing, little by little, as stores are filling up and could soon resemble a regular supermarket. The reason is that the chain once again has a new owner, who is promising to rebuild the business and develop it. It is a deja vu situation because it is happening for the third time since the chain was created nine years ago.

Urgent sale
The seller this time is Dilyan Popov, who bought the retailer in 2007 through his company Nova Familia 2007 from investment fund Equest. Already at that time, the chain was in dire straits, sporting empty stores, debts to suppliers and a bad image because of the limited choice of stock in its stores. Nor was it the first time that the retailer found itself in a difficult situation.

Over the past two years, Popov has been developing the chain and even managed to right the ship. To highlight the ownership change, he renamed it Nova Familia, although the new name did not catch on with consumers.

In the past several months, however, business has once again been bad. Yet again, suppliers stopped receiving payment and the company’s debts began rising – payments were made only when there was no other choice, sources familiar with the situation said.

Popov said: "I bought the company with a lot of debt. The rate at which debts rose was higher than we anticipated. Suppliers said that they would discontinue deliveries unless we paid. At the same time, we were also expanding; that is how we got into cash flow problems."

Familia became the victim of a vicious circle: there was no money to pay suppliers, who in turn refused to make deliveries because they were not getting their money. Paying one supplier only increased debt to another. It coincided with the economic downturn and its effects – declining household consumption and the abrupt disappearance of cash flow loans from banks.

As a result, at the worst of times, the average daily turnover of Familia stores fell below 20 000 leva, according to Hristo Lachev, who advised on the deal. To compare, when business was good in 2008, the daily turnover was about 80 000 leva.

The retailer’s owner had to solve the debt problem urgently. The solution was to look for an outside investor or a new shareholder. The deal was sealed at the start of October, but talks have been ongoing since July 2009. During those months, three or four potential buyers have shown interest in the retailers, sources close to the situation said.

The buyers
The new owners of the Familia chain are Emil Marinov and Evgeni Stamov who are also partners in one of the biggest tobacco products distribution companies in Bulgaria, Tabak Trading Partner. The chain will be owned by their joint venture, Elis 2005, which is now being re-registered, Marinov told Kapital.

The new owners were among the largest creditors of Familia in recent months, whom the chain owed large amounts of money. The deal came about after the old and new owners began seeking a solution to the debt problem.

Familia has extensive debts to most of its suppliers, or about 300 companies. In mid-2009, the chain owed about 2.5 million leva, and that is without taking into account about one million leva owed from the previous change of ownership in 2007. Following the sale, the debts are expected to be gradually paid off.

The payment
The deal is a complex one, with Elis 2005 buying not only the retail chain, but the brand, business and 16 outlets from Familia, which are now being rented. The retailer’s current debt stays with Pipov’s firm Nova Familia 2007.

Elis 2005 is being re-registered and once the process is over, the firm’s management will own 10 per cent. The rest will be evenly split between Marinov and Stamov, Lachev said.

The deal will cost the new ownership 3.5 million leva, of which 2.5 million leva will be paid to the seller for the assets, brand and the stock in the stores. The money will be used to pay Familia’s debts. The remaining one million leva will be spent on new stock from suppliers.

What happens to the debt? To re-sign with suppliers, the new ownership offered suppliers a scheme to which most have agreed, Lachev said. About half the debt would be paid off now, using the funds paid by the new shareholders and the rest will be re-scheduled. Popov, who will stay on as a manager with the retailer and will receive a share of its profit, will have to pay the rest at a later date.

Only a few suppliers have refused the offer, Marinov said. "In five or six months they will see that the company is stable and will want to come back," he said. Suppliers were equally optimistic. "The owners have offered us an acceptable scheme, we have resumed business and have a good impression," the owner of processed meat products firm Tandem, Kiril Vutev, said.

The plans
The new owners have ambitious plans for future development. "We have experience in retail. This is a new challenge for us and we want to succeed," Marinov said. The first change has been in the relationship with the suppliers, who make their deliveries and get paid right away.

This cash and carry scheme at a time of crisis works out for both sides – suppliers and importers get their money on the spot and can rest assured that they will not end up as creditors once again, while the chain profits because it can ask for better prices from suppliers and get a higher margin of profit, Lachev said. The new owners hope that the approach will work to fill the empty store shelves by the end of the month.

The new ownership is now probing the market and drafting a medium-term strategy for Familia’s future. A name change is being discussed, although that outcome appears unlikely.

Familia will target the middle and higher end of the market, although that will depend on the store location. No new stores will be opened this year, but within the next year-and-a-half, the number of outlets is envisioned to reach between 25 and 30. Should the chain’s repositioning yield the results sought, expansion outside Sofia will be pursued.

Even after the sale, potential investors remain interested in the company. "We do not look to sell now. If the business is good, why sell it?" Marinov said.

The conclusion
If it was the first time that Familia was undergoing major change, the plans for its future would have sounded encouraging. Except that Familia comes with heavy baggage – three times in the past, the chain’s stores had been emptied, resulting in irascible cashiers and disappointed customers, as well as debts of millions of leva. Each crisis was followed by
an ownership change, which brought optimistic and ambitious plans for a new start and future development.

Until now, the result has inevitably been the same, yielding financial losses both for the owners and the companies that ended up as Familia’s creditors. Lack of success has been caused by a combination of factors: unreasonable expansion, poor cash flow estimations, badly-calculated risk and management mistakes. The new owners face another challenge – the economic downturn.

The prerequisite for Familia’s situation improving is once again present – new owners with the necessary drive to prove themselves as good managers. The next moves are also clear – winning back the trust of the retailer’s suppliers and customers, developing the chain’s potential. Otherwise, it better change the name to Deja Vu.

Kapital weekly, issue 44