Case Detail

Case Summary

Winn-Dixie Stores in 2005 (A): Cleanup on Aisle 11

Case Number: 5-408-751(A), Year Published: 2008

HBS Number: KEL415

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Authors: James B. Shein; Evan Meagher

Key Concepts

Management, Turnaround, Valuation, Bankruptcy, Winn-Dixie, Blackstone, Huffard, Grocery Stores, Reorganization, Plan of Reorganization, Thirteen-Week Cash Flow Model, Creditors, Priority of Claims, Creditor Recovery Analysis, Substantive Consolidation, Liquidation Analysis, Corporate Entrepreneurship, Entrepreneurial Traits

Abstract

Grocery store chain Winn-Dixie had rapidly expanded in an effort to become a national retailer, and by 1999 it had more than 1,000 stores. The company began manufacturing its own products, reasoning that by owning more of the supply chain, it could offer the customer less expensive options. With its new geographic focus and manufacturing facilities, Winn-Dixie attempted to secure a position as a low-cost provider with a national presence.

Instead of improving the company’s position in the market, however, this strategy crippled both the short- and long-term prospects for Winn-Dixie. The company paid a high premium to expand and increased its leverage without ever realizing the purposed synergies. In fact, there were dis-economies of scale because the distribution, marketing, and administrative costs had risen along with the increased revenue. The expansion and inefficient manufacturing added complexity to its distribution network, and with a greater debt load and less cash, the company was unable to reposition itself in the market when its low-cost provider strategy failed. Not only was the company unable to pursue other opportunities but it also did not have the cash to properly maintain many of its existing stores, which quickly became run down. Winn-Dixie was stuck as a general grocer with few options at a time when the industry was rapidly evolving.

Following faulty strategies of expansion, supply chain changes, and increased debt, Winn-Dixie declared bankruptcy.

Students will take the view that Paul “Flip” Huffard, lead consultant from Blackstone LP, had in determining the valuation and new capital structure of the company. These decisions would be critical, as they affected what each creditor class would receive and whether Winn-Dixie could emerge from bankruptcy.

Learning Objectives

Students will:
  • Assess the importance and negative financial impact of past strategic moves, and suggest possible future strategic directions and the expected benefits of such changes.
  • Learn quantitative valuation methods for a company in Chapter 11 and their effects on stakeholders.
  • Learn the elements of a plan of reorganization, including the capital structure, treatment of multiple creditor groups, and management compensation.
  • Discuss sources and uses of capital during a Chapter 11 turnaround.
  • Number of Pages: 21

    Extended Case Information

    Teaching Areas: Entrepreneurship, Finance, Management, Strategy

    Teaching Note Available: Yes

    Geographic: United States

    Industry: Grocery Store Chain

    Organization Name: Winn-Dixie Stores

    Organization Department: Corporate

    Organization Size: Large

    Decision Maker Position: Investment Banker

    Decision Maker Gender: Male

    Year of Case: 2005