Dive Brief:

• A Moody’s report suggests The Fresh Market's pricing investments have failed to drive store traffic and that same-store sales are expected to decline for the remainder of the year. "Fresh Market's operating performance for the last 12 months has been far below our expectations, and we do not expect credit metrics to improve to levels consistent with the current rating in the next 12 months," Moody’s VP Mickey Chadha wrote, according to Supermarket News.
• Moody’s has downgraded The Fresh Market’s corporate family credit rating to Caa1 (very high credit risk) from its previous B3 rating, citing a negative outlook for the specialty grocery chain, the supermarket publication said. The investment firm also downgraded the rating on the company's $100 million revolving credit facility to B1 from Ba3, and lowered the rating of its $800 million senior secured notes to Caa1 from B3.
• The analyst further indicated it would be difficult for The Fresh Market to “meaningfully improve profitability” amid increasing pricing pressure and new store openings in the retailer’s operating areas, with particular pressure coming from the Amazon-Whole Foods acquisition.

Dive Insight:

The Fresh Market was once a retail darling on a high growth trajectory. Now, the small-box specialty grocer is running into problems, as lower prices and performance improvements from the company’s recent investment in store remodels have been elusive.

The Fresh Market, which was acquired by Apollo Global Management early last year, began its remodels last October, and is slowly spreading them across the chain. At the same time, the company is closing poor performing stores situated in highly competitive areas. Earlier this year, The Fresh Market closed five stores. Last year, it closed 18, including all of its locations in Texas, Missouri, Iowa and Kansas.

One of The Fresh Market’s biggest problems, according to industry observers, is that it has too many stores and is spread too thin. The Greenville, North Carolina-based retailer lacks any real store density outside the Carolinas, making it hard to obtain any operational efficiency or scalar economies with just one or two store locations scattered throughout many markets.

During the boom years that also saw Whole Foods rapidly grow its footprint, The Fresh Market built more than 150 stores across two dozen states. As mainstream grocers such as Kroger and even Walmart began to offer competitively priced natural and organic products, The Fresh Market saw its market share erode. The recent Amazon-Whole Foods combination just exacerbates matters and is viewed as yet another threat to The Fresh Market’s long-term survival.

But even its home territory isn't safe. The southeast region has become a hotbed of activity. German discounter Lidl has grabbed headlines lately, but other notable chains are making inroads as well, including Publix, Wegmans and Sprouts Farmers Market. Just last month, retail veteran Larry Appel was named The Fresh Market’s new CEO. The outstanding question is: Should Appel stay the course established by his predecessor or blaze a new trail?

It was about two years ago when the company announced it was conducting a “strategic and financial review” of the business. It's been a wild ride for The Fresh Market since then, and with access to capital now limited due to the recent downgrade, the future doesn't look particularly promising for once fast-growing and popular grocer.