Citing rising costs it couldn’t pass on to its customers, a major manufacturer of frozen beef burgers with plants in Saskatoon and St. Catharines, Ont. is in receivership.
Burlington, Ont.-based New Food Classics, which supplied private-label burgers and other products to retailers and wholesalers including Loblaw, Wal-Mart and Sysco Canada, filed for creditor protection in mid-January. The company’s CEO Brian Cram and its entire board of directors resigned last week en masse.
The company’s two plants are now closed and its receiver is "hopeful" a buyer can be found to take over the facilities on a turn-key basis rather than liquidate their assets piece by piece.
NFC — which as of Jan. 16 employed 300 people, over half of those at its Saskatoon production plant — blamed its financial straits on the terms of its 12-month fixed-price contracts with its customers, which require it to eat any increases in wholesale beef or energy costs.
"During 2011 the wholesale price of beef has increased by approximately 40 per cent and the price of fossil fuels and electricity have on average increased by five per cent," FTI Consulting, which was approved last week as NFC’s receiver, said in a pre-filing report to Ontario Superior Court in January.
Early last year, NFC shut down its facilities and head office in Calgary and put the buildings up for sale, moving its head office to Burlington and production to Saskatoon and St. Catharines. A sales and procurement office remained in Calgary.
The move to the St. Catharines plant was funded in part with $1 million from the Ontario government through its Rural Economic Development program.
However, the systems at that plant, the former Pinty’s Delicious Foods poultry processing facility, "were not optimized and remained highly inefficient" for several months, on top of required retrofits that ran $10 million over budget, FTI said.
Furthermore, only one staff member moved from Calgary to Burlington, requiring the hiring and training of all new head office staff. A new accounting software package was also introduced, FTI said.
During that turnover in staff and accounting platforms, FTI said, "NFC’s management was unable to fully identify the substantial losses that the company was incurring in 2011 or rectify the situation in a timely manner."
Toronto private equity firm EdgeStone Capital Partners, NFC’s majority shareholder, then told NFC it was "not prepared to invest any additional funds by way of debt or equity," the receiver said.
NFC in mid-February also had to recall almost 4,600 cases of frozen burgers, after a consumer was alleged to have been sickened with E. coli from a burger made at the Saskatoon plant in October last year.
Calgary RTE meat processor packing for Ontario, Nov. 7, 2010