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Jewish World Review June 24, 2002 / 14 Tamuz, 5762

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Consumer Reports

In the book of candy, here's Chapter 11

http://www.NewsAndOpinion.com | OMAHA The person giving me a ride to the airport pointed out some of the buildings in downtown Omaha, including one in which Russell Stover candies used to be sold.

Which brought the conversation around to the subject of candy stores. That big chain of candy stores, I asked -- the ones you see on all the street corners. What are those stores called?

We struggled for a few seconds before we came up with it:

Fannie May.

That was it -- Fannie May candy stores. What a simple and classic way to do business -- set up a little store, sell candy to people, rake in the dough. People love candy. Selling it to them would seem to be gloriously easy. Easier than taking candy from a baby.

I launched into my usual string of dumb questions when pondering a new subject: "Do you think they make the candy in each store?" "How long do you think the candy sits there before it's considered stale?" "Do you think candy stores have mostly regular customers, or mostly impulse buyers coming in from the street?" I was all atwitter about the endless get-rich possibilities of owning a candy store.

And as usual, I was proven completely dim-witted the very next morning when the business pages reported that the Fannie May candy stores -- actually, the parent company (or "beleaguered parent," as the story had it) -- had gone to bankruptcy court. Archibald Candy Corp., which is the beleaguered parent of Fannie May and Fanny Farmer candy stores, had filed for Chapter 11 in Delaware.

Fannie May started with a shop on LaSalle Street in Chicago in 1920. A seemingly foolproof business. It would appear difficult to go broke selling people something they really like.

So what went wrong? How did the candy store on LaSalle Street end up in bankruptcy court in Delaware?

The answer -- according to the business-page reports -- is enough to make you meekly question the King of the Universe mindset of the global conglomerate community. As always, the guys in the boardroom suites seemed to think they knew exactly what they were doing. Bigger, bigger, bigger. But how big can a piece of candy get?

Consider:

Archibald Candy Corp. became the owner of Fannie May because of a strategy devised by Archibald's principal owner, a private equity firm in New York known as Jordan Co. LLC. Jordan Co. LLC, according to the business pages, decided to try to "consolidate the highly fragmented candy-store industry" in the early 1990s, and as a part of that plan purchased a candy store chain known as Sweet Factory.

But Sweet Factory -- the "main culprit," according to the business-page story -- specialized in non-chocolate items such as gummy bears and jelly beans. This -- for reasons you really don't have time to absorb -- was a very bad thing; the competition among non-chocolate candies is said to be cutthroat, and Sweet Factory was forced to file for Chapter 11 late last year.

Which threw the whole Archibald master plan into utter chaos. By growing so big (with the backing of those private New York equity guys, Jordan Co. LLC), the company found itself in significant debt. Most of the debt was said to be in the form of $170 million in bonds (if you have no idea what bond debt means, don't feel bad; neither do I. The concept of bond debt was invented to confuse people like us.).

The interest alone owed on that candy-store bond debt was said to be $19.1 million in 2001. Archibald reportedly lost $41.5 million in fiscal 2001; it's hard to imagine losing even a penny selling candy, so the loss had to be an offshoot of that darned bond debt.

In January, according to Chicago Tribune business reporter Ameet Sachdev, Archibald's "financial crisis worsened . . . when it defaulted on its bonds and missed a key payment on its preferred stock." This led to the Chapter 11 filing, and "an agreement with creditors on a reorganization plan, in which bondholders will swap most of their $170 million in long-term debt for equity in the company."

And that's how the little candy store that started on LaSalle Street in Chicago found itself in bankruptcy court in Delaware.

"That must be a great business, selling candy," I said in downtown Omaha, 24 hours before I knew any of this.

"It really sounds like a lot of fun."

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JWR contributor Bob Greene is a novelist and columnist. His latest book is Once Upon a Town: The Miracle of the North Platte Canteen. (Sales help fund JWR). Comment by clicking here.

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