On a recent visit to Fairway Market’s flagship store on Manhattan’s Upper West Side, I indulged in one of the specialty grocer’s prepared goodies: a Belgian chocolate mousse. I can report that it was delicious, which is more than investors can say about the grocery chain’s shares. The company went public last year at $13 per share and saw its shares soar as high as $28, but last month they could be bought more cheaply than the dessert, which costs $2.69 for a 3.5-ounce container.

With the slogan “Like No Other Market,” Fairway Market is a quintessential New York City grocery store. The aisles of its Manhattan shops are crowded, the shelves overflow with goods, the stacks of produce are like works of art and celebrities rub shoulders with hoi polloi. On a rainy night a couple of years ago, the actress Frances McDormand held the door for me. The store caters both to refined urban palates and to budgets strained by high rent. Ivan Feinseth, chief investment officer and head of the research group at Tigress Financial Partners, a boutique investment bank in New York, says he once saw a boneless jamón ibérico from Spain there for only $200, a bargain compared with prices elsewhere.

Fairway Group Holdings Corp. went public with the ambition of transforming this New York institution into a retailing powerhouse across the Northeastern U.S. by opening three to four new stores a year. But the 81-year-old company hasn’t turned a profit since it made its initial public offering in April 2013, and expansion of the chain, which operates 15 stores in the Greater New York City area, is on hold until further notice. “Fairway had very difficult business plan to execute, and they didn’t execute it well,” says Feinseth.

The Nasdaq-listed shares, which dipped as low as $2.12 last month, have bounced back in recent days and traded at $3.53 on December 1. The market may be expressing hope that Jack Murphy, a retailing veteran who was announced as the new CEO on September 18, can turn things around.

In a meet-and-greet with industry analysts at Fairway’s Upper West Side location the week before Thanksgiving, Murphy said he would have some new plans for existing stores, hinting that there would be more details by the release of the next quarterly earnings report in early 2015. In a highly competitive business, Fairway has to figure out how to lure market share from competitors such as national speciality chains Whole Foods Market and Trader Joe’s and New York–area grocery delivery service FreshDirect.

“Fairway is differentiated on produce and outstanding on deli products, cheeses and olive oils. But I think they need to execute their presentation a little better,” says Mark Wiltamuth, managing director of equity research at Jefferies in New York. He expects to see some new approaches to merchandise and pricing under a new chief merchandising officer, Dorothy Carlow, who started November 3 after Murphy brought her in. There might also be a plan to trim merchandise-sourcing costs and a new advertising campaign that would seek to align the Fairway brand with a New York sort of edginess.

Translating a decidedly urban vibe into one that appeals to a suburban clientele has turned out to be a difficult plan to execute, however. Never mind the ambitious plan that Charles Santoro, Fairway’s chairman and a partner in the Westport, Connecticut, private equity firm Sterling Investment Partners, which has been a general partner in the company since 2007, described in a quarterly earnings conference call in June 2013. “Our broader surrounding market, from Boston to Washington, D.C., represents some 65 million people and approximately one quarter of all U.S. GDP,” he said. “We believe we can successfully operate at least 90 stores in the Northeast alone.”

Part of Fairway’s difficulty in expanding its footprint is simply its competition. In October Chicago-headquartered commercial real estate firm Jones Lang LaSalle released a report showing that so-called fresh format stores such as Fairway and Whole Foods, which specialize in fresh products, are on track to increase their store count across the country by 62.8 percent between 2013 and 2018. That’s a lot of competition from the chains that already have national name recognition.

Another obstacle to growth has been the cost of acquiring new stores. During the company’s early days as a public company, Fairway seemed to be getting a handle on these costs, spending $13.5 million to $15 million in 2013 on construction and preopening expenses for new suburban locations, compared with $20 million in early 2009 for its first suburban store, in Paramus, New Jersey. But rising rents canceled out some of those savings. In the company’s second-quarter earnings call on November 6, Edward Arditte, Fairway’s co-president and chief financial officer, said that gross margin for the quarter had declined 1.8 percent from the same period a year earlier. He attributed the drop to approximately 0.5 percent higher occupancy costs “due to increased rent at some of our existing locations and higher occupancy cost as a percentage of sales at our new locations as they ramp up to a higher level of sales over time.”

There is also an executive compensation issue. Fairway, which has a market cap of about $169 million, paid its directors $12.1 million in 2013. The company’s proxy statement filed on June 26, 2014, shows that Santoro received $5.4 million in total compensation last year, including a $75,000 fee plus stock awards and stock options. Four other directors received a total of close to $6.6 million.” This level of director compensation is significant for a company of this size, says Charles Elson, a professor of finance at the University of Delaware and director of its John L. Weinberg Center for Corporate Governance. “An income stream like that links the directors with management or controlling shareholders in a way that’s problematic,” says Elson. For comparison, Whole Foods co-CEO and director Walter Robb made about $3.25 million that year, and co-founder and co-CEO John Mackey claims a $1 annual salary.

None of these expansion headaches were anything a New Yorker named Nathan Glickberg foresaw when he started Fairway as a small neighborhood market in 1933. Back then, it was strictly a mom-and-pop store. Two subsequent generations of Glickbergs kept it a family-owned business for nearly eight decades. Nathan’s great-grandson, Howard (“Howie”) Glickberg, expanded the flagship store in the 1990s and built a second store in Harlem before the area began to gentrify. Howie brought in two partners, Harold Seybert and David Sneddon, who upon their retirement in 2007 sold their stakes to Sterling Investment Partners for a reported $150 million. It was in the years immediately following Sterling’s entry that the company’s ambitions grew to include a push for new stores and, ultimately, a public listing. Howie Glickberg remained the CEO and his son, Dan Glickberg, became the store’s media personality, performing cooking demonstrations on NBC in 2011–’12 with Fairway’s chef and in 2012–’13 co-hosting two shows about food shopping and gastronomy on WOR radio in New York.

Then came a wave of turnovers at the top. In January 2012 Howie Glickberg abruptly stepped down as CEO, and Herbert Ruetsch took over. Ruetsch, a certified public accountant, had worked at the now-defunct Grand Union supermarket chain and then as CFO at Fairway. He saw the company through its initial public offering, then in February 2014 the company announced Ruetsch was retiring. William Sanford, previously the president, became interim CEO until the board brought in Murphy in September. Howie Glickberg remains at Fairway with the title of vice chairman of development. Dan departed in April 2013, just before the company went public, starting Dan Glickberg Food, a venture capital and consulting business.

“Having nine months of an interim CEO was not helpful,” says Wiltamuth. “But now they have real grocery leader with Jack Murphy.”

Murphy, who declined to comment for this article, was CEO of the organic and natural food retailer Earth Fare, based near Asheville, North Carolina, for seven years before his new appointment. Previously he had co-founded another organic food retailer, Fresh Fields, based in Rockville, Maryland, which he later sold to Whole Foods, and then went on to spend seven years as an operating partner at McCown De Leeuw & Co., a private equity firm that ran 24 Hour Fitness, a health club chain, which he took international before selling it in 2004.

Feinseth says a turnaround is going to be difficult, however. He thinks the best hope might be a takeover by another high-end retail food chain in search of expansion opportunities. And now the company is in the hands of a CEO who has experience with building retail brands and selling them.

If Fairway does end up for sale, the buyer should hope the store’s recipe for Belgian chocolate mousse is part of the deal.

Follow Jan Alexander on Twitter at @jananyc.

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