News • February 29 2004

Priceclub was destroying supermarket business
In November of 2000, about six months before the crash of Priceclub, Alf Mizzi's & Sons managing director Alec Mizzi wrote to the Priceclub directors and told them: "your pricing policy is not only resulting in losses for you but has ruined the entire supermarket sector."

This results from evidence presented in court by Mizzi in the court case brought by the liquidator, Dr Andrew Borg Cardona against the Priceclub Directors and owners Victor Zammit, Wallace Fino and Chris Gauci.

The last weeks of the Priceclub's life must have been heady days for its directors, but also for its suppliers, who must have realised they were about to lose money - in some cases lots of it. In the months between March and June of 2001, a flurry of correspondence passed between suppliers and the Priceclub directors. According to evidence given in court the directors continued to claim the company was not in difficulty, despite evidence to the contrary, and suppliers, relying on these statements continued to supply the supermarket giant.

Alec Mizzi, the managing director of Malta's largest importer of foodstuffs, was one that knew something was amiss well before he lost hope of recovering the Lm862,278 that is owed to his companies and in an Alf Mizzi and Sons internal communication dated 28 March 2001 wrote about Priceclub: "They now recognise that the pricing policy they had is unsustainable. Some people learn the hard way!"

But as far back as March of 2000 Mizzi had the first inkling that Priceclub was struggling. On 30 March 2000 Alec Mizzi received an communication from the Commercial Director of the Alf Mizzi group which stated: "Wallace (Fino) called today advising that they cannot give us the cheque due today (I believe that the amount overdue - since it should have been paid on 15 March - is Lm106K). I expressed my disappointment and concern however, I do not think that we can do anything else at this stage."

The amount owing to Alf Mizzi and Sons grew to about Lm700,000 by October of 2000 according to Mizzi's Director responsible for finance and administration, Victor Brockdorff in a communication to Alex Mizzi, also presented in court.

Brockdorff referred to Priceclub's financial controller David Demarco and told Mizzi: "I have just been advised by Mr Demarco that once again they will have to delay their next payment...I said this was not acceptable taking into consideration that they owe us Lm700k plus or minus unsecured and that they should not have more than Lm150,000 of our stock. While he was sympathetic he said that he could not do anything about it."

For Alf Mizzi and sons nothing was to improve and on 28 November 2000 Mizzi wrote to the directors a letter which he was later to describe as 'infamous,' and which brought about a harsh reaction from Victor Zammit, the Priceclub major shareholder and chairman.

In his letter Mizzi said that Priceclub had ruined the entire supermarket sector; and suggested that the solution to the Priceclub's problems was quite straightforward. "Of course you, being by far the largest retailers, must take the lead and start raising prices."

Mizzi had some harsh words for the Priceclub's directors: "Your consolidated balance sheet clearly indicated that your organisation in undercapitalised. Hence the rapid acquisition-led expansion was clearly not financially prudent and has indeed placed the group's survival at risk."

Alec Mizzi had a warning for the Priceclub directors and told them: "We would like to make it clear that this credit will certainly be curtailed, even drastically, if you were to parallel import our brands, or indeed were to but a 'private label' range of your own or were to use our funds for further capital expenditure."

It was clear that Alf Mizzi & Sons felt that its money was being utilised to expand the Priceclub's business rather than being used to repay the supermarket's suppliers.

Mizzi also looked at the accounts of Priceclub and stated: "We have accessed a copy of your 1999 accounts, which are, to say the least, of deep concern, in view of our enormous credit exposure."

The share capital - ie the amount the owners of Priceclub stood to loose if it went bankrupt - was Lm101,000, and Alf Mizzi & Sons was owed Lm700,000 at that time, on its own.

Mizzi recounted to the Priceclub directors how Wallace Fino had requested his company: "to offer enormous discounts in order for you to convert your operating loss into a profit."

Mizzi agreed to offer an additional discount of 1 percent in respect of its frozen and grocery sectors

Victor Zammit's reaction to Mizzi's letter was immediate and accusatory. On 29 November 2000, Zammit wrote to Alec Mizzi and said: "We are seriously annoyed with the substance of the letter which we consider very inappropriate. We are not sure whether you are implying a hidden agenda or whether you are throwing in your weight for an unknown reason."

Referring to Priceclub's accounts Zammit wrote: "Regarding the copy of our 1999 accounts, we do not want to discuss an issue - that is purely internal - with third parties. Hence we believe it is grossly unethical on your part to mention such a very delicate and sensitive matter."

Zammit insisted that Mizzi's company should offer higher discounts: "You are wrong to assume that we are asking for discounts in order to convert our operations into profit. What been asking all through was (and still is) that our suppliers should modernise their approach to businesses like ours. You know that it is the practice overseas that big retailers go direct to the manufacturer for all their requirements."

The Priceclub major shareholder insisted his company should continue to expand: "We cannot accept your 'veiled threats' if we were to try and do something to improve our margins. Hence we can never stop our expansion programmes - whatever they are - because you ask us to do so."

While Mizzi had claimed its debtor Priceclub (Operators Ltd) "does not even own its various stores," Zammit rebutted: "you are absolutely incorrect when you say that your debtor Priceclub does not own its own stores. For your information our immovable property is one of the strongest assets of our company."

Liquidator Dr Andrew Borg Cardona was later to point out in court that: "Priceclub Operators Ltd had no immovable property in its name."

Victor Zammit was very confident of Priceclub's strategy and rejected outright Mizzi's idea of pushing up its prices: "Can you imagine going to the Office of Fair Competition with your suggestion to increase our margins to the detriment of the customer? We can assure you that we are fully geared up to meet our challenging of the not-so-distant future."

Zammit continued: "Hence you can put your mind at rest that we know our business very well and we know exactly where we are going. You will be surprised how strong are the foundations that we are laying for our future programmes."

The surprise a few months later was what Mizzi feared most and the Priceclub folded with debts of nearly Lm10 million.