Allen's started 92 years ago Family has long record of generous support for local causes
By Lynn R. Parks
As Chick Allen describes it, the company that was founded more than 90 years ago by his grandparents has been driven into bankruptcy by a perfect storm: a confluence of events in the financial and agricultural worlds that created a situation from which Allen Family Foods could not recover.
"I'm angry," said Allen, during an interview in his Seaford home on Monday. "I'm very angry, at the fact that things happened that we couldn't do anything about. I'm not sure who I want to be angry at, but I'm angry."
And he's worried, about the 2,500 Allen Family Foods employees and 450 poultry farmers whose livelihoods are in question and about the philanthropic efforts that the Allen family has been able to support. "We have supported some important causes," he said. "The hospital, the Seaford Museum, schools" – Allen has handed out more than $200,000 in scholarships to graduating seniors of Seaford, Laurel and Woodbridge high schools – "the Soroptimist Club, the Cheer Center in Georgetown and the University of Delaware."
"For the potential loss of all of that, I'm angry," he added.
"The Allen family has been an integral part of our hospital," said Steve Rose, CEO of Nanticoke Health Services in Seaford. "Their philanthropic support has been tremendous over the years. They have been a major force in the success of this hospital."
Like Allen, Rose also lamented the potential loss of jobs in the area with the bankruptcy of Allen Family Foods. "It's going to be a tough transition for everybody," he said. "We are all very hopeful that all of the jobs can be saved."
As negotiations progress through Bankruptcy Court to determine who will acquire the assets of Allen Family Foods, Allen said that he would like some assurance that whoever the successful bidder is, it hires as many current Allen Family Foods employees as it can, and uses as many growers as it can.
"I would also like a lot of assurance that whoever the buyer may be, it will take care of the employees and growers as we did," he added. "I think about the growers and the employees. I know their names. I can see their faces. I know their families. They are some very wonderful people and I worry about them."
A perfect storm
Part one of the storm to hit Allen Family Foods, Allen said, was the federal government's support of using corn for the gasoline substitute ethanol. About 40 percent of all the corn grown in the U.S. goes into making ethanol and that means that the price of corn for feed has skyrocketed.
"Two years ago, we thought that $2.85 or $3 a bushel was a high price for corn," Allen said. Now, it is selling for $8 a bushel, $9 when transportation is figured in.
At the same time, chicken prices have remained stable. "The sad truth is that every time you take a broiler to market, you are losing money on it," said Keith Cooper, senior managing director with FTI Consulting in Atlanta, Ga., and the chief restructuring officer for Allen Family Foods, helping to guide it through the bankruptcy proceedings.
"That combination was devastating for us," said Allen.
And then came the financial crisis in 2009, and the resulting credit crunch. As a privately-held company, Allen Family Foods couldn't sell stock to raise capital. It had to rely on loans from banks to get it through its tough time.
"Just as we were getting into trouble, our bank [nearly] took away our large line of credit," Allen said.
Wilmington Trust, which was facing difficulties of its own and which was recently purchased by M&T Bank based in Buffalo, N.Y., gradually cut the company's line of credit by 90 percent in 2009 and 2010. "It was death by 1,000 cuts," Allen said.
Allen declined to say how much the line of credit had been. "But it was substantial," he said. Allen Family Foods currently owes M&T Bank $520,000, Cooper said.
"In the 40 years that I've been in this business, I've seen too many times like this," Allen said. "But we always had good banks behind us. This time, we just ran out of money.
"If we still had the line of credit that we used to have, we would be in a very different scenario."
Allen compares his company's position to that of a person who has an expensive sports car worth lots of money but no cash with which to buy gas. "We have positive equity in our company," he said. The property and facilities that Allen Family Foods owns are worth more than its $83 million in debt, he added.
"But we don't have any money in our pocket," he said. "You can't run a business if you don't have any money."
No second guessing
Allen, who retired as Allen Family Foods president and CEO in 2009, said that people should not read anything into that and the company's recent troubles.
"We have a great team that has worked very hard," he said. "They were doing a good job and doing everything they could do to help the company."
He also said that company did not make a mistake when it constructed a large feed mill just north of Seaford in 2008. The mill will be part of the assets that are sold.
"We were not overreaching," Allen said. "Building that mill was all part of our three- and five-year plans. We needed a new mill and it was the right thing to do, in the right place and at the right time."
The company also did not make a mistake several years ago when it sold off its farmland, he said. Even with those fields producing corn, the company would still have had to buy feed. The corn that those fields could produce every year was enough to feed Allen Family Foods' chickens for only two weeks, he said.
Allen does lament the fact that the state of Delaware was not able to help the company stave off bankruptcy. "Our state has a mechanism to attract new jobs here," he said. "But it doesn't have any kind of way to keep them here once they are here. I think that this situation has our legislators thinking about ways to fix that."
Allen said that he has been thinking about his grandparents, Clarence and Nellie Allen, who started what would become Allen Family Foods in the spring of 1919, and about their sons, Charles Clarence Jr., Warren and John, all of whom were involved in the business. He has also been thinking about the 40 years that he spent with the company.
"I remember what it was like when I started and look at how it grew," he said. "We've done a lot of right things in the last 40 years. But you don't work for 40 years to see it end like this.
"This is a sad event for everybody," he added. "For our family, for the growers and employees, for the community and for the whole state. It's sad – it's heartbreaking – to have to close the chapter this way. This was certainly not what we had planned."
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