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Wallace & Carey delivers a range of products including groceries, movie-theatre snacks, health and beauty products, frozen foods and tobacco products.Laura Leyshon/The Globe and Mail

Century-old family-owned food distributor Wallace & Carey Inc. and its parent company have filed for creditor protection, citing “existential challenges” related to the COVID-19 pandemic, labour shortages and the decline in tobacco sales.

Calgary-based Wallace & Carey, one of Canada’s largest independent distribution and logistics companies, supplies more than 7,000 customers across the country, delivering a range of products including groceries, movie-theatre snacks, health and beauty products, frozen foods and tobacco products. Its customers include convenience store giant 7-Eleven Canada, Cineplex Entertainment CGX-T and grocery-store operator Federated Co-operatives Ltd.

In an affidavit submitted under the Companies’ Creditors Arrangement Act, chief financial officer Brian Birnie said Wallace & Carey has been struggling under the weight of increased debts since the start of the pandemic. Labour shortages, unreliable inventory demands, inflation and interest-rate hikes have led to a “much less hospitable” operating environment, he said.

The company’s downfall is a hangover of the supply chain crisis that crunched logistics companies when COVID-19 took hold, as shipping costs rose and lockdowns made for unpredictable inventory needs. Now, higher interest rates have made it difficult for companies to keep up with debt coming due.

Wallace & Carey’s financial difficulties reflect challenges that were common across the supply chain industry, said Barry Prentice, supply chain management professor at the University of Manitoba.

“The effects of the pandemic are long-lasting. Some companies managed to survive, but that doesn’t mean they’re prospering now,” Prof. Prentice said.

Wallace & Carey’s liquidity crisis has put the jobs of its 650 employees – the majority located in Alberta – at risk, Mr. Birnie said in his statement. The company is also a critical supplier of goods to some of Canada’s most remote communities, including customers in northern British Columbia, Alberta and Ontario, he said.

And Wallace & Carey owns and operates Loudon Bros. Ltd., a distributor servicing Northwestern Ontario. Loudon Bros. has 500 customers, including dairy company Lactalis Canada Inc. and Labatt Brewing Co. Ltd.

As of June 19, Wallace & Carey had collective liabilities of more than $184-million. It is currently in default of a $44.4-million debt owed to Canadian Imperial Bank of Commerce for a credit agreement.

Wallace & Carey’s most recent audited financial statements show the company’s net loss rose from $7-million in 2021 to $12.5-million in 2022. Meanwhile, Wallace & Carey’s parent company, Carey Management Inc., had current liabilities that exceeded the value of its assets by approximately $71-million.

As the pandemic took hold, Wallace & Carey had to carry much higher levels of inventory than usual. Unpredictable and extended lockdowns made it difficult to accurately predict, and therefore effectively manage, inventory and cash flow, Mr. Birnie said. Rising prices for fuel and equipment, and labour shortages, also added substantial costs.

Wallace & Carey’s large customers, and therefore their immense pricing power, could have had a role in the company’s struggles, said Fraser Johnson a supply chain management professor at the University of Western Ontario’s Ivey Business School. Its five biggest customers contribute two-thirds of total revenue, according to Mr. Birnie’s affidavit.

The company also owes the government $26-million in deferred taxes related to the sale of tobacco.

Historically, tobacco represented 50 per cent of Wallace & Carey’s revenues, Mr. Birnie said. But tobacco use has been tumbling in Canada for decades. From 2021 to 2022 alone, the company’s revenue from tobacco declined by $162-million. As COVID-19 spread, the company deferred making tax payments on tobacco sales, but in January, Alberta and Saskatchewan asked it to pay up.

Wallace & Carey also has substantial fixed costs: The company leases warehouses in nine cities across B.C., Alberta, Manitoba, Saskatchewan and Ontario, and leases most of its fleet of 120 trucks and trailers.

Although the company tried to cut costs by streamlining shipping routes and renegotiating contracts, that wasn’t enough to meet its debts.

Wallace & Carey is in arrears with many of its creditors, who are now cutting off credit or insisting on cash upon delivery, Mr. Birnie said. Some of the company’s suppliers have cut off shipments until it can pay its debts. As of June, 60 suppliers had put their accounts on hold.

The Court of King’s Bench in Alberta has granted a stay on Wallace & Carey’s assets until Sept. 20. The company is in the process of negotiating with creditors. It also says it intends to operate in normal course while it restructures.

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