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How Dynasty Crumbled : The Rise and the Decline of a Friendly Investment

San Diego County Business Editor

It had seemed like such a good idea, back in the spring of 1984.

A small, tightknit group of San Diego businessmen--some of them friends of retailing pioneer Sol Price--bought the company that distributed frozen foods to the fast-growing Price Club chain of discount retail warehouses. More than two dozen investors believed in the new firm and proved it by pouring between $2 million and $3 million into the business.

That was in early 1984, when things looked promising indeed for the investors and management of San Diego Dynasty Inc. The company was formed to purchase Pacific Dynasty Foods, a frozen foods distributor, from financially troubled IFM of San Diego. IFM also once owned Picnic ‘n Chicken and Captain Kidd’s Seafood Galley.

After the purchase, investors believed there was no reason that Pacific Dynasty Foods wouldn’t ride the coattails of the Price Co., whose ever-expanding chain of retail warehouses and fast-rising revenues and profits had made it the darling of Wall Street.

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No reason, that is, except one: Within a year, Price Co., in an effort to cut costs, eliminated Pacific Dynasty as a middleman and began buying direct from the manufacturer.

Unfortunately for Pacific Dynasty, about 90% of its approximately $4 million in monthly revenues were generated by Price Club sales.

So when Price Co. pulled the plug in early 1985, Pacific Dynasty quickly unraveled, just another victim of an age-old business dilemma--relying on one customer for the overwhelming majority of sales.

Price Co. gave “several months” notice to Pacific Dynasty, during which time the firm tried to retrench by marketing food service products to other customers. But its profit margins were simply too small to sustain operations, according to sources familiar with the company.

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Last December, the company’s creditors--owed $910,000 in trade liabilities and another $675,000 in bank debt--were assembled by San Diego Wholesale Credit Assn., a nonprofit group that works with financially troubled firms to avoid bankruptcy. They agreed to a two-month collection moratorium.

But even that didn’t work.

On March 20, Pacific Dynasty Foods halted operations.

Then, on April 15, two years after it was formed, most of Pacific Dynasty’s assets were sold at a well-attended auction in the Santee warehouse that had served as its headquarters.

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San Diego Wholesale Credit is now liquidating Pacific Dynasty’s assets, a process that could take several more months.

Pacific Dynasty officials refuse to comment on the company’s demise, but some former investors, creditors and employees are frustrated, and they’re speaking out, albeit anonymously.

“They depended on one customer for their business,” lamented one investor, trying to sum up the primary business problem. “There was poor management (and) a lack of . . . control.”

Investors were first told that Pacific Dynasty had lost Price Co. at the company’s annual shareholders meeting in June, 1985, months after the fact, recalled one investor.

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Despite losing its primary customer, the company “didn’t cut back,” said the investor. “It was totally mismanaged. Because of the other business interests of other shareholders, it got to be burdensome. Pacific Dynasty was . . . small potatoes for them.”

Offered a former employee: “If you talk to a professional athlete, does he want to talk about the ball he dropped? That’s why they’re not talking. There is a connection between management’s ability and profitability.”

They are a relatively tightknit bunch, the main players of Pacific Dynasty.

Frank Goldberg, Bud Fischer and Art Bloom are longtime friends and business associates, and all, reportedly, were original investors in Price Co. when it was founded in 1976.

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Other investors included Zane Feldman, owner of San Diego Fabrics, and prominent attorney Herbert Solomon, who is the volunteer president of the San Diego Symphony’s board of directors.

Goldberg and Fischer are each property owners in the downtown Gaslamp District and both were owners of the San Diego Sails, the American Basketball Assn. team that folded in November, 1975, after only three home games.

When it went out of business, the team’s 140 creditors had claims of more than $300,000 against assets of only $40,000.

In addition, about 4,000 San Diegans were left holding useless season tickets.

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Goldberg and Fischer, through a firm called Leaf Management, had purchased the Sails for less than $400,000 after they had sold their interests in the ABA’s Denver franchise.

Their plan, according to news accounts in 1975, was to sell 74% of the club by offering 74 shares at $20,000 each, which would bring in $1.5 million. It apparently didn’t work.

The firm reportedly projected losses of $400,000 in each of its first three years and banked on a merger with the National Basketball Assn., which would have made it a $6-million franchise, according to published reports.

Goldberg and Fischer were also in the furniture business, next door to each other in Misson Valley. Goldberg operated United Furniture, which was founded by his father-in-law, and Fisher ran Fisher Office Interiors.

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Today, Goldberg is listed with the county clerk’s office as the owner of about a dozen nondescript-sounding companies, including Sea Financial, apparently his primary operation.

Fischer’s best-known business is Fischer Auction, which coordinates liquidation sales and other types of auctions. Call his firm, and a receptionist answers the telephone by repeating the firm’s phone number.

Bloom is the owner of Worth’s, a women’s clothing store in North Park.

Neither Goldberg, Fischer or Bloom would discuss Pacific Dynasty, its operations or its downfall.

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Their silence today belies the company’s reputation in its heyday.

At the time, it was “common knowledge” among food storage and distribution circles that Pacific Dynasty would be “an exclusive distributor for Price Co. for certain products,” recalled one creditor. Price Co. generated less than $2 million per year in sales for the prior Pacific Dynasty management, he added.

By the end of 1984, 90% of Pacific Dynasty’s $45 million in annualized revenues were coming from Price Co., according to sources familiar with the firm.

“The comment on the street in the produce industry was, ‘Geez, that’s Fischer and Goldberg, and these guys gotta be solid as a rock,’ ” recalled one grocery industry executive. “But I told (suppliers) to be careful and not (let their) accounts receivables get out there too far.”

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By the time the roof caved in on Pacific Dynasty Foods, it was too late for creditors to heed that warning.

A letter mailed to creditors by San Diego Wholesale Credit in December blamed the company’s woes not only on losing the Price Co. account, but also on “excessive” returns of merchandise, a “significant reduction in inventory turns per year” and “difficulties in establishing open credit lines.”

The decision by Price Co. to bypass its frozen-foods middleman and buy direct from the manufacturer was simply a matter of good business sense, according to Robert Price the firm’s president.

Previously, he said, the San Diego-based company had been “unable and unwilling” to install frozen food cases at its discount warehouses. There were “only cases large enough for one day’s sale,” he said in a recent interview. (Later, the company added frozen food storage cases of its own.)

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Because it had no freezer space, Price Co. contracted with several companies, including Pacific Dynasty, to purchase and store the frozen food products.

But as the Price Co. grew, management determined that “if they can do it and make money with double-handling, then why can’t we do it ourselves?” said Price.

A would-be investor approached Price a year ago and asked him if Pacific Dynasty would be a good investment. Price responded that there was “no way” Price Co. wouldn’t take over the frozen food storage function itself if it was making money.

Indeed, Pacific Dynasty’s average of $4 million per month in sales in late 1984 and early 1985 dropped significantly after Price Co. began buying direct.

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According to financial statements obtained by The Times, the firm’s sales last October reached only $814,383 and losses for the month totaled $182,427.

For the 10 months ended Oct. 31, sales were $32.1 million and red ink totaled $909,726.

The financial statements also show total assets of nearly $3.1 million, including nearly $1.2 million in property and equipment.

The $2.95 million listed in initial capital through common stock was partly eaten away by $1.76 million in red ink, according to the documents.

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Despite Price’s insistence that dropping Pacific Dynasty was purely a business decision, there are those once associated with the firm who believe other factors may have played a role.

The rumors concerning the firm’s demise include speculation that Pacific Dynasty principals had also invested in Price Co. competitors such as Denver-based Pace Membership Warehouse and Seattle-based Costco Wholesale Corp., and that there had been a personal rift between founder Sol Price and Pacific Dynasty’s principal shareholders.

“There was a fallout between Goldberg and Sol Price,” said one longtime Price associate. “Sol doesn’t like to be dictated to; he felt he was being pressured by Goldberg and Fischer.”

The elder Price, who pioneered discount retailing when he founded FedMart in the 1960s, said it was “insulting” to assume that he would drop a supplier because the firm was also doing business with a competitor.

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Veteran Price-watchers say the the same kind of price-cutting logic led the elder Price to cancel distribution arrangements with several former FedMart suppliers.

Added Robert Price: “If we ran this company on emotions, we wouldn’t be in business. The only way you can be in business and do it right is to have integrity and do things based on the bottom line.”

Pacific Dynasty was well aware of the pitfalls of leaning heavily on the Price Co., according to former employees.

“Relying on one customer wasn’t an unknown danger,” recalled one former worker. “They were fully aware of what the customer base was, and everybody knows what Price Club’s philosophy is as far as vying for the best prices. I think everybody knew it was inevitable that Price would not keep (paying) $4 million a month forever.”

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Not everyone lost out from Pacific Dynasty’s death.

Bob Miller, the company’s former president, is now working for Price Co. and is in charge of the chain’s meat processing operation.

Bud Fischer’s auction company conducted the liquidation sale of Pacific Dynasty’s assets.

And Frank Goldberg, Pacific Dynasty’s former chairman, who has a lease with the county on the building that once housed Pacific Dynasty, this month gets a new tenant for his empty building: Price Co., which will move its meat processing operation from Chula Vista to Goldberg’s building in Santee.

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