Penn Traffic, a regional grocery chain based in Syracuse, New York, has reached a deal to sell its wholesale business to C&S Wholesale for a total of US$43m.

Penn Traffic said the disposal would allow it to sharpen its focus on the 91 retail stores it operates.

The deal will also dramatically improve its capital structure, the company said.

Proceeds from the sale will be used to pay down outstanding debt, including a $17m revolving line of credit. In total, Penn Traffic said it expected to reduce debt by $32m, or 62% of outstanding debt.

In a statement released yesterday (17 December), Penn Traffic said the all-cash transaction - which includes approximately $13m in accounts receivable to C&S - is expected to close by the end of the month.

The wholesale operation supplies more than 120 independent supermarkets in New York and Pennsylvania, accounting for $210m, or about 20%, of Penn Traffic's revenues in fiscal 2008, the company said.

The company said it would continue to handle transportation, warehousing, and distribution to the wholesale customers through a third-party logistics contract with C&S.

It said about 30 Penn Traffic wholesale employees are expected to join C&S.

Commenting on the deal, president and CEO Gregory Young said: "Now, with the significant deleveraging of the balance sheet, we expect to accelerate our progress toward rebuilding the company, restoring profitability and positioning Penn Traffic for long-term success.

"While the divestiture will lower Penn Traffic's total revenues in the short term, the transaction is designed to dramatically improve the company's capital structure, profitability, and operating cash flows, and it enhances our strategic focus on grocery retail for the long term."

Last week, Penn Traffic posted losses of $21.4m for the first nine months of its fiscal year, $5.1m of which were seen in the third quarter. In April 2005 the company emerged from Chapter 11 bankruptcy, but has continued to post losses.

Penn Traffic operates P&C, Quality and BiLo supermarkets in upstate New York, Pennsylvania, Vermont and New Hampshire.

C&S, a privately-held company with annual sales of $19bn, provides distribution services to more than 5,000 grocery store locations.