(Dec. 23, 3:14 p.m.) Penn Traffic Co., Syracuse, N.Y., closed a $43 million all-cash sale of its wholesale business to C&S Wholesale Grocers Inc., Keene, N.H., Dec. 21.

Greg Young, president and chief executive officer of Penn Traffic, said in a Dec. 17 conference call the sale should allow the company to focus on its retail segment, which has closed or sold 121 stores since 2003.

The company will continue to operate its wholesale warehouses and handle transportation and distribution to the about 120 independent Big M, Bi-Lo and Riverside Markets, as well as to the other independent accounts the warehouses currently supply. The difference will be that Penn will be employed by C&S to do so.

The 30 employees of Penn’s wholesale division are expected to continue working, for C&S.

Penn Traffic filed for bankruptcy in 2003 and emerged from Chapter 11 bankruptcy protection in 2005. The company operates the Bi-Lo, P&C and Quality Markets banners in four states in the Eastern U.S. C&S has acquired rights to the intellectual property allowing them to use the banners.

“We own the trade names, they will own just the intellectual property,” Young said. “Big M Supermarkets will still be a subsidiary of Penn Traffic.”

The sale of its wholesale division will allow Penn Traffic to pay down $32 million, 62%, of its outstanding funded debt, Young said. Young said the company plans to invest in its store base and upgrade stores.

“This allows us to dramatically improve capital structure and cost structure, and to improve profitability,” said Tod Nestor, chief financial officer.

Penn released its plan to make the sale to C&S Dec. 17, but had to wait the extra few days for its lenders to agree to amendments and waivers to the existing credit agreements.

Penn Traffic also secured an extension of its existing working capital revolver and supplemental real estate facility through 2010, according to a news release.

This is the fourth transaction between Penn Traffic and C&S in the last 20 months, Young said, one being the transition of produce sourcing, procurement, purchasing and inbound logistics for Penn Traffic, which C&S began handling in March of this year. At that time, Penn Traffic operated 98 stores and supplied 121 independent retailers in its wholesale division.

In Penn Traffic’s third-quarter fiscal 2009, ending Nov. 1, revenues were down $11.4 million from a year ago, reflecting a reduction in corporate-owned grocery stores from 104 to 93, the company reported. Its net loss was $5.6 million that quarter. The same quarter 2008, net loss was $9.6 million.

Young said the change in net loss reflected the improvements the company has been executing throughout the year.

Penn Traffic has been working with Karabus Management Inc., Toronto, a retail management consulting company, for more than a year on its strategy to focus on its core store portfolio and its top performing operations. The company plans to use Karabus until at least 2010.

Young reported in the Dec. 17 conference call that the economy was having an effect on business.

“While retailers and consumers have clearly been hurt by the recession we’re facing, we can’t use it as an excuse,” Young said.

He reported an industrywide trend of consumers consolidating trips, trading down in purchases and curbing impulse buying. He said shopping trips were correlated with paychecks more than they have seen before.

In its answer to consumer behavior, Penn Traffic has been focusing on its rewards program, which was launched in early 2008, marketing, advertising and value pricing.

At Bi-Lo stores, the Bonuscard offers consumers weekly savings on different items, as well as offers them the opportunity to build up points for free items and gets them discounted tickets to local events and theme parks. The card also gives senior shoppers an extra 5% savings every Wednesday.

At Quality Markets, shoppers are members of the Wild Card Club, which offers similar savings as the Bonuscard.

As of Dec. 17, Penn operates 91 stores in four states. Two of its corporate stores were sold to C&S in the recent transaction.

When the company filed for bankruptcy in 2003, it operated 212 stores. In the first 14 months of its bankruptcy protection the company closed or sold 103 stores, bringing its count down to 109 Bi-Lo Foods, Quality Markets, P&C Foods and Riverside Markets stores in Pennsylvania, New York, Vermont and New Hampshire.

C&S is the 12th largest privately held company, according to Forbes magazine’s 2008 list. It was the 10th in 2007. The company delivers to more than 5,000 grocery stores and independent chains and operates distribution centers in 11 states, according to a news release.