Will-Grocers-Succumb-to-the-Current-Retail-Crisis

Will Grocers Succumb to the Current Retail Crisis?

We’ve recently seen an unprecedented number of retail store closings. Retail bankruptcies in just the first half of 2017 have already surpassed the number of retail bankruptcies for the entire year of 2016. If supermarkets follow in the footsteps of other retail segments, then 2017 could be disastrous. Joining the list of bankrupt companies are Marsh Supermarkets Holding, LLC and Central Grocers, Inc., both of which filed for Chapter 11 bankruptcy in May 2017. What does the future hold for grocers? Are supermarkets facing the same demise as other brick-and-mortar retailers?

The good news is that food is a necessity and not a luxury.  The bad news is that margins are razor thin and competition is relentless. Grocery stores, not unlike brick-and-mortar retailers, are hanging on by a thread, not just trying to thrive but simply survive in this environment. What is driving such intense competition for grocery stores?

  • Food deflation contributed to price wars as grocers passed along savings to consumers; although consumers benefited, the result was even lower margins for grocers
  • Expanding and competing retail channels for groceries including other options such as meal delivery service
  • Invasion of foreign discount supermarket chains in the US; Lidl is a new entrant while Aldi has announced aggressive expansion plans
  • Changing consumer behavior and expectations including convergence of brick-and-mortar and online shopping; delivering perishable and refrigerated goods has some unique challenges

Supermarkets have been somewhat insulated from the online pressures contributing to the demise of some brick-and-mortar retailers. But grocers are no longer immune. As a supermarket operator, are you experiencing these tell-tale signs?

  • Unable to meet sales forecast and experiencing declining same store sales
  • Struggling with cash flow and forced to stretch payables to vendors or requesting an accrual of interest payments
  • Experiencing high turnover including the loss of key management
  • Negotiating with Lenders only willing to extend maturity dates on a short-term basis
  • Cutting your capex spend in half so you have sufficient cash to continue to operate and service debt

If you are spending more time putting out fires than performing your day-to-day duties, then it probably means that your business is in trouble.

The time frame to act is getting shorter and retailers need to conserve cash — to ensure that the runway is long enough to allow for an operational turnaround of the business or debt restructuring, or risk liquidation. Recognizing the warning signs and taking action early will ensure the best possible outcome and preservation of value.

Stop Hemorrhaging Cash

The first step is gaining control of your cash. This may require applying a tourniquet to stop the bleeding.  Be realistic about the performance of your business and understand your cash needs.

  • Develop realistic financial projections so you do not fail before you even begin
  • Understand your cash needs; prepare a rolling 13-week cash flow forecast to understand immediate cash needs and a long-term cash flow forecast to account for one-time payments
  • Optimize liquidity through effective management of accounts receivable and payable; don’t leave money on the table; a simple phone call may be all that’s needed to prompt customers to pay past due amounts
  • Involve the entire organization; ask your employees for creative ways to save money; reward them with a pat on the back or provide monetary incentives

Operational Restructuring

The second step is fixing the business.  Companies need to assess operations and take the necessary action steps to ensure the survival of the business.

  • Identify the problems and find solutions
  • Maximize operating efficiency
  • Improve margins and profitability
  • Stabilize the business
  • Set realistic goals and manage stakeholder expectations
  • Restore the trust and credibility of creditors and employees

Financial Restructuring

Lastly, you may be operating at higher efficiency, but this may still not be enough to service your debt especially for companies that are highly leveraged. A debt restructuring may be necessary to ensure the company’s long-term viability.

  • Develop a plan which maximizes recovery
  • Be transparent and provide clear communication to all parties; be cognizant that lenders or investors may be losing all or part of their investment
  • Assess whether a debt restructuring can be done out-of-court; this will require consensus which may be difficult given different interests among creditors
  • Retain professionals to assist

Summary

Our experience tells us time is of the essence. Companies often wait until they have burned through their cash and depleted other resources before taking action. A turnaround specialist or Chief Restructuring Officer (“CRO”) has the independence and can make the hard decisions. Often a company in crisis will have lost credibility and the trust of its creditors and employees. A CRO can build the consensus necessary for a successful turnaround of the business, leaving Management to focus on operations, safeguard the business and prevent further deterioration.

The entry of Lidl in the US, aggressive domestic expansion plans of Aldi and the combined forces of Amazon and Whole Foods will only make it more difficult and disruptive for grocery operators in 2017 and beyond.

Loughlin Management Partners + Company (“LM+Co”) has a team of turnaround and retail specialists that can assist companies in navigating the complexities of the corporate restructuring process.

 

Strengthening the Fundamentals: Critical Building Blocks on the Path to Grocery Success

With Amazon’s recent purchase of Whole Foods, pundits are speculating what the reaction and next move should be among grocers struggling to survive. Grocers already face intense competition, not only from traditional supermarkets but from a wide-ranging array of other retail channels, including supercenters, warehouse, limited assortment, specialty, discount and convenience/drug stores.  Given the entry of Amazon, an e-commerce juggernaut with the resources to significantly alter the landscape, is it time to give up?  Should operators just throw in the towel?  Our answer to those operators willing to focus on the fundamentals is a resounding NO.

More than ever, grocery operators need to focus on the customer, food and store atmosphere.  Your store needs to be the place where customers can escape.  Shoppers want – in fact they DEMAND – a clean and friendly place where they’re greeted by displays of colorful fresh produce and flowers, can taste a sample of the latest imported cheese and enjoy the aromas of roasting coffee and freshly-baked bread.  And most importantly, today’s discerning, some would argue finnicky, shopper looks for welcoming smiles from helpful staff when they need it.  A website, no matter how sophisticated and efficient, can’t replicate the sensory experience and compete with a friendly smile.

Too many companies are focusing on factors out of their control and losing sight of some basic fundamentals that, with the proper levels of planning and executional consistency, can yield a positive impact for grocery operators in a relatively short timeframe.

Think about it:  losing a customer is easy, while customer acquisition is difficult and expensive.  Customers are fickle and generally have little or no loyalty especially given the number of options available. Key to enhancing the customer experience, which is critical to operational and ultimately financial performance improvement, is a focus on the core values and key elements important to today’s shoppers, which we refer to as “the 4P’s.

  • Physical attributes of the brick-and-mortar
  • Product offerings and selection
  • Price and value perception
  • Pleasing customer experience

Physical Attributes
Doesn’t Amazon’s biggest bet yet with the acquisition of Whole Foods mean that brick-and-mortar stores are still relevant?  Do your shoppers keep coming back or are they turned away by the unkempt appearance?  Do your displays make consumers want to buy more than what was on their original list?

  • Location and proximity: Consumers tend to choose stores closest to where they spend the bulk of their time, whether that be their home or office
  • Ease of entry and exit: People value time and convenience
  • Efficient pickup: Customers expect timely processing of orders and ease of pickup for online orders
  • Visual appeal: Exteriors and interiors of stores including bathrooms should be well-maintained
  • Cleanliness: Store cleanliness ranks high among customers especially when purchasing food

Product Offerings
How do you incentivize consumers to shop at your store?  Are your customers willing to drive a little farther or pay a premium?  Are your products of the highest quality to satisfy even the most discriminating shopper?

  • Selection: There is increasing demand for fresh, organic or gluten-free products
  • Specialty: Stores can differentiate themselves with a wide selection of specialty products such as imported cheese or olive oils
  • Prepared foods: American are increasingly turning to prepared foods to save time
  • Fresh produce: Produce can dictate whether a customer chooses to shop at your store
  • Quality products: Maintaining the highest quality products ensures that customers keep coming back

Price and Value Perception
Are you competitively priced?  Do your customers realize that your prices are lower than that of your competitors?  Are your customers’ basket size bigger than your competitors?

  • Promotions: Customers like to feel that they are getting a good deal
  • Price: Operators need to ensure that their investment in price reductions are being valued by their customers and not just furthering reducing margins
  • Private labels: Companies are continuing to expand on their offering of quality and reasonably priced alternatives to branded products
  • Signage: Customers like easy to understand pricing and signage which identifies weekly promotions
  • Inventory: Operators need to ensure that there are no empty shelves and out-of-stock inventory especially for promotional items

Pleasing Customer Experience
Are your staff friendly and helpful?  Are you making sure your customers’ shopping experience is quick and easy?  Do your customers look forward to coming back?

  • Checkout: Shoppers value their time so a quick and easy checkout is important especially during peak hours
  • Staffing: Stores need to have adequate staffing at the various counters such as deli and bakery to avoid long waits
  • Layout: Store layouts should be logical to allow for ease of finding products
  • Service: Finding friendly and helpful staff when you have a question can easily turn the customer experience from frustrating to pleasant

Summary
Investing in online and innovative strategies is great, but wasteful if you are losing customers due to dirty floors and bathrooms, having to wait in long lines at the deli counter or checkout, touting yourself as the provider of organic produce but displaying spoiled and bruised products and marketing promotional items to attract customers but having customers walk away because of empty shelves.

Loughlin Management Partners + Company (“LM+Co”) has a team of highly experienced financial, operational and analytical professionals that can partner with you to assess the situation, focus on the key issues and identify opportunities to enhance profit and cash flow.  Our retail specialists can:

  • Identify operational improvements in sourcing, supply chain and inventory management
  • Perform store profitability analyses and closure strategies
  • Assist with labor optimization to reduce costs and maximize staffing
  • Conduct review of customers and SKUs for profitability and rationalization and
  • Develop a turnaround plan or debt restructuring

We are available to help navigate the issues in this difficult and turbulent time for retailers and grocers.

LM+Co Capital Completes Successful Refinancing of TruFood Mfg., Inc.

Pittsburgh, Pennsylvania – April 28, 2017

LM+Co Capital, a New York-based middle market investment banking firm, announced today the successful refinancing of its client TruFood Mfg., Inc. (“TruFood”), based in Pittsburgh, Pennsylvania. BHI (Bank Hapoalim B.M.) and AloStar Capital Finance acted as co-agents on the refinancing transaction. Financial terms of the transaction were not disclosed.

TruFood is a leading East Coast snack food contract manufacturer of well-recognized brands serving the health-conscious, “on-the-go” consumer market. This family-owned business operates in the highly competitive Contract Food Manufacturing Industry where high-touch customer service, quality product execution and new product development is critical to success. TruFood manufactures a full range of snack products including granola products, baked bars, nutrition bars, layered protein bars and molded chocolate products.

Richard Zytkowicz, Managing Director with LM+Co Capital, stated “LM+Co Capital is delighted for Pete Tsudis and his management team as they embark on the next chapter of the TruFood legacy. Mr. Tsudis is a very successful CEO and operator with a proven track record in the Contract Food Manufacturing Industry. The completion of this refinancing transaction affords TruFood the opportunity to further expand its product offerings and establish a solid platform to explore and launch additional growth initiatives. We are honored to have been involved in such an exciting transaction”.

TruFood President and Chief Executive Officer Pete Tsudis noted, “Our partnership with Rick and the LM+Co team has been tremendously successful. They provided invaluable support and expertise throughout our refinancing process”.

About TruFood Mfg., Inc.
TruFood was founded in 1985 by Spiro Tsudis, father of current CEO, Peter Tsudis, to produce children’s fundraising chocolate candy. When Pete assumed control of TruFood in 2001, he quickly realized the various trends in the snack food market were changing to healthier forms of snack consumables and began to position TruFood to capture these manufacturing opportunities.

Today, TruFood partners with various multi-national companies to manufacture a variety of well-recognized snack brands. TruFood has a large presence on the East Coast with over 350,000 sq.ft. of state-of-the-art manufacturing facilities and continues to grow through its strong reputation for manufacturing high quality snack products for its marquee customer base.

About LM+Co Capital
LM+Co Capital is an independently operated affiliate of Loughlin Management Partners + Company, a multi-disciplinary professional services firm focused on the middle market. LM+Co Capital, a registered broker dealer and member of FINRA/SIPC, is solely focused on the middle market, providing investment banking and advisory services to corporations, investors, private equity groups and business owners. LM+Co Capital offers its clients years of experience in Mergers + Acquisitions, Capital Advisory, Financial Restructuring and Business Valuations.

About Bank Hapoalim B.M. (“BHI”)
BHI offers full commercial banking services that combine the personal attention and responsiveness of a prestigious boutique bank with the expertise and financial strength of a global bank. With a footprint in the largest U.S.  metropolitan areas, BHI is committed to creating innovative funding solutions for long and short term needs, and providing convenient banking and liquidity products for everyday business needs.

As part of the Bank Hapoalim Group, BHI is backed by the financial strength of a leading financial institution, giving BHI’s U.S. customers access to business financing from one of the world’s most stable banking environments.

About AloStar Capital Finance
AloStar Capital Finance offers needed capital and counsel to business leaders across America who are creating their own success stories. Through our Business Credit, Lender Finance and Real Estate Finance platforms, we create customized lending solutions for customers with capital requirements up to $60 million. To date, AloStar has closed more than 160 deals with commitments totaling more than $2 billion. At AloStar, you’ll have ready access to decision makers with deep capital industry experience who are responsive, flexible and eager to help you write your success story.

AloStar Capital Finance is a trade name of AloStar Bank of Commerce, Member FDIC. For more information, visit www.AloStarBank.com.

*LM+Co Capital is an independently operated affiliate of LM+Co. A licensed broker dealer, LM+Co Capital is registered with FINRA, SIPCFor a summary of LM+Co Capital’s registration with FINRA, go to BrokerCheck.

 

 

RadioShack Files for Bankruptcy (Again), Closing 200 Stores

As first reported in InvestorPlace |Mar 9, 2017 |12:43 pm EDT

General Wireless, which operates as RadioShack, is filing for bankruptcy again just two years after it came out of its last bankruptcy.

RadioShack says that it will be closing 200 of its stores at it enters Chapter 11 bankruptcy protection. This will leave it with 1,300 stores still open and it plans to evaluate what to do with these locations.

RadioShack notes that it many choose to keep its remaining 1,300 stores open on an ongoing basis. It claims that this may be the best way to maximize value for creditors. However, it also says it will explore other strategic options.

RadioShack says that it was making efforts toward returning to profitability after coming out of its bankruptcy two years ago. This includes reducing operating expenses by 23% in 2016 and gross profit dollars going up by 8% during that year. However, it still had problems.

“For a number of reasons, most notably the surprisingly poor performance of mobility sales, especially over recent months, we have concluded that the Chapter 11 process represents the best path forward for the Company,” Dene Rogers, President and CEO of RadioShack , said in a statement. “We will continue to work with our advisors and stakeholders to preserve as many jobs as possible while maximizing value for our creditors.”

RadioShack points out in its bankruptcy announcement that Sprint Corp (NYSE:S) was its partner responsible for managing its mobility business. General Wireless is a joint venture between Sprint and Standard General.

RadioShack says that it will post additional information concerning the bankruptcy on its website. Legal documents will be available on the Prime Clerk website. Prime Clerk is the company’s claims agent. It is also getting legal advice from Pepper Hamilton LLP and Jones Day.

Loughlin Management Partners has been retained to serve as financial advisor to General Wireless.

Technology in Today’s Retail Environment: Obsolete Organizational Structures and Capability Management

whitepaper

LM+Co, through its Performance Improvement and Value Creation practice, regularly advises retail businesses struggling with different aspects of four key problems prevalent in the industry today:

  1. Disruptive Models and the New Retail Experience
  2. Costly and Inefficient Information Technology
  3. Poor Customer Data and Business Intelligence Tools
  4. Obsolete Organizational Structures and Capability Misalignment

The common thread woven throughout these issues is the role of Information Technology. Companies that understand the significant impact of IT for their customers and business, and adapt to this new, high-tech landscape will emerge as category and sector leaders. Those who fail to realize how they can use IT to their competitive advantage, or do so too late, will often be left behind and soon made irrelevant by their savvier and more decisive peers.

Today’s article focuses on Obsolete Organizational Structures and Capability Misalignment. Rather than focusing on a traditional functional model, organizing highly capable and diverse individuals to work on the new challenges Retailers face produces high-achieving teams that deliver results. As a result, a successful retail organizational chart seldom resembles the very clean functional organizational chart of 20 years ago. More importantly, Retailers need to be conscious of their fast-evolving strategy and adjust their structure to align capabilities accordingly.

This is the fourth and final installment, all related to IT, addressing significant challenges to retailers. We’ve outlined, based on our experience, trends and changes we see, how the sector’s landscape is changing and what companies must do to effectively compete in this new market environment.

Technology in Today’s Retail Environment: Poor Customer Data and Business Intelligence Tools

whitepaper

LM+Co, through its Performance Improvement and Value Creation practice, regularly advises retail businesses struggling with different aspects of four key problems prevalent in the industry today:

  1. Disruptive Models and the New Retail Experience
  2. Costly and Inefficient Information Technology
  3. Poor Customer Data and Business Intelligence Tools
  4. Obsolete Organizational Structures and Capability Misalignment

The common thread woven throughout these issues is the role of Information Technology. Companies that understand the significant impact of IT for their customers and business, and adapt to this new, high-tech landscape will emerge as category and sector leaders. Those who fail to realize how they can use IT to their competitive advantage, or do so too late, will often be left behind and soon made irrelevant by their savvier and more decisive peers.

Today’s article focuses on Poor Customer Data and Business Intelligence Tools, a problem that is more common than many retail executives realize. The primary difference between a successful retailer and one that struggles often lies in how they navigate customer data to achieve insights that drive value. Retailers need to develop “One View of the Customer” and create an omnichannel shopping experience by updating outdated IT systems that house customer data in a number of different silos.

This is the third in a series of four articles that explores each of these recurring Retail and IT themes, painting a picture of how the retail experience and landscape is changing and what companies must do to not only survive but become formidable competitors in this new and ruthless retail environment.

Technology in Today’s Retail Environment: The New Retail Experience

whitepaper

LM+Co, through its Performance Improvement and Value Creation practice, regularly advises retail businesses struggling with different aspects of four key problems prevalent in the industry today:

  1. Disruptive Models and the New Retail Experience
  2. Costly and Inefficient Information Technology
  3. Poor Customer Data and Business Intelligence Tools
  4. Obsolete Organizational Structures and Capability Misalignment

The common thread woven throughout these issues is the role of Information Technology. Companies that understand the significant impact of IT for their customers and business, and adapt to this new, high-tech landscape will emerge as category and sector leaders. Those who fail to realize how they can use IT to their competitive advantage, or do so too late, will often be left behind and soon made irrelevant by their savvier and more decisive peers.

Today’s report focuses on Disruptive Models and the New Retail Experience. Customers are rapidly moving to online shopping through mobile, social and cloud platforms. As one baby boomer CEO put it, “when I am buying all kinds of things including pizza on my phone, I only wonder what the Millennials are doing?” Millennials are looking for connected experiences such as single-click Pinterest, Facebook and Twitter buying, all on their mobile devices. You don’t have to be a chic and upscale business targeting a young demographic to post impressive mobile and online sales numbers. Retail giant Macy’s sells more than 20% of its merchandise through the web while Williams Sonoma recently reported that more than 50% of its sales were generated through their online channel.

This is the first in a series of four articles that explores each of these recurring Retail and IT themes, painting a picture of how the retail experience and landscape is changing and what companies must do to not only survive but become formidable competitors in this new and ruthless retail environment.