Challenges Emerge as Grocery Industry Restructures

NEW YORK — The same forces inspiring a new wave of supermarket consolidation are likely to spark a concurrent groundswell of retail bankruptcies and restructurings.

The latter phenomenon will present opportunities and challenges to lenders, lawyers, strategic investors and others who do business with distressed companies, according to speakers at a panel discussion here Thursday. And understanding the unique challenges facing distressed supermarkets is key to successful restructuring, they said.

“For traditional supermarkets … the market is competitive, it’s saturated, and its been tough for a number of years,” said panelist Richard Pedone, a partner with the law firm Nixon Peabody. “And it’s bringing us to a flashpoint where you’re going to see a lot more distress.

“It’s a mature industry where people are killing each other. And where that happens, there’s bound to be opportunity,” he added.

Much of the stress on traditional supermarkets has come as a result of non-traditional competitors including clubs, mass merchants and specialty stores that have absorbed nearly all of the sales growth in the industry since 2008, said another panelist, Craig Boucher, a director at Deloitte’s corporate restructuring group. Boucher briefly served as Winn-Dixie’s chief financial officer while that chain went through a Chapter 11 bankruptcy.

According to Boucher, pressure from non-traditional competitors is forcing some smaller supermarket retailers to seek additional strength and buying power through strategic mergers. Although there has been more than $22 billion in supermarket mergers in 2013 — the hottest pace of consolidation since 1999 — there is still more capacity not likely to be part of a merger, he said.

“There are 38,000 grocers in the U.S. — not stores — grocers,” he said. This group accounts for more than 58% of the supermarket industry with no single player accounting from more than 1.2% of the total share.
Restructuring a grocery chain presents challenges that tend not to exist when dealing with non-supermarket retailers, particularly on the legal front, said Lee Harrington, a partner in Nixon Peabody’s financial restructuring and bankruptcy practice. These challenges include so-called PACA claims arising under the Perishable Agricultural Commodities Act, which creates a trust for the benefit of suppliers to collect payment on perishable items.

Harrington, who worked on A&P’s bankruptcy, said that case helped to establish a mechanism to deal with such claims, which totaled $3.4 million.

Read More: http://supermarketnews.com/retail-amp-financial/industry-faces-restructuring-challenges-panel#ixzz2f4fmgSYn

Written by Jon Springer on Spet. 13th, 2013

2013 Report: CPG customer-centric practices can increase efficiency/unlock hidden value

By sharpening their outbound supply chain logistics with a view to improving complexity management and collaboration with trading partners, CPG companies could unlock almost $50 billion of hidden value, according to research conducted by The Boston Consulting Group (BCG) for the Grocery Manufacturers Association (GMA).

“GMA Supply Chain Benchmarking 2012: Unlocking the Hidden Value of Complexity Management and Collaboration,” the eighth report in the Washington, D.C.-based trade group’s benchmarking series focused on manufacturers’ outbound supply chain logistics, found that higher inventory doesn’t always mean better service, and that scale doesn’t automatically result in lower costs. Instead, successful companies negotiate the tradeoff between cost and service by honing in on less used, customer-centric levers such as those noted above, as well as relying on traditional methods like reducing costs and optimizing working capital.

Covering the 2010–2012 period, the report is based on a survey of 51 companies using warehouse-based supply chains, direct store delivery, or both; interviews with 65 supply chain executives at participating companies; and 116 polling responses from the 2013 GMA/FMI Supply Chain Conference.

“This report clearly shows that CPG companies have successfully driven efficiencies along the supply chain to meet current economic challenges,” noted Elise Fennig, GMA’s VP of industry affairs. “It also provides a roadmap for even greater efficiency and savings through improved trading partner collaboration — savings that can drive innovation and sustainable business growth.”

CPG companies’ supply chain logistics costs as a percentage of sales dropped by 9 percent from 2010 through 2012, on average, but for the first time in a decade, service levels have begun to dip, albeit from 2010’s historic high. Several interviewees worried that this decline could be the downside of ruthless cost-cutting. The research found, however, that some manufacturers have effectively balanced lower costs with high levels of service.

Of the companies studied, 90 percent identified complexity management as a strategic problem, but only about 25 percent said they were systematically addressing the issue. Most manufacturers are performing only basic, ad hoc complexity management, often focused on SKU rationalization, even though better complexity management could unlock more than $25 billion of additional value industry-wide.

Manufacturers that are successful at complexity management regard it as a holistic, companywide exercise, backed by senior leadership and cross-functional teams. They quantify the costs and benefits, and they focus on profit maximization, not only cost reduction.

“There are still significant opportunities for nearly all companies to improve their supply chain performance, but to reap the major rewards, manufacturers need to look beyond their SKUs and think and act both more strategically and more holistically, with everyone aligned behind supply chain improvements,” explained Jeff Wray, a BCG partner and co-author of the report.

Ninety-five percent of manufacturers called collaboration a strategic focus for their business, and almost all have implemented related projects or formed dedicated collaboration teams. But most companies have just begun collaborating with retailers; few manufacturers have established long-term, strategic relationships with them.

About one-third of manufacturers considered lack of trust and commitment to be a major barrier to collaboration; other big obstacles included issues with capabilities and technology.

If these challenges are overcome, BCG estimates that collaboration could yield more than $20 billion of additional value across the industry. “Companies that successfully collaborate at an advanced level have a long-term strategic vision, supported by top-to-top alignment between senior management of both trading partners, as well as supporting infrastructure such as dedicated cross-functional collaboration teams,” observed Aaron Brown, a partner at the global consulting firm and co-author of the report.

A copy of the report is available from both GMA and BCG.

Article posted Sep 10, 2013 on PG and can be found here.