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Deloitte CRG assists US grocery wholesaler
Dealing with deflation
Deloitte Corporate Restructuring Group (Deloitte CRG) was retained by a leading US grocery wholesaler (the “Company”) to assist with managing liquidity and constructing a 2017–18 business plan to assist in satisfying requirements of a forbearance request from its lender syndicate.
Assessing liquidity and forecasting cash flow
In addition to providing food, the Company’s business model includes providing marketing services and selling private label products to its member stores. In the previous 12 months, the Company experienced financial losses and violated debt covenants. A new management team had recently been put in place to turnaround the business.
The Company’s challenges stemmed from a deeply problematic retail grocery marketplace. In 2016, US grocery sales entered a state of year-over-year deflation—such national food deflation has not occurred since 1967. The grocery business is also reeling from changing customer tastes for organic and experiential dining options, and a heated competition from new online players. On top of the forbearance, the Company was also staring at the looming maturity of its loans which could not be refinanced given the existing situation of its business.
The Deloitte CRG team assessed the Company’s liquidity situation and management’s response. Working with management, Deloitte developed a 13-week cash flow forecast in a format that presented the Company’s operations in a simple, understandable manner. The 13-week cash flow forecast also demonstrated to the lenders that the business had adequate liquidity to continue making debt payments for the foreseeable future.
After addressing liquidity and assessing the Company’s improved cash and financial management procedures, Deloitte CRG worked with management to develop the Company’s turnaround business plan. Management was initially contemplating a high growth year in 2017, but in the light of deflation and the hyper-competitive market for groceries, plans needed to be completely revised as the team re-trenched for 2017 and began developing significant strategic initiatives that would generate growth.
As part of management’s turnaround effort, low-volume sporadic ordering customers were to be cut-off and resources would be dedicated to the top performing customers. Deloitte CRG assisted client to develop a bottom-up, store-by-store model to provide management with a broad understanding and more granular projection of same-store sales, curtailed locations, and the development of new customers.
Deloitte CRG’s third-party assistance allowed the Company to provide a detailed 2017 and 2018 business plan required to reset loan covenants and extend the maturity date. By assisting the Company to obtain additional runway for its turnaround, Deloitte CRG was able to provide an effective outcome for the Company, management, and the Company’s lenders.
*Note: Client name has been withheld due to confidentiality reasons.
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