Rite Aid's Brace for Bankruptcy w/ Special Guest David Biernbaum

Episode Transcript

 

SPEAKERS

Justin Girouard, David Biernbaum, Mark Young

 

Mark Young  00:18

Welcome, everybody to another edition of CPG insiders. I'm your host, Mark Young, with my co host and trusty sidekick. Justin Girouard. Oh, another one being sidekick. So, one of our great friends to the podcast personal friend and one of our great advisors for our clients is with us today, Justin. And it's David Berenbaum, Davis company is David Biernbaum and Associates something some folks probably have heard of him. And it's it will have all David's social media and website and everything in the show notes. So all you have to do is go to CPGinsiders.com. Look for the show notes with the episode with David Biernbaum when you're listening to, and you'll be able to track him down and find him. So David, we asked you to join us today because we want to talk about the Rite Aid bankruptcy. And I got some of the legal input. I wanted to get some input. Let's start off with what's your thoughts about this whole thing? Rite Aid filing bankruptcy not a surprise right?

 

David Biernbaum  01:25

No, not a surprise. And actually, I had anticipated this happening a lot earlier than it has or really several times before. You know, Rite Aid is had a really a really tough several years.

 

Mark Young  01:47

I mean, years ago Rite Aid hanging on by their fingertip.

 

David Biernbaum  01:52

Yeah, well, you know, I think it was in 2006 or so. You know, they had two of their CEOs that were put in jail for accounting crimes. They now even as we speak, even with the bankruptcy, part of this mess, is you know, they're being sued by the government for abuse of opioid prescriptions between 2014 and 2019. They ignored our friends at the DOJ for any guidance, you know, about illegal distribution. They've also had lawsuits against them for misleading shoppers, about the health benefits of oral care dry mouth disc, of all things. And, you know, in the first quarter of this year, they lost 300, and about 307 million, the revenues came out to about 5.6 billion, but that's down about 350 million year over a year. That predicted loss, I think for this year, is going to be about 680 million for their fiscal year. So you know, last year, I think, right blame the prescription drug plan, membership losses. But that that wasn't really the reason. They close 25 stores in the first quarter already this year. And now, one group of bondholders wants them to liquidate a significant number of more stores. Rite Aid only wants to liquidate 20% From what I'm hearing. But, you know, Mark and Justin, I can't imagine that suppliers are going to want to start all over and do business with them with any stores because of the ongoing risk in plus pharma supplier, which you know, I am if I'm a supplier, and I'm already not getting paid for the inventory that they have. Why would I start all over again, and ship a more merchandise? So I don't, it's hard for me to imagine without the cooperation of suppliers in getting a restart or reboot, it's hard for me to imagine that they can be in business at all with any stores. But right now, that's still their plan. Their plan is to close about 20% More of the stores and go on, you know business as usual with whatever is left of that. But I don't I don't think that's realistic, do you?

 

Mark Young  04:48

Well, let me give let me give our listeners some of the good news here. There actually is some good news here, David. You're right. They want to get rid of about three or 400 stores so filing bankruptcy First off, what pushed the bankruptcy while I agree the bankruptcy pushed by some bad management? The they didn't have the capital to withstand the oxycontin lawsuit. Because remember Walgreens has what 3.3 billion that Walgreens paid. Kroger paid a billion. Everybody's throwing money into this lawsuit. Right. Have the cash on hand. So first off, right, is that the only person that got clipped on this opioid thing? No, they just happened to be the people standing there that didn't have money to dish it out. And I, the whole opioid things a little shaky and as much as when is the pharmacy supposed to tell the patient? No, I'm not going to fill the prescription that your doctor gave you.

 

Justin Girouard  05:52

Right.

 

David Biernbaum  05:53

Yeah. Well, that's the tricky part about it is they were prescriptions.

 

Mark Young  05:58

Correct.

 

Justin Girouard  05:59

Right.

 

David Biernbaum  05:59

So yeah, I mean, doctors wrote prescriptions for Rite Aid to distribute. So that is, that is kind of an erroneous ironic part of the whole scenario. And, you know, I guess you're right, I guess, it's really hard to hold that against them. It's more the way it was handled or the way it wasn't handled. opposed to the way Walgreens handle the way that the supermarket pharmacies handled the way that Walmart handled CVS a lot better.

 

Mark Young  06:38

I mean, here's the bottom line. Doctors wrote prescriptions for oxy. People took their oxy script, they went to Rite Aid, Walgreens, CVS, Kroger, whatever the case is they handed in the script, the pharmacist filled the script. The DOJ decided we're going to go after the big chains to pay for this.

 

David Biernbaum  06:57

Oh, yeah.

 

Mark Young  06:58

Now, did the big chains write the scripts? No. Where the does the pharmacist have have a responsibility to fill a script that a bonafide Doctor provides? They do. So why did DOJ go after the pharmacies? Because they're big and have deep pockets and we know where to find you.

 

David Biernbaum  07:16

Right.

 

Mark Young  07:17

I think go after 100,000 doctors and try to collect from all of them. It's collect after eight major retailers and it is to try to collect after 10s of 1000s of physicians.

 

David Biernbaum  07:30

 That's correct.

 

Mark Young  07:31

 So that's why these guys got clipped. Now, here's a little thing that I will share with you. After all of this. The top three pharmaceuticals sold at almost every drugstore right now. Are all three of them are oxy.  Yeah In different doses. So even after all, this is still the biggest is still the biggest drug being filled.

 

David Biernbaum  07:57

Yeah, it sure is.

 

Mark Young  07:59

So money grab, it's a money grab on on the part of the federal government.

 

David Biernbaum  08:05

*unknown*

 

Mark Young  08:07

The bankruptcy will allow Rite Aid to be able to jettison these 400 and they can walk away from the leases. So it's going to cause a lot of problems for people who rent buildings to Rite Aid. Yeah. And it's probably going to be a problem where we're located. Our offices are here in Michigan, Michigan is one of the biggest Rite Aid states in the country. Michigan, New York, Pennsylvania.

 

David Biernbaum  08:30

Yeah, 11% of their stores are in Michigan, I think, up to 245 stores. That's a lot.

 

Mark Young  08:36

So Michigan real estate's going to take a hit. Now, here's some of the good news. Some of the good news is these Rite Aid stores. Many of them are located on very prime locations they are. So I would expect to see CVS and Walgreens come in and grab up some of this real estate. Sure. So when those stores go shut down, if CVS and Walgreens doesn't have a store within darn near, you know, eyesight of those locations, they move in and take those locations.

 

David Biernbaum  09:09

Yeah, I think especially like in markets like Pittsburgh, and buffalo, Brooklyn, New York. Those are the three biggest markets for Rite Aid. And you know, Pittsburgh has got 40 Something stores. I mean, 42 Buffalo is 33 and Brooklyn has 25. So I think you're right i i could see Walgreens and CVS where they don't already have a store across the street. Those three markets in particular, there's also some markets in the Northwest. And it was pretty big are in California, Portland, Oregon and San Diego, Los Angeles and California. Those are all pretty significant Rite Aid markets and good opportunities for the competitors.

 

Mark Young  09:59

Now Let's talk about vendors that are in there. Yeah. If so, when a company files chapter 11, there's two ways to go bankrupt, you can file Chapter 11 or chapter seven. Chapter 11 is what's called debtor in possession. From a legal standpoint, the company is in a Chapter 11, which is what rite aid's done. Chapter 11, management gets to continue to run the business. And they do this under what's called bankruptcy protection. But to maintain your bankruptcy protection, there are very strict requirements to pay your bills. So when they filed the bankruptcy, they would have filed something called a matrix of debt. That matrix will tell us who have they listed on there. Now, normally, anybody who they haven't paid, any vendor that they haven't paid for 90 days or less, actually shouldn't be on there and should be considered a current debt. So if you're a supplier to Rite Aid, and your invoices are 30 days old, 60 days old, you'll get paid, you'll probably get paid. Here's the second thing in a debtor in possession bankruptcy. To maintain your protection, all current debts have to be paid exactly on time. So if you're a vendor, and Rite Aid now sends you a an order and said we want to buy $20,000 with the toothpaste, they have to list that they have to create a monthly matrix to the court, that matrix would have to say we owe we'll David Birnbaum, $20,000 for toothpaste, our terms are net 30. Net 60. If they don't pay for that exactly on time, the court can step in and a trustee to run the company or convert them from chapter 11 to chapter seven. So where I'm going with this is during the bankruptcy, you're going to get paid right now, once the company is in chapter 11, they file something which is which is called a plan of React of reorganization. That plan of reorganization says, here's our plan, Judge 400 stores, we're going to blow off the shareholders, we're going to eliminate this debt. Because remember, if they have long term debt, they can blow it off. They can discount bondholders, they can get rid of bondholders, they can they can liquidate shareholders, think of anybody who owns stock in GM when GM filed bankruptcy. Right. But to zero, yeah. GM had the ability to issue new stock. So right away, you will actually have the ability to issue new stock and print new money to create new money. So they can actually generate new money doing this. And banks are likely to loan them money because any bank that loans the money now is going to get paid, right? Yeah, it's the banks that they owe right now that are going to get burned.

 

Justin Girouard  13:20

Yes. Right.

 

Mark Young  13:23

So what I'm saying is, if you're currently selling a product in HR, I did, check and see if your 90 days or older. If your 90 days are older, you probably aren't getting paid. Yeah. But anything you ship right now, you will get paid. Yeah. My other question to you, David is, you know, that people are writing. Let's say I am a Rite Aid vendor, what's Rite Aid? So what's Rite Aid? is normal payment terms right now? Is it net 60. Net 90 net 120.

 

David Biernbaum  13:55

For most vendors, it's 60. For any newer vendors that came aboard, let's say within the last five years, it's about it's 90 or even greater, in some cases 120.

 

Mark Young  14:08

And those 120 people they're probably not getting paid.

 

David Biernbaum  14:10

Right. And I do need to say though, that even the 60 day and 90 day, vendors they they haven't been paid in a long time. I mean, Rite Aid, wait past the due date with those vendors.

 

Mark Young  14:25

A lot of them aren't going to get paid.

 

Justin Girouard  14:27

Yep.

 

David Biernbaum  14:27

Right.

 

Mark Young  14:28

Now if it comes back to me wants me to to supply them. And I want to get David's opinion, my opinion is you need to negotiate better payment terms.

 

David Biernbaum  14:39

For sure.

 

Mark Young  14:41

So I would probably if Rite Aid wanted to continue to carry my product. Assuming my product is making money for Rite Aid and I products in trouble that's a different issue, but right products making money. I would probably go back to my buyer and I would say look, I'll ship but I'm shipping net 30 Arms chipping net 45. And I need that in writing. Because if they give it to you in writing, they have to do it while they're in bankruptcy,

 

Justin Girouard  15:10

right.

 

David Biernbaum  15:10

For sure. Right, much more so than they had to do it before.

 

Mark Young  15:13

Right. So where the real risk will become, by the way, where the real risk is, once they filed their plan of reorganization, the debtors get to vote on it. And then the judge either approves it modifies it or rejects it. Right? When the judge approves it, then they technically come out of bankruptcy. When they come out of bankruptcy, that's actually the bigger risks the risk of going back to bad payment practices, right? Yes. Now you don't have a judge supervising the payment program. Yeah. Now, there's also a risk here. And the other risk is, all these people who owe them money, now become what's called, they become the debtor, the debtor board, the debtor committee. Now, they don't all have to be on the committee, but they all have the right to be on the committee, right. So when they get their bankruptcy, notice, you get a notice in the mail, you can take your notice and say I want to be in the creditor committee. The creditor committee gets to vote. There is the possibility and there are rumors right now. And you're probably hearing them too. Yeah, for sure that the creditor committee is going to try to force Rite Aid into a full liquidation or the creditor committee will want someone else to buy it. Or the creditor committee will want to run the company because they've lost faith in current management.

 

David Biernbaum  16:52

Well, that's for absolute certainty.

 

Justin Girouard  16:55

Yeah.

 

Mark Young  16:57

And it's not unusual to lose faith in management when you file bankruptcy.

 

David Biernbaum  17:03

It's I have to say, too, it's not unusual to lose faith in management in Rite Aid.

 

Mark Young  17:11

Well, yeah, that's kind of a given. We've, we've had no faith in Rite Aid for a long time.

 

David Biernbaum  17:15

I mean, I can't be a valuable guest on this show. If I didn't say candidly and honestly, that Rite Aid hasn't had a very positive relationship with its suppliers. I don't really know about the banks. But as far as suppliers, it hasn't been very good for a very long time.

 

Mark Young  17:37

It hasn't been. And keep in mind for us Rite Aid currently has 2.3% of the US market. Yeah. This is not like losing CVS. CVS, now. Yes, it's standing at 25.2% market share. Yeah, Walgreens is standing at 15.5% market share. And Rite Aid is at 2.3. Right. So if you if you are a product that has 70% or above ACV, you run the risk at 2% of your your total overall sales. And those people aren't going to stop shopping. They're going out.

 

David Biernbaum  18:20

They're gonna buy it somewhere else.

 

Justin Girouard  18:22

Yeah, they're going to buy it somewhere else. So I guess my question to you, Mark would be, and David, is, let's talk about the other hospital vendors who maybe Rite Aid is one of their only retailers or one of their biggest retailers because they just started getting into the marketplace now. And he was the first one to say yes.

 

Mark Young  18:43

What's the point there are there are places where Rite Aid is probably the only one carrying the product.

 

Justin Girouard  18:47

So what what advice do we have for those brands that are looking at this news going well, that 2.3% may be nothing to those bigger guys, but to me, this could be my whole business.

 

David Biernbaum  18:59

Well, in Justin, one of the examples of that are the private label.

 

Justin Girouard  19:03

Oh, yeah.

 

David Biernbaum  19:04

 exerce. Right, he does have a tendency to use private label manufacturers that aren't supplying CVS and Walgreens and Walmart and everybody else, because maybe there was only one or two private label manufacturers who would do business anymore with Rite Aid. So they're not you know, they're get a uphill battle to.

 

Mark Young  19:30

Yeah, if Rite Aid is your only account. First off, if writing is your own account, and there was no bankruptcy, I will be telling you your business is in trouble. Well, that's before the bankruptcy,

 

Justin Girouard  19:42

Right. For sure.

 

Mark Young  19:44

If Rite Aid your only account, better check the date in on your invoices, because you may not be getting paid or you may be getting and what will happen is when the court's approval repayment plan, yeah, it'll probably say it'll take all the creditors in it and it'll put them into classes. Yeah. So vendors will actually be a higher class than let's say, an unsecured debtor. Okay. So the stockholders are the bottom of the class,

 

Justin Girouard  20:13

right.

 

David Biernbaum  20:14

Well, yeah, it's like this. It's 91%. lower than it was a year ago today.

 

Mark Young  20:19

Right?

 

David Biernbaum  20:20

Yeah.

 

Mark Young  20:21

The top of the class will be federal government. They're the top of the class jacking secured creditors or the next class. Those are banks who have liens on real property or receivables or whatever the case is. Yeah. So the Feds would get paid first. Yep. secured creditors get paid next. Yep. The suppliers will get paid third. Okay. What about landlords? Landlords are just out.

 

David Biernbaum  20:51

Yep.

 

Mark Young  20:52

So if I'm behindon the rent, you ain't getting it. You have to make the current rent payment, or you can print me out.

 

David Biernbaum  21:00

You might know this more than I do. But I think that most of their properties are leased properties

 

Mark Young  21:08

As is CVS' and Walgreens.

 

Justin Girouard  21:10

yeah,

 

David Biernbaum  21:10

yeah.

 

Mark Young  21:11

So if you're a vendor to Walgreens, when the plan gets approved, the plan will probably say, we're going to pay X pennies on the dollar to this class, right. So it might say we're going to pay 15 cents on the dollar to vendors. And keep in mind that 15 cents on the dollars will be spread over 60 to 84 months, right. So it will be a monthly payment. But let's just do the math, they owe me 100 grand, right? They're gonna pay 15%. So now the only 15 they're going to pay me over 60 months. So they're going to pay me once they come out to $333 a year, right? divided by 12, they're going to send me a check for 60 bucks a month. So that's what my $100,000 receivable is going to turn into $60 a month for the next 60 months.

 

Justin Girouard  22:11

And so, I guess, with that in mind, I mean, in the end, I'm really thinking about these, these brands that that this is a big part of their business, I guess what should they do next, because if you stopped supporting Rite Aid, your IRA numbers are starting to get hit even worse than they might be already with some store closings, which doesn't look good if you're trying to expand your distribution. But then with this in mind, cash flow perspective, you might be getting hit even harder, because you're probably not getting hit if they're already late. payments have not been made. They're that long. So you're already losing money, I guess what, what should they do for the long term health of the brand?

 

Mark Young  22:52

So I think under and David, what do you think I think as a vendor, if I'm some vendors are going to decide to quit doing business?

 

David Biernbaum  22:59

Well, in you know, obviously, I can't say a name of a company. You know, who I work with. But there's at least one very, very large supplier who has already decided that they're done with Rite Aid.

 

Mark Young  23:19

And that's what where I'm going with that is maybe an opportunity for some smaller brands. Okay, because some of the bigger brands who just don't need it, or just some of the bigger brands are gonna say God, they got 2% market share that never pay and forget this isn't worth our time. Which makes sense because I'll pick it up at Walgreens and Kroger and CVS,

 

David Biernbaum  23:43

Yeah, or a supermarket pharmacy or, or Walmart or Target or Amazon or anyone else.

 

Mark Young  23:53

So for the brands so with the big brands bailing out, this may be an opportunity for smaller brands to be more important inside the the remaining Rite Aid stores.

 

Justin Girouard  24:05

So then, is it like you saying do you then double down on wanting to double down but get stronger with your support of that because a you are going to get paid once that goes through, you're gonna get paid during the bankruptcy. So you know, during the end, you have big players that are moving out of support.

 

David Biernbaum  24:21

So Justin, what I'm advising my clients is obviously to be very, very strict in disciplined about the terms. Your goal, if you want to do business with them, is just to make sure you don't get burned at the end. And so the quantities that you ship them should be limited. You should resist the temptation to promote to buy big promotions or to ship larger quantities. That takes discipline because for the first time ever ready is going to be there very hospitable motions, they're actually going to, they're going to be good partners with vendors that, you know, it hasn't happened in a long time. So, but vendors have to be especially small vendors who get trapped into making bad deals with retailers, you're gonna have to be very disciplined that No, all I want to do is keep your shelves fill, I only want to replenish, I only want to ship when the merchandise is needed on the shelf. And you know, at the at the DC, I don't want to ship you any more than that. I don't want to buy displays. I don't want to be on display. And 30 days are going to be my terms, regardless of what programs we do. They that's how I'm advising it. Because you know what's going to happen? With the stores remaining, you know, they're they're going to want their stores to be loaded with sidekicks and displays and to make it an exciting shopping experience. And or certainly went ahead when he had big promotions, and they're going to promote on price, and all those things. But that isn't necessarily in the best interest of the supplier.

 

Mark Young  26:28

I would probably agree with you I would probably look at in store promotion. At Rite Aids expense. Absolutely. I would, you know, even even if Rite Aid said, Okay, we're going to give you extra shelf space, we're going to give you this great, I'll take the shelf space, but I'm not paying slotting fees, I'm not paying for it. It would probably be a good time to present Rite Aid with a new SKU. If you have another one you're trying to put in, they probably be hungry for a new SKU. But again, make darn sure that it's an SKU that can sell through or you're just going to eat it right.

 

David Biernbaum  27:05

But a point you made earlier about the IRA share, which is really the reason that a lot of suppliers still do business with them is because their IRA track, but the 2.3% by my math is probably going to be like around one and a half percent. When this is all said and done. You know the ACV?

 

Mark Young  27:27

No, yeah, you look at they've got a 2.3 market share. I know about to get rid of 20% of those stores. Yeah. Plus, some consumers are just going to bail out a Rite Aid when they know they're in bankruptcy because some consumers just do not feel comfortable.

 

David Biernbaum  27:48

Yeah. Especially with their prescription drugs.

 

Mark Young  27:50

Right. And again, we don't know how their shipment on prescription drugs is doing. Yep. So you know, there's the possibility of running out of some prescription drugs.

 

David Biernbaum  28:02

The possibility.

 

Mark Young  28:04

So I think the other thing I would do if I had a Rite Aid dependent business, depending on the product I had, if I've got a if I've got an innovative product, if I've got a health related product, I would probably take a real hard look at Kroger and farmer vision.

 

Justin Girouard  28:23

Sure. Yeah. Yeah, that's what I would do.

 

Mark Young  28:26

Yeah. So if Rite Aid is your only market? Yep. Depending on your product, you could you could do the Kroger farm Vision Program. Kroger is the busiest pharmacies in America. That gives you 2000 pharmacies and just so people understand, like a Rite Aid sees 100 250 prescriptions a day. Yeah. Kroger gets 800 prescriptions per day average store count. They're actually the busiest pharmacies in the country.

 

David Biernbaum  28:55

Yeah. And after the merger with Albertsons goes through, it'll probably be almost double that.

 

Mark Young  29:00

Correct. So I would look at if it was me, and in my business was hinging on Rite Aid, right. Yeah. Yeah. I would probably be inquiring on the farmer vision program to see if I could qualify to get into pharma vision. That makes sense, and it's going to cost you money to get in there, but it's going to cost you money to stay in Rite Aid anyways.

 

Justin Girouard  29:21

Yeah. Yeah. Exactly. Well,

 

David Biernbaum  29:24

in supermarket pharmacies, and particularly Kroger, and pharmavision, they really have taken over a significant amount of pharmacy market share over the last 10 years.

 

Mark Young  29:39

A Kroger has over 3% market share now for pharmacy.

 

David Biernbaum  29:43

Yeah, you know, it's not like it used to be where it was a convenience for their grocery shoppers. It's a destination pharmacy. Now for a lot of consumers. There are people that go into the stores, to get their prescriptions filled, who actually walk out of there. without, you know without buying potatoes or green bean.

 

Mark Young  30:05

Also keep in mind Kroger has Kroger has drive throughs on most of their stores now.

 

David Biernbaum  30:10

Oh, okay, they do, they're out on a parking lot, and which is very convenient, it's actually more convenient than the drugstore drive up to the side of the window where there's usually 11 cars in front of you. And there's only one clerk inside or one, pharmacy tech, pharma vision, any new brand or even an established brand? You know, that's when I first heard about it, I thought it was too good to be true. Because your product is going to be right in the pharmacy, right in front, on the shelf, right in front of where the pharmacists are working in the pharmacy techs. So they're going to get to know the products in that section extremely well, they're going to hear the video and probably watch it over and over again. So they're going to be educated about the products that are there. And as you said, Kroger already has what a 3% market share, it's gonna grow probably to 5% or greater in the near future. You can't ask for anything better for your brand than that. I mean, that's an ideal situation, the pharmacist is the most credible person of any profession there is the pharmacist is more credible than a doctor. So when a pharmacist, just the the implication of your product being right there in the pharmacy, and occasionally a pharmacy tech or a pharmacist saying, Yeah, that's a good item. Your brand is going to grow everywhere, not just at Kroger, but everywhere.

 

Justin Girouard  32:00

Do you think David You know, just looking at future implications? Do you think that for some of these vendors and brands that may take a hit because of what's going on at Rite Aid? And when they're going to future meetings? Do you think that retailers are going to listen to this story and understand the context? Or say, Well, you, you still in sell product doesn't matter what what was going on at Rite Aid, you still should remove in units. So I'm not going to take you in? Well, this affect their ability to sell you think to other retailers, or does depend possible,

 

David Biernbaum  32:31

Well you know, if I'm making a if I'm doing a business review with any other retailer, and if my sales weren't good at Rite Aid, it's pretty easy for me to explain that in the retailer will respect and understand that. If I say yeah, you know, my market share right now is down a half a percent, or a percent or my business is down a percent. And frankly, between you and me that was right, a business that I walked away from, you're probably going to get a pat on the back. You're probably going to get empathy. It's actually a positive thing. You know, the point, you know, I wish I could be nicer about this. But the industry doesn't really have a tremendous amount of respect, to Rite Aid?

 

Mark Young  33:23

 That's been that way for decades.

 

David Biernbaum  33:26

The vendor certainly don't. Again, companies like Walgreens knows that Rite Aid has been paid as much for their promotions, having 1/8 The traffic that an average Walgreens has, as Walgreens gets paid. They don't they don't like that. Right. So I don't other than Rite Aid shareholders and creditors who don't get paid. A whole lot of people aren't going to show up to the funeral.

 

Mark Young  34:00

So I want to I want to tag on to something that David said about having discipline. Yeah, there's a good possibility here that Rite Aid buyers. And I don't I don't know this to be the case. But there's a good possibility that Rite Aid buyers might start reaching back out to brands who have called on them in the past and Rite Aid has rejected them, for sure. And when they do, Rite Aid has a long history of like enormous free goods, slotting fees. Oh, god, yeah. So don't be surprised for Rite Aid to come back and say, well, we've decided we'll bring in your ex product. But we want four pieces per store. Free Free goods right. Not unusual with Rite Aid. Let's say you're a brand new brand and you're looking say well, I've never been in retail. This is my chance to get into like Nancy Reagan said just say

 

David Biernbaum  35:05

I just say no.

 

Mark Young  35:07

They I don't believe it's worth the value to give free goods for every remaining Rite Aid store to get on their health right now. No, no, no. I mean what do you think David?

 

David Biernbaum  35:18

Yeah, and you know, guys I went through this with Kmart.

 

Mark Young  35:23

Exactly. Yeah. Yeah, folks

 

David Biernbaum  35:31

Anybody who went through that with Kmart and got burned each time they might have learned their lesson same thing of obviously with Sears for the same reason same company and then there were a lot of other smaller drug chains throughout the years. You had some right there in Michigan you know smaller drug chains that kind of phase themselves out. You know, in in small suppliers were left kind of holding the bomb.

 

Mark Young  36:02

Perry drugs by the way

 

David Biernbaum  36:04

Yeah. Happy Harry's Haley. Oh yeah. Carrie Perry drug. Yeah. And f&m And

 

Mark Young  36:14

Perry was. Perry was who Rite Aid bought. That's why they got such a big Michigan footprint.

 

David Biernbaum  36:19

Yeah, they bought Perry

 

Mark Young  36:21

The big drugstores here in Michigan were Arbor drugs. Perry drugs.

 

David Biernbaum  36:26

Uh huh.

 

Mark Young  36:27

Cunningham's

 

David Biernbaum  36:29

Uh huh. And f&m for a while

 

Mark Young  36:32

in f&m for a while Cunningham's and Arbor became the same

 

Justin Girouard  36:36

 Yep.

 

Mark Young  36:37

Then CVS?

 

Justin Girouard  36:38

 Yep.

 

Mark Young  36:39

And Perry became Rite Aid. Yep. Just stormed in and built.

 

David Biernbaum  36:47

Yes, I remember that well.

 

Mark Young  36:50

And we probably are better represented with CVS stores here in Michigan and we are living. Yeah,

 

Justin Girouard  36:56

We are. Absolutely.

 

Mark Young  36:59

Where else would you go? What else would you tell people? If they're, if they here's what I'm envisioning, David, I'm envisioning. We just had NACDs last month, right. I mean, I'm envisioning all these young entrepreneurs with their first time at NACDs. And Rite Aid buyer and a Rite Aid buyer says, You know what, maybe we'll say yes to this. And I came away all excited because Rite Aid said they might say, Yes, you should be very frightened because Rite Aid said they may say yes. So it gets back to don't give them the free goods, demand payment, demand good terms, push for some promotion, at their expense. And in need, you just gonna need to keep these people on a really short leash. Yep. And try to get some decent IRI numbers so that you can go use the IRI. But like I said, you could go pharma vision where else would you go? Would you would you just immediately be chasing Walgreens or CVS?

 

David Biernbaum  38:00

Yeah, um, you know, I love your form of vision idea for a lot of reasons. Especially if you have a product that's kind of OTC you know, self medicated, self medicate type, orientation. But how I am advising my clients. In fact, when I was supposed to be on with you guys, last week, I was dealing with a foreign company that literally just got a product in are accepted by Rite Aid, February of this year, and I had to be the guy to say, I suggest you just hold off on it. Because it's a it would be a big order. There's a lot of free goods involved. And you know, slotting allowances and, and Co Op, advertising commitments, and a lot of other things. I wasn't too keen on it, even when they committed to it. But I was the guy that got to tell him right now you need to pull out because you can still get distribution there. But you're not going to have to live up to all those things that you signed off on that at all. And I'm kind of in the middle of that right now. Because of course, Rite Aid is saying, Well, you already committed to those things you are, you're legally obligated to everything that you already committed to.

 

Mark Young  39:38

You are not

 

David Biernbaum  39:40

You're not know. Yet.

 

Mark Young  39:45

Walgreens are with Rite Aid in the past 90 days. And you haven't built it yet. You can go renegotiate that deal.

 

David Biernbaum  39:55

Absolutely. And you know, Rite Aid has always had people on their team that, you know, use a bit of intimidation and the bully approach and all that.

 

Mark Young  40:10

 It's all odd because the they've always been the smallest kid on the block. And the ones always been the most aggressive and the most demanding.

 

David Biernbaum  40:20

They are. Yeah.

 

Mark Young  40:23

It's it's been difficult to make money at Rite Aid for a long time.

 

David Biernbaum  40:27

It's very difficult. I work with a private label supplier who has made money in the past doing business with writing because the private label business is so black and white in terms of how dollars are exchanged, but they too, are in a panic right now, because their terms with Rite Aid are always so much in writing its favor. So, you know, it's not a great situation for anybody. But as you said earlier, in the markets we're writing really matters like because for Buffalo, Brooklyn, LA, San Diego, Virginia Beach, and these other places where they have a lot of stores. The consumers are easily going to switch, and suppliers won't lose market share. It'll just increase in other retail chains that they're doing business with. And the other retail chains will help them with that. I think it's really going to have its most impact on people that have financial situations with them. I really don't think it's going to other than a few markets like Pittsburgh and the others. I don't really think it's going to have that big of an impact on the market itself.

 

Mark Young  41:54

Now, we got a couple of minutes left here. I want to ask David a another question about retail. But on a different note. We see that CVS, I believe it is a CVS is going to close three or 400 stores. Yeah. And it appears I don't know what you think I think most of those stores are being closed because of shoplifting.

 

David Biernbaum  42:17

There. That's exactly why two reasons. Number one is the shoplifting and the gain theft, which is affecting drugstores all over the country. And the other reason is personnel, they just can't get enough employees to work in the stores. So it's really those two reasons combined. It's a really odd situation. Because it's not like there's less consumers in those markets. There's not and they don't want to close them down. But they're losing money because of the theft, the shoplifting. And then also because they just don't have enough personnel to work in those stores. Some pharmacies are actually shutting down the pickup window business, which is their most convenient service that they offer.

 

Mark Young  43:05

You robbed at the window?

 

David Biernbaum  43:08

They just don't have the personnel.

 

Mark Young  43:10

 Oh, from a staffing standpoint?

 

David Biernbaum  43:11

yeah. From a staffing standpoint.

 

Mark Young  43:14

So this is going to hurt urban and inner city, consumers?

 

David Biernbaum  43:19

Well, the urban and inner city consumers are going to lose all their stores. I'm sure you've been watching what's happening in San Francisco. And really a lot of cities in California, but all over the place. Stores are leaving the city Nordstroms is leaving the big cities. And that's where all their main stores were that

 

Mark Young  43:43

Target's closing stores in San Francisco, Portland, in New York, and I think Baltimore, okay.

 

David Biernbaum  43:53

Yeah, I mean, I'll be pretty blunt about this. Politicians have to accept the fact that this is one of the biggest problems right now facing this country, and they can't keep ignoring it

 

Mark Young  44:12

Yeah shoplifting $112 billion as of  this year.

 

Justin Girouard  44:17

Billion?

 

David Biernbaum  44:19

 And I know this is a little bit off topic, but the decriminalization is taking place in a lot of these cities, where these people aren't even getting punished for doing this. Come on, common sense. What do you think's going to happen?

 

Mark Young  44:35

So let me give I'm going to give our retailers a little secret. If you want to make your product less attractive to be stolen. So keep in mind, as a retailer, we look at products say well, we sold it to Walgreens somebody stole it that's Walgreens problem. It's not just Walgreens problem. No. It's going to become your problem in a number of ways, one of the ways that you are problem is Walgreens, or whoever can get to a point where they'll say it's no longer profitable to carry your product because of theft. Right? To your product is going to show up on the world's largest fence, which is Amazon and eBay.

 

David Biernbaum  45:17

Yes.

 

Mark Young  45:19

And now your product is going to your $30 items is going to be on Amazon remarkably for $15.

 

Justin Girouard  45:25

Right?

 

Mark Young  45:27

Because it's been stolen. So here's something we learned David, and that is, the thieves don't like stealing stuff that come in boxes. Oh, yeah. Because the boxes get damaged too easily when you're hiding them in your bags in your pocket.

 

David Biernbaum  45:46

Yeah.

 

Mark Young  45:47

They become harder to resell. So

 

David Biernbaum  45:52

The green, the green movement is encouraging.

 

Mark Young  45:56

Yes

 

David Biernbaum  45:57

Manufacturers not to use boxes.

 

Mark Young  46:00

So when you're dealing with your with your buyer, and your buyer says, well, we'd rather you just put the tube on the shelf, save unboxing remind your buyer, but we're going to put it in a box with a fifth panel on it. Which makes it too hard to steal because the fifth panel gets destroyed when you hide it into pants.

 

David Biernbaum  46:25

Yeah, and you know, the lock and key thing is going to kill the business anyway. And that can't be the future. That cannot be the future of merchandising is you know, all the products being behind lock and key. There's a zillion reasons that doesn't work well. And that can't be the answer. They're doing it right now out of desperation, and losing business,

 

Mark Young  46:47

The RFID tags that set off door alarms. And I said to this retailer, I'm like, well, how about what RFID alarms on it? And his comment was, that's a great idea because it tells my staff who to waive at when they walk out.

 

David Biernbaum  47:03

Yeah, that's exactly right.

 

Mark Young  47:06

This is that's all our staff, does it just wave them through.

 

Justin Girouard  47:10

Right. They're not gonna stop it. Why would you stop there?

 

David Biernbaum  47:15

I live in a city where the mayor has said that the reason for all this theft is because these people need the products they needed for survival.

 

Mark Young  47:28

This ever last. Lay for the term, it is no longer shoplifting. David, it's for resell. The term is retail reparations.

 

David Biernbaum  47:42

Retail reparation. Yes.

 

Mark Young  47:46

This is reparations. Oh, my God. That's actually a term that the left is using for shoplifting now.

 

David Biernbaum  47:54

Yes. Retail reparation. And you know, they're using these retail reparation products to sell on eBay. Yes. Some people are making a lot of money doing that.

 

Mark Young  48:09

Yeah, they're the world's biggest fence. Now.

 

David Biernbaum  48:12

They are.

 

Mark Young  48:13

So keep watching Rite Aid or keep watching. Not ready. Keep watching eBay and keep watching Amazon. Yeah. See if your products are showing up. Right at half price. And keep filing complaints with eBay and keep filing complaints with Amazon that these are unauthorized vendors. In Justin, how many? How good can you do with Amazon with unauthorized vendors? Can you get them knocked off?

 

Justin Girouard  48:39

Oh, yeah. I mean, it's a process as long as long as you're registered, which you're going to have to be registered now to sell on Amazon. So you have to be with brand registry through the trademark program, which so what's great is that it's easy to defend it and get rid of them. You just have to go through the process was

 

Mark Young  48:54

How about eBay? eBay is a lot easier to throw stuff

 

David Biernbaum  48:57

eBay a lot easier. And, you know, I can compete with you on eBay with your own product pretty easily.

 

Mark Young  49:05

Absolutely.

 

David Biernbaum  49:06

That's because my cost of the products were zero,

 

Justin Girouard  49:10

right

 

Mark Young  49:10

I have zero product costs

 

Justin Girouard  49:12

right

 

David Biernbaum  49:13

Yeah, like you have to pay for gas to get to the store. Maybe

 

Mark Young  49:18

This shoplifting is this is not one person going in?

 

David Biernbaum  49:20

No, these are gangs, right?

 

Mark Young  49:23

This is organized retail crime rings, where they're literally going in and they're going in with instructions. They're not grab what you can, they're going in saying okay, these are the items these are what we need on eBay this week. Go collect these items. This is what we're selling. This is what's moving.

 

David Biernbaum  49:45

It is and, man, you guys know this I'll just say politicians, I don't identify them by party or anything else but politicians need to wake up, they need to wake up. They need to accept reality and what's really going on. And it can't be offensive to arrest people. That's got to change. And I'm just saying it from a retail perspective. And consumer products expected. This industry cannot survive with brick and mortar retail stores until crime in until there's law enforcement. It's dead. If it if there's no law enforcement, there's no formula that without law enforcement is going to work. What will happen is that all of the business will go ecommerce.

 

Mark Young  50:48

Yeah, and then the only person who makes money is Jeff Bezos.

 

David Biernbaum  50:51

Exactly. Yeah, you're so right.

 

Mark Young  50:55

Okay, right now, folks, you do not make money on Amazon. No, you sell product, you get good reviews. Getting a high number of reviews on Amazon is important because people use Amazon as a review site. But you're not making money at it.

 

Justin Girouard  51:10

 No, no.

 

Mark Young  51:12

And if you here's the problem, you can make money for a year. Got a hot item, you can make money for a year to a half a year. But within a year, either Amazon knocks you off, or the Chinese manufacturers knock you off directly where they're making the product. And have you crushed on product costs.

 

David Biernbaum  51:34

Oh, they wouldn't do that.

 

Mark Young  51:38

For half the price. Yeah. So we have tools that we use, like a tool we have is called Helium 10. Helium 10. And we have this if you ever need to use a David and you can go into helium 10. And I can look and find who's got a hot item right now that's making money. for the sole purpose of knocking that product off. I literally go in and say oh, look, this, this loop spatula is killing it on eBay. I go over to Alibaba, I, Chinese manufacturer who makes that spatula, I throw it up on Amazon for $2 less than the guy who's killing it right now. And I make money for a couple of months. And then somebody comes in undercuts me. And eventually it's a race to the bottom. So you can make money on Amazon. But if you do make money in Amazon, it's always short lived. Yeah. Because eventually you get knocked off or Amazon decides to knock you off. If if you're an oat, a drug, an OTC something like that they come up with a private label, just like everybody else does.

 

David Biernbaum  52:47

Sure. And they have private label everything already. Right?

 

Mark Young  52:51

Amazon, you're not sitting on the shelf next to the private label, because Amazon always makes their product the dominant product. Right?

 

David Biernbaum  53:00

Yeah. And, you know, I have some new clients or would be clients that I have to go through all this now with the gang theft or the the realities of what's going on right now. In retail, and sometimes they'll say, Well, I don't want to discuss politics. So we have to discuss politics, because it's a big factor right now in how you can make or not make profit, doing business at retail, because ultimately, you're going to be held accountable for whatever happens there. Retailers still call it breakage. Yeah, and most manufacturers still have to pay for that.

 

Mark Young  53:48

A lot of the retailers charge shrinkage back to the vendor.

 

David Biernbaum  53:51

They do. And whereas it used to be like okay, we can just agree on a half a percent. And I won't, you know, we'll just call it even. I had a retailer tell my client a couple of weeks ago that they need 4%

 

Mark Young  54:11

I can tell you that grocery and you would think grocery wouldn't be as big a theft. Oh, yeah. Grocery is budgeting 5% For for shrinkage for theft.

 

David Biernbaum  54:22

And that's not affordable to anybody. That's not affordable.

 

Mark Young  54:28

5 points right off the top and again, what do you think pays for that?  Well, all its retail reparations Justin

 

Justin Girouard  54:36

Sorry. My bad

 

David Biernbaum  54:39

It's really not funny, but it makes me laugh.

 

Mark Young  54:41

Well, these are see these are people who've been going to Walmart for years and they feel Walmart owes me something. Yeah. So that's what I do. My wife went to a Meijer store which we have lots of Meijer stores. Here in the area, and she was in a checkout line and Rite Aid Has the spinning bag. packers like Walmart has.

 

Justin Girouard  55:05

Yeah

 

David Biernbaum  55:05

Meijer or Rite Aid?

 

Mark Young  55:07

Meijer does. So they have. So the shopping bags are like in a big carousel and you just fill the bags and spin the wheel until you get all the bags filled.

 

David Biernbaum  55:15

Yeah.

 

Mark Young  55:17

The Checkout next to her was not open. She watched a woman with a shopping cart full of groceries, wheeled her cart into the closed checkout line.Bagged them all. Put them back in the cart and just push the cart right out of the store. And no one stopped her. That was a $200 cart.

 

David Biernbaum  55:48

Yes, and I bet she wasn't the only one who did it that day.

 

Mark Young  55:52

But literally, I mean bag the groceries. I want to move in bags. Just go in line, bag them all up. Just like nothing this like, literally like this is normal. There's what I'm doing. I'm just bagging groceries and put some back into cart and walks right through the door.

 

David Biernbaum  56:12

Probably just a misdemeanor now.

 

Mark Young  56:16

Yeah, it was in some cities. It isn't even a misdemeanor. Now it really been knocked down to what's called civil infraction. Yes, and a civil infraction is a ticket. Yeah, a parking ticket is a civil infraction. So it's been lowered to that level where it's not what should be a felony. But now it's that misdemeanor or civil infraction level.

 

David Biernbaum  56:42

Well, and what consumers need to understand. We already have 7% inflation as it is. But in addition to that retailers have to raise the prices even more in order to compensate for all the losses on the month s.

 

Mark Young  57:05

Right. There's been $112 billion in retail reparations so far this year. That 100 and $12 billion is divided up amongst 340 million people based on how much product you buy at the store. Yes, but you are paying your share of it back.

 

David Biernbaum  57:27

You certainly are.

 

Mark Young  57:28

Every one of us is paying our share of it back. So it is not a victimless crime as as as positioned. This is a victimless crime. They stole stuff from Walmart. There's no victim there. Yeah, they have insurance. Yeah, Walmart's a big, faceless evil company.

 

David Biernbaum  57:46

Yeah, I

 

Mark Young  57:49

New vendors will always call me say, well, we don't want to business Walmart because we're here are terrible they are. And I'm always trying to tell people, no, they're great to do business with.

 

David Biernbaum  57:58

Walmart's the easiest. They're the easiest retailer to do business with an entire industry. Because their their rules are really simple. EDLC. We buy you book you send we pay on time, right on time. I would love for every retailer to be just like the Walmart model.

 

Mark Young  58:26

Oh, absolutely, man. Absolutely. The downside of Walmart is they'll probably never be the first "Yes" when you roll your new product out.

 

David Biernbaum  58:35

No, of course not.

 

Mark Young  58:36

They're always going to come after another chain.

 

Justin Girouard  58:39

Yeah

 

Mark Young  58:40

Once in a while that I've seen him do it. We've had it. But as a rule, they're not going to be the first to bring you in. And part of the reason for that I'll show this real quick. We'll wrap this up. Part of the reason for that is years and years ago, Sam Walton, who was a decent human being a great guy made a company rule that Walmart would never be responsible for putting a vendor out of business. Right? So the reason they can't be your first account is because if they don't like you, and they send you out, they run, putting you out of business. So David, you've probably had the same event, I've had this where a vendor will get to 70%, Walmart will find out that they're 70% of the business. They don't want to be in Walmart will call the vendor and say you need to increase your sales at other accounts. And get the percentage of sales that we represent of your business down to 40%.

 

Justin Girouard  59:38

Yeah.

 

David Biernbaum  59:40

That's usually what it'll be. Yeah, I've been through that many, many times with small suppliers. In after we're done. I'll send you a letter that I got from Sam Walton back in 1991. To show you what kind of a guy he was As he it's not like what people just think, you know that he started this gigantic company and, you know, made billions of dollars, which he did. But he was down to earth is anybody in any profession, anywhere that I ever met, I'll send you this letter. He's telling me in the letter, this was six months before he died. And he's telling me in the letter that he's going to go quail hunting, so that that might make him feel better. He's congratulating the company I'm working for on doing a great job. And you can just tell it's just all coming from his heart and his conscience. And that's the way that he was. There's nobody like him anymore.

 

Mark Young  1:00:48

Nobody likes the company. He's not there. But the company still holds on to some of his values.

 

David Biernbaum  1:00:54

They do, oh they definitely do. But as a human, he used to walk into the lobby where all the vendors were waiting for their meeting. And he would just walk up to the lobby and he would pull your nametag like this so that he can read it. And like with me, he would say, Oh, Mr. Birnbaum, you know, yeah, Sam. I say Yeah, Mr. Walton, and he'd say, well, your name is Dave, right? Yes, sir. Well, I'm gonna call you Dave. You're gonna call me Sam.

 

Mark Young  1:01:33

Do you remember now you and I are shown how old we are.

 

David Biernbaum  1:01:36

Yeah, we are.

 

Mark Young  1:01:37

You remember going into the original Walmart headquarters? And it smelled like popcorn.

 

David Biernbaum  1:01:44

Yeah, like in 1980. Yeah.

 

Mark Young  1:01:47

 Like, God, it's, it smells like popcorn because the headquarters used to be a store. Right. And they used to have a popcorn maker at the front door where they gave popcorn away at the front door. Yeah. In the building reaked of old popcorn.

 

David Biernbaum  1:02:03

Yes

 

Mark Young  1:02:04

You'd walk in? It's like, what is that? It's like, it's like popcorn. Yep. Because that's where the popcorn machine used to sit right there. And ran started into the floor it into the ceiling, this popcorn smell. And then you went to a room for your meeting. And you went into the room? It was a table with chairs on both sides. Yes. There'll be three chairs on each side. But the first person had to go in the farthest chair. Right? Is no room to walk around the second chair. No, you had to push all the chairs in, go in, pull the chair out. And then the next person could sit down the room was that narrow. You remember those rooms? I mean, you couldn't know if you had claustrophobia, you know, at a Walmart meeting.

 

David Biernbaum  1:02:56

And that's how it began.

 

Mark Young  1:02:58

It was like getting it was like getting a CAT scan with four other people.

 

David Biernbaum  1:03:04

That's a great analogy, because that's exactly what it was like.

 

Mark Young  1:03:08

Everybody was terrible. We're gonna slide you in the term see what kind of deal you can make. It was it was it was that cramped? It was insane. But the new headquarters are nice now.

 

David Biernbaum  1:03:18

Oh, yeah. In some of those meetings, Sam was at the table.

 

Justin Girouard  1:03:25

That's cool.

 

Mark Young  1:03:25

Yeah, but it was. That was that was just a mess. Well, folks, David, I appreciate you being with us. And we want to have you back and talk about some other topics because you're a wealth of information. So I want to let everybody know if you first off if you're looking for pharmavision, you can find it at pharmavisiontv.com. You can find Justin and I at CPGinsiders.com, or JekyllHydelabs.com. You can always reach out to us and you'll go to the show notes. And you'll find the links for David Biernbaum and associates will have links to his website. And Dave is really active on Facebook and active in a couple of LinkedIn. Yeah, LinkedIn groups.

 

David Biernbaum  1:04:09

Yeah, we have a LinkedIn group, consumer goods and retail professionals. We've got 103,000 global members and the conversations in the news that are posted there are really, really good. The other recommendation I have is retailwire.com. It's a blog that I participate on along with about 50 other experts in the industry. And even though I'm a what they call one of the brain trust members, every time I'm on it, I learned something that I didn't know from the other people. So it's a great it's a great blog as well retail wire.com In on LinkedIn, consumer goods and retail professionals.

 

Mark Young  1:04:54

So folks, if you enjoyed today's episode, leave us a five star review wherever you get your podcast. See, or feel and subscribe, subscribe to the show. And then every time we put new show out, you'll know what's coming out. And just so you know, because we only do shows we've been doing shows every three to four weeks. Yeah, we're gonna we're starting to try to get on a cadence of doing a new show every two weeks. So we're trying to get a little a little more action going because people are giving us a great response to the program. We're getting a lot of listenership we're getting great response. And again, don't feel don't feel bashful, reaching out and asking questions, and we're happy to try to answer. Thanks, David for being here. That's it for Justin and I will see it power to the next time. We will see you on the next episode of CPG insiders. If you're looking to greatly increase sales on your CPG product, don't hesitate to contact us at Jekyll and Hyde advertising and marketing. By the way, the only advertising agency with a guaranteed result just go to JekyllHydeagency.com Or feel free to give us a call at 800-500-4210