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

Foreign.

Welcome everybody to another edition of CPG Insiders. I'm your host Mark Young with my co host and trusty sidekick, Justin Joy. Nothing wrong 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 that's David Berenbaum. David's company is David Berenbaum and Associates. Something some folks probably have heard of him. And it's we'll have all David's social media and website and everything in the show notes. So all you have to do is go to cpg insiders.com look for the show notes with the episode with David Berenbaum, the one 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've got some of the legal input. I wanted to get some input. Let's start off with what what's your thoughts about this whole thing, Rite Aid filing bankruptcy? Not a surprise, right?

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

I mean.

Yeah.

Years ago, Rite Aid hanging on by their fingertips.

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 a bankruptcy, part of this mess is, you know, they're being sued by the government for abuse of opioid prescriptions. Between 2014 and in 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, about 307 million. The revenues came out to about 5.6 billion, but that's down about 350 million year over year. The 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 Rite Aid blamed the prescription drug plan membership losses, but that that wasn't really the reason. They closed 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. And 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 them more merchandise? So I don't. It's hard for me to imagine without the cooperation of suppliers in getting a restart or a 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?

Well, let me give, let me give our listeners some of the good news here. There actually is some good news here, David.

Mm.

You're right. They want to get rid of about three or four hundred stores. So filing bankruptcy. First off, what pushed the bankruptcy? Well, I agree. The bankruptcy pushed by some bad management. They didn't have the capital to withstand the OxyContin lawsuit.

Yeah.

Because remember, Walgreens has what, 3.3 billion that Walgreens paid. Kroger paid a billion. Everybody's thrown money into this lawsuit.

Right.

Have the cash on hand. So, so first off, Rite Aid is not the only person that got clipped on this opioid thing. They just happen to be the people standing there that didn't have money to dish it out. And I, I, the whole opioid thing's a little shaky in 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?

Right.

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

Correct?

Right.

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 handled, the way that the supermarket pharmacies handled, the way that Walmart handled cvs, you know, a lot better.

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 their script. The pharmacist filled the script. The DOJ decided, we're going to go after the big chains to pay for this.

Oh, yeah.

Now did the big chains write the scripts?

No.

Were the. Does the pharmacist have a, have a responsibility to fill a script that a bonafide doctor provides?

They do.

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.

Right.

I can't go after 100,000 doctors and try to collect from all of them. It's like after eight major retailers than it is to try to collect after tens of thousands of physicians.

Oh, that's correct.

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, it's still the biggest. It's still the biggest drug being filled.

Yeah, it sure is.

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

Go figure.

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.

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

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'll move in and take those locations.

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's got 40 something stores. I think 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, it was pretty big. Or 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.

Now let's talk about vendors that are in there.

Yep.

If so, when a company files chapter 11, there's two ways to go bankrupt. You can file chapter 11 or chapter 7. Chapter 11 is what's called debtor in possession from a legal standpoint. So 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.

You gotta 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 an order and says, we want to buy $20,000 worth of 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 owe David Berenbaum $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 trustee to run the company or convert them from chapter 11 to chapter 7. So where I'm going with this is during the bankruptcy, you're going to get paid. Right now once the company's in chapter 11, they file something which is, which is called a plan of react, of reorganization. The plan of reorganization says, here's our plan, Judge, 400 stores. We're going to blow off these 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.

Yeah, right.

Went to zero.

Yeah.

GM had the ability to issue new stock. So. Right. A 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 them money now is.

Is going to get.

Is going to get paid, Right?

Yeah.

It's the banks that they owe right now that are going to get burned.

Yeah.

Yes.

Right.

So what I'm saying is, if you're currently selling a product in Rite Aid, check and see if you're 90 days or older. If you are 90 days or 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 the people at Rite Aid. Let's say I am a Rite Aid vendor. What's Rite Aid's. What's Rite Aid's normal payment terms right now? Is it net 60, net 90, net 120.

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, it's 120.

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

No.

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 Aids, way past the due date with those vendors, a lot.

Of them aren't going to get paid.

Yep. Right.

Now, if Rite Aid comes back to me and wants me to. To supply them, and I want to get David's opinion, My opinion is you need to negotiate better payment terms.

Oh, for sure.

So I would probably, if Rite Aid wanted to continue to carry my product, assuming my product is making money for Rite Aid, if my product's in trouble, that's a different issue.

But Right.

My product's making money, I would probably go back to my buyer and I would say, look, I'll ship, but I'm shipping net 30 or I'm shipping 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.

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

So where the real risk will become, by the way, where the real risk is once they file their plan of reorganization, the debtors get to vote on it.

Mm.

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 risk. Risk of going back to bad payment practices, Right.

Yes.

Because now you don't have a judge supervising the payment program.

Yeah.

Now, there is 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. 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 on 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.

Yeah, I've heard that.

Or the creditor committee will want to run the company because they've lost faith in current management.

Well, that's for absolute certainty.

Yeah.

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

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

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

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.

Hasn't been. And keep in mind, folks, Rite Aid currently has 2.3% of the U.S. market.

Yeah.

So this is not like losing CVS. CVS, no. Yes. Is standing at 25.2% market share.

Yeah.

Walgreens is standing at 15.5% market share. And Rite Aid's at 2.3.

Right.

So if you. If you are a product that has 70% or above ACV.

Mm.

You. You run the risk at 2% of your. Your. Your total overall sales a little bit. And those people aren't going to stop shopping.

They're going, oh, they're gonna buy it somewhere else.

Yeah. Yeah, it's gonna buy it somewhere else. So I guess my question to you, Mark, would be, and. And David, is. Let's talk about the other Possible 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 was the first one to say yes.

Point.

There are.

There are places where Rite Aid is probably the only one carrying the product. 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. Right.

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

Oh, yeah.

Actuaries. Rite Aid 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've got a uphill battle, too.

Yeah.

If Rite Aid's your only account, first off, if Rite Aid's your only account and there was no bankruptcy, I would be telling you your business is in trouble. Well, yeah, that's before the bankruptcy.

Right. For sure.

If Rite Aid's your only account, better check the dating on your invoices because you may not be getting paid or you may be getting. And what will happen is when the courts approve a repayment plan.

Yeah.

It'll probably say it'll take all the creditors 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, right?

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

The top of the class will be federal government. They're the top of the class. Secured creditors are the next class. Those are banks who have liens on real property or receivables or whatever the case is.

Yep.

So the feds will get paid first.

Yep.

Secured creditors get paid next.

Yep.

The suppliers will get paid third.

What about landlords?

Landlords are just out.

Yep.

So if I'm behind on the rent, you ain't getting it. Have to make the current rent payment or you can boot me out.

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

Properties, as is CVS's and Walgreens.

Yeah.

Yeah.

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'll be a monthly payment. Let's just do the math. They owe me 100 grand.

Right.

They're going to pay 15%. So now they owe me 15. They're going to pay me over 60 months. So they're going to pay me. What's that 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.

And so I guess with that in mind, I mean, and again, 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 stop supporting Rite Aid, your IRI 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, from cash flow perspective, you might be getting hit even harder because you're probably not getting hit if they're already late. You have payments that have not been made that are that long. So you're already losing money. I guess. What. What should they do for the long term health of the brand?

So I. I think vendor. And David, what do you think? I think as a vendor, if I'm a. Some vendor is going to decide to quit doing business.

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

Yeah.

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 are just.

Right.

Some of the bigger brands are going to say, God, they got 2% market share. They're never paying. Forget this. This isn't worth our time.

Which would make sense because I'll pick.

It up at Walgreens and Kroger and cvs.

Yeah. Or a supermarket pharmacy or the. Or Walmart or Target or Amazon or. Or anyone else.

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.

So then Is it like you're saying, do you then double down on. I say double down, but it get stronger with your support of it. Because a, you are going to get paid once it goes through.

You're going to get paid during the bankruptcy.

So, you know, during the bank. And you have big players that are moving out of support for it.

Correct. So, Justin, what I'm advising my clients is obviously to be very, very strict and 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, Red A is going to be very hospitable about the promotions. They're actually going to. They're going to be good partners with vendors that, you know, that 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 filled. 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 D.C. 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, it'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 they're certainly going to have. Want to have 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.

I would probably agree with you. I would probably look at in store promotion at Rite AIDS expense.

Absolutely.

I would. You know, and 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. 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'd probably be hungry for a new sku. But again, make darn sure that's an SKU that can sell through or you're just going to eat it.

Right.

And Justin, to a point you made earlier about the IRI share, which is really the reason that a lot of suppliers still do business with them.

Right.

Is because they're IRI 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 now. Yeah.

When you look at they've got a 2.3 market share and they're 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 aren't going to feel comfortable.

Yeah.

Especially with their prescription drugs.

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.

Very good possibility.

So I think the other thing I would do is 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 Pharma Vision.

Sure. Yeah, yeah, yeah.

That's what I would do.

Yeah.

So if Rite Aid is your only market.

Yep.

Depending on your product, you could, you could do the Kroger Pharma Vision program.

Yep.

Kroger is the busiest pharmacies in America. That gives you 2,000 pharmacies. And just so people understand, like a rite aid sees 100 to 150 prescriptions a day.

Yeah.

Kroger gets 800 prescriptions per day, average store count. They're actually the busiest pharmacies in the country.

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

Correct. So I would look at if it was me and I and my business was hinging on Rite Aid.

Right. Yeah. Yeah.

I would probably be inquiring on the Pharma 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.

Yeah, yeah, exactly.

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

Yeah. Kroger's got over 3% market share now. For pharmacy.

Yeah. You know, it's not like it used to be, where it was a convenience to their grocery shoppers. It's a destination pharmacy now for a lot of consumers. There's 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 beans.

Well, also keep in mind Kroger has. Kroger has drive throughs on most of their stores now.

Oh, okay.

They do. They're out on the parking lot, 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 is going to 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 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.

Well, 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 the retailers are going to listen to this story and, and understand the context or say, well, you, you still didn't sell product. Doesn't matter what, what was going on at Rite Aid, you still should have been moving units, so I'm not going to take you in. Will this affect their ability to sell, do you think, to other retailers or does it depend possible?

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. And 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 Rite Aid business that I walked away from. You're probably going to get a pat on the back. You're probably going to get empathy, and it's actually a positive thing. You know, the boy, you know, I wish I could be nicer about this, but the industry doesn't really have a tremendous amount of respect for Rite Aid.

Yeah.

That's been that way for decades.

Yeah. The vendors certainly don't. In companies like Walgreens, knows that Rite Aid's been paid as much for their promotions. Having one eighth the traffic that an average Walgreens has as Walgreens gets paid. They don't. They don't like that.

Right.

And 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.

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 X product, but we want four pieces per store. Free, free goods.

Right, Right.

Not unusual with Rite Aid. Let's say you're a brand new brand and you're looking saying, well, I've never been in retail. This is my chance to get into, like Nancy Reagan said, just say.

Just say no there.

I don't. I don't believe it's worth the value to give free goods for every remaining Rite Aid store to get on their shelf right now.

No, no, no.

I mean, what do you think, David?

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

Exactly.

Yeah.

Yeah. Folks.

Anybody who went through that with Kmart and got burned each time, they might have learned their Lesson. Same thing, 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, and. And small suppliers were left kind of holding the bomb.

Perry Drug, by the way.

Yeah. Happy Harry's.

Harry.

Oh, yeah, Perry. Perry Drug. Yeah. And F M. And Perry was.

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

Yeah. They bought Perry.

And so the big drugstores here in Michigan were Arbor Drugs, Perry Drug, Cunninghams.

Huh Huh? And F M for a while.

And F M for a while. Cunningham's and Arbor became the same.

Yep.

Then cvs.

Yep.

And Perry became Rite Aid.

Yep.

It's just stormed in and built.

Yeah.

Yes, I remember that well.

And we probably are better represented with CVS stores here in Michigan than we are.

Yeah, yeah, we are.

Absolutely.

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 in. 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. 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.

Yeah.

And you need, you're just going to 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 ira. 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?

Yeah. You know, I love your pharma 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 or 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 them 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. Not at all. And I'm kind of in the middle of that right now, because, of course, 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.

You are not.

You're not. No.

With Walgreens and. Or with Rite Aid in the past 90 days, and you haven't fulfilled it yet. You can go renegotiate that deal.

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.

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

They are.

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

It's very difficult. I. I work with a private label supplier who has made money in the past doing business with Rite Aid, because a 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 Rite Aid's favor. So, you know, it's. It's not a great situation for anybody. But as you said earlier, in the markets where Rite Aid really matters, like Pittsburgh, Buffalo, Brooklyn, Louisiana. 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 gonna. 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.

Now, we've got a couple minutes left here. I want to ask David 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 four hundred stores.

Yeah.

Huh. And it appears I don't know what you think. I think most of the stores are being closed because of shoplifting there.

That's exactly why. Two reasons. Number one is the shoplifting and the gang 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 you robbed at the window. They just don't have the personnel.

Oh, from a staffing standpoint.

Yeah, from a staffing standpoint.

So this is actually going urban and inner city consumers.

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, Nordstrom's is leaving the big cities, and that's where all their main stores were.

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

Okay.

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. Yeah.

Shoplifting $112 billion as of last this year, Bill.

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. I mean, come on. Common sense. What do you think's going to happen?

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 a product, 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 it's your 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.

Two, your Product's going to show up on the world's largest fence, which is Amazon and ebay.

Yes.

And now your product's going to. Your thirty dollar item is going to be on Amazon, remarkably for fifteen dollars.

Right.

Because it's been stolen. So here's something we learned, David, and that is the thieves don't like stealing stuff. They come in boxes.

Oh, yeah. Huh.

Because the boxes get damaged too easily when you're hiding them in your bags and your pockets.

Yeah.

They become harder to resell.

So if the, the green. The green movement is encouraging.

Yes.

Manufacturers not to use boxes.

Yep.

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 on boxing, 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 in your pants.

Yeah. And you know, the lock and key thing is going to kill the business anyway. And you. 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 I was losing business.

The RFID tags that set off 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 wave at when they walk out.

Yeah, that's exactly right.

That's all our staff does is just wave them through.

Right. They're not going to stop it. Why would they stop them?

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 need it for survival.

For this ever last ready for the term. It is no longer shoplifting, David.

It's for resale.

The term is retail reparations.

Retail reparation?

Yes. This is reparations.

Oh, my God.

That's actually a term that the left is using for shoplifting now.

Yes, Retail reparation. And you know, they're using these retail reparation products to sell on ebay.

Yes.

And some people are making a lot of money doing that. Yeah.

They're the world's biggest fence now.

They are.

So keep watching Rite Aid or keep watching not writing. 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. And Justin, how. How good can you do with Amazon with unauthorized vendors? Can you get them knocked off?

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 with them now.

How about eBay? EBay is a lot easier to throw stuff days.

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

Absolutely, absolutely.

Because my cost of the products were zero.

Right.

I have zero product costs, right?

Yeah. Well, I did have to pay for gas to get to the store, maybe.

And the shoplifting is. This is not one person going in.

No. These are gangs, right?

This is organized retail crime rings where they're literally going in and they're going in with instructions. It's 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.

It is. And man, you guys know this. I'll just say politicians, I won'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, 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 E commerce.

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

Exactly. Yeah.

You're so 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.

No, no.

And if you. And here's the problem. You can make money for a year. You've 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 somebody else or the Chinese manufacturers knock you off directly where they're making the product and have you crushed on product cost.

Oh, they wouldn't do that.

For half the price.

Yeah.

So we have tools that we use. Like a tool we have is called Helium 10 and we.

Helium 10.

Helium 10. And we have this. If you ever need to use it, 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 new 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 and undercuts me and eventually it's a race to the bottom. So you can make money on Amazon, but if you do make money on 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, a drug, an otc, something like that, they come up with a private label just like everybody else does.

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

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

Right?

Yeah. And you know, I, 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.

Shrinkage.

Yeah. And most manufacturers still have to pay for that.

Yeah.

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

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%.

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

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

Five points right off the top.

And again, what do you think pays for that?

Well, all the. It's retail reparations, Justin.

Sorry, my bad.

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

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. My wife went to a Meijer store, which we have lots of Meijer stores here, and she was in a checkout line. And Rite Aid has the spinning bag packers like Walmart has.

Yeah.

Meyer already 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.

Yeah.

The checkout next to her was not open. She watched a woman with a shopping cart full of groceries wheel her cart into the closed checkout line, bagged them all, put them back in the cart, and just pushed the cart right out of the store and no one stopped her. That probably a $200 cart.

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

But literally, I mean, bag the groceries. I want to than bags just go online, bag them all up. Just like nothing. Just like, literally, like, this is normal. There's nothing wrong with what I'm doing. I'm just bagging groceries and puts him back in the cart and walks right through the door.

Okay.

Probably just a misdemeanor now.

Yeah, it. Well, in some cities, it isn't even a misdemeanor now. It's actually been knocked down to what's called civil infraction.

Yes.

And a civil infraction is a ticket.

Yep.

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 at misdemeanor or civil infraction level.

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 the losses on the mob thefts. Right.

There's been $112 billion in retail reparations so far this year. That $112 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.

You certainly are.

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 a Walmart. There's no victim there.

Yeah. They have insurance.

Yeah. Walmart's a big, faceless, evil company.

Yeah.

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

Almost the easiest. They're the easiest retailer to do business with in the entire industry because their rules are really simple. Edlc. We buy you, you send, we pay on time. Right on time. I would love for every retailer to be just like the Walmart model.

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

No, of course not.

They're always going to come after another chain.

Yeah.

Once in a while. I've seen them 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. And I'll show this real quick and 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 the risk of 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.

So they don't want to be.

And Walmart will call the vendor and say, you need to increase your sales at other accounts and, and get the percentage of sales that we represent of your business down to 40%.

Yeah, y. That's usually what it'll be.

Yeah, I've been through that many, many times with small suppliers. And 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. He, 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 as down to earth as anybody in any profession anywhere that I ever met. I'll send you this letter. He's telling me in the let this was six months before he died, and he's telling me in the letter that he's gonna 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.

The company. He's not there. But the company still holds on to some of his values.

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 pull. He would pull your name tag like this so that he could read it. And like with me, he would say, oh, Mr. Burnbaum, you know. Yeah, Sam. Or I say, yeah, Mr. Walton. And he'd say, well, your name's Dave, right? Yes, sir. Well, if I'm going to call you Dave, you're going to call me Sam.

Do you remember now you and I are showing how old we are?

Yeah, we are.

You remember going into the original Walmart headquarters and, Stan, it smelled like popcorn.

Yeah. Like in 1980. Yeah. Huh?

My God, it's. It smelled 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.

And the building reeked of old popcorn.

Yes.

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.

The way it started into the floor.

And 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 would be three chairs on each side.

That was it.

But the first person had to go in the farthest chair.

Right.

There's no room to walk around the second chair. No, we 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. And you remember those rooms. I mean, you couldn't move. If you had claustrophobia, you would at a Walmart meeting.

And that's how it began.

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

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

Everybody on this table, we're going to slide you in the tube, see what kind of deal you can make. It was. It was. It was that cramped. It Was insane.

Was.

The new headquarters are nice now.

Oh, yeah. And there's some of those meetings. Sam was at the table.

That's cool.

Yeah, but it was. Yeah, 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 pharma vision, you can find that at pharmavisiontv.com you can find Justin and I@cpp insiders.com or jylhyde labs.com you can always reach out to us. And you go to the show notes and you'll find the links for David Beer Bomb and Associates will have links to his website. And David's really active on Facebook and active in a couple of LinkedIn. Yeah, LinkedIn groups.

Yeah, we have a LinkedIn group. Consumer goods and retail professionals. We've got 103,000 global members and the conversations and the news that are posted there are really, really good. The other recommendation I have is retailwire.com that'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. Retailwire.com and on LinkedIn, consumer goods and retail professionals.

So, folks, if you enjoyed today's episode, leave us a five star review. Wherever you get your podcast or feel and subscribe, subscribe to the show. And then every time we put a 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. Yep, 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, 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 of 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. We'll see.

Forward 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 jekyllhideagency.com or feel free to give us a call at 800-542 10.