SEATTLE -- Associated Grocers here said last week it anticipates building up its sales base after completing a $94 million refinancing agreement.
"Member growth was on hold for a while because of our financial situation," Bob Hoyt, interim president and chief executive officer, told SN. "But now that we have financial stability, we can strengthen our operations and put ourselves in position to really make a mark in our region.
"In a low-growth industry, getting new business is a share-of-wallet game, and that means we'll have to steal more share from some folks, and we now have the quality of operations in terms of product pricing and service levels to do that."
In other comments to SN, Hoyt said:
The company's new centralized purchasing program has enabled AG to increase its purchasing power.
AG is concentrating on increasing volume through its grocery distribution warehouse.
It may explore merger possibilities as opportunities arise over the next 12 to 24 months.
It hopes to name a permanent CEO by the end of the year.
AG is a cooperative whose 180 members operate approximately 330 stores in the Pacific Northwest, Alaska, Hawaii and the Far East. Sales fell slightly to just under $1 billion for the year ended Sept. 28, compared with $1.1 billion a year ago, as the company has weeded out underperforming members, Hoyt said.
AG also achieved operating profits after experiencing a net loss in fiscal 2000.
The refinancing agreement -- with General Motors Acceptance Corp. Business Credit, New York -- was finalized Sept. 28.
Jeff Kessler, AG's chief financial officer, said the agreement includes a 10-year real-estate mortgage, $50 million in working capital availability over three years and a $41 million restructuring of existing debt into a seven-year term loan. The deal also cut the company's interest expense in half, he noted.
AG previously operated under a short-term forbearance agreement with a group of 17 lenders, Kessler said.
He said the recap fixes the company's capital structure "for the long term" and provides it with financial flexibility to expand.
According to Hoyt, AG hopes to pursue new business with its strengthened capital structure. "We've already picked up some new members in Hawaii and Alaska, and we're focusing now on adding more independent customers in the Pacific Northwest," he said.
The company is also taking a new approach to its members, Hoyt pointed out. "Part of our program is recognizing retailers as merchants," he explained. "We are simply their procurement source. We rely on our independents to win in the marketplace vs. Albertson's, Safeway and Costco, while we make sure they get the best procurement possible."
AG has strengthened its procurement by instituting centralized purchasing, "so we can buy from vendors as a single entity to bring our purchasing power to bear, and we've gone from being the vendor's last stop to being his first because we represent a lot of buying power, and that has enabled us to dramatically lower our pricing to customers."
Hoyt said the refinancing brings AG "substantially back" to where it wants to be by restoring shareholder value; restoring the company's earnings power, with opportunities to improve on that in the next couple of years; and cutting back to its core assets.
AG closed and sold its Kent, Wash., nonfoods warehouse in late September and is outsourcing those purchases through the Portland, Ore., warehouse of Unified Western Grocers, Los Angeles, and those higher-volume purchases have lowered AG's nonfoods pricing, Hoyt said.
The company is now concentrating on increasing distribution through its single facility -- a 1.2 million-square-foot warehouse here -- which Hoyt said is doing about two-thirds the volume it could handle, "and we could probably expand volume by 50% without any significant capital costs."
AG has already flushed out some underperforming member stores and eliminated weaker customers, Hoyt said, "and we've won back some customers that we'd lost to other suppliers, and they've come back with bigger order sizes, so the quality of our revenue base is very strong -- a bit smaller than it was but with a lower break-even level -- and we have excess capacity to use."
Asked if AG is a merger candidate, Hoyt replied, "Our goal is to make AG the most efficient, effective wholesaler in the Pacific Northwest, and if an opportunity comes along, we will examine it.
"Till then, we'll just get better and stronger. We all know this is a consolidating business, and the next 12 to 24 months will see a dramatically strong improvement line in our financial performance."
Hoyt, a turnaround specialist who joined AG in July 2000, continues to hold the titles of president and CEO on an interim basis. He told SN he is working with the company's board of directors to recruit a permanent CEO "to take the company to the next level," adding he expects to name his successor before the end of the year.
Although the search is taking place both inside and outside the company, Hoyt said the logical successor would be Gene Steffes, AG's chief operating officer, who joined the company in April 2000 "and has been an important element in our turnaround."
