R&L Markets is facing financial difficulties due to new competitors and store overexpansion. To address this, they plan to restructure debt by negotiating better terms with banks and suspending preferred stock dividends. They will also improve vendor relations through increased transparency and timely payments. R&L Markets expects that these measures along with closing some unprofitable stores and focusing on their strongest locations will stabilize sales growth and market share while reducing costs.

1. R & L Markets, Inc.
Current Situation
& Future Projections
2002 and Beyond
Amy Smallwood | Melissa Chan | Nidia Quezada | Siddarth Vyas
R&L Markets, Inc.
Your Neighborhood Market Since 1946

2. Turnaround & Recovery
• Due to the entrance of new competitors of
Food Masters and Hyperstores as well as the
expansion of R&L stores we have
encountered a temporary hurdle
• 2002 year is an inflection point for R&L
• R&L over expanded but changes regarding
restructuring the equity/debt ratio and
vendor relations will put R&L back on its way
to regain market share and cash flow
R&L Markets, Inc.
Your Neighborhood Market Since 1946

3. Bankruptcy
• R&L does not have a need to file bankruptcy
• Bankruptcy would lead to 15% drop in sales
that we can not afford and enormous legal fees
• Threat of liquidation from Junior Subordinated
Debt
• R&L’s projections demonstrate steady growth
after 2002
R&L Markets, Inc.
Your Neighborhood Market Since 1946

4. R&L MARKETS
FINANCIAL STATEMENTS
INCOME STATEMENT
(Unaudited, $000)
Actual
2001
Actual
2002
Projected
2003
Projected
2004
Projected
2005
Sales, Net 634,937 594,281 606,167 618,290 630,656
Gross
Profit
158,099 142,454 143,965 146,844 149,781
EBITDA 34,921 24,192 26,017 29,915 32,033

5. Restructuring Debt Service
● Debt/ Equity Ratio:
o Negotiate with banks to stretch out loan
amortization without asking them to take a
haircut
o Compensate junior debt with Payment In
Kind (PIK) for the haircut
• This debt service restructuring will prevent a
payment default, breaching our covenant with
First Detroit Bank
R&L Markets, Inc.
Your Neighborhood Market Since 1946

6. Restructuring Continued...
• Suspend Preferred Stock Dividends
o Will lead to increased capital and liquidity
o The suspension of preferred stock is safer than
issuing bonds because it entails less legal
complications
R&L Markets, Inc.
Your Neighborhood Market Since 1946

7. Trade Relations with Vendors
• Some vendors have halted shipments;
others are asking for cash up front, due to
lack of trust in our ability to meet payment
deadlines
• Without resolution(s), suppliers may all
demand cash in advance and inventory
shortages may occur
R&L Markets, Inc.
Your Neighborhood Market Since 1946

8. Trade Relations: Two-Step Plan of Action
• Step 1:
o Communicate with suppliers; implement
information system to improve transparency
o After restructuring, make timely payments
• Step 2:
o Negotiate with suppliers to employ dynamic
discounting or extend trade credit
R&L Markets, Inc.
Your Neighborhood Market Since 1946

9. Current Competition
● Local competitors of Grand Rapids area in Michigan:
● Account for 6.4% drop in sales
○ Hyper-Stores: very large/one stop shop
○ Food Master chain: limited selection/low prices
○ Family Fare Super Markets (10 locations): grocery and
pharmacy
○ Aldi (3 locations): discount, non-name brand groceries
Maintain our niche as a reasonably priced, small-scale chain
with a focus on providing the best customer service
R&L Markets, Inc.
Your Neighborhood Market Since 1946

10. Competitive Advantage Improvements
● Closing some of the 60 locations in the Grand Rapids
Metroplex
○ Will reduce SG&A, specifically salary and marketing expenses
○ Can relocate inventory to meet current needs or hold B2B
liquidation sale
○ Step away from issues of excessive diversity
• Benefits:
○ Influx of cash
○ Ability to focus efforts on our most profitable locations
○ Maintenance and renovation of most visited stores
○ Recover credit from providers
○ Marketing campaign to inform consumers
R&L Markets, Inc.
Your Neighborhood Market Since 1946

11. Expected Scenario
• Increased available cash
• Improved supplier relationship
• Slow and stable growth
• Retain market share
• Upgrade most important R&L stores
• Reduced debt
R&L Markets, Inc.
Your Neighborhood Market Since 1946

12. R&L Markets, Inc.
Your Neighborhood Market Since 1946