2002 TMA Award Winner
Turnaround of the Year – Large Company

Robert E. Hoyt, CTP, CIRA
PARTNERS FOR CORPORATE RENEWAL, INC.

Associated Grocers, Inc. ("AG") was a 67-year-old, Seattle, Washington based, retailer-owned wholesale grocery cooperative with over one billion dollars in Sales. AG had 1,400 direct employees and was ranked as the fourth largest private company in the state of Washington. The Company served 340 independent grocery stores in the Pacific Northwest, Alaska, Hawaii, and the Far East, and was comprised of 180 member stockholders who employed an additional 20,000 people. Due to industry consolidation, AG was under top line pressure from a continuing decline of its independent retail grocery customers, accented by the loss of a large customer.

Early in 2000, the Company was challenged by:

• Collection of a large troubled customer loan portfolio;
• Downsizing of high infrastructure costs;
• Management information system failures;
• Pervasive management turmoil;
• Lack of liquidity; and
• High debt levels with lender defaults.

Upon Partners for Corporate Renewal's ("PCR") arrival in July, 2000, Bob Hoyt became interim CEO and shortly thereafter Jeff Kessler joined as interim CFO. They led a turnaround team that immediately went to work to focus AG's 18 institutional lenders into a working group, with which a forbearance agreement could be negotiated in an effort to avoid a Chapter 11 filing. Having initially established short-term liquidity and with a turnaround plan in hand, the Company was able to negotiate the first of two forbearance agreements.

The turnaround team immediately conducted a viability analysis of the core business and used a segment profitability analysis as a road map for cutting costs, allocating capital, and selling assets. Under PCR's guidance, and working closely with Gene Steffes, the Company's new COO, management:

• Shut down cash draining operations;
• Divested non-core assets;
• Outsourced or streamlined high-cost business segments;
• Reduced SKUs, increased inventory turns while driving labor productivity;
• Dramatically reduced employee costs;
• Consolidated volume through a lower fixed-cost structure;
• Worked out a large customer loan portfolio and recovered failed stores;
• Increased management effectiveness and restructured AG's leadership;
• Addressed extensive, threatening litigation; and
• Procured critical legislative relief.

The 15-month turnaround effort created significant value for all stakeholders. AG avoided bankruptcy and was restructured out of court. Profitability was dramatically restored with a fivefold increase in operating EBIT. Institutional lenders were either cashed out or restructured in concert with a $93.5 million financing arranged by GMAC Business Credit. AG's debt was reduced by 75%, while shareholder equity recovered $73 million of book value. Retail customers received improved product pricing and creation of a positive cooperative environment enabling attraction of growth capital. With over 1,100 direct employees and thousands of retailer-based employees, AG has reclaimed its competitive market position in the Northwest.