Welcome to Sunday Snacks, folks. We’re the plop plop fizz fizz… of helping you understand the strategy behind key business events.

If you were thinking that we’ve used that joke before…we have. We’re out of ideas and we’re tossing stuff back and forth at 3am on a Saturday night.

We’re covering Rite Aid this week. Here’s what happened:

Call Me Bankrupt: A Rite Aid Story in 4 questions

1. Why did it fail?

• A crap-ton of debt: Rite Aid has 3.3 Billion in long term debt commitments on its sheet with losses registering over 2 Billion dollars over the last 6 years. Its market cap is like…~36 million right now.
  

• Lawsuits: Rite Aid is facing a bunch of state + federal lawsuits for oversupplying prescription painkillers
  

• Lack of innovation: CVS and Walgreens have expanded through acquisitions and expanded services past your average prescription refill, and Rite Aid just…didn’t do that as aggressively.

2. Why Bankruptcy?

• So first of all, there’s 2 types of bankruptcy:

  • Chapter 7: Game Over (liquidation)

  • Chapter 11: So you’re saying there’s a chance (restructuring)
    

• Rite filed for Chapter 11, meaning they’re intending to restructure the 3 billion dollar zit on their neck
  

• The company just got a fresh round of financing to help pay for the lawsuits + its also restructuring its current debt

3. Does it mean the end of a business?

The answer to this question is a big fat ‘no’. Here are some companies that have filed for bankruptcy in the past:

1. Apple

2. GM

3. Sbarro (lord in heaven is that Michael Scott’s favorite slice place?)

4. William Charles Schneider, LLC*

*Not real. It’s Creed Bratton. Too many Office jokes? Too many Office jokes.

And despite what you may have heard, if you know what you’re doing, there’s tons of money to be made from distressed assets. Maybe that’s why companies are trying to pick up FTX’s debt.

• You can pick up the debt for steep steep discounts

• Company has a turn around - the value of the debt increases

• You sell to a willing buyer at a hefty premium

There are tons of decent businesses out there hampered by a terrible capital structure.

4. Soo…What does Rite Aid do now?

Bring in Mckinsey to bleed you dry, obviously. Ha, no silly.

1. Close poor-performing stores: Obviously, that’s happening right now, possibly as a condition of the financing it just received. But retail is a low-margin business. This can provide an opportunity to maximize viable leases.
   

2. Partner with a Medical Clinic to expand services: Rite Aid tried opening its own clinic-type of thing to compete with CVS Health, it didn’t work. Instead of building the core-competency in the short term, outsource it.
   

3. Double down on Pharmacy services: It’s like ¾ of Rite Aid’s revenue. Get away from retail because it’s low margin/high effort. Maybe go acquire smaller/independent pharmacy chains. That’s been suggested.

Again, none of this is investment advice.

What AI made this week

Why is this the worst one yet?

Have a great week!

Ahmed and Peter