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David Robinson: Amid tough competition, Tops has a plan

David Robinson

Frank Curci has a plan to bring Tops Markets out of bankruptcy and make the supermarket chain stronger and more competitive.

First, convince the investors who own most of the $724 million in debt to swap it for stock. Potential savings: up to $60 million a year.

Start investing in store upgrades again, reviving an improvement program that was largely scrapped last year when money got too tight. Its Buffalo Niagara stores are high on the list, Curci said.

Beef up staffing at its 169 stores to improve service.

Maybe even get more aggressive in advertising.

"We're truly excited to be able to run the company the way we want to," Curci said, just hours after the company made its Chapter 11 filing in a U.S. Bankruptcy Court in Manhattan. "Our business is strong. Our balance sheet is bad."

The filing was a long time coming. Tops' finances, which were never strong after Curci led a management buyout in late 2013, deteriorated over the past three years as competition heated up and some food prices, especially on meat and dairy products, started to fall.

Those two trends caused Tops' sales to stagnate and weakened its profit margins. The company's losses got worse. After reporting a $15 million loss in 2014, the company had losses totaling $187 million during the last three years, including an $80 million loss in 2017.

"The losses were really due to the interest we were paying," Curci said.

Tops hopes bankruptcy filing will help it compete

By the end of December, the company was down to $18 million in cash. Over the next month alone, the company projects that its operations will burn through $19 million in cash, according to Bankruptcy Court documents.

"We didn't have a liquidity crisis," Curci said. "But looking forward, we knew that day was going to come."

With the bankruptcy filing, Tops' interest payments stop. It lined up $265 million in financing for the reorganization process, with almost half of it coming from a group of its debt holders.

Over the next three months, the plan is to try to carve out a deal with those same debt holders, who control more than 65 percent of Tops' secured notes, to get them to exchange that debt for stock. That type of deal could reduce Tops' debt load by $400 million to $500 million, shaving its annual interest payments by as much as $60 million, depending on the terms of any potential deal, Curci said.

It sounds easy. But there's still a lot of work to be done, starting with working out the deal on the proposed debt-for-equity swap.

Then there's the nagging issue of the pension liability of up to $184 million that Tops could face from an underfunded Teamsters union pension fund that the supermarket chain inherited when it acquired grocery warehouses in Lancaster and West Seneca from C&S Wholesale Grocers in late 2013.

Burt Flickinger, the Buffalo native who is the managing director at New York City retail consultant Strategic Resource Group, said Tops needs to do more than just shed debt to be successful coming out of bankruptcy.

"Tops needs a better strategic plan to take care of the customers," he said.

He thinks the chain should add more fueling stations at its stores. Currently, 58 of its 169 stores have them.

Flickinger thinks Tops needs to do a better job staffing its stores, particularly at peak times.

He recommends that Tops close its lone Orchard Fresh store in Orchard Park, which was intended to compete with grocers like Trader Joe's and Whole Foods but has struggled to find its niche. Instead, Tops should continue its rural expansion strategy and invest more in its profitable stores.

Employees watching carefully as Tops files for Chapter 11 bankruptcy

Curci said Tops isn't planning widespread store closings, although the company will review its weakest performers during bankruptcy. The bankruptcy filing indicates that Tops has more than a few of those underperformers. Nearly one of every eight Tops stores is a drain on the company's cash flow, according to the bankruptcy filing, making those supermarkets vulnerable.

"It's still an operational problem," Flickinger said. "An equity swap doesn't appear to mitigate enough debt."

And the competition, which was always intense, is getting even more frenzied with discounter Aldi upgrading its local stores and Whole Foods arriving.

Meanwhile, Curci tried to look on the bright side.

"I am looking forward to the future," he said. "I think what we're doing is going to set us up to do good things in the future."

Still, it was a hard day for Curci, who will remain as Tops' CEO. He had a plan for Tops four years ago, too. Invest modestly but steadily to upgrade stores. Expand into rural markets where Tops was the only store in town. Over time, Tops' sales would rise, or so the plan went, making its interest payments more bearable. In the end, though, the plan thwarted by falling prices and stiff competition that kept sales from growing.

"I'm not going to tell you it hasn't been emotional, because it has," Curci said. "It has been hard."

How Tops' debt grew and grew and grew

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