Tops Markets could have cut and run when its mounting financial problems forced it into Chapter 11. Instead, the company restructured its business and its debt and emerged from bankruptcy this week. Western New York is better off for having Tops stick around.
Selling groceries is a tough business. Tops must compete with Wegmans, Aldi, Trader Joe’s, Whole Foods, Save-A-Lot and Dash’s, as well as the grocery sections at Target, Walmart and elsewhere. The abundance of choices is a boon for consumers, but it puts a lot of pressure on the retailers trying to turn a profit.
Frank Curci has been a constant for Tops through years of upheaval, steering the chain through challenging times. He has been the president and chief executive officer since 2007, when Morgan Stanley Global Private Equity acquired Tops from Dutch grocery giant Ahold NV. He became Tops’ chairman in 2013, following a buyout of the company by a local executive group.
Competition and falling prices for some foods have put the squeeze on Tops in the past four years, causing the chain to run up debt. The Morgan Stanley group added hundreds of millions of dollars to the debt so it could in effect pay itself $375 million in dividends.
Facing mounting debt and a cash crunch, Tops could have cut its losses and shut down, but Curci and his team persevered. Their negotiating skills made saving the company possible.
• Struck deals with its two main unions to reduce its potentially crippling pension obligations, while also cutting the benefits its workers will receive in retirement. To make up some of the lost benefits, Tops will create a new 401(k) plan that would be funded with $12 million in seed money and another $17 million in company contributions over 21 months.
• Closed 10 unprofitable stores and renegotiated leases at 45 others, saving about $27 million during the life of the leases.
• Through bankruptcy restructuring cut its interest payments, which topped $80 million a year in 2017, to an estimated $55 million annually.
• Reduced Tops’ total debt, which exceeded $700 million when the company filed for bankruptcy in mid-February, by $455 million.
Tops’ reorganization hasn’t been achieved without sacrifices by workers and retirees, who accepted changes in their pensions. Deals with the Teamsters and United Food and Commercial Workers unions reduced workers’ retirement benefits, while cutting Tops’ substantial pension liabilities.
With bankruptcy behind it, the company’s management will share a 10 percent ownership stake in the business and its top executives will share $3.6 million in bonus payments. The bonus plan has caused some hurt feelings among other employees, but the compensation was a reasonable way to keep the management team together as it led the company out of Chapter 11.
The retail chain is ready to invest in refreshing some of its stores. It also plans to expand its grocery delivery service.
The bankruptcy deal gives Tops a chance to compete, which is all it could ask for. Its next task is to find more consumers willing to buy what they’re selling.