What led to Tops Markets' decision to file for bankruptcy today?
Analysts say it was a combination of "crushing debt," a highly competitive supermarket industry and a weak upstate New York economy.
"It's been a difficult year for the industry as a whole and when you have a lot of debt and are not as well capitalized, it all adds up,'' said Bill Drake, a Cornell University faculty member and senior extension associate in the university's economics and management school. Drake also has 20 years experience as a food industry executive.
Drake said Tops' sales performance has been lackluster the past couple of years, while at the same time the company is dealing with significant "crushing debt" due partly to a series of leveraged buyouts.
"Tops has occupied the middle position in the marketplace, and they are kind of the plain vanilla flavor among supermarkets,'' Drake said. "Companies with a weaker balance sheet and weaker competitive place in the market are going to get shaken out."
Tops faces intense competition from Wegmans, Aldi, Price Chopper along with Amazon, Walmart and, more lately, meal-kit delivery companies.
Tops also has higher everyday prices than its competitors such as Wegmans and Aldi, and needs to address that and have better promotional programs, said Burt Flickinger III, managing director of Strategic Resource Group, a consumer industry business consulting firm.
Tops has reported that it has more than $720 million in debt after going through leveraged buyouts and purchasing other stores in recent years:
- 2007: Morgan Stanley Private Equity bought the company from Ahold, a major international food retail conglomerate based in the Netherlands.
- 2010: Tops acquired The Penn Traffic Company, a local chain with 64 stores.
- 2012: Tops purchased 21 Grand Union Family Markets stores.
- 2013: TOPS' executive team purchased the company from Morgan Stanley Private Equity.
Management fees and other costs associated with the buyouts in 2007 and 2013 have contributed to the chain's debt, said Antony Karabus, chief executive officer of HRC Retail Advisory.
"Eventually the only way to deal with that is to restructure your debt,'' he said. "Tops is a good company with a good reputation. Their main issue is that debt."
Tops has some things going for it as it tries to reorganize in bankruptcy court, experts said.
Tops' union - United Food and Commercial Workers International Union Local One - and its vendors support the chain, Flickinger said. Vendors like Tops because they carry local and national brands, and not just private labels, he said.
Tops also has profitable fuel stations worth about $100 million, and by opening more the chain could bolster its cash flow and help ease its debt, Flickinger said. It also could sell some of its stores in the Hudson Valley and Adirondacks, he said.
The supermarket chain, based in Williamsville, Erie County, has 169 grocery stores in New York, northern Pennsylvania and western Vermont. Tops employs approximately 15,000 people.