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Tops Markets Latest in Growing List of Regional Grocers Seeking Bankruptcy

Northeast-Based Chain Succumbs to Intense Competition
February 22, 2018
Saddled with debt and little capital to invest, another regional grocery store chain has filed for bankruptcy reorganization. This time it is Tops Markets, a supermarket retailer with 169 owned supermarkets and five franchised stores in Upstate New York, Northern Pennsylvania, and Vermont.

Buffalo-based Tops is just another in a long line of smaller, regional grocers that has been unable to keep up with intense industry competition and forced to seek bankruptcy court reorganization in recent years. The list includes: Marsh Supermarkets, Fairway Group Holdings Corp., The Great Atlantic & Pacific Tea Co. (twice), Fresh & Easy (twice), Haggen Holdings, and, Central Grocers. It also includes Winn Dixie, whose parent company Southeastern Grocers is widely reported to be on the verge of filing for bankruptcy reorganization.

The supermarket industry is highly competitive," Michael Buenzow, chief restructuring officer for Tops and a senior managing director with FTI Consulting Inc., declared in a bankruptcy court filing yesterday.

Tops and the others face "stiff competition across multiple market segments, including from local, regional, national and international supermarket retailers, convenience stores, retail drug chains, national general merchandisers and discount retailers, membership clubs, warehouse stores and 'big box' retailers, and independent and specialty grocers. The company's in-store delicatessens and prepared food offerings face competition from restaurants and fast food chains," Buenzow said. "The company also faces intense competition from online retail giants such as Amazon."

Adding to this competitive pressure is the recent growth in consumer demand for a "gourmet" shopping experience with offerings of more expensive natural, organic, and gluten-free foods. Smaller grocers have been at a competitive disadvantage to bigger chains that have the financial flexibility to devote greater resources to sourcing, promoting, and selling the most in-demand products.

The challenging environment has also been compounded by falling produce and retail food prices, and competitors' increased willingness to engage in price-based competition, Buenzow said. He calls it "food deflation" where food prices have risen just about 1.3% annually, which is drastically less than the 20-year average of 2.2% inflation overall.

Recently the smaller chains competitors with more resources and purchasing power have also attempted to increase market share by expanding their footprints and discount pricing, making it increasingly difficult for the smaller firms to compete.

Last May, when Indianapolis-based Marsh Supermarkets Holding filed for Chapter 11 reorganization, Lee Diercks, its chief restructuring officer and a founding partner of Clear Thinking Group, said Marsh's two main competitors -- Kroger and Meijer -- invested in excess of $100 million into that regional marketplace. Marsh was only able to invest $15 million. The disparity helped lead to double-digit declining same-store sales for Marsh.

Tops situation has been exacerbated by what Buenzow called an unsustainable amount of debt on its balance sheet. Specifically, the company currently has $715 million of prepetition funded indebtedness, most of it racked up by a Morgan Stanley Group led buyout of the firm in 2007. Although the company nearly doubled in size under the Morgan Stanley Group's ownership, the company incurred nearly $450 million of more debt.

In its initial bankruptcy court filings, Tops is asking to cancel leases on three previously closed stores, but more closings could be forthcoming as it has hired Hilco Real Estate to help it evaluate its portfolio and pursue improvements of its lease terms.
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