Tops Likely Winner to Acquire Penn Traffic
Tops Friendly Markets appears set to acquire the majority
of Penn Traffic’s assets as creditors and the union that represent workers
at the bankrupt grocery company have thrown their support behind the bid.
Even
Price Chopper president and CEO Neil Golub, whose company made an offer to
acquire 22 of Penn Traffic’s stores, seems resigned to Tops having its bid
accepted by the bankruptcy court.
"We would have had wonderful stores and they
would have been modernized. I talked to a number of mayors from the communities,
and they would have loved to have a Price Chopper. And their people seemed
to have preferred Price Chopper to having Tops. Be that as it is, that [Tops
deal] is probably going to happen. At this point, there is really not much
more we can do and so life moves on," he told The Post-Standard.
Tops
Friendly Markets, which operates 76 stores in Western and Central New York
and Northwestern Pennsylvania, has not committed to how many of the 79 stores
it may eventually acquire.
"From the very beginning of
our transition to a locally operated company, we have pledged to invest in
the markets we serve, and to grow and strengthen our position as the largest
grocery chain in the region," said Frank Curci, Tops’ president and CEO, in
a press release. "This new opportunity allows us to further fulfill that pledge
as we look forward to meeting the needs of our new neighbors and customers,
providing them with a positive shopping experience that focuses on great variety,
value and service."
"Tops is very familiar with the localities served by Penn
Traffic, and it is our goal to keep as many jobs and operate as many stores,
without any interruption in service, as we possibly can," said Kevin Darrington,
Tops chief financial officer. "We also plan to invest in those stores that
are in need of upgrades in an effort to best serve our customers and associates."
Discussion
Questions: What are your thoughts on Tops’ likely acquisition of Penn Traffic’s
assets and the company’s 79 stores? What will Tops need to do to succeed where
Penn Traffic has failed so many times in recent memory?
Editor’s note: Including
its most recent filing, Penn Traffic sought Chapter 11 bankruptcy protection
three times over a 10-year period.
Price Chopper isn’t stupid. They will let some other company overpay for these failed stores. Price Chopper may eventually get the ones they want in the end. I think Tops is looking for some economies of scale savings and doesn’t truly expect any kind of significant sales increase. The measure of success or failure will not be on the sales side but on the expense side, and being able to have lower operating costs. Most likely, the store’s volumes will drop further as Tops goes through the learning curve after the acquisition.
I agree with David Livingston’s assessment. Price Chopper had cherry picked the ones it wanted and while I like Tops, I think Price Chopper would have done a better job doing what has to be done with these tired old stores. Expense management will be key, as well as brightening up the units, which show such obvious signs of age.
I am not sure how many of the stores that Tops will acquire have upside sales potential. The populations are declining, jobs are scarce, and the track record is poor. Sounds like a really difficult uphill climb even with potential efficiencies that can be made in the supply chain and backroom services.
Price Chopper identified the stores with the best potential and was willing to only invest where their due diligence showed a reasonable chance for success.
Both groups have an older shopper base, more modest income levels, and lower incidence of children in the household compared to the National average. Those consumers are homeowners, but they live in declining areas of the country.
Competitors can do better by cherry-picking stores or site locations surrounding Penn Traffic locations, and then build a “better box.” Appears to be a bit too much of the typical meddling of New York politicians in trying to put the hand of “Big Brother” in the pie–that can only lead to 10 more years of decline, with the misbegotten thought that “jobs are saved.”
What a waste of effort. They should have opened up the bidding to an entrepreneurial player, and sold it off in pieces.
David, you fail to really understand the underlying issues surrounding Penn Traffic. The STORES are not what failed. The fact of the matter is that a lot of Penn Traffic stores are profitable and a change in management could make them even more so. The stores did not fail, a decade and a half of mismanagement, bankruptcies and executive turnover is what did the company in. Also, if TOPS were to keep every unit open, which they won’t they could expect to see a 50% increase in sales, I would at least expect to see TOPS increase sales by about 33%. I wouldn’t expect current stores to lose too much volume considering that many locations they are picking up are in areas where the supermarket is THE ONLY supermarket choice in the community.
Warren, your assumption that the stores are tired and old is incorrect. The fact of the matter is, Penn Traffic has spent a significant amount of money in the past few years on store renovations and makeovers.
Peter is correct on his assessment of the markets that TOPS is buying into. However, Price Chopper was buying stores that mostly they were competing against. Price Chopper was not looking to expand its geographical territory, but to instead mostly gain a stronghold in the Syracuse market. This acquisition likely would have moved Price Chopper from 3rd in market share to 1st in market share. Once TOPS is able to shed the line item on each stores balance sheet reflecting the costs of operating Penn Traffics warehouse and corporate offices Penn Traffic stores become mostly instant profit centers.
Roger, Chuck Schumers involvement is solely for his own political gain. He knew that TOPS would make the acquisition and he got involved so that he could claim the credit for an outcome that was already “in the bag.” Also, bidding was open to everyone and anyone (remember is was Schumer that got the bid deadline “extended”) you just had to have the cash and support to make it happen.
Of course there is considerable risk in this acquisition, but there is also the potential for a significant payoff. Had Price Chopper won this battle, TOPS and any other competitor likely would have been locked out of the Syracuse market. This would have left TOPS with nowhere to go in its expansion. Gaining a foothold in Syracuse allows TOPS the opportunity to march eastward across the state.
This battle wasn’t over just some grocery stores; this was a battle over the Syracuse market and the rest of New York state territory. It will be interesting to see how this all plays out; of course the outcome won’t be known for years to come.
If Tops can increase sales 50%, that must mean the sales base is down to near nothing. I really don’t see Tops going very far long term. They seem to be lost in no man’s land between Wal-Mart and Wegmans. Analysts have been studying the Penn Traffic stores for acquisition for the past three years and in the end, none of the big money players are ending up with the stores. Good luck to Tops.
I’ve been spending the past 4 years studying the acquisition of failed Tops stores from Norwalk, Ohio to Erie, Pennsylvania. Sometimes the smart money will actually enable lesser qualified purchasers of stores, setting them up for failure in the future. Perhaps there is nothing Price Chopper wants to see more than Tops overpaying and attempting to revive the stores. Then in two years buy the stores they want from Tops for even less money. Think about it, what is taking place could be the exact scenario Price Chopper was really hoping for.
I have no doubt that Variety 3000 is extremely knowledgeable about the market in question. Whether stores are old and tired is of course a subjective opinion, and it is with no pleasure that I stand by what I said, based not on assumption but on personal repeated observation of stores near where I live. I’ll make a few store checks over the next week or so, and if I think I’m wrong, I’ll find a way to chime in and apologize.