Frank Curci has run Tops Markets for the past six years, but it wasn’t until last week that the veteran supermarket executive became the primary owner.
Curci, along with five other high-ranking Tops executives, completed their purchase of the supermarket chain from a group of Wall Street firms, led by Morgan Stanley Global Private Equity, that had owned the business for the past six years. With the deal now done, Curci discussed his view of where Tops stands in today’s competitive grocery market and his strategy for the future.
Q: How did the deal come together?
A: As you look over the past six years, we’ve done some publicly traded bond deals that allowed them to take some money ($135 million) out of the business in the form of dividends. They’re at the point where they’re very happy with the return they’ve gotten from us. While they believe very much in our future and our ability to continue to generate those kinds of returns, their funds have a certain life. It’s time for them to monetize the rest of their equity.
We knew that and we had been discussing what those potential exits were. The potential exits were everything you can think of: selling to a bigger company, selling to another private-equity company, maybe doing another public offering. All of those things would take time and have certain risks to them.
At that time, I started talking to them about our management buyout. The equity value of the company was probably something that we could handle if we got the right financing in terms of personal loans, and that we’d like to take a run at it.
We, of course, had to come up with how we would handle the financing. It was a combination of the current ownership of the stock, money that we were willing to put back into the business, and some loans that are personally guaranteed.
We started talking about it in the summer and here we are five months later with a closed deal.
Q: Explain how six executives can buy a company the size of Tops.
A: I’ll say this: When we bought the company from Ahold, I invested in the company then. I was the only one at that point. I’ve done as well as they’ve done in that investment. So there was some cash available to put back into the business. The equity value of the company because of the bond deals is less than it would have been without that debt on the balance sheet. So it had gotten to the point where we could pull it off financially. We’re assuming all of the current debt. We have $610 million of publicly traded bond debt.
Q: So the amount of cash that you had to come up with and borrow was relatively small?
A: It was less than it would have been without that debt. Relatively small, but big numbers if you’re responsible for that debt. I’ll be the largest shareholder.
Q: Under Morgan Stanley, Tops doubled its store count to 159, expanded into northern New York and Vermont, and moved into a lot of smaller markets where you’re the only game in town. Where do you go from here?
A: We’ve been able to be opportunistic in buying groups of stores, from one to 50. We put them into our footprint and cost structure, There are many opportunities to continue to do that across upstate New York. We have a couple of independents we’re looking at today.
I could see us adding another 20 percent or 30 percent to our store base over the next three to five years in terms of smaller independents.
Q: What’s the appeal of the smaller markets?
A: Being in a small market with a small store is not a bad place to be. We found a real niche in that 20,000- to 30,000-square-foot store where there won’t be a major competitor coming in anytime soon. If you have the right cost structure, you can do very well. That’s been good business for us.
Our major competitors here are Wegmans and Walmart. They don’t really care to play in that. That leaves a niche for us to grow and prosper in an area where they don’t really care to play in.
Q: Is that where you see the focus going forward?
A: I do. I think we’ll push on our boundaries a bit. I could see us growing out a little bit. But there are plenty of fill-in areas in upstate New York. The last 10 stores that we’ve acquired have all been of that nature. Most of those have been in central New York, but there’s availability in the extreme western part of our state and the Pennsylvania corridor that we’re pretty excited about.
The major part of our growth, I believe, will be in transforming stores that are in good locations but may have an ownership structure that’s not able to compete in today’s market against the bigger players out there. We could come in, put some money in to improve it, do more business and make more money.
Q: Are you satisfied with where Tops is right now?
A: You’re never really happy. Even here in our most developed market in Erie and Niagara counties, we still have stores we can improve. We have existing stores that constantly need to be updated. When we look at our store base, we see a seven-year life cycle. With almost 160 stores, that means we should be doing 20 or 25 projects a year.
Q: Is adding gas stations to your supermarkets still an important part of your strategy?
A: We have 50 gas stations. It’s something only Tops really does and it’s really a big part of the value equation we create for customers. We’ll do five or six or seven new gas stations a year.
Q: Do you see promotional pricing as part of your niche?
A: It’s really what differentiates us from our competitors. We’re the only promotional retail left in upstate New York. People like that. They like the ability to save money on things – things like the meal deals. This week we have coupon doublers. Nobody else does that.
Q: How’s the Orchard Fresh concept doing?
A: Orchard Fresh is doing fine. Orchard Fresh was a concept we built from the ground up. We’re happy with it. We’re still toying with the format. The fresh side of the business – the produce, the meat, the prepared foods – is doing great. We think we could do some more different things on the nonperishable side of the business, so we’re still toying with that concept before we open the second one.
Q: Part of your strategy also is to keep a local focus. Why is that important?
A: Buffalo and Western New York is a pretty unique place, and people love their traditions. There are food traditions here that are more extensive than anyplace else I’ve ever been. People here love their local brands. They love their local traditions.
A lot of that was taken away under the centralization under Ahold (which owned Tops from 1991 to 2007). So when we came back and bought the company back from Ahold and brought us back to local management, that was a big deal for the company. We’ve done some great things over the past six years with that in mind. This is the next natural step in that because now are we not only locally operated, but we’re locally owned.