BUFFALO, N.Y. - The Ohio stores operated by Tops Markets here will likely be sold to multiple buyers, industry observers told SN last week.
The chain, part of the Carlisle, Pa.-based Giant Food division of Ahold, Amsterdam, said this month it would divest all 46 locations in northeastern Ohio.
"When you look at the Tops division, the northeast Ohio stores were the largest underperformers," Giant Food spokesman Denny Hopkins said. "We want to put our resources on the core market of Tops, which is in New York and Pennsylvania."
The company hopes to complete a sale by the end of the calendar year, Hopkins said.
The 46 stores, ranging in size from 40,000 to 90,000 square feet, are located in the greater Cleveland, Akron, Youngstown and Norwalk areas and currently have approximately 3,800 employees. Tops operates 119 Tops Markets and four Martin's Super Food Stores. The sale will leave the company with 73 Tops locations and four Martin's locations in New York and Pennsylvania.
Hopkins said potential buyers have shown interest, but the company won't make an announcement until an agreement is signed. "It is very early in the process, but we are open to any and all options," he said. "It is a very difficult, competitive climate."
Sales have been declining for Tops in the past few years. In the most recent earnings statement, for the first quarter of 2006 ending March 31, sales in the Giant-Carlisle/Tops arena dropped 5.6% to $1.8 billion compared to the year earlier, SN previously reported. Comparable-store sales were down 5.5% at Tops.
"Everybody has known Tops has been struggling for the past three or four years," said Robert Cooper, an Akron, Ohio-based retail specialist for real estate firm CB Richard Ellis, El Segundo, Calif. "This wasn't a strange announcement to us."
Giant Eagle is the market-share leader in all areas of northeastern Ohio where Tops operates. In Cleveland, although Tops is the No. 2 retailer with 33 stores and 19.2% of the market share, Giant Eagle takes 29.1% with 44 stores, according to Metro Market Studies' 2006 Grocery Distribution Analysis & Guide. Tops is No. 3 in Akron, with seven stores and 11.7% of the market, and the No. 1 and 2 retailers there, Giant Eagle and Acme, have 28.4% and 25.5% of the market, respectively. Tops is No. 5 in Youngstown.
"The exit of Tops in the market will probably allow Giant Eagle to expand in the conventional niche," said Chuck Cerankosky, a retail analyst with KeyBank Capital Markets, Cleveland. "Some mass merchants like Target, Wal-Mart and Kmart might do more expansions to sell more consumables."
Cerankosky attributed some of Tops' declining performance to the chain's decision last year to switch from selling beef and pork cut in-store to prepackaged meat. Tops has since reinstated in-store butchers, but sales have not improved.
"With Tops giving up on the upper-middle-income customer with the beef program last year, there might be other merchants coming into the area," he said.
"I think [the sale] will provide a lot of retail opportunities," said Thomas Jackson, president and chief executive officer of the Ohio Grocers Association, Columbus. "Northeast Ohio is unique because the area is not dominated by just big chains. While Giant Eagle is a big player, there are a lot of other family-owned independent chains, and this would provide a terrific opportunity for some of them."
Jackson said the chance of one company buying all of the locations is remote.
"The more likely scenario would be for the stores to be sold individually to end-users," said Keith Hamulak, a Cleveland-based sales professional and retail specialist for CB Richard Ellis. "The local independent groceries have already indicated some interest in a few sites." Locals there include Heinen's, Dave's Supermarket, Buehler's, Apple's and Fishers.
"The strength of the portfolio is in locations that fall in the city of Cleveland and the first ring suburbs of Cleveland," Hamulak said.
Some see a sale by the end of the year as wishful thinking. "I think it's going to be harder than the average sale, because you're talking about a chain that's had a declining market share," Cerankosky said. "When we've seen chains get out of markets that were underperforming, they tend to go piecemeal." He cited Winn-Dixie and Albertsons as examples.
