Falling food prices are creating challenges for Tops Markets and Frank Curci, the supermarket company's long-time CEO, can't remember another time like it.

"This is the largest deflationary trend I've seen in my lifetime," Curci said in an interview Friday.

"Deflation doesn't make it any better to do our business. Our business has a decent amount of fixed costs," Curci said. "It comes at the same time some of your costs are increasing, like the minimum wage."

Most of the falling prices have been centered around meat and dairy products. Egg prices, for instance, have dropped about 40 percent to 50 percent over the past year, said John Persons, Tops' president. In recent months, vegetable prices also have been declining.

That decline is having a significant impact on Tops' revenues. Persons estimates that falling prices cut the chain's sales at stores that have been open for at least a year by $24 million during the final three months of last year.

To compensate, Tops has been trying to build up some of the more profitable portions of its business, including organic food and prepared foods. Tops' organic product sales, which now include about 3,000 different items, jumped by 33 percent during the last quarter, while its same-store prepared food revenues increased by 3 percent.

"I think there's significant room for us to grow," Persons said. "Customer buying habits are changing. They're looking for more natural and organic products."

That helped Tops, which regularly posts losses because of its heavy debt load from a management buyout, reduce its fourth-quarter loss by about 10 percent to $13.8 million, compared with a loss of $15.4 million a year earlier.

Tops' sales fell by 3 percent to $584 million from $602 million, with revenues from inside Tops stores dipping by 3 percent and sales it its 52 fueling stations sliding by 3 percent. Same-store revenues fell 2 percent because of falling meat and dairy prices, combined with lower sales funded by the Supplemental Nutritional Assistance Program.

Tops executives said they expect the drop in food prices to end during the second half of this year.

Tops, which acquired six former Stop & Shop and Hannaford stores last year, said the performance of those supermarkets was weaker than company officials expected as they went through a rebranding process. Persons blamed the nearly $2 million loss at those stores on larger than expected promotions during the transition period, resulting in four of the stores breaking even while two lost money.

The supermarket chain, which has acquired 15 stores during the past two years, expects to purchase only one new store this year located within its Buffalo Niagara market and reduce its overall spending on capital improvements and acquisitions by more than half to between $20 million to $25 million.

"Right now, we're looking to put more of our free cash flow toward debt service," Curci said. Tops has nearly $875 million in total debt, including an $85 million note that will come due in 2018. Tops is hoping to refinance that $85 million in debt before summer, Curci said.

Tops also is reviewing its stable of 172 stores and potentially could sell two to four underperforming supermarkets, Curci said.

"We're pretty happy with our store base, but there's probably less than a handful of stores that we could take a look at and could close," he said during a conference call.

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Falling food prices create a challenge for Tops - Buffalo News