Haggen Struggles After Trying to Digest Albertsons Stores
Expansion appears more than regional grocer could handle, raising questions about FTC-approved plan
A Haggen grocery store, formerly an Albertsons, in Palmdale, Calif., in March. Instead of becoming a regional powerhouse, Haggen is struggling to stay afloat. PHOTO: MEL MELCON/LOS ANGELES TIMES VIA GETTY IMAGES
When the Federal Trade Commission in January cleared grocery chain Albertsons Cos. to buy rival Safeway Inc., it insisted that the two companies sell 168 of their stores to rivals to preserve competition and protect consumers from higher prices.
The FTC allowed the small Pacific Northwest supermarket operator Haggen Holdings LLC to buy most of the stores, and Haggen quickly ballooned to 164 locations throughout the West from 18 in Washington and Oregon.
Just months later, however, the rapid expansion appears to be more than the company could handle, and the FTC-approved plan looks like a major mistake.
Instead of becoming a regional powerhouse, Haggen is struggling to stay afloat. The company filed for bankruptcy-court protection last month, and began closing 26 of its recently purchased stores. It then announced plans to close 100 more locations and realign its business around 37 “core stores.”
Complicating matters, Haggen alleges Albertsons thwarted its expansion by interfering with its attempts to reopen the acquired stores under the Haggen brand name, something Albertsons denies.
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Haggen’s pullback put workers, suppliers and shoppers in a bind. It also highlights the difficulty of orchestrating divestiture deals designed to replace competition that would otherwise disappear after a merger.
“It’s not easy to get these things right,” said John Kwoka, an economics professor at Northeastern University, who studies such efforts. “And it’s a bigger stretch when you’re trying to turn a company into something much larger than it was before. Here it failed spectacularly.”
The FTC defends its approval of the Haggen deal, saying it closely examined the deal and had a good basis for finding the plan sound.
When the Albertsons-Safeway merger was announced, the FTC worried about its impact on places like Carpinteria, Calif. For decades, Carpinteria, a small coastal town, had two major grocery stores.
After the deal became final, Safeway sold its Carpinteria store to Haggen, which is now leaving town—and leaving residents with questions about competition. “It is a concern,” said city managerDave Durflinger, adding Carpinteria would like another grocery tenant. The store is on a list of locations that could be sold to another grocery proprietor in the bankruptcy proceedings.
Other communities have worries that extend beyond competition. On opposite ends of town, Anthem, Ariz., has a Fry’s Food and a Haggen, which shut down last week. An empty store “sends a bad message,” said Kristi Northcutt, spokeswoman for the Anthem Community Council. And, logistically, “thirty thousand people going to the one store is going to be difficult,” she said.
Haggen’s workers may be feeling the most immediate effects of the restructuring. According to court papers, the chain hired more than 8,000 employees along with the divested stores. Many of those jobs are going away.
Last month, at the company’s request, the FTC waived a divestiture provision that had kept Albertsons from rehiring workers from ailing Haggen stores. “We’re willing to work with parties when it is feasible…to help them deal with this situation,” said FTC spokesmanPeter Kaplan.
Some industry watchers say that even under ideal circumstances, it would have been tough for Haggen to absorb scores of new locations. “A grocery- store company that small can’t grow that fast and be successful. It’s never worked,” said Craig Rosenblum, a supermarket consultant at Willard Bishop.
Acquiring divested assets has never been a foolproof strategy. When a new owner takes over another company’s business, consumers don’t always follow.
That’s why the FTC scrutinizes potential buyers. Antitrust lawyers say the FTC has evaluated potential divestitures even more vigorously since 2012, when one connected with the merger of car-rental companies Hertz Global Holdings Inc. and Dollar Thriftyfailed to go as planned.
The FTC required Hertz to spin off its Advantage Rent a Car brand, but shortly after it became an independent competitor, Advantage filed for bankruptcy protection. The brand continued to operate and was ultimately purchased by a Canadian private-equity firm that has taken steps to bulk up the business.
Before approving the supermarket deal, the FTC took a close look at Haggen’s expertise, financing, and business plan, and concluded the chain was an appropriate buyer for the divested stores, Mr. Kaplan said.
To be sure, the FTC has approved many divestiture plans without repercussions, including grocery-related deals, though none quite on this scale. And, the FTC received few public comments faulting the divestiture proposal.
People familiar with the matter said the FTC is now examining the situation, including Haggen’s allegations of wrongdoing by Albertsons.
Haggen, which is majority-owned by private investment firm Comvest Partners, recently sued Albertsons, seeking more than $1 billion in damages. It alleges Albertsons systematically thwarted Haggen’s reopenings of the purchased stores, such as by deliberately understocking them before turning them over.
“Albertson’s anticompetitive conduct caused significant damage to Haggen’s image, brand and ability to build goodwill during its grand openings to the public,” the lawsuit alleges.
An Albertsons spokesman said the allegations “are completely without merit,” and that the company will vigorously defend itself in court. Albertsons has filed its own lawsuit against Haggen over allegedly unpaid inventory.
While the bankruptcy and litigation proceed, the ripple effects continue.
Family-owned Top O’ The Morn Farms in Tulare, Calif., which sells milk in glass bottles, had agreed to serve 83 new Haggen stores, allowing it to more than double its reach. The farm had ramped up production and added employees—but now it has had to pull its supplies out of the Haggen locations and is looking for other distribution channels.
“There are too many outstanding invoices, with no promises of getting paid,” says owner Ron Locke. “Financially, it’s a pretty big hit.”
