Thursday, September 17, 2015

Haggen plans broad retreat from costly expansion, filing shows

Originally published September 15, 2015 at 5:26 pm Updated September 16, 2015 at 7:32 am

Only months after acquiring dozens of other grocery stores in the Puget Sound region, respected grocer Haggen is seeking bankruptcy protection. The Lake Forest Park store shown was acquired from Albertsons, whom Haggen is now suing. (Dean Rutz/The Seattle Times)

The Bellingham grocer expects to shed most of the sites acquired in its ambitious 146-store deal, bankruptcy documents show.

By Ángel González

Seattle Times business reporter

Haggen plans to surrender most of the territory it acquired in its ambitious bid to become a West Coast grocery powerhouse, judging by financial projections it made in bankruptcy court that paint the Bellingham grocer shrinking to one-third of its current size by early November.

In a budget forecast filed in court, Haggen projects that weekly sales averaging $44.7 million in the next two months will fall by two thirds in mid-November.

Similarly, its expenses for grocery inventory are expected to see a similarly sharp drop-off, from $24.5 million in the week ending Oct. 9 to $8.6 million the following week. Payroll expenses are also projected to decrease sharply in late October.

These numbers underscore the dramatic and surprisingly swift retrenchment Haggen is undertaking after failing to profitably digest many of the stores it bought from Albertsons and Safeway in the wake of their $9.4 billion merger.

The company has 164 stores, but even before filing for bankruptcy protection on Sept. 8 it announced it would close 27 of them.

Haggen declined to comment on the financial projections Tuesday. But it said last week it would evaluate sales or closures as part of its “right-sizing strategy” during the bankruptcy process.

In a court filing, Haggen chief financial officer Blake Barnett said that the 17 grocery stores that were run by Haggen before its acquisition were profitable, to the tune of $25 million in annual earnings before interest, taxes, amortization and depreciation.

Those locations, combined with “some” of the newly-acquired stores, will “ultimately form a set of successful core stores” that the company will restructure itself around, Barnett said.

Other stores, and a portion of its pharmacy business, will be put on the block, the filing said.

Haggen’s court filings also make clear how much cash it was bleeding as many customers abandoned the newly acquired stores.

Between June 19 and Sept. 8, it tapped more than $33 million of the $36 million available in its credit line.

Its budget forecast for the three weeks ending Sept. 25 projects negative cash flow totalling about $25 million.

Haggen’s creditors committed $215 million to get the company through the bankruptcy. As of Sept. 11, the company was estimated to have $272,000 in the bank, not counting proceeds from the credit facility provided by the lenders after the bankruptcy filing.

A worker at a store in Seattle said that within 24 hours of the bankruptcy announcement “more than 90 percent of our deliveries stopped.” But some deliveries have started up this week, the staffer said.

In the early weeks after the 146-store acquisition, as it quintupled its workforce, Haggen sought to replicate its Pacific Northwest formula of local products and organic fare in the U.S. Southwest, one of the most competitive grocery markets in the country.

But it didn’t go as smoothly as planned. Tina McCunney, a shopper from San Diego, said last month that when walking into Haggen, it felt like “it’s got the kiss of death for any retailer: very few patrons, anxious employees, a depressed atmosphere. This is not a pleasant shopping experience,.”

Haggen blames Albertsons for its current quagmire. Haggen sued the behemoth grocer for $1 billion, accusing Albertsons of sabotaging its entry into the new markets, among other things by providing murky pricing data that Haggen says led to the high prices that turned off many customers. Albertsons had previously sued Haggen for unpaid inventory.

The company’s bankruptcy filing took many by surprise — including suppliers, and the unions that represent 80 percent of its workers.

Todd Crosby, the president of UFCW 21, which represents grocery store workers in Washington, wrote in a message to members that employees learned about the bankruptcy from the local news. That lack of communication was “simply wrong,” Crosby wrote.

A Haggen spokeswoman said the company couldn’t give workers advance notice of the Chapter 11 filing but is “committed to communicating with our employees throughout this restructuring period.”

It’s unclear at this point how many stores will close, how many will be sold, and who will end up buying them. But there are grocers trying to get into the southern California market, including ALDI, a German chain with a strong East Coast presence that has said it wants to open 45 stores there next year.

Nearly 11,000 jobs are at stake as the bankruptcy proceedings play out. Some 2,000 people work at the Haggen unit that oversees its original 17 stores (plus a standalone pharmacy).

There are another 3,730 staffers in former Albertsons and Safeway stores in Washington and Oregon, and 5,140 in California, Nevada and Arizona, according to the filings

A short-lived behemoth

Haggen expanded its store-count ninefold as it bought 146 stores shed by Albertsons and Safeway in the wake of their $9.4 billion merger last January. It's already announced it will shed 27 stores. And now, according to bankruptcy filings, the company projects it will dispose of the majority of its young empire by early November.