The deal to sell Haggen

The deal to sell Haggen
This Haggen store at 2900 Woburn St. in Bellingham, along will the rest of the 29 Haggen stores, will now be owned by Albertsons. [Photo by Emily Hamann | BBJ]

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Filed on 04. Apr, 2016 in Contents, News

By Emily Hamann
The Bellingham Business Journal

When Haggen sought permission to sell off the last of its stores in November, the future of the brand was put into question. Now it looks like shoppers — those in Whatcom County, at least — will get some answers about what will happen with the grocery store chain that was born and raised here.

On March 11, Haggen Food & Pharmacy announced that it accepted a $106-million deal to sell 29 of its stores to grocery-store giant Albertsons. Three more of Haggen’s stores, one in Puyallup, another in Port Angeles and the third in Oregon City, Oregon, weren’t included in the deal, and are to be shut down, their workers laid off.

The following Monday, Albertsons announced what it planned to do with those stores. The deal was approved by U.S. Bankruptcy Court in Delaware at a hearing on March 29.

Under the plan Albertsons released, 15 of the stores would remain under the Haggen brand. The other 14 stores across Washington and Oregon would be converted to one of Albertsons’ brands.

“Haggen’s original core group of Pacific Northwest stores set the gold standard in the markets they serve for quality fresh products and exceptional service,” said Bob Miller, Albertsons chairman and CEO, in a statement. “We are proud to now be associated with this tradition.”

During the switch, Albertsons says it will honor existing labor agreements and hire substantially all employees to staff the stores.

The stores that will remain Haggen include 14 that have always been under the banner of the Bellingham-based grocer. That includes five in Whatcom County: four in Bellingham, at 2814 Meridian, 1401 12th St., 2900 Woburn St., 210 36th St., and one in Ferndale, on 1815 Main St.

One store in Oak Harbor — which was originally a Safeway but was bought by Haggen last year — will remain under the Haggen banner as well.

Chris Sharick (left), store manager at the Haggen at 2900 Woburn St. in Bellingham, stands with Haggen CEO John Clougher in this 2014 file photo.

Chris Sharick (left), store manager at the Haggen at 2900 Woburn St. in Bellingham, stands with Haggen CEO John Clougher in this 2014 file photo.

“We are excited about the opportunity to have the backing of Albertsons and look forward to be part of the Albertsons grocery family,” said Haggen CEO John Clougher, in a statement. Under the proposed plan, the Haggen stores would operate separately from Albertsons, in a business unit that would still be based in Bellingham, where the chain started more than eight decades ago.

“They’re trying to convert as much goodwill and name equity as possible,” said Tisha Oehmen, a partner with Paradux Media Group, a marketing agency based in southern Oregon. “The stores that have historically been Haggens have goodwill in those communities,” she said.

Likewise with stores that have historically been Albertsons or Safeways, or other brands under the Albertson’s banner.

“It’s all about name recognition,” she said. “If I grew up in a community where Haggen has been my grocery store in the past, there’s no reason to change that going forward.”

A press release from Albertsons says that antitrust clearance for the sale was approved the week before the announcement. Getting that clearance might also be why Albertsons is keeping Haggen headquartered in Bellingham, Oehmen said. Although Haggen will be run from a separate office, Oehmen was doubtful that all the Haggen stores will stay exactly as they are.

“The reality of almost all mergers is that there will be changes,” she said. “They probably don’t get to operate autonomously.”

An expansion gone wrong

Haggen has a long history in the Pacific Northwest, and in Bellingham. Ben and Dorothy Haggen and Doug Clark started the first store in 1933. In 2011 the Haggen family sold a majority stake in the stores to Comvest, a private equity firm based in Palm Beach, Florida.

In 2014, Haggen was coming out of a rough patch. In the two-year period before, the company had closed 10 stores. In August of that year, John Clougher, a former regional vice president of Whole Foods, was brought on as the CEO. Also in 2014, Albertsons and Safeway were planning a $9.4 billion merger.

Before it would let the deal go through, the Federal Trade Commission mandated that Albertsons sell off 168 of it stores. In particular it identified 130 different markets, mostly in the Northwest and the Southwest, where the FTC was worried the deal would lessen competition, and hurt shoppers.

Albertsons picked Haggen to buy 146 of those stores. Over the course of a few months, Haggen grew from 2,000 employees with 18 stores in the Northwest to more than 10,000 employees and 164 stores up and down the West Coast.

It didn’t last.

The deal unraveled just months later with Haggen’s filing for bankruptcy and then selling and closing stores across the West. At auction last fall, Albertsons bought back 30 stores that it had sold to Haggen. Grocery store analyst David Livingston of Milwaukee-based DJL Research calls the “whole FTC process a joke.”

“I think Albertsons just used Haggen as a shill to end up becoming a bigger company,” he said. “I think that was the plan all along.”

Haggen didn’t have the financial and operational wherewithal to be a serious competitor. Which is why, Livingston said, Albertsons chose Haggen.

“In order to get the stores back they had to sell them to the most inept operator they could find,” he said.

Haggen filed a $1 billion lawsuit against Albertsons, alleging sabotage during the transition at many of the stores. Earlier this year, Albertsons settled for $5.75 million.

Just one bidder is qualified

A seagull flies around the parking lot of an Albertsons store at 1650 Birchwood Ave., Bellingham. The store is scheduled to close on May 7. [Emily Hamann | BBJ]

A seagull flies around the parking lot of an Albertsons store at 1650 Birchwood Ave., Bellingham. The store is scheduled to close on May 7. [Emily Hamann | BBJ]

Initially, Haggen’s plan was to rally around a few dozen of its remaining stores in the Northwest — it called these the “core” stores, ones that were profitable — and sell off or close the rest. But then in November, it sought permission to sell those, too.

Haggen received four offers to buy at least some of its remaining stores, but only considered Albertsons’ $106 million bid, according to court documents filed last month. With the assistance of investment bank Sagent Advisors, Haggen contacted 69 grocery stores, 21 of which were granted access to confidential electronic data about Haggen’s operations. Ten of those operators then expressed interest purchasing at least some of these stores. Haggen, Sagent Advisors and financial firm Alvarez & Marshal North America negotiated with those operators and received four bids for the core stores. Of those, only Albertsons made what was considered a qualifying bid.

Haggen was given leeway to determine qualifying bidders and the baseline bid, according to court papers filed last November.

Haggen and Sagent Advisors continued negotiations with the four grocery operators while hearings for an auction of the stores was postponed several weeks. In the end, all four operators upped their offers for the stores, but Haggen determined that Albertsons submitted “the highest or otherwise best bid.”

Meanwhile, on March 7, Albertsons announced plans to close its store at 1650 Birchwood Ave. It’s Albertsons’ only store in Bellingham. The store is scheduled to shut its doors by May 7; its 65 workers will be able to transfer to Safeway stores in the area.

The new grocery landscape

So what does all this mean for the shopper?

Higher prices and lower quality.

Or at least that was the opinion of the Federal Trade Commission chairwoman more than a year ago. That’s when Albertsons was seeking to merge with Safeway to become one of the country’s largest supermarket chains.

“Consumers everywhere rely on local supermarkets for their weekly shopping needs,” said FTC chairwoman Edith Ramirez at the time. “Absent a remedy, this acquisition would likely lead to higher prices and lower quality for supermarket shoppers in 130 communities.”

One of those markets the FTC identified was Everett, where under the merger the number of serious grocery store competitors drops from five to four. That’s evident at 7601 Evergreen Way in Everett. That store was a Safeway two years ago and then became a Haggen last year. It’s being converted back to a Safeway — one of the stores purchased at auction last fall.

By itself, that may not be a problem. But the store is one of three now owned by Albertsons in just a little more than a two-mile stretch of Evergreen Way — the remodeled store, a Safeway at 4128 Rucker Ave. and an Albertsons at 6727 Evergreen Way.

So can Everett grocery shoppers look forward to “higher prices and lower quality?” The FTC notes that at least the store — and others like it — are being operated as grocery stores.

“While the divestitures did not lead to the full result we were looking for — a new supermarket competitor in each market area — most of the divested stores do remain supermarkets,” said Betsy Lordan, a spokeswoman from the FTC, in an email. “The FTC believes that it is best for consumers if these stores continue to operate as supermarkets, even if Albertsons owns them.”

It’s a point echoed by Mike Trask, the owner of the IGA stores in Granite Falls and Edmonds. He’s also the chairman of the Washington Food Industry Association, a group representing the state’s independent grocers and suppliers.

He said it’s sad to lose Haggen as a strong independent grocer, which offered a shopping experience different from Albertsons and Safeway. But at least the stores are being operated as stores. And that’s good for employees — who have a place to work — and shoppers who have stores in their neighborhoods.

Will it mean those shoppers will end up paying higher prices and getting lower quality?

Trask doesn’t think so.

He said that the merged Albertsons-Safeway is a good operator that wouldn’t allow that to happen. He notes that while Albertsons controls many stores in Western Washington there is also a lot of competition in this area. For instance, in the two-mile stretch on Evergreen Way there is also a QFC, and a Fred Meyer just south.

Sandeep Krishnamurthy, the dean of the University of Washington, Bothell business college, agreed.

“The shape of the market is going to be different,” he said. “And what people have access to is going to be different.”

But different doesn’t necessarily mean worse. There is still plenty of competition. He pointed out that even Amazon is exploring the grocery business.

“The loser is pretty much going to be Haggen,” he said. “I think the consumers are going to be just fine.”

If Albertsons starts raising prices, consumers will shop elsewhere, Trask said.

“The Walmarts and Wincos and Fred Meyers in the world, they’ll keep them on their toes,” Trask said.

Herald Business Journal editor Jim Davis contributed to this report.

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IFRoZSBKb3VybmFsPC9saT48L3VsPg==