Haggen files for bankruptcy after failed expansion | updated

Updated at 5:16 p.m.

Haggen has filed for Chapter 11 bankruptcy protection, just months after acquiring 146 stores from Albertsons and Safeway.

The Bellingham-based grocer filed the petition on Tuesday in U.S. Bankruptcy Court in Delaware.

The company plans to reorganize around its core profitable stores and has received commitments for up to $215 million in financing from existing lenders to maintain operations and keep products on shelves.  Haggen didn’t say which stores, or how many, are profitable. The company has hired Sagent Advisors to explore the market for the sale of some of its stores.

“The action we are taking today will allow us to continue to serve our customers and communities while providing Haggen with a process to re-align our operations to be positioned for the future,” John Clougher, Haggen’s CEO, said in a statement.

Also, Clougher said in an email that Haggen Southwest CEO Bill Shaner, who was hired last year to lead the company’s southwest region, is no longer with the company. Clougher didn’t comment further.

Haggen has struggled since buying 146 former Albertsons and Safeway stores for more than $300 million in a sale ordered by the Federal Trade Commission in December 2014. The FTC, concerned that Albertsons merger with Safeway would result in an uncompetitive market place and hurt consumers, ordered Albertsons to sell 168 stores total.

Supermarket analyst David J. Livingston of DJL Research, thought Haggen’s expansion was doomed from the start, he said. The grocery chain closed 10 stores in the two years before the massive expansion. (Clougher, in a September 2014 interview, said Haggen’s sales numbers were up last summer.)

“They didn’t have the wherewithal to do this deal,” Livingston said. “They were pretty much set up by Albertsons. Albertsons was able to pick exactly who they wanted to take over their stores and they picked the weakest competitor. Were they duped? Yeah, no one argues that. This was a big sting operation.”

Though Albertsons got to pick who to sell the stores to, the Federal Trade Commission had to approve the deal, said Dan Ducore, assistant director of the FTC’s Bureau of Competition, in an interview in August.

“Sure, [Albertsons] got to pick who they were going to compete with but it only goes through if we’re satisfied,” he said.

The FTC considered Haggen’s business plan, financial projections and sources of capital before approving the sale, Ducore said.

Livingston thinks the FTC should have stayed out of the Safeway and Albertsons merger, he said.

“Without Haggen it wouldn’t be anti-competitive,” Livingston said. “In those markets you have Walmart, Winco, Costco, Whole Foods—the competition is endless.”

The chain made its massive expansion into competitive new markets in a 13-week period this spring, going from 18 stores in the Northwest with 2,000 employees to 164 stores with more than 10,000 employees in Washington, Oregon, California, Nevada and Arizona.

Problems surfaced almost immediately. Customers complained about the cost at Haggen compared to other grocery stores, newspapers in California and Arizona reported.

Last month Haggen announced plans to close 26 of its new stores and one store it owned before the expansion as part of a “right-sizing” process. The closing stores are mostly in California and Arizona.

Last week the company filed a $1 billion lawsuit alleging that Albertsons hoodwinked the small supermarket chain into buying dozens of Western U.S. stores in order to facilitate a merger with Safeway and then sabotaged Haggen’s entry into the new markets.

According to the 55-page complaint that Haggen filed, a successful store transition required store conversions take place in “a very compressed time period” with support from Albertsons. Most stores were converted in two-day periods.

Haggen’s said it didn’t get the support from Albertsons that the purchase agreement or the FTC required. The FTC declined to comment.

Haggen alleged that Albertsons used confidential information to ramp up competition with Haggen as its stores opened. Boise-based Albertsons used the confidential store conversion schedule to place well-timed advertisements, coupons and deals to draw customers away from Haggen, according to Haggen’s complaint.

Further, Haggen accused Albertsons of purposefully running out of some items, overstocking perishable items—including loading meat freezers at one store with 256 cases of frozen turkeys—and diverting stock away from soon-to-be-closed stores prior to store conversions, all of which violated the purchase agreement.

But Haggen is also facing several lawsuits related to the expansion. Albertsons sued Haggen for $41 million for failing to pay for inventory in July, a worker sued for wrongful termination last week, and a Los Angeles County retail union filed grievances with both Haggen and Albertsons for violating collective bargaining agreements last month.

Haggen listed its biggest creditor as United Grocers, a wholesale distributor to which it owes $14.8 million, in its bankruptcy filing. The paperwork lists 30 total creditors. Others include supermarket service and IT providers, construction firms, former CEO Dale Henley, and vendors including Pepsi, Charlie’s Produce and Frito-Lay.

Thomas Bolinger, a Bellingham resident who’s been shopping at Haggen for more than 30 years, said he saw the bankruptcy coming.

“It was going to happen,” he said after buying groceries at Haggen’s Barkley Village store in Bellingham. “I think the CEOs made a bad decision to buy the stores.”

Bolinger and his wife Linda shop at Haggen for the quality of the the meat and produce departments, they said. The couple has been following news of Haggen’s troubled expansion, but they said it won’t affect where they shop.

“We’ve always shopped here,” Thomas Bollinger said. “The bankruptcy doesn’t affect us.”

Everett Herald Business Journal Editor Jim Davis contributed to this report.


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