Struggling Haggen filed for relief from suppliers and partners it owes more than $50 million while it winds its business into a smaller, profitable footprint, a surprisingly early demise for its brazen bid to become a West Coast grocery superpower.
Haggen also said it has parted ways with Bill Shaner, whom the company had hired in December to lead its bold expansion into the U.S. Southwest as one of the company’s two CEOs.
The Bellingham-based grocer late Tuesday filed a Chapter 11 bankruptcy petition with a U.S. court in Delaware.
Haggen says lenders have committed up to $215 million to keep the company running and products in the shelves while it sells stores. While the company declined to specify how many stores it would sell, a statement released late Tuesday said Haggen would focus on profitable “core” stores, and that it’s in talks to sell “many of the company’s remaining assets.” It owns a number of stores across South Sound.
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The move is the latest in a saga of woe that began earlier this year when Haggen took over 146 stores shed by Albertsons and Safeway in the wake of their merger, mostly in California, Nevada and Arizona — markets where the 18-store Pacific Northwest grocer was unknown.
Haggen, backed by the deep pockets of owner Comvest, a private equity firm based in Florida, paid more than $300 million for the stores, according to court documents. It prepared for a big ramp up as the sale was approved by regulators in late January. But its ambitions ultimately backfired.
Higher prices turned many customers off, and in June the company began cutting back employee hours and laid off hundreds. The layoffs triggered a firestorm of negative press across Haggen’s vastly expanded territory, and plenty of litigation.
David J. Livingston, founder of supermarket research firm DJL Research, pointed to the company’s previously small-scale operations and limited resources as poor preparation for its extensive West Coast expansion.
“They were just clueless from the very beginning,” he said. “You couldn’t do worse than what they’re doing.”
Last month, Haggen said it would close or sell about a fifth of the stores it acquired, and last week it sued Albertsons for $1 billion, accusing the grocery giant of sabotaging its entry into the new markets. In the lawsuit, Haggen blamed the higher prices it was charging customers on inaccurate pricing information provided by Albertsons during the transition.
Albertsons had previously sued Haggen for not paying for some of the inventory that had been transferred with the stores.
In the filing, Haggen tallied the nearly $52 million it owes to dozens of suppliers, including Unified Grocers, Starbucks and Charlie’s Produce, a Seattle distributor and longtime Haggen partner that opened a new division in Southern California to better serve its client there.
Charlie’s Produce declined to comment. Unified Grocers spokesman Paul Dingsdale said that Haggen’s bankruptcy filing “comes as a disappointment to everyone at Unified Grocers.” But he added the firm has contingency plans in place to limit its impact, and “our liquidity remains strong.” Haggen lists Unified Grocers as its top creditor, with a bill of $14.87 million.
Starbucks didn’t immediately respond to a request for comment.
Haggen also owes deferred compensation to former CEO Dale Henley.
The disputed $41.1 million claim by Albertsons was not included in the count.
“After careful consideration of all alternatives, the company concluded that a reorganization through the Chapter 11 process is the best way for Haggen to preserve value for all stakeholders,” Haggen CEO John Clougher said in the news release. “The action we are taking today will allow us to continue to serve our customers and communities while providing Haggen with a process to realign our operations to be positioned for the future.”
The struggling grocer has hired Sagent Advisors to sell some of the remaining stores in the five states in which it does business. Discussions are underway to sell many of the company’s remaining assets, according to the news release.
Clougher will be the sole leader of the company now that “Shaner is no longer with Haggen,” the company said. Shaner’s last day was Thursday, a spokeswoman for Haggen said.
Haggen’s unlikely empire was born out of Albertsons and Safeway’s need to ditch a big number of stores so the Federal Trade Commission would approve their $9.4 billion merger.
The FTC, which oversees antitrust regulation, gave its blessing to small but well-financed Haggen to take over most of the stores to keep competition alive. The deal, struck in December, closed in late January, and the transition began the following month.
The Bellingham Herald and Los Angeles Times contributed to this report.
RAPID GROWTH LEADS TO TUMULTOUS YEAR FOR HAGGEN
August 2014: The company hires John Clougher as its CEO.
December 2014: Haggen to acquire 146 stores as a part of the divestment process brought about by the Federal Trade Commission’s review of the Albertsons-Safeway merger. With the acquisition, Haggen expands from 18 stores and 16 pharmacies to 164 stores and 106 pharmacies across Washington, Oregon, California, Nevada and Arizona.
Early 2015: Haggen sets an ambitious goal of converting 100 stores under its banner within 100 days. In March, Clougher, Pacific Northwest CEO at Bellingham-based Haggen Food and Pharmacy, told The News Tribune he was proud, he said, that positions were offered to former Safeway and Albertsons employees, and that all decided to move to the new brand. “We’ve set this up where we want 100 percent retention,” he said.
July 2015: The company acknowledges layoffs and the reduction of hours for several employees, mostly in the southern part of its region.
July 2015: Los Angeles Times reports Albertsons files a $41 million lawsuit accusing Haggen of fraud.
August 2015: Haggen announces the closure or sale of 27 stores, 26 of which were from the Albertsons-Safeway acquisition.
Sept. 1, 2015: Haggen sues Albertsons for more than $1 billion in damages.
Sept. 4, 2015: The News Tribune reports that laid-off Haggen employees face hurdles finding employment with other Safeway and Albertsons stores amid the chains’ legal wrangling.
Sept. 8, 2015: Haggen files for bankruptcy protection with a U.S. court in Delaware. Haggen says lenders have committed up to $215 million to keep the company running and products in the shelves while it sells stores. The chain declined to specify how many stores it would sell, but said Tuesday it would focus on profitable “core” stores, and that it’s in talks to sell “many of the company’s remaining assets.”