Business

Bill Virgin: In retrospect, Haggen debacle looked inevitable

The Haggen store in Spanaway along State Route 7 (Pacific Avenue).
The Haggen store in Spanaway along State Route 7 (Pacific Avenue). Staff photographer

It must have seemed like a good idea at the time — to someone.

At the very least, it seemed like an intriguing idea, having a private equity firm pump millions of dollars into a small, struggling regional grocery chain with a decent, albeit small and regional, heritage and reputation. The plan was to quickly and dramatically expand the store beyond its traditional footprint of 18 locations, changing the definition of “regional” from “Western Washington and Oregon” to “the West.”

The opportunity to do so came from a combination of the aforementioned private equity investor — in the form of Florida-based Comvest Group with no other presence in the grocery sector — and the combination of Albertsons (itself owned by an investor group) and publicly traded Safeway.

In order to win regulatory approval of the acquisition, Albertsons was required to divest itself of stores where the two chains had locations close to one another. Haggen, backed by Comvest which had bought the Bellingham-based chain in 2011, wound up acquiring 146 stores, not only in the two Northwest states but in California, Nevada and Arizona. The deal closed in December 2014; other chains also took a handful of stores, including SuperValu, which bought two in Washington. The new owners moved quickly and ambitiously to rebrand the stores as Haggen.

In retrospect — and everyone’s a genius business strategist in retrospect — the preceding narrative provided abundant warning signs of what was to follow. In most of the markets the company moved into, it was doing so with a brand unknown to shoppers there, replacing two brands that people were familiar with and could define.

Haggen wasn’t Safeway or Albertsons. It wasn’t even the old Haggen to those who knew the brand, or its old offshoot Top Foods. It’s a perception problem to which your columnist can personally attest. He was looking forward to the transformation of a local Albertsons, a store not on his circuit of regular stops, to Haggen. Thus far, the store hasn’t measured up to what he remembers even Top being.

The result was that in many locations, Haggen didn’t retain customers of the old stores, and didn’t attract new customers.

Haggen and Comvest blame the ensuing trouble, including the closing of 26 stores and the potential for still more, on Albertsons. It has filed a suit for $1 billion in damages, alleging a list of misdeeds adding up to “coordinated and systematic efforts to eliminate competition and Haggen as a viable competitor.”

Exactly how committed Albertsons was contractually required to be to assist a new competitor is a matter for the lawyers to wrangle over. But there’s considerable public sentiment that Haggen’s new owners should have anticipated the problems cited in the suit, had they known anything about the grocery business, understood the magnitude of what they were trying to accomplish or done adequate due diligence. It would hardly be shocking, for example, to surmise that given the choice between two neighboring locations, Albertsons would choose to unload the one it deemed less attractive.

That leads to a larger question about the original intentions and strategy of Haggen’s owners, going back to the original investment four years ago. What did they believe Haggen’s market position (or value proposition, to use a bit of jargon) was? What unmet market demand did they believe they were answering; what niche were they filling?

The rationalization from the Federal Trade Commission in requiring Albertsons-Safeway to divest stores was that “absent a remedy, this acquisition would likely lead to higher prices and lower quality for supermarket shoppers in 130 communities. This settlement will ensure that consumers in those communities continue to benefit from competition among their local supermarkets.”

That’s a dubious proposition. Haggen doesn’t compete, as Safeway and Albertsons did, with price as a leading differentiator.

Furthermore, if the divested stores had gone dark entirely instead, competition wouldn’t have been even insignificantly changed. Here in Western Washington, you could easily list close to two dozen companies competing on some combination of price, service, amenities and selection. It’s a tough, crowded business, and those who don’t know what they’re doing in it are going to run into trouble.

Which is what is happening to Haggen’s owners, who filed for Chapter 11 bankruptcy protection while they attempt to reorganize the company. It’s also trouble for workers of closed locations who will lose their jobs.

Haggen and Comvest may eventually pull off a turnaround; if they do, they’ll have learned some valuable, painfully acquired lessons in the process. Other people’s misfortunes can be your own educational experience, so here’s what you can learn without going through the misery firsthand. It’s all well and good to dream big, to be ambitious, to be daring and move beyond your comfort zone, but if you’re going to, have a plan — and ask some questions first, such as “do I really know what I’m doing?”

Bill Virgin is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at bill.virgin@yahoo.com.

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