SEATTLE — Haggen is suing Albertsons for $1 billion, alleging the grocery giant 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.
The lawsuit, filed Tuesday in federal court in Delaware, accuses Albertsons of unfair competition, saying that forced Haggen to lay off hundreds and close about a fifth of the stores it had acquired from Albertsons and Safeway.
The move is the latest twist in the saga of Haggen’s fumbling bid to become a West Coast supermarket power. In early 2015, the grocer, which previously operated solely in Washington and Oregon and is based in Bellingham, announced with great fanfare that it would expand ninefold, entering new markets in California, Arizona and Nevada.
It did so by acquiring 146 stores that Albertsons and Safeway were required to jettison in order to win federal regulators’ approval of their mammoth merger.
But soon after Haggen’s big takeover, the expansion faltered.
Many consumers complained about price hikes; in July, Haggen cut back on employee hours and laid off hundreds. Earlier this month, Haggen said it would close or seek to sell at least 27 stores. Unions filed grievances and complained that Haggen had failed to live up to its promises to the employees of its newly acquired stores.
Haggen was also sued for $41.1 million by Albertsons, which claimed it hadn’t paid for inventory at some of the stores Haggen acquired.
In Tuesday’s lawsuit, Haggen says Albertsons used what it knew about the timing of store transitions to time ad campaigns and discounts in order to steal away customers to stores still bearing the Albertsons and Safeway brands.
Haggen also says that Albertsons gave it misleading price information about products on the shelves before the transition, resulting in the prices that turned off many customers as soon as the rebranded stores opened their doors.
“The practical result of this deception was a consumer walking into a brand new Haggen store and finding the same item on the same shelf, but now priced higher than it was immediately prior to store conversion,” the lawsuit says.
Moreover, Albertsons gave Haggen muddled inventory data, both understocking some stores to ensure disruption and overstocking others with perishable products, the lawsuit says. In a few instances, Albertsons charged purchases to a soon-to-be converted store and delivered it to another store not to be sold.
Albertsons also dialed down ad campaigns for some soon-to-be converted stores a few weeks before they were to change hands, undermining customer loyalty, Haggen says.
Those practices damaged Haggen’s operations from the get-go, leading to store closures it had never intended to make, as well as a barrage of negative press, the lawsuit says.
The result, Haggen says, is less competition and more power for Albertsons, violating the Federal Trade Commission’s intent when it ordered it to get rid of hundreds of stores.
The lawsuit outlines how Haggen executives met with Albertsons counterparts at that company’s headquarters in Boise, Idaho, last November. The Albertsons executives sought to convince Haggen of the technical feasibility of a seamless transition for the stores.
Key to that transition was the implementation of business processing software that would help Haggen get the data it needed. Albertson promised its support, but later didn’t provide it, the lawsuit says.
Haggen struck a deal in December to buy 146 stores for more than $300 million, plus inventory, subject to Federal Trade Commission approval. The FTC granted its blessing in January.
“Had Haggen known Albertsons’ true intentions, Haggen would never have purchased the stores, nor would the FTC have permitted such a purchase,” the lawsuit says.
The lawsuit says Albertsons’ violations of antitrust laws entitle Haggen to triple damages of at least $1 billion, plus attorneys’ fees.
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