BELLINGHAM — 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 the flow of merchandise to its stores. 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.
Haggen’s expansion was doomed from the start, said David Livingston, who owns DJL, an independent supermarket research firm based in Milwaukee.
He pointed out that Haggen was a small grocery store chain that had closed 10 stores in the two years before the expansion.
“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.”
The Haggen deal was first announced in December when Albertsons sought to get Federal Trade Commission approval for its merger with Safeway. The FTC ordered Albertsons to shed stores due to anti-competition concerns and Haggen agreed to buy the lion’s share of the locations.
The FTC should have stayed out of the Albertsons-Safeway merger, Livingston said. He said the grocery store business is competitive in the West Coast without intervention from the FTC.
“In those markets, you have Walmart, WinCo, Costco, Whole Foods,” Livingston said. “The competition is endless.”
The FTC approved the deal after reviewing Haggen’s business plan, financial projections and sources of capital, said Dan Ducore, assistant director of the FTC’s Bureau of Competition, last month. He said the FTC was satisified with the deal.
With the expansion, Haggen went from 18 stores with 2,000 employees to 164 stores with 10,000 employees across the West Coast.
Problems started surfacing almost immediately.
Newspapers in California and Arizona reported that customers complained about the cost of Haggen compared to other grocery stores.
Last month, Haggen announced that it would close or sell 27 stores in California, Arizona, Nevada, Oregon and Washington. Last week, the company filed a $1 billion lawsuit against Albertsons.
Haggen said it didn’t get the support from Albertsons that the purchase agreement or the FTC required.
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. Also, Albertsons didn’t carry on business-as-usual up until handing over the keys to Haggen, as required by the FTC and the purchase agreement, Haggen said.
Haggen further 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, a worker sued for wrongful termination, and a Los Angeles County retail union filed grievances with both Haggen and Albertsons for violating collective bargaining agreements.
In its bankruptcy filing, Haggen’s biggest creditor is listed as United Grocers, a wholesale distributor to which it owes $14.8 million. The paperwork lists 30 total creditors. Others are supermarket service and IT providers, construction firms, former CEO Dale Henley, and vendors including Pepsi, Charlie’s Produce and Frito-Lay.
Haggen has seven locations in Snohomish County — in Everett, Marysville, Monroe, Lake Stevens, Snohomish, Clearview and Stanwood.
Bellingham Business Journal Editor Oliver Lazenby contributed to this report.
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