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BELLINGHAM, Wash. — "Audacious" and "plucky" were among the adjectives enlivening news accounts in December announcing that tiny Haggen Inc., operator of 18 grocery stores in Washington and Oregon, was acquiring 146 stores as part of the Alberstons-Safeway merger.
"Audacious" and "plucky" were among the adjectives enlivening news accounts in December announcing that tiny Haggen Inc., operator of 18 grocery stores in Washington and Oregon, was acquiring 146 stores as part of the Alberstons-Safeway merger.
It was a move that overnight would increase its market share eight times over, boost its workforce to nearly 11,000 from 2,000 and make it a potential powerhouse in the crowded California market, where 83 of its newly acquired stores were located.
Eight months on, the rapid expansion into uncharted territory looks like a major miscalculation for Haggen, which on September 8 filed for Chapter 11 protection in U.S. Bankruptcy Court for the District of Delaware.
"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," said John Clougher, Haggen’s chief executive officer, in a 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."
Haggen officials noted that the bankruptcy filing would help the company reorganize around its core profitable stores. Meanwhile, Haggen said it would receive $215 million in financing from its lenders to keep products on its shelves while it sells stores and refocuses on profitable "core" assets.
Discussions are already under way to sell some of the assets, the company said.
Haggen also said it had parted ways with Bill Shaner, who was hired in December to lead its expansion into the Southwest as one of the company’s two CEOs, alongside Clougher.
Haggen — which got its start here during the Great Depression and since 2011 has been majority-owned by private investment firm Comvest Partners — paid more than $300 million to acquire Albertsons, Vons, Pavillons and Safeway stores in Washington, Oregon, Nevada, Arizona and California.
Industry analysts said the Haggen brand failed to gain traction outside of the Pacific Northwest in part because the chain’s prices were deemed too high and partly because it was slow to build a brand awareness in the new markets.
Poorer-than-expected foot traffic promoted Haggen to lower prices. The grocer also fired some of its employees and pared hours for others, prompting unions to file grievances complaining that Haggen had failed to deliver on promises to employees at its newly acquired stores.
In August, Haggen announced the closure or sale of 27 stores, 26 of which were Albertsons or Safeway stores that the companies were required to sell to gain clearance from the Federal Trade Commission for their merger, which was completed in January.
Albertsons in July slapped Haggen with a lawsuit accusing the company of fraud in failing to pay more than $36 million for inventory as part of the sale of the 146 stores.
Haggen countered with a $1 billion lawsuit against Albertsons on September 1, alleging the grocery giant misled the smaller company in the sale and then sabotaged Haggen’s entry into the new markets.
"Had Haggen known Albertsons’ true intentions, Haggen would never have purchased the stores, nor would the FTC have permitted such a purchase," the lawsuit stated. Haggen’s lawsuit alleged that Albertsons engaged in "coordinated and systematic efforts" to eliminate competition from Haggen in more than 130 grocery markets in five states. It also asserted that Albertsons gave it misleading price information about products on the shelves before the transition, resulting in prices at the rebranded stores that repulsed customers as soon as the stores opened their doors.
Haggen’s Chapter 11 filing buys time and breathing room from creditors as it reorganizes its finances. Typically, a company filing for Chapter 11 protection gets 120 days to devise a reorganization plan, which must be accepted by a majority of its creditors.
The filing lists Unified Grocers as its biggest creditor. Among other companies and individuals owed money by Haggen are real estate investment firm Merlone Geier, former Haggen CEO Dale Henley, PepsiCo Inc., Coca-Cola Co., Starbucks Corp. and Albertsons.