When Haggen entered California’s ultra competitive grocery industry earlier this year, the company arrived with a bang.
The Bellingham, Wash.-based supermarket chain had just purchased a slew of stores — including 83 California locations — that formerly operated as Vons or Albertsons. The move appeared to signal the arrival of a powerful new kid on the block, a block that already included the likes of Ralphs, Walmart, Target, Stater Bros., Trader Joe’s and Whole Foods, among others.
But Haggen’s star began to fade when the company announced last month that it would be closing 27 of its newly acquired stores, including 16 in California.
The situation changed radically on Tuesday, however, when Haggen filed a $1 billion lawsuit against Albertsons, alleging that the company undermined its expansion in five states.
The lawsuit, filed in federal court in Delaware, accuses Albertsons of engaging in anti-competitive practices. Haggen says it was forced to lay off hundreds of workers and close nearly a fifth of the stores it had acquired from the two supermarket chains, including two in Simi Valley and another in Santa Clarita.
“During the transfer process, Albertsons launched its plan to gain market power and/or monopoly power, acting in a manner that was designed to (and did) hamstring Haggen’s ability to successfully operate the stores after taking ownership,” the complaint said.
The lawsuit alleges that Albertsons gave Haggen misleading and incomplete retail-pricing data, causing it to unknowingly inflate prices.
Albertsons spokesman Brian Dowling, who responded via email, said “the allegations in the lawsuit are completely without merit.”
HOW HAGGEN CAME TO CALIFORNIA
Haggen’s arrival in the Golden State came about through the merger ofAlbertsons and Safeway. Cerberus Capital Management, the private investment company that owns Albertsons, received approval from theFederal Trade Commission in January to buy Safeway (Vons’ parent company) for about $9.2 billion.
In order to comply with antitrust laws that seek to preserve a competitive marketplace, Albertsons and Safeway had to shed a total of 168 stores. Haggen was one of four buyers approved by the FTC to purchase the stores, and it scooped up 146 of them, including 83 California locations.
“We were looking for an acquisition and this once-in-a-lifetime opportunity came up as a result of the Albertsons/Safeway merger,” Bill Shaner, Haggen’s CEO for the Pacific Southwest region, said when the deal was announced.
The acquisition expanded Haggen’s footprint from 18 stores with 16 pharmacies and 2,000 employees in the Pacific Northwest to a vastly larger company with 164 stores and 106 pharmacies employing more than 10,000 people in Washington, Oregon, California, Nevada and Arizona.
WHEN OPTIMISM BEGAN TO SOUR
But cracks began to appear in the company’s operation soon after all of the stores were up and running. Some locations were virtually devoid of customers. And the complaints seemed to have a common theme.
The general consensus among shoppers, union employees and at least one industry expert has been that Haggen never waged an effective advertising campaign to promote its stores and that its products are overpriced.
Phil Lempert, a Santa Monica-based analyst of consumer behavior and marketing trends, addressed that back in July.
“I haven’t seen a lot of advertising out there,” Lempert said. “I think they didn’t understand the L.A. market as much as they needed to. I think they just felt that if they built a great store and had great employees, a great assortment of foods and fair prices people would come. But they won’t come unless you tell them about it. I haven’t seen much activity on social media or advertising to let people know what Haggen is all about.”
Lempert said Haggen would have gained more traction with consumers if it had initially offered a program of “deep discounts” to get shoppers in the door.
THEN THE CLOSURES WERE ANNOUNCED
But that never happened. And with foot traffic lagging, Haggen began laying off employees throughout its network of newly acquired stores while other workers saw their hours slashed. And in mid-August the company announced that it would be closing 27 stores, including 16 in California. Locally, that includes two locations in Simi Valley and another in Santa Clarita.
Perhaps more telling, Haggen said that additional stores will be sold or closed in the future as part of the company’s “right-sizing” strategy.
“Haggen’s goal going forward is to ensure a stable, healthy company that will benefit our customers, associates, vendors, creditors, stakeholders as well as the communities we serve,” Shaner said when the announcement was made. “By making the tough choice to close and sell some stores, we will be able to invest in stores that have the potential to thrive under the Haggen banner.”
Haggen’s most pressing problem, according to Lempert, will be finding other companies to buy the stores it’s selling.
“They can’t just close stores,” he said. “They have to sell them to raise money to fund the operation of the stores they want to keep.”
Union officials say an estimated 1,100 Haggen employees in California will lose their jobs as a result of layoffs or firings.
LAYOFFS FUEL LEGISLATION
Haggen’s announcement of the pending closures fueled Assembly Bill 359 by state Assemblywoman Lorena Gonzalez, D-San Diego. The measure seeks to protect grocery workers in stores of at least 15,000 square feet from being fired during a 90-day transition period if the grocery store is undergoing a change of ownership. Following the transition period, the new employer must provide a written performance evaluation and consider an offer of continued employment following a satisfactory evaluation.
“Wall Street mergers and acquisitions that make big money for corporations and private equity firms should not jeopardize jobs of the grocery workers who live and work in our communities,” Gonzalez said.
Evan McLaughlin, Gonzales’ chief of staff, said the bill would apply to any Haggen stores that are sold after Jan. 1 when the legislation takes effect.
Courthouse News Service also reported in July that Albertsons Cos. was suing Haggen for breach of contract and fraud after allegedly refusing to pay nearly $40 million for inventory following Haggen’s acquisition of the Albertsons and Safeway stores.
According to CNS, Albertsons alleged that Haggen agreed to pay for store inventory within 30 days. The suit said it paid for stock at 108 stores but not for inventory at the other 38 — $36.2 million that was due July 17 and another $4.9 million due later that month.
HOW UNIONS ARE REACTING TO HAGGEN
In late August union leaders filed a grievance against Haggen, Albertsons, and Vons for illegally laying off and reducing hours for workers, failing to fully inform them about job protections and failing to adhere to legally binding protections negotiated by their union.
“The union believes Haggen planned all along to shut and sell those stores, deceiving their employees and depriving them of their livelihood,” said Rick Icaza, president of the United Food and Commercial Workers Union, Local 770. “It’s apparent to me that they didn’t plan to keep them all.”
Haggen officials could not be reached for comment when the grievance was initially filed. But the company subsequently sent a statement to this newspaper:
“Haggen has great respect for the labor unions’ role in supporting our associates,” the company said. “We care about the people who work for Haggen and are disappointed that factors beyond our control have led to layoffs and closures in some of the new communities where we had expected our stores to thrive. The assertion that ‘Haggen planned all along to shut and sell those stores,’ as alleged by the union in its grievance, is completely and unequivocally false.”
Haggen added that throughout the process it has “abided by the terms of the union contracts and is continuing to do everything it can to ensure the success of all of our stores and employees.”
WHO ELSE HAS BEEN IMPACTED?
And then there’s the collateral damage.
Delivery drivers for Albertsons and Vons supermarkets that weren’t acquired by Haggen are also seeing cutbacks and reduced schedules because there are now fewer stores to service. But some say the reductions are being done with little regard for seniority.
Donald Moore and other truckers for Albertsons say some of their drivers with 15 or more years of experience have been laid off while far less experienced drivers with Vons have managed to keep their jobs.
“Our Albertsons employees who are represented by Teamsters Local 952 in Orange have substantially more seniority than the Vons drivers who are represented by Teamsters Local 848 in Glendora,” Moore said.
He is calling for a blended seniority roster between the two unions that would be more fair to Albertsons drivers who have more experience. Albertsons and Vons employees both work under the umbrella of AB Acquisition LLC, which is controlled by Cerberus Capital Management, Moore noted, so it makes sense to combine the two rosters.
Eric Tate, secretary-treasurer for Local 848, doesn’t agree.
“The part they left out is that it’s still two different companies,” he said. “They negotiated their contract with Albertsons and we negotiated ours with Vons. Vons has been under Safeway for 15 or 20 years and they’ve never merged those seniority lists, either.”
Tate acknowledged however, that if Albertsons and Vons drivers ever begin delivering products to each others’ stores the issue of merging the seniority lists could be re-examined.
Source: San Gabriel Valley Tribune