Forum… Or Against ‘em

Yet another chapter in the Haggen/Albertston’s mutual dance of destruction has gone into the book. Yesterday, Haggen corporate officials announced the company is abandoning its far too ambitious program of operating 146 stores it acquired from Albertson’s and Vons in a deal closed at the tail end of last year and actuated in the late winter and spring of this year…
In my life, grocery stores are not a big factor. Up here in Lake Arrowhead, we have Jensen’s Market and Stater Bros. I don’t do the shopping anyway, and I can’t tell you the last time I was in one of those places. But I understand that for most people, they are a major part of their existences. Most people don’t hunt for their meals anymore or operate a farm. Grocery stores have taken the place of all that. They are big business…
When you talk about business, there is small business and big business. I suppose there is even a third class, medium business. Within the class of big business, there are subdivisions: there is big business and really big business. Haggen, which is based in Bellingham,Washington, last year was at the lower end of the scale when we talk about big business. It consisted of a chain of 16 supermarkets in the Pacific Northwest, that is, the states of Washington and Oregon. They were large stores, as stores go, full service ones with butcher counters and extensive produce sections, a generous selection of all kinds of foods of different brands. Most even had pharmacies. Haggen had a good model suited to its customer base and it did well…
But then – what should I call it? – the insanity, the foolishness, the stupidity started. Cerberus Capital Management, the private investment company that owns Albertsons, purchased Safeway, Vons’ parent company, for about $9.2 billion. As part of the Federal Trade Commission’s approval of the deal, Vons and Albertson’s were being forced by the Federal Trade Commission because of anti-trust considerations to divest themselves of a large number of their stores. Thinking it was getting a bargain, Haggen in December 2014 closed a deal by which it was to pick up 146 stores from Albertson’s and Vons, including 83 California ones.
Haggen began the physical takeover of the Albertson’s and Vons stores in March, continuing the transition in April and May. Even before the transitions were fully effectuated, disputes erupted between Albertsons and Haggen. According to Albertsons, Haggen had agreed to pay almost $41 million for the inventory at 38 of the former Albertsons stores. Haggen did not make good on that commitment. In June, Haggen, informed Albertson’s that it believed Albertson’s had violated certain tenets of the purchase agreement and was out of compliance with anti-trust provisions of the U.S. Code. The company implied, but did not directly state, that the withholding of the nearly $41 million in payments for that inventory was due to those violations…
In July, Albertsons filed a lawsuit in federal court against Haggen, accusing the company of fraud in failing to pay more than $36 million toward inventory at 32 stores and almost $5 million in inventory at an another six stores. Albertson’s stated in the suit that Haggen had duplicitously waited until the deals relating to the sale of all 146 stores closed before notifying Albertson’s in writing it was withholding payment for the inventory. Albertson’s charged that Haggen’s ostensible reasons for withholding the payment relating to “issues occurring during the acquisition process” were “baseless,” Albertson’s accused Haggen of “acts [that] were fraudulent in nature and done with malice and a willful disregard for Albertsons’ rights.”
In August, Haggen, hemorrhaging red ink, moved to close 16 of its supermarkets in Southern California and two more in Central California as a means of saving itself. In the meantime, it began laying off employees left and right at the stores it was attempting to keep open and then, inevitably, declared bankruptcy…
This week, Haggen let it be known it is pulling out of the Southwest market entirely – and will apparently close all of the stores it has acquired in California, Nevada Arizona. It will keep 21 of the Albertson’s and Vons stores in Washington and Oregon it took on.
As I said, I am not too interested in groceries or grocery stores, but the Haggen/Albertson’s debacle amuses me no end, when it doesn’t have me very angry about the way some people foolishly squander money and opportunity…
As I said, there is big business and then there is really big business. I know something about it. I used to own ships. Actually, I still do, just not as many as I used to and I don’t manage their operation anymore. Ships are big business. They cost a lot of money to build. They cost a lot of money to operate. They cost a lot of money to maintain. They even cost a lot of money when they are not being operated, and are just sitting in a port someplace. I never owned as many ships as Ari Onassis. I never owned as many as George Steinbrenner. But I had a respectable number of them, At any given time in the 1950s, 1960s, 1970s, and 1980s, I had a ship either in, on its way to, or coming from New York, Buenos Aires, Cullen, Caleta Cardova, Arica, San Vicente, Iquique, Pacem, Paranaqua, Abu Qir, Alexandria, Puerto de Caldera, Freeport, Adelaide, Dijbouti, Halifax, Piraeus, Dalvik, Bari, Napoli, Ravenna, Marseille, Brest, Arachon, Khasab, Haifa, Liverpool, Southampton, Miami, Charleston, Galveston, Cartagena, Algaceris, Seville, Barcelona, Valencia, Faro, Lisbon, da Corvo, Amsterdam and Den Heider. There were plenty of times when I could have used another ship because cargo someone wanted delivered yesterday was sitting on a dock or in a warehouse where I would not be able to get to as quickly as they wanted. I was tempted, from time to time, to get more tonnage than I needed. I never gave into the temptation, though. I usually bought, or in some cases sold, my ships, one at a time. There were only two exceptions to that which I can recall. Once I picked up four freighters down in Douala when a Belgian company went out of business after its owner was killed in a plane crash. His widow wanted to liquidate the fleet and I got them at a really good price. Another time I bought a freighter and a reefer ship of Panamanian registry from a Canadian. I never – and I mean never – contemplated leapfrogging from the 26 ships I owned to 70 or 80 ships to put myself in the class with Onassis. I would never have considered buying ten ships in one go. I was big, but if I got bigger too fast, my span of control would have eluded me and I would have crashed, and crashed hard…
So, how did Haggen’s ownership and executives – the same ones who built the chain into a successful, service oriented company that was prospering in its niche – the populated areas of Washington and Oregon – of a sudden decide to be incompetent? How did a collection of sensible, hardworking, bright people, all on the same page, just decide to bite off more than they could chew, collectively, and then nearly choke to death? What gave rise to their unrealistic ambition? Why would a company that had mastered its market in its region leap into another region, comprised of a radically different demographic and exhibiting a far different purchasing pattern, essentially sight unseen? Buying one or two or maybe even five or six stores – equal to one third of Haggen’s chain – was a risk perhaps worth pursuing, especially if those stores were in Oregon or Washington or Northern California. But even that represented a risk. Buying 146 stores – more than nine times as many stores as the company was already operating – as far as a thousand miles beyond its existing corporate trade area was sheer madness…
Haggen is now teetering on the brink of extinction, while Albertson’s, which is suffering enough in the public relations and general perception department, now faces both legal and federal regulatory challenges over its contretemps with Haggen…
These things are always tempered with an element of the absurd. In what should be recognized as the understatement of the year, John Clougher, Haggen’s Pacific Northwest Division chief operating officer, said, “This this has been a difficult process and experience.”
After shedding 125 of the California, Nevada and Arizona stores that have now been run into the ground and shuttered, the weight of which is threatening to sink Haggen, Clougher said that from here on out Haggen “will remain concentrated in the Pacific Northwest where we began, focusing on fresh Northwest products and continuing our support and involvement in the communities we serve. Haggen has a long record of success in the Pacific Northwest and these identified stores will have the best prospect for ongoing excellence.”

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