The Fall of the Haggen Grocery Chain: A 21st Century Morality Story

by on November 4, 2015 · 17 comments

in California, Culture, Economy, History, Labor, Politics

Haggen Store-By Doug Porter

The collapse of the Haggen grocery store chain just over month ago was a sad moment for neighborhoods and thousands of employees throughout California. More than two dozen stores in the San Diego region will soon be (or already are) closing, leaving some vacant properties behind and about a thousand employees wondering about paychecks as the holidays approach.

Now, thanks to reporting by the Seattle Times, we know the inside scoop on how this deal came down, and it ain’t pretty. Private equity investors flipped the real estate for cash, handed operations to an overwhelmed management team and will see their risks marginalized by the bankruptcy courts.

It’s all legal; another example of greed run amok. They win, we lose. And we’re supposed to accept this as the “natural order” of things in a market economy.

To Promote Competition…

comvestThe opportunity for Comvest Partners, the private equity company that owned the Haggen chain, to acquire 146 stores came about as the result of a Federal Trade Commission order in connection with the $9.4 billion merger of Albertsons and Safeway (Vons).

The purpose, according to an FTC press release was “to remedy the lessening of competition” caused by the merger.

Comvest bought the Haggen chain in 2011, firing top management and installing Clarence Gabriel as president and CEO. Subsequently Haggen closed 18 of its 30 locations in Oregon and Washington. Not a good sign for a company on the verge of a huge expansion.

According to the Oregonian:

Most recently, he operated a retail and supply chain consulting firm after serving as an interim CEO of Movie Gallery Inc., which – two CEOs later – filed for bankruptcy and liquidated its stores last year.

Gabriel also has held senior positions at Albertsons and Pepsi-Cola North America.

Later on, he was replaced by a three-member executive team, according to news reports at the time. John Clougher, the company’s current CEO, ended up sharing duties with Bill Shaner, who was brought on to oversee operations in the Pacific Southwest. Shaner left the company in early September, following the initial bankruptcy filing.

Comvest’s Easy Money

haggen yelpThe Seattle Times report on the Haggen deal says the capital needed for the rapid expansion was raised by flipping real estate within the same time frame as the acquisition was announced.

That standard move from the private-equity playbook raised hundreds of millions of dollars and allowed the investment firm, Comvest Partners, to make a big bold bet without sticking its neck out too much. But it didn’t prevent the Bellingham-based chain from quickly foundering, putting thousands of jobs in danger.

“This is a fairly common practice among private equity funds,” says Jay Maddox, principal with Avison Young, a real-estate-services company. Maddox, who has advised clients in numerous Chapter 11 bankruptcies, says that in the Haggen case, the upfront sale of the properties “reduced the private equity fund’s risk exposure substantially.”

In December 2014, the same month it struck a $300 million deal to buy stores that Albertsons and Safeway needed to jettison in order to consummate their $9.4 billion merger, Haggen inked an agreement with Spirit Realty Capital, a real-estate investment firm based in Arizona.

Comvest sold 20 properties to Spirit for $224 million and leased them back. Another 39 locations were flipped via Brokerage Holliday Fenoglio Fowler. The total amount of capital raised through these transactions is unclear, according to the Seattle Times, but they were able to document that the $300 million needed to consummate the deal.

These kinds of quick cash transactions are standard operating procedure in the private-equity playbook these days. The stores being sold and leased in this particular deal were on high-value real estate and generally operating in the black.

A Disastrous Merger

A Terrible Marketing Campaign

A Terrible Marketing Campaign

The Haggen management thought their road to profitability was to upscale the locations they were acquiring. Their concept, abetted by the tenure of CEO Clougher’s time with Whole Foods, was to upscale the “mediocre” locations they were acquiring.

They had no clue.

From the Los Angeles Times:

…Analysts said Haggen’s failure had long been expected by experts in the supermarket industry. They pointed to the pricing problems that have plagued the stores since Haggen opened. Industry experts said the company failed to do its own market research, instead relying heavily on Albertsons and Safeway — their seller and rival — as a guide to how to price products.

“Nobody thought they could pull this off,” said David Livingston, founder of supermarket research firm DJL Research. “This isn’t just David and Goliath. This is David and Goliath and Goliath is handing David a faulty slingshot.”

Things were complicated further by accusations that Albertsons deliberately sabotaged the transition of its properties to Haggen. There’s a $1 billion lawsuit filed by Haggen, claiming Albertsons used what it knew about the timing of store transitions to run ad campaigns and discounts to steal away customers to stores they would continue to own.

From the Seattle Times:

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 before store conversion,” the lawsuit says.

Moreover, says the suit, Albertsons gave Haggen muddled inventory data, and understocked some stores to ensure disruption while overstocking others with perishable products. In a few instances, Albertsons charged purchases to a soon-to-be converted store and had them delivered to another store it was keeping, the suit alleges.

While Albertsons says those claims are without merit, a securities filing made recently disclosed that another purchaser of a small number of stores has made similar claims.

Albertson’s is in turn suing Haggen, claiming that it hasn’t been paid for $41.1 million in merchandise. A former Haggen employee has filed a whistle-blower lawsuit after she was forced into retirement for pointing out price discrepancies between the shelves and the scanners.

The Employees Got the Shaft

haggen closingAs I write this, the San Diego Workforce Partnership and America’s Job Center is holding a job fair for Haggen grocery store workers who got shafted as their company collapsed in late September.

Through the efforts of the United Foodservice and Commercial Workers (UFCW) some ex-employees are being given preferential treatment at Albertsons and Vons locations. But the bottom line for most of these folks will be part-time jobs or jobs in other companies with less pay and benefits.

The UFCW has filed grievances with Haggen, Vons and Albertsons alleging violations of collective bargaining agreements. Under the present stacked-against-workers reality, they can expect to see rulings long after the lives of those unfortunate enough to stay with Haggen through the transition are ruined.

And before you go into the “well, they had a choice” mantra, consider this reporting from The Los Angeles Daily News:

Seven days.

That’s how long the employees of the soon-to-be Haggen stores had to decide. They were told they could stay with their old companies and transfer to another Vons or Albertsons store, or they could stay at their current store and be employees of Haggen, a company with an exciting new concept, while retaining all their seniority and other benefits.

“They made it all sound so great,” said one employee who stayed at Haggen in Woodland Hills.

“No one left,” said another, speaking of her coworkers at a former Vons store in Paso Robles. “They told us they had enough money to keep operating for two years.”

As it turns out, the incoming bosses could have promised free unicorns and nobody would have known better.

The FTC order concerning the merger gave Haggen the right to meet with employees “to meet personally with the employees of Albertsons and Vons, outside the presence or hearing of any of their own employees or agents.”

The sellers were also forbidden to make any counteroffer to employees opting for employment with Haggen. Furthermore, the FTC said employees who accepted jobs with the buyer were not allowed to apply for jobs at Albertsons or Vons for one entire year. (This requirement has been lifted since the bankruptcy.)

UPDATE: 10News is reporting about a 32-year employee who’s already been stiffed on her health insurance and accumulated vacation time.

The Next Bosses

smart and finalThe Gelson’s Markets, along with Smart and Final, have submitted bids for some locations thru a November 9th auction.

Gelson’s is looking for a few stores in high-end zip codes. Employees at those locations will be hired at similar wages.

Smart and Final is a deep discounter, and they’re looking at locations in not-so-upscale neighborhoods. The company’s reputation is that of an employer who encourages churn and burn with its workforce; that usually means sub-par wages and mediocre benefits.

There are Haggen locations that will simply shutter. And the employment situation is made even more distressing by the news of Fresh and Easy closing all its locations, including eight in San Diego County.

While news accounts about the grocery business usually mention the ultra-competitive nature of the business in Southern California, they (usually) fail to mention that the business model for the “middle” of the industry has no future.

The Albertsons and Safeway chains built their stores around offering tens of thousands of items. The average chain store has 38,718 items on its shelves.

The market is splitting into high-end stores with lots of offerings (and sales!) and discounters with a more focused inventory (and lower everyday prices). In San Diego, the high end is Ralphs, Whole Foods, Sprouts, Baron’s, etc; the low end is Smart and Final, Costco, Walmart, Trader Joes, etc. Then we also have a proliferation of ethnic grocery stores like Zion, 99 Ranch, Pancho Villa, etc, along with boutique shopping opportunities, ranging from farmers markets to craft oriented specialty stores.

The future for “middle” stores like Albertsons, which depend on both larger inventory and getting prices high enough to support it, looks bleak. So there’s a historical trend going on here and these companies will be forced to re-invent themselves to survive.

The lesson to be drawn from the debacle of Haggen’s stores is that they became mere real estate transactions rather than retail operations that served a community. A bunch of money was easily raised, the deal went south because they didn’t care, the fat cats will get fatter and the employees will get screwed. And those fat cats won’t likely being paying the taxes to support the social safety net those employees will fall into.

It’s a morality tale for the 21st century. The bad guys are winning.

(h/t to Assm Lorena Gonzalez for tweeting the Seattle Times story)


This is an excerpt of Doug Porter’s column at our associated San Diego Free Press.


{ 17 comments… read them below or add one }

Douglas November 4, 2015 at 4:26 pm

as a ” screwed” Haggen employee…. 31 year veteran…this article was the best I have read to date….and I have read most if not all of them…. Well done! The only thing that was left out is that if anyone is on the verge of retirement but does not quite qualify…. And cannot find a union job…. They will have to early retire that would penalize you 56%… So you would only receive 44% for the rest of your life…. The Union has not bridged this gap and so that is another area that this deal has caused havoc on the working class


JET November 4, 2015 at 7:00 pm

Call for Mitt Romney.


bruceillest November 6, 2015 at 10:07 am

Call for Mitt Romney? Isn’t this the kind of thing that made Romney all of his money? This opportunity to acquire stores with no regard for what will happen to the people that work there sounds like a venture capitalist’s wet dream. I’m sure Mitt would have more likely been the Haggens (and not the Vons) in this story… but of course, I could be wrong.


Dave November 7, 2015 at 6:43 am

What’s with the Romney rant? The companies his firm acquired survived and thrived through careful planning and management. The firm responsible for the death of Haggen intended and accomplished their goal. As Doug wrote, this was plain and simple, a money grab and real estate debacle.


MG So Cal November 4, 2015 at 8:57 pm

Great article!!!!!, I was in store level management & never any communication, if you had a problem, you would email Dm’s or Vp’s and get no response!! Very well planned failure of a company!!!! COMVEST PARTNERS SCREWED many hard working middle class Americans!!!!! Very,Very sad how this is legal?? And our Government the F.T. C. …….APPROVED THIS TRANSACTION?????My 14 year old daughter smelt something fishing when she asked ” How can a store with 18 stores buy 146 stores?”…………. ?????


RB November 5, 2015 at 7:18 am

The conversion from viable stores with good jobs to failed Haggen stores was the result of a FTC order. This government agency is responsible for these job losses and this failure.


mike November 5, 2015 at 9:01 am

“Natural order of things in a market economy”?? How about ‘un-natural’. This what happens when you have FTC bureaucrats calling the shots. The Albertsons/Safeway merger should not have been allowed to begin with.


Frank Gormlie November 5, 2015 at 10:49 am

Doug’s excellent piece has a thousand hits right now on our statcounter.


Sean m November 5, 2015 at 12:08 pm

Gonzalez’s law making it illegal to layoff grocery workers backfired by preventing haagen from cutting costs, leading to all employees losing their jobs.


Brian November 6, 2015 at 8:28 am

Couldn’t disagree with you more. As a 25 year Vons shopped at my local store it was heartbreaking to watch a well run, always busy grocery store turn into an overpriced minimal stocked mausoleum. I am not a fan of Gonzalez but this is all about greed, I watched from the front row as friends lost their jobs and a community meeting place disappeared.


Sean m November 6, 2015 at 11:59 am

It’s a bit of a stretch to call a bankruptcy declaration greedy. But I concede the merger was supposed to make money. On Washington there used to be an Albertsons right across from a Vons, which didn’t make mich sense to me. It would have been nice if one or the other moved to OB.


Walt G November 6, 2015 at 3:26 am

I’m saddened to hear of the store closures and the resulting loss of folks’ livelihood. On a side note, I will miss buying Julian Pie Co. pies at the Albertson’s in Carlsbad on my trips to San Diego from LA. My best to all the hard-working employees and their families.


Charlotte H November 7, 2015 at 1:49 pm

I want to thank you for taking away all our Albertsons and replacing them with your over-priced stores. Now they are all closing and I am happy. You ruined everything and cost those Albertsons employees their jobs. Some of them had been there for years. I hope your company goes belly-up. I won’t even go in your store to buy your close out food. Let it rot!


nlee December 22, 2015 at 9:42 am

Did you read the article? Haggens set their prices based on bogus information about pricing for each store, provided by Albertson’s. If this allegation is true, then, Haggens was set up to fail.


Kat Grunewald November 8, 2015 at 11:37 pm

Hi Y’all —
I’m also a three-decade Vons person who gave Haggen a chance.
My coworker told me that this was the definitive account of what really went on here.
I cried when he described it to me, and I can’t read the article beyond the first few paragraphs — it gets me crying again.
I cry with anger and sadness that we all went with Haggen in good faith, and gave our best to make the company succeed. I am astonished that people can just be so mean to do that to well-meaning people with earnest intentions.
These actions, done in the name of “business practice,” are, more truthfully, evil.
I love you all in solidarity.
My best to you all,


Ann November 10, 2015 at 9:56 am

I’m curious to see what happens next. In my local area (near Portland), we lost three of our grocery stores and if I expand my area a bit, four more. We had one Haggen before this all started and it wasn’t doing all that well. Prices were too high and where it once was a new and interesting store, over the years interest had fallen away. So they came in and took all three Albertson’s stores leaving us with one Safeway, a Trader Joes, a Whole Foods, and a Fred Meyer stores–so nearly half the stores in my area. Most people in the area weren’t that excited since we had had experience with Haggen before and the stores quickly lost business and are now closing. One of these stores served a retirement community with many who do not have private transportation and need something close by. What these “investors” did was just plain greedy and, personally, I hope they all rot in Hell. The only good thing to come of this is that they increased the business of the Fred Meyer stores and all of them in my area have now updated their stores and kept their prices down. I have to drive farther to get to the store now, but as I drive by the closed and closing Haggens, I smile and wave good riddance! I am interested to see if these buildings are left standing empty or if some other grocery store comes in that is in it to be a grocery store and not just an investment. There were a lot of employees at the old Albertsons who had worked there for years and they deserved better. If this economy ever fails as many believe and the market crashes, I will think of these investors and hope they are the first to lose everything.


Paul November 17, 2015 at 7:43 pm

The FTC mandated the stores be sold to keep the market “competitive” another example of clueless meddling in the marketplace by the govt and the taxpayers / workers getting hosed as regulators choose wimners and losers.


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