Wednesday, April 01, 2015

Haggen: How to Kill a Grocery Store

Haggen used to be a respected family owned chain of eighteen grocery stores in the Pacific Northwest. The family sold controlling interest to a private equity firm, Comvest Group, a few years back. Late last year, Haggen decided to rapidly expand, by 900%, buying 164 stores in a couple of months.

From a fiduciary point of view this is insanity and if I had money with Comvest I'd disinvest as quickly as possible. Groceries are low profit margin operations that require complex logistics. This kind of rapid expansion will blow up their logistical networks leading to massive losses that groceries can't sustain.

Additionally, they are buying up stores with no sense of planning. I know this because Haggen now owns the two largest stores near me, they are within a mile of each other and in direct competition with each other. The Haggen website does not list even one of the scores of stores they now operate in Southern California. I have not encountered any local advertising. It is as if Haggen doesn't care if the stores succeed or fail.

Why is Comvest Group doing this? I have two theories.

Theory One. They are trying to create neighborhood monopolies which they can then soak with inflated prices. Their shelf products are about 25% more expensive than other, smaller stores. Their produce prices are astronomical, orders of magnitude more expensive than a local farmer's market. 

Theory Two.  Comvest Group is sacrificing their investors capital to benefit Albertsons. Albertsons is buying Safeway (aka Vons). As a consequence, Albertsons and Vons are having to divest themselves of about 164 locations.  Albertsons, rather than closing the locations and writing off the losses, is selling the locations to Haggen. Since the Haggen business model is unsustainable most of those locations will have to close and Comvest investors will have to eat the losses.

I lean towards Theory Two. Normally, I don't care when private equity firms screw their investors, it's just millionaires fucking millionaires.  But, since both big grocery stores near me are now Haggens and filled with massively over priced products, their fucking is annoying me. On the other hand, I haven't seen my farmer's market this busy since the Southern California grocery strike of 2003.

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