Wednesday, September 30, 2015

Haggen: How to Kill a Grocery Store, Part 2

I wrote about this six months ago. Haggen, a small regional grocery chain, tried to nonuple its size by expanding from 18 to 164 stores almost overnight. At the time I described it as an insane, doomed to fail, enterprise. As predicted, Haggen is declaring bankruptcy and will close almost all the stores they had just bought.

What Happened
When Albertson's bought the Vons grocery chain the SEC ordered Albertson's to divest themselves of 146 stores to prevent them from having a non-competitive monopoly. Haggen bought the whole kit and caboodle for $1.4 billion and quickly converted the stores to their brand. Haggen's first impression was horrible. Their prices were shockingly high and their advertising almost non-existent. Customers, including me, stampeded to other stores. Haggen has been bleeding red ink for months, losing  over $400,000 a day by one estimate.

At the beginning of September Haggen filed for bankruptcy with plans to close 27 stores. By the end of the month they want to close another 100 stores.

Why? - Theory #1: Stupid as Shit
Comvest board meeting
Haggen is owned by a Florida private equity management firm, The Comvest Group, which had no experience in groceries let alone the competitive California market. They screwed up everything that could possibly be screwed up.
  • They didn't do any due diligence, they just bought everything Albertson's wanted to unload (i.e. all their under-performing stores).
  • They didn't do any market research. They set prices more on whim than on what is competitive for the region.
  • They didn't hold sales or advertise assuming, they like us in Spokane so they will love us in Los Angeles.
  • With bankruptcy they initially hoped to sell their stores for ten cents on the dollar but now admit there are no buyers out there.
  • And they naively relied on their competitor, Albertson's, to provide brotherly love and help them through the rough patches. Albertson's treated Haggen as the competition to be crushed into the dust.
Haggen is suing Albertson's. I've read the lawsuit and it's mostly complaints that Albertson's has been mean by holding sales, undercutting Haggen prices, and not stocking the stores with fresh food before leaving.

Why? - Theory #2: Crooked as Fuck
First, let me assure Comvest Group attorneys that I am not saying they did anything illegal. Crooked, yes. Illegal, no.

This theory suggest Haggen was trying to fail the business and that Comvest Group did what come naturally to private equity firms - fuck everybody for fun and profit. This theory suggests that Comvest bailed Albertson's out for future considerations. They would overpay for unwanted stores and run up a shit load of debt from suppliers, vendors, and employees. Stick the little people with the debt by filing for bankruptcy (from the Donald Trump School of Financial Fuckery). File a lawsuit so the settlement can distribute the financial booty equitably. And close the stores so Albertson's get the monopoly the SEC was trying to avoid. Also, by forcing thousands of unionized workers into unemployment this process has kneecapped the Food and Commercial Workers Union.

Win-win for the millionaires; lose-lose for everybody else.

1 comment:

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