The Bellingham-based grocery chain says lenders have committed up to $215 million to keep the company running while it sells stores. It also says that Bill Shaner, the executive in charge of its big Southwest expansion, has left the company.
Struggling Haggen filed for relief from suppliers and partners owed more than $50 million while it winds its business into a smaller, profitable footprint, a surprisingly early demise for its brazen bid to become a West Coast grocery superpower.
Haggen also said it has parted ways with Bill Shaner, who was hired in December to lead its bold expansion into the Southwest as one of the company’s two CEOs.
The Bellingham-based grocer filed a Chapter 11 bankruptcy petition Tuesday with a U.S. court in Delaware.
Haggen says lenders have committed up to $215 million to keep the company running and products on the shelves while it sells stores. In a statement released late Tuesday, Haggen said it would focus on unspecified profitable “core” stores, and that it’s in talks to sell “many of the company’s remaining assets.”
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The move is the latest in a saga that began earlier this year when Haggen took over 146 stores shed by Albertsons and Safeway after their merger, mostly in California, Nevada and Arizona — markets where the 18-store Pacific Northwest grocer was unknown.
Haggen, backed by Comvest, a private equity firm based in Florida, paid more than $300 million for the stores, according to court documents. It prepared for a big ramp-up as regulators approved the sale in late January. But its ambitions ultimately backfired.
Comvest declined to comment Wednesday for this story.
Haggen’s higher prices turned many customers off, and in June the company began reducing employee hours and laying off hundreds. The layoffs triggered a firestorm of negative press across Haggen’s vastly expanded territory, and plenty of litigation, including from a developmentally disabled former employee who was laid off. Unions also cried foul.
Last month, Haggen said it would close or sell about a fifth of the stores it bought, and last week it sued Albertsons for $1 billion, accusing the grocery giant of sabotaging its entry into the new markets. In the lawsuit, Haggen blamed the higher prices it was charging customers on inaccurate pricing information Albertsons provided during the transition.
Albertsons previously had sued Haggen for failing to pay for some inventory transferred with the stores.
In the bankruptcy filing, Haggen tallied the nearly $52 million it owes to dozens of suppliers, including Unified Grocers, Starbucks and Charlie’s Produce, a Seattle distributor and longtime Haggen partner that opened a new division in Southern California to serve its client there.
Charlie’s Produce declined to comment. Paul Dingsdale, communications director for Unified Grocers, said the bankruptcy filing “comes as a disappointment to everyone at Unified Grocers.” But he added the firm has contingency plans in place to limit its impact, and “our liquidity remains strong.”
Haggen lists Unified Grocers as its top creditor, with a bill of $14.87 million.
Starbucks didn’t respond to a request for comment.
Haggen also owes deferred compensation to former CEO Dale Henley.
The disputed $41.1 million claim by Albertsons was not included in the count.
“After careful consideration of all alternatives, the company concluded that a reorganization through the Chapter 11 process is the best way for Haggen to preserve value for all stakeholders,” CEO John Clougher said in a statement. “The action we are taking today will allow us to continue to serve our customers and communities while providing Haggen with a process to realign our operations to be positioned for the future.”
Clougher becomes the company’s sole leader after Shaner’s departure, which Haggen says took place last Thursday. Haggen said Shaner left as a result of the money-saving move to reorganize the company into one division run out of Bellingham.
Shaner, a grocery-industry veteran, couldn’t be reached for comment.
The United Food and Commercial Workers International Union said in a statement Wednesday it expects Haggen “to do what is right by their hardworking employees and their families” as it embarks upon the bankruptcy process.
Haggen’s unlikely empire was born out of Albertsons and Safeway’s need to ditch a big number of stores so the Federal Trade Commission would approve their $9.4 billion merger.
The FTC, which oversees antitrust regulation, gave its blessing to small but well-financed Haggen to take over most of the stores to keep competition alive. The deal, struck in December, closed in late January. The transition began the following month.
In an interview with The Seattle Times last month, Dan Ducore, FTC assistant director for compliance, said Haggen’s growth plan at the time “made a lot of sense” and that he hoped the initial troubles were a bump in the road.
The FTC declined to comment on Haggen’s bankruptcy filing.
Analysts and participants alike had perceived the move as aggressive, but risky, as nobody had done anything like this before.
“The bold move by Haggen was impressive,” but “under-resourced from the start,” says Jose Tamez, managing partner of recruiting firm Austin-Michael Executive Search, who assisted Haggen’s management in the early days of the transition. “With no template to go by, there is simply no guideline on how to scale an organization from 18 to 164 stores” within a two-to-three-month period, he said.
“Add the fact that they were going into highly competitive markets with no name recognition, and the margin of error became minuscule,” he said.