The American Dream is the national ethos and founding pillar upon our economic system. The ideals contained within the Dream spell out a path to prosperity, success and upward social mobility through hard work and determination. But the American Dream isn't always so easy to achieve, a lesson Haggen learned the hard way when it filed for Chapter 11 bankruptcy earlier this week.
When Haggen first made the move to acquire 146 Albertsons and Safeway stores during the divestiture process from the latters' merger, I don't think I was the only one who was surprised. It's hard not to be skeptical of a company that expands nearly nine times in size during the course of a few months, especially when entering new territories as Haggen did when it moved into the Nevada, California and Arizona markets. Nevertheless, propelled by the Dream, the company moved forward and began reopening the stores in July.
The trouble began brewing on July 20, when Albertsons filed a fraud case against Haggen, claiming that the grocery failed to pay more than $36 million as part of the sale of the 146 stores, which quickly ballooned to $41 million after payments were past due at 5 additional locations. Haggen at the time stated that it "had hoped that the parties could amicably address these issues."
Later on in August, Haggen notified the public that it would be closing 27 of the newly purchased stores, including 16 in California alone. The company noted that most of the locations were among the 146 acquired in the deal, and people immediately began proclaiming that the company bit off more than it could chew. This was followed by a billion dollar lawsuit the company filed against Albertsons, arguing that Albertsons deceived the chained in a variety of ways, including:
- Using proprietary and confidential conversion scheduling information to plan and execute aggressive marketing campaigns intended to undermine Haggen grand openings;
- Providing Haggen with false, misleading and incomplete retail pricing data, causing Haggen stores to unknowingly inflate prices;
- Cutting off Haggen-acquired store advertising in order to decrease customer traffic;
- Timing the remodeling and rebranding of its retained stores to impair Haggen’s entry into the relevant markets;
- Diverting customers by illegally accessing Haggen’s confidential data to gain an unfair competitive advantage;
- Deliberately understocking certain inventory at Haggen-acquired stores below levels consistent with the ordinary course of business just prior to conversion, resulting in out of stocks which negatively impacted the shopping experience upon Haggen grand openings;
- Deliberately overstocking perishable inventory at Haggen-acquired stores beyond levels consistent with the ordinary course of business just prior to conversion such that Haggen had to throw away significant amounts of inventory it paid for;
- Removing store fixtures and inventory from Haggen-acquired stores that Haggen paid for;
- Diverting Haggen inventory to Albertsons stores;
- Failing to perform routine maintenance on stores and equipment.
Albertsons claimed the lawsuit was simply a way for Haggen to shield itself from the lawsuit filed against the grocer in July. A week after the incendiary press release about the lawsuit was filed, Haggen declared for chapter 11 bankruptcy protection, seeking to reorganize the company around it's profitable stores while shuttering underperforming locations.
For Haggen, the American Dream may not be dead, but the company will need to work twice as hard through bankruptcy if it wishes to stay afloat.
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Chris is a business writer and market analyst that focuses on the Markets, Legal and Washington sections of the Food Institute Report. In addition, he assists in compiling data for various Food Institute publications throughout the year. He invites you to contact him via email at firstname.lastname@example.org to talk about anything food-related.
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