By Doug Curlee | Editor at Large

Chapter 11 filing bad news for struggling company

Economic experts familiar with the grocery industry are still shaking their heads, wondering how Haggen grocers from Washington state got into so much trouble so quickly.

One of those experts – perhaps the preeminent one in our area – is University of San Diego economics professor Alan Gin.

Gin has long been the local media’s go-to guy for all sorts of economics issues, and he has some interesting questions, and answers, about the recent Haggen grocery store closures.

“Possibly the most important thing is, they apparently didn’t understand the markets they were trying to expand into, especially here in Southern California. This is one of the most crowded and competitive grocery markets in America, and it was already jam-packed before Haggen came in,” Gin said.

“The problem is also that stores that weren’t really part of the crowded picture before are becoming much bigger players. Walmart, Target, Sam’s Club are all massively expanding their grocery operations, and their buying power creates even more intense competition for the grocery dollar. There’s also the presence in our area of the specialty, somewhat more upscale operation like Whole Foods, Trader Joe’s and the like.”

Grocery profit margins are so thin that massive numbers of customers are necessary to create buying traffic in your stores.

“There’s a saying in the grocery business that may be very close to the truth”, Gin said. “If a customer drops and breaks a jar of strawberry jam, there goes your profit margin for the day.”

“Another problem may be that Haggen just sort of showed up and expected people to come in, just as they did in Albertsons or Vons. That didn’t happen in most stores. “

In March, Haggen bought 146 Pavilions, Safeway, Albertsons and Vons stores throughout the West Coast in an acquisition that the Washington state grocer hoped would make it a major player in other western states. Haggen bought the stores from Albertsons and Safeway as the two companies divested some of their locations during a merger. In San Diego County alone, Haggen took over 25 Vons and Albertsons stores.

Of the two stores opened in La Mesa, only the store at 3681 Avocado Ave. is still open. The store at 5630 Lake Murray Drive closed last month. According to Gin, there were several business mistakes that Haggen made that led to the rapid closures of their recent acquisitions.

It’s often said that “in good times, you should advertise. In bad times, you must advertise.” Haggen did very little in the way of advance advertising, Gin said.

Haggen also ran into store shelf stock problems, and says Albertsons engaged in a major conspiracy to undercut their business after the sale. Haggen has now filed a billion-dollar suit against Albertsons alleging just that. That, in the wake of a suit by Albertsons alleging Haggen failed to pay for almost $40 million of product left behind when Albertsons departed.

Haggen blames computer program problems for the fact that many grocery items were very overpriced, and many others drastically underpriced. Consumers were quick to tumble to that problem, and were ready to let the company know of their unhappiness.

Bill Shaner, the Haggen executive in charge of the southward expansion of the company, left as the Chapter 11 bankruptcy filing was announced early this month.

But that may not save Haggen. Alan Gin thinks there’s really only one thing that could save it, or at least keep some of the expansion stores operating.

“They would almost have to win that billion-dollar lawsuit to make this work. That will be very hard to do, but if they don’t, it may be over for them.”

We can question why a 16-store, small, one-state grocery chain felt it was wise to buy 146 stores in five states. Haggen executives are asking that same question themselves.

It’s somewhat personal for my family. We live three blocks from a Haggen that used to be an Albertsons. We used to shop frequently at that Albertsons. We don’t anymore. Now, we go there only if there’s an item or two we need in an emergency, and we note the fact that the prices are invariably higher than they were before.

But there is one small benefit to going there. It’s much easier to get a parking place close to the front door.

Editor Jeff Clemetson contributed to this report.

–Doug Curlee is editor at large. Write him at [email protected].