Is Haggen's failure sabotage or something more fundamental?

It wasn't long after the announcement that Haggen had purchased 146 Albertsons, Vons and Pavilions locations in five states, including where I live, California, that I started seeing the transformation. Almost overnight, several banners that I drive by on my daily route now display the Haggen banner, giving me a front row seat to one of the more compelling stories in grocery retailing today.

Like most U.S. supermarket shoppers, I visit two to three different grocery stores each week. One being a traditional supermarket, such as Ralph's, Albertsons or Safeway—now under the ownership of Albertsons since the chain purchased Safeway last summer for $9.2 billion. I then visit a specialty grocer such as Sprouts, Whole Foods or Trader Joe's to round out my meals and snacks. Admittedly, I am spoiled living in Southern California where just about any supermarket or food retailer imaginable is within a 10-minute drive. And finally, I can order dry goods, like cereal, online and have them delivered by the end of the day or the next morning, thanks to my Prime Now membership. And perhaps, herein lies some of the problem.

I can afford to be picky. If a store doesn't have what I want at the price I want—or heck, I just don't like the parking lot—there is another grocer just around the corner.

So when Haggen moved into these urban centers at such a rapid rate, expanding from just 18 stores in Washington state to almost 150 stores in Nevada, Arizona, California and Oregon, maybe the company was not keeping the competition top of mind.

A few weeks back, I attempted to do a big weekly shopping outing and went to a newly converted Haggen store. I walked in and was in awe of how clean, big and open the store was. I was also pleasantly surprised that the new ownership had devoted a very large section of the store to produce, and of course, it was complete with an in-store Starbucks. But it was late Monday morning of Labor Day weekend and I was probably one of half a dozen customers in the store. Where was everyone getting last minute barbecue supplies?

At checkout, I asked one of the sales associates if this was normal and she replied "yes," and that she hoped business would pick up soon. I asked her why she thought there was a lack of shoppers and all she could think of was that people feared change. Was this truly because customers already had the brands they know and trust, and wouldn't try a new supermarket? I know a lot of shopping comes down to convenience, but with three other stores up the road, why test a new name when it's easy to keep driving.

David Merrefield, an analyst with The Robin Report, wrote that not only did Haggen bite off more than it could chew physically and financially—adding in hundreds of new locations and five times as many staff members—but the company also faced a managerial issue.

After the acquisition of the 146 stores from Albertsons, Haggen hired a new CEO of the Pacific Southwest division, Bill Shaner, to lead the expansion while John Clougher remained CEO of the northern branch. Merrefield questioned whether these two be able to work together to make a bigger and better supermarket chain, or if one would over power the other. His question found an answer last week when Shaner stepped down, returning Haggen back to a single-CEO company. 

Additionally, Merrefield points out yet another chink in the chain: a communications problem. For many states, Haggen is a new name which means introducing an entirely new brand that has a reputation in Washington for higher pricing.

"Haggen's future will probably rest more than anything on whether it can successfully introduce its name to consumers and offer them an attractive price proposition when they try out the stores," Merrefield wrote in The Robin Report.

This past week Haggen first filed a lawsuit against Albertsons, claiming the chain somehow sabotaged the deal by handing over locations that were already in jeopardy. Just a few days later, Haggen filed for Chapter 11 bankruptcy. The future of the new banners are still unknown and perhaps with financial assistance, some of the more prosperous properties might pull through.

Although Haggen may never be able to prove sabotage, what the lawsuit represents is powerful: In many urban areas, the traditional grocery market is overcrowded. The grocers who will survive and thrive will have to set themselves apart—whether it be on price, selection, location or service—in order to draw new customer interest.

I, for one, am pulling for Haggen, or any traditional supermarket for that matter. Especially one that is trying to change its image to meet the existing consumer demands for a fresher, more local assortment. While there are products I can't live without at a specialty market, I still get a rush from shopping at a large supermarket. There is something empowering about looking at a shelf and seeing 15 brands of one product to choose from. —Jacqueline

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