Haggen, the recently expanded chain of grocery stores, has filed for bankruptcy.
The company said the Chapter 11 process would allow it to reorganize around a reduced portfolio of locations while hopefully continuing day-to-day operations.
Grocery giants Safeway and Albertsons announced plans to merge in 2014. As part of the regulatory approval of the deal, the combined company was forced to sell some of its stores, including the Albertsons in Santa Monica.
Haggen, a then-small grocery chain based in Washington State, said it would purchase 146 of those excess stores, growing its company from 18 stores with 16 pharmacies to 164 stores with 106 pharmacies; from 2,000 employees to more than 10,000 employees.
At the time of purchase, Haggen said it would rely on cooperation from the newly merged Albertsons/Safeway to facilitate the transition process.
However, Haggen contends that Albertsons actively derailed the transition process and filed a lawsuit last month.
"During the transfer process, Albertsons launched its plan to gain market power and/or monopoly power, acting in a manner that was designed to (and did) hamstring Haggen's ability to successfully operate the stores after taking ownership," said the complaint.
Albertsons has also accused Haggen of misconduct, claiming Haggen has refused to pay for millions of dollars worth of inventory that accompanied the store purchases.
"The allegations contained in the Haggen complaint are completely without merit and we will vigorously defend ourselves in court," said Albertsons in a statement. "Albertsons has not engaged in anti-competitive or inappropriate practices as alleged by Haggen. The divesture of stores to Haggen followed the process determined by the Federal Trade Commission (FTC) order. Like the process followed by Albertsons in prior divestitures, our process with Haggen was the subject of regular reports to the FTC and review by the Monitor Trustee appointed by the FTC. From the outset, Albertsons has satisfied its obligations and worked to ensure the success of the transition of the divested stores to Haggen and several other companies. Recently, Albertsons was forced to sue Haggen for an amount in excess of $40 million for unpaid inventory. Rather than paying the amounts owing, Haggen responded by filing this lawsuit against us in an attempt to deflect attention from their failure to comply with basic contractual obligations."
While the Santa Monica store will remain open, Haggen eventually announced plans to close several stores including others in the Los Angeles market.
The announced store closures, and reductions in hours at other stores, has angered unions.
"Rather than doing the right thing, Haggen is fleeing the field,"said Rick Icaza, president of UFCW 770, the union representing grocery workers. "Instead of creating a long-term sustainable business plan that would have benefited workers and shareholders alike, Haggen instead took the greedy route of quick, short-term profits and ended up harming our community and neighborhoods. This is not just a case of an inexperienced, unprepared retailer floundering in a competitive market. This is a case of a profit-hungry Wall Street investor lying to employees and the communities they serve in order to make a quick buck. Now they leave behind a mass of broken lives and stores, all because they couldn't see beyond the end of their own quarterly report."
The union filed complaints against Albertsons, Vons and Haggen over the issue. According to UFCW 770, Albertsons/Vons have agreed to preferentially rehire any union members who used to work at either chain before the stores were sold.
According to Haggen, the Chapter 11 filing is the next step in recovering from the botched transition.
"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," said John Clougher, chief executive officer of Haggen. "The action we are taking today will allow us to continue to serve our customers and communities while providing Haggen with a process to re-align our operations to be positioned for the future."
The company said it had secured $215 million in financing from existing lenders to maintain operations and continue to keep shelves stocked. The company also announced the departure of Bill Shaner, who was hired late last year to help oversee the massive expansion.
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