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Haggen sues Albertsons for $1 billion over grocery deal

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Haggen sues Albertsons for $1 billion over grocery deal

  • A photograph posted on Haggen's Instagram page shows a California store being rebranded.
    A photograph posted on Haggen's Instagram page shows a California store being rebranded.

The grocery chain Haggen, which has closed two of its three Tucson stores, has sued Albertsons for $1 billion, alleging anti-competitive practices and fraud in the wake of a deal that saw the chain take over 146 Albertsons and Safeway stores as those companies merged.

Last month, Haggen shuttered two stores on Tucson's East Side — among the 27 closed by the company just months after taking them over. Albertsons was forced to divest 168 stores in all due to regulatory concerns about monopoly positions in certain markets as that company took over Safeway earlier this year in a $9.4 billion deal

In August, Haggen said it would close the former Safeway stores at 8740 E. Broadway and 10380 E. Broadway as part of a "right-sizing" plan.

Tuesday, it filed suit in a federal court in Delaware, claiming more than $1 billion in damages.

According to the Pacific Northwest company, Albertsons engaged in “coordinated and systematic efforts to eliminate competition and Haggen as a viable competitor in over 130 local grocery markets in five states,” and “made false representations to both Haggen and the FTC about Albertsons’ commitment to a seamless transformation of the stores into viable competitors under the Haggen banner.”

In July, Albertsons sued Haggen for allegedly failing to pay for about $41 million in inventory that was transferred in the store takeovers. The company denied the allegations in Haggen's suit.

In July, Albertsons began making moves to go public, filing paperwork with the Securities and Exchange Commission for a proposed initial public offering that is likely to be worth billions. Some financial analysts have said the company could have a market capitalization of $16 billion.

From a statement from Haggen:

Albertsons sought out Haggen in order to convince the Federal Trade Commission (“FTC”) that Haggen would be a new competitor in local markets, which enabled Albertsons to gain the FTC’s approval of a merger between Albertsons and Safeway—a merger that created “one of the largest food retailers in the United States, with over 2,200 stores and $61 billion in combined sales,” according to the complaint. Despite the FTC’s orders and Albertsons’ agreement to abide by all conditions of the sale, the complaint alleges, Albertsons engaged in an illegal campaign against Haggen including “premeditated acts of unfair and anti-competitive conduct that were calculated to circumvent Albertsons obligations under federal antitrust laws, FTC orders, and contractual commitments to Haggen, all of which were intended to prevent and delay the successful entry of Haggen (or any other viable competitor) into local grocery markets that Albertsons now dominates.”

“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,” according to the complaint.  As a result, despite Haggen’s plans to successfully operate and expand upon the acquired stores, Haggen was “forced to close 26 of the Stores that it newly acquired as a part of the Albertsons’ divestiture, and faces the potential closure of additional stores,” the complaint said. “Albertson’s anti-competitive actions critically damaged the operations, customer service, brand goodwill and profitability of the divested stores from the outset,” the complaint alleged, “[and] have caused significant harm to competition, local communities, employees and consumers,” throughout California, Oregon, Washington, Nevada and Arizona.  Instead of focusing on succeeding in the new markets, according to the complaint, “Haggen has had to focus on strategies to recover from Albertsons’ wrongful acts, which include, sadly, Haggen’s efforts to find new jobs for displaced employees who too are victims of Albertsons’ actions.”

In particular, Haggen alleged in its complaint that Albertsons, in violation of numerous laws, the FTC order and the purchase agreement, intentionally and deliberately undertook a number of “malicious and unfair actions” that “strained Haggen’s resources” and “created substantial distraction and diverted the attention of store-level and senior Haggen management” during the store conversion process, such as:

  • 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; and
  • Failing to perform routine maintenance on stores and equipment.

“Albertson’s anti-competitive conduct caused significant damage to Haggen’s image, brand, and ability to build goodwill during its grand openings to the public,” according to the complaint. The complaint continued, “Albertson’s unlawful acts destroyed or substantially lessened the economic viability, marketability and competitiveness of the [Haggen] Stores, depriving consumers in each of the Relevant Markets the benefits of substantial competition from a new market entrant.”

A former Albertsons rebranded by Haggen will remain open at 1350 N. Silverbell Rd., but the company said in August that "additional stores may be sold or closed in the future."

Earlier this year, the company grew by leaps and bounds, acquiring 146 stores in five states as a result of Albertsons' recent swallowing up of Safeway. Twenty-seven stores were on the list of those to be closed by the company.

The Tucson stores were rebranded in May.

Haggen, an upscale grocery often compared to Whole Foods (if slightly less costly), also took over Arizona stores in Scottsdale, Anthem, Prescott, Prescott Valley, Lake Havasu City, and Flagstaff. Stores in Anthem, Flagstaff and Prescott Valley were also on the list of those to be closed.

Prior the the purchase, the chain had only 18 stores in Oregon and Washington. The deal, prompted by regulatory concerns in Albertsons $9.2 billion merger with Safeway, had Haggen buy 146 of the 168 stores divested by the grocery giants. The expansion meant Haggen's workforce grew from 2,000 to about 10,000, with 164 stores throughout the West.

"By making the tough choice to close and sell some stores, we will be able to invest in stores that have the potential to thrive under the Haggen banner," said Bill Shaner, CEO of the company's Pacific Southwest operations, in an August press release on the store closures.

Haggen was family-owned from its 1933 founding until 2011, when a majority interest was handed over to private investment firm Comvest Partners. Albertsons, now the second-largest grocery chain in the nation following its takeover of Safeway, is owned by Cerberus Capital Management.

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