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    Published on: September 1, 2015

    Haggen, which continues to flounder through its West Coast expansion from 18 stores to more than 160 because of poor sales and profits, leading to cash flow issues that some market observers believe could send it seeking bankruptcy protection, is suing Albertsons for more $1 billion. Haggen is charging that in selling off stores to satisfy regulator requirements when it merged operations with Safeway, 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.”

    The complaint goes on to say that Albertsons engaged in "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.”

    Once its acquisition of Safeway was complete, Albertsons controlled a national network of more than 2,200 stores with $61 billion in combined sales. Haggen has already had to announce the closing of 26 of the stores it acquired - and one of the stores it owned previous to the purchase of 146 Albertsons and Safeway units.

    The suit says that "Albertson’s anti-competitive actions critically damaged the operations, customer service, brand goodwill and profitability of the divested stores from the outset ... [and] have caused significant harm to competition, local communities, employees and consumers ... 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.”

    According to the complaint, among the misdeeds committed by Albertsons were "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" ... and "timing the remodeling and rebranding of its retained stores to impair Haggen’s entry into the relevant markets."

    Haggen also accuses Albertsons of deliberately under-stocking non-perishable merchandise, over-stocking perishables, and not doing routine maintenance and repairs in the stores sold off to Haggen, thus sabotaging its ability to operate those units in an efficient and effective manner.

    This is just the latest legal twist and turn in the Haggen story. In July, Albertsons is suing Haggen for fraud, saying that the grocery chain has withheld more than $36 million in payments that it owed for inventory received as part of its acquisition of former Albertsons and Safeway stores.

    And it was just a week ago that the United Food & Commercial Workers (UFCW) filed charges against Haggen, Albertsons and Vons, saying that the three chains "violated the collective bargaining agreement and deprived bargaining unit members of their rights under the contract in the way it handled and implemented the sale of Albertsons and Vons stores to Haggen. These violations caused each affected employee to lose all their contractual rights, including but not limited to, seniority, wages and benefits they enjoyed at Albertsons."
    KC's View:
    Well, I suppose that if you're having continuing and severe cash flow problems, suing someone for $1 billion is one way of trying to resolve them ... though it is hard for me to imagine that this lawsuit will do anything to solve Haggen's short-term problems.

    It was less than a week ago that an internal memo at Haggen, provided by sources to MNB, made it clear to employees there that a number of commodities would not be delivered to a number of stores in advance of the weekend, and that a number of orders in the system were being cancelled. Sources tell MNB that suppliers perceive Haggen as playing a kind of shell game, paying suppliers on a rotating basis based on cash flow so they can keep something resembling an in-stock position in their stores.

    Blaming the other guy will only take you so far.

    When companies stop purchasing products to sell to shoppers, it is a very, very bad sign. Suppliers have to think twice about selling products that are not C.O.D. ... and consumers who walk into the store and find large empty gaps on the shelves are likely to leave and go somewhere else, and are unlikely to return. Which creates more cash flow issues, which creates more out of stocks, which creates even lower sales, which creates more cash flow problems. (For the record, Haggen keeps saying that it expects all its suppliers to be paid. But in my not-so-humble opinion, the public statements have been carefully parsed so that if things go sout- or even more south than they already have - it cannot be accused of lying. Dissembling, maybe. But not lying.

    So Haggen did what any retailer would do in such a circumstance. It sued the company it bought the stores from.

    Blaming the other guy will only take you so far.

    Let me be clear about this. I have absolutely no idea if Haggen's charges have any basis in reality and if, in fact, it is a legitimately aggrieved party. I have been told by people who know a lot more about this stuff than I do that the charges Haggen is making are tough to prove. I'm also not so naive as to think that the Albertsons folks wouldn't do everything and anything they could to make sure they came out of the various merger-and-acquisition activity in as strong a competitive position as possible ... and that they probably looked at Haggen with roughly the same degree of malevolence (and confidence) that Godzilla has when looking at human beings.

    It seems to me in reading portions of the complaint that Haggen has to make the case that it could have and would have made these stores it acquired from Albertsons/Safeway successful if it had not been hamstrung ... and I have no idea if that's possible. I do know that in talking to various people that Haggen has seemed to be operating more on a dream and a prayer than with any workable strategy and tactics ... and that any reasonable reading of the situation would've told them that they were in an untenable competitive situation. Remember - this is a company that had all it could handle with 18 stores. Expanding virtually overnight to more than 160 ... well, from the very beginning, there have been those (including some inside Haggen, I've been told) who questioned the wisdom of such a move.

    I am reminded of the scene in War Horse, when British troops went off to fight the Germans, astride magnificent horses and carrying rifles and bayonets, only to find that the enemy was equipped with machine guns.

    Guess who's who.