Sunday, August 16, 2015
"You Gotta Know the Territory:" Haggen Doesn't
Customers and Employees are paying for the Haggen Debacle. Meredith Wilson’s great line in The Music Man: “You gotta know the territory.” Haggen doesn’t. The founding family of Haggen sold out a few years ago to an investment firm who knew nothing about supermarket retailing. They shrunk Haggen by progressively shutting stores. Down to 16, they rolled the dice, shot the moon, and purchased 164 stores from Albertson’s and Vons in the Pacific Southwest. They expanded nine fold their existing, shrinking base in the Pacific Northwest. The Northwest is not the Southwest, Seattle has many similarities to San Francisco, but San Francisco is not Los Angeles, Orange County, San Diego, the Inland Empire, and the Central Valley. The characteristics of each county or state in the Southwest are different, but none relate to the Pacific Northwest, Seattle or San Francisco. Albertson’s and Vons were forced by the Federal Trade Commission to spin off the stores as a condition of merging. Haggen jumped in to buy the castoffs. Haggen did not know the territory. Acting out of hubris, arrogance, stupidity, ignorance, who knows? Haggen believed that its policy of a broad product line, quality meats, fruits and vegetables, and organics at high prices would appeal to the Southwest. Haggen did an amazing turnaround of the stores, often in 24-36 hours. That was a mistake. The time was spent changing signage and the prices, usually raising the prices. Customers excitedly came in for the grand openings. They found high prices on the existing Albertson’s and Vons products. The result was “One and Done.” You can overcome an initial bad impression, but Haggen didn’t. Its weekly circulars do not attract customers. The short, by Southern California standards, ads do not contain specials that will attract customers. Business is booming at the overlapping Albertson’s, Vons, Ralphs, and Stater Brothers stores. Consumers are sophisticated. Many are willing to pay more for high quality, not mass processed foods. These consumers shop at Bristol Farms, Sprouts, Whole Foods, and Costco. They also patronize Trader’s Joe. They will not pay non-competitive prices at a standard super market. Haggen made other mistakes. The employees at the stores transferred to Haggen went with the stores. There were no longer employees of Albertson’s and Vons. One provision of the FTC settlement is that the staff at these stores (managers, assistant managers, etc.) may not be rehired by Albertson’s or Vons for two years. Haggen is reported to have cut their wages and benefits in the takeover. Haggen’s debacle is in record time. Pan Am, Borders, Radio Shack took years. Sears and Kmart are still open. Haggen closed on the stores in May and June. They announced in July personnel cutbacks at the stores, terminating part time employees, and converting full time workers to part time. They announced a few days ago, August 14, that they will be closing 27 stores over the 60 days: 16 in California, 5 in Oregon, 5 in Arizona, and one in Washington. The announcement said they were “right sizing” the operations. They said that a month ago with the cutbacks. The goal is to streamline and improve operations;” to “improve its business and strengthen its competitive position.” The chain also said more closings may follow. They will. The costs of each remaining store will rise as the corporate advertising, including ads, will be spread among fewer and fewer stores. For example, Haggen is closing five of its ten Arizona stores. The remaining five will be hard to sustain. Unless Haggen can quickly create an attractive brand for the remaining stores, they are doomed. The four stores being closed in Orange County, out of a total of eleven, tell the story. Orange County is nationally known for political conservatism, affluence and quirky TV shows, such as The OC, the Real Housewives of Orange County, Laguna Beach and Arrested Development. Orange County is highly affluent, but most of the county is solid middle class with a large economically disadvantaged segment of the population. I would in a sense analogize the OC to Westchester County, New York. We lived within a few blocks of a Albertson’s Ralphs, and Vons as well as a Sprouts and Trader Joe’s until Haggen moved in. Two Stater Brothers are within a couple of miles, as well as and an additional Ralphs and Vons and two new, large Albertsons. The two Vons were converted to Haggens and the Ralphs closed for competitive reasons. They are closing. I actually went into one of them a month ago for a few items. The prices weren’t bad, but the cashier was a young, bored man. The wonderful Vons lifers were gone, just like the customers. Haggen turned profitable stores into losers within a couple of weeks. Business schools should do a case study of Haggen. Our choices are now much more limited than before the Albertson’s-Vons merger. It is an inconvenience to us, but an economic disaster to the former Albertson’s and Vons employees.