We review the implications as Haggen files for Chapter 11 bankruptcy protection in the US.
Big step up for a retailer with strong local appeal
Haggen made the leap up from a small retailer in the Pacific north west with 18 stores to a regional west coast chain with over 150 stores at the end of last year when it acquired 146 stores from Albertsons and Safeway. These stores formed part of the divestment package made by the retailers to secure FTC clearance for their merger. While Haggen was relatively unknown beyond its heartland, it had developed a loyal customer following and a reputation for excellence in fresh food merchandising and local ranging, which had the potential to appeal to a wider audience.
More store closures are likely
The challenge has been in taking the proposition to three new states, Arizona, Nevada and California, and generating the same level of customer support, particularly given the rapid conversion of the acquired stores. In the intensely competitive Californian market in particular, the retailer has found it challenging to build its brand identity and communicate its key points of difference. Last month Haggen announced that 27 stores would be closed, and more are now expected given the latest filing. A significantly slimmed down company is likely to emerge.
Challenging to find buyers for all stores
While some of the stores being closed will find buyers to support the growth aspirations of regionally focused operators, there is unlikely to be interest in taking a large number of stores. Most of the stores were the weaker of the Albertsons or Safeway stores in each of the catchments, and competitors have already improved their operations in light of Haggen coming into their markets. With many of the stores based in California, Aldi’s imminent entry to the market could also dissuade some retailers to invest in more space, while broader industry trends are pointing towards the growth of smaller formats and ecommerce over the next few years.