Too Big, Too Fast? A Grocery Chain’s Rapid and Rocky Rise

Rapid growth. Few promotions. Higher prices. Fewer customers.

Do they all add up to a grocery chain in big trouble?

That’s what many shoppers and retail observers are saying about Haggen, the small Pacific Northwestern grocer that suddenly became a huge West Coast supermarket chain. Haggen scooped up a slew of Safeway and Albertsons castoffs earlier this year, when those two companies combined and had to divest more than a hundred stores.

Haggen jumped at the chance to buy them. And practically overnight, the grocer with 18 locations in Washington and Oregon increased its store count nearly tenfold, becoming a 164-store chain across five states.

Describing its stores as “somewhere between a current Albertsons or Vons store and Whole Foods,” Haggen aimed to be a bit higher-end than the stores it replaced. But shopper reviews have been middling to negative, and now the company is cutting some employees’ hours and laying off others, after admitting that its entry into California, Nevada and Arizona hasn’t been as smooth as it had hoped.

“The competitive activity launched in response to our entry into the marketplace – while expected – has been unprecedented,” Haggen’s Southwest Division CEO Bill Shaner said earlier this month. Competitors, for example, “have been marketing aggressively and offering dollars-off coupons,” he said in one interview. So the company started reducing staff hours – and now it’s begun laying off hundreds of employees outright.

Some of Haggen’s more optimistic observers say the company is merely “right-sizing” – overstaffed at launch, it’s now adjusting its staffing to more appropriate everyday levels.

But most others aren’t buying that argument. Shoppers accustomed to their neighborhood Safeway or Albertsons have found Haggen’s higher-end ambitions – with higher prices to match – a tough sell.

“I find their high prices highly insulting,” wrote one commenter on the online review site Yelp. “Since Haggen moved in, I’ve only been to it to buy 1-5 things off their measly sale ad that comes out each week,” another added. “The last thing this area needed was another expensive Whole Foods wannabe,” wrote a third reviewer.

Other shoppers questioned why Haggen didn’t hold grand opening celebrations, or blanket the region with ads to introduce itself. It just closed down the former Safeway and Albertsons stores for a few days, and reopened for business with a new sign over the front door, some new products in the mix – and new price tags on the shelves.

Making matters worse, unlike some of the stores it replaced, Haggen doesn’t offer double or triple coupons, and doesn’t take digital coupons. And to top it all off, some shoppers say Haggen isn’t even meeting its own high standards, with expired milk and moldy produce for sale.

Some disappointed customers say they’ve gone back to shopping at other local Albertsons or Safeway stores instead. And that may be just what the owner of those stores had in mind. When the two companies were ordered to shed excess stores in order to earn approval for their merger, they didn’t sell off their best assets. Instead, they may have seen an opportunity to unload some underperformers, to a retailer with little chance of succeeding and growing into a strong competitor.

And then there’s the lawsuit. On top of Haggen’s other troubles, Albertsons has now sued Haggen for $41 million, accusing it of failing to pay for the inventory of 38 of the stores it acquired.

Haggen may be wishing it had never acquired those stores in the first place. Its rocky transition from small regional grocer to large supermarket chain is precisely the opposite of slow and steady growth, which most business advisers would say is the secret to success.

And now the company may be paying the price. Or, more accurately, hundreds of employees are paying the price – because shoppers are finding better prices, somewhere else.

Image source: Haggen