Sabotage, Deceit and “Aggressive Couponing”: Inside Haggen’s $1 Billion Lawsuit Against Albertsons

The story of an arrogant, out-of-town grocery store that grew too big, too fast and was tone deaf to the needs of its new customers, has just developed a surprising new narrative. To hear the grocery store in question tell it, the story is really one of a two-faced, bullying behemoth that refused to play fair and sabotaged the newcomer by making it look like the bad guy.

That’s the gist of a one-billion-dollar lawsuit that Haggen has now filed against Albertsons, in the wake of its ill-fated acquisition of dozens of Albertsons-owned stores.

In a federal complaint filed on Tuesday, Haggen accused Albertsons of sabotage and “anticompetitive, unfair and unlawful conduct” that set Haggen up for failure, as it burgeoned from a small, regional, 18-store Pacific Northwest chain into a major West Coast player.

Haggen’s lawsuit contains a litany of complaints, blaming Albertsons for many of the criticisms that have come Haggen’s way. Haggen’s high prices? Albertsons’ fault. Expired food on Haggen’s shelves? Albertsons’ doing. A failure to properly introduce itself, with grand opening announcements and promotions? All a result of prearranged agreements with Albertsons. The lawsuit alleges it was all part of a plan to snuff out Haggen, and solidify an Albertsons-Safeway monopoly that federal regulators had tried to prevent, by forcing the merging grocery giants to sell well over a hundred stores to Haggen in the first place.

As part of Albertsons’ planned acquisition of Safeway, announced in March 2014 and finalized in January of this year, the two grocery chains were ordered to divest 168 stores. In Haggen, they found a willing buyer for 146 of them. Haggen shelled out more than $300 million for the chance to “transform itself into a super-regional grocer with a presence up and down the west coast.”

But Haggen now claims that Albertsons had it in for them from the start.

First, there’s the matter of the number-one thing that many new Haggen customers noticed right away – the prices. Whenever an Albertsons-owned store transitioned into Haggen, on a rolling basis, prices for the same products seemed to skyrocket nearly overnight. Haggen blames Albertsons. The lawsuit claims that Albertsons provided “incomplete, inaccurate, misleading and out of date pricing information” to Haggen, “causing Haggen to tag products with inflated prices and causing customers to conclude that Haggen was price gouging.” As a result, “many customers experienced ‘sticker shock’ upon their first visit to a Haggen store — just as Albertsons planned and intended.”

Another common customer complaint about the new Haggen stores, has been finding expired products on the shelves, or no products at all. Again, Haggen blames Albertsons, for “sabotaging the quantity, assortment and quality of inventory transferred to Haggen.” The lawsuit claims that just prior to handing off stores to Haggen, Albertsons intentionally overstocked perishables, accepted shipments of expired food and medicine, and diverted salable products to other Albertsons-owned stores. In two Southern California locations, for example, Haggen walked in after acquiring the stores in March, “to find the meat freezers loaded with 256 cases of frozen turkeys that were left over from Thanksgiving and Christmas.”

In addition, Haggen accuses Albertsons of engaging in some plain old dirty tricks, such as removing store fixtures and leaving broken equipment behind. Haggen says Albertsons instead focused its efforts on planning “large-scale remodeling projects” on its own stores, with the result being that “many consumers who were encountering Haggen for the first time were left with the false impression that the stores were not well operated, which inevitably drove consumer traffic away from Haggen and towards Albertsons.”

Then there’s the matter of coupons and circulars, which Haggen says Albertsons used as a weapon against it. Haggen alluded to the issue over the summer, when it noted that unnamed competitors “have been marketing aggressively and offering dollars-off coupons.” But in the lawsuit, it doesn’t mince any words.

As part of its agreement with Albertsons, Haggen “did not advertise or promote the opening of a Haggen store in advance of the grand opening” in order to allow Albertsons to conduct business as usual, up until the moment they handed over the keys. Many customers were completely unaware of their store’s planned transition date, until it happened.

But Haggen says Albertsons used its own inside knowledge of the transition dates, to its advantage. A few weeks before each handover, Haggen claims, Albertsons stopped distributing sales circulars for its stores. It also allegedly used “confidential loyalty club card data” to offer special deals to would-be Haggen shoppers, at nearby Albertsons-owned stores. It then engaged in “an aggressive couponing campaign,” issuing “$10 off a $50 purchase” or “$20 off a $75 purchase” coupons just as Haggen took over, in order to lure shoppers to its own stores instead. In some cases, Haggen says, Albertsons would issue a coupon just prior to a conversion, resulting in confused customers showing up to a new Haggen with an Albertsons coupon they had hoped to use there. That put Haggen “in the ‘no-win’ posture of either honoring an Albertsons-issued coupon that eroded all profit, or refusing to honor the coupon and alienating customers.”

In a statement, an Albertsons spokesman said “the allegations in the lawsuit are completely without merit.” But whoever is at fault for Haggen’s troubles, the damage has been done. A recent Los Angeles Daily News column noted that “at 6:15 p.m. on a recent weekday, you could have thrown a bowling ball down the service deli aisle at the new Haggen store in Woodland Hills and not hit anybody.” Once-busy Albertsons, Vons and Safeway stores became ghost towns after they transitioned to Haggen, once shoppers had a look and decided they didn’t like what they saw. That forced Haggen to announce the closure of 27 stores last month, adding to the growing perception that Haggen seemed destined and maybe even determined to fail.

If that’s true, Haggen says it’s all on Albertsons. Albertsons’ alleged desire to crush its new competitor even manifested itself in its response to Haggen’s complaints – when Haggen raised the concerns mentioned in its lawsuit, it says Albertsons “raced to the courthouse” and gained headlines, by suing Haggen for failing to pay for the inventory of several of the stores it acquired.

Instead, Haggen claims, it’s all about Albertsons’ “coordinated and systematic efforts to eliminate competition” – exactly what the divestitures to Haggen were meant to prevent. Haggen estimates that its own potential damages “may exceed $1 billion”. And it says West Coast grocery shoppers will be harmed as well. “Albertsons now has a dangerous probability of obtaining monopoly power in the remaining relevant markets, which will allow it to raise the prices of food, groceries or services, and decrease the quality and selection.”

So if you’ve visited a new Haggen and found yourself wondering about the reasons for the high prices, expired food and bad service, now you know why – at least from Haggen’s point of view. Now, two grocery chains that are battling for your business, will now be battling it out in court.

Image source: Haggen