Tiny Northwest Grocery Chain Buys Into Big Time

LOS ANGELES (Los Angeles Times/TNS) -

A supermarket David is gulping down a Goliath.

Haggen Inc., a tiny Northwest chain, is buying 146 Vons, Pavilions, Albertsons and Safeway stores, including 83 in California. The Federal Trade Commission ordered them sold as part of the merger of Albertsons and Safeway this year.

That translates into an 811 percent expansion for the Bellingham, Wash., company, which now operates 18 stores in Oregon and Washington.

“This was a once-in-a-lifetime opportunity,” said Bill Shaner, Chief Executive of Haggen in the Pacific Southwest. “They are great stores in a very dynamic marketplace. The chance to grow the brand was very unique.”

The chain did not disclose what it paid for the stores.

Shaner said Haggen has distinguished itself with a heavy emphasis on fresh produce and quality meats and seafood. That focus will be reflected in the new stores once they are rebranded as Haggen starting in 2015, he said.

“Haggen is between an Albertsons and Vons and what you might see to some extent in a Whole Foods,” Shaner said. “You will see a little tweak in assortment, a little tweak in the quality of the offerings.”

The company will keep existing store employees and managers, Shaner said.

Observers said that expanding the company to 164 stores in five states will give Haggen the muscle to negotiate more effectively with suppliers and make a real push into new territories.

“You really need a minimum of 100 stores … to have the buying power and market share to have a meaningful impact in the marketplace both with competitors and consumers,” said Burt Flickinger III, managing director of Strategic Resource Group.

But Haggen will face the challenge of introducing its unknown brand in places such as Los Angeles, where shoppers have different preferences and a multitude of supermarkets to choose from. Competition is fiercer than ever before, with newer rivals such as dollar stores increasing their produce aisles and online retailers such as Amazon.com testing grocery delivery.

At the same time, the chain must now deal with operating a vastly bigger organization. There is a danger it will run into trouble exporting its culture to the larger group of stores and will lose some of the uniqueness that has made it successful, analysts said.

Flickinger said the chance to expand so rapidly in one swoop probably was too tempting to pass up.

“It is arguably the best opportunity to expand cost effectively and in the West Coast for the last 15 years,” he said.

In March, Albertsons said it was buying rival Safeway for more than $9 billion in cash and stock. The Federal Trade Commission, which sometimes orders companies to sell parts to avoid monopolizing a market after a merger, told the two companies to unload 168 stores.

Aside from Haggen, other buyers include Associated Wholesale Grocers/Minyards, which is picking up 12 locations in Texas, and Associated Food Stores, which is buying eight stores in Montana and Wyoming.

The acquisition, which still requires FTC approval, is a high point for Haggen after more than eight decades in the grocery business.

Ben and Dorothy Haggen, and Dorothy’s brother Doug Clark, founded the first store in 1933, during the Great Depression, with $1,100. Originally named the Economy Food Store, it was located in downtown Bellingham. The store moved to a bigger space a few years later and was renamed White House Market.

The chain did not weather the recent recession as gracefully.

Haggen suffered as consumers shopped with a sharp eye on their budgets, analysts said. Then, in 2011, Florida investment firm Comvest Partners bought a majority stake from the Haggen family. The company closed some underperforming sores and has spent the last few years remodeling the ones that remained.