I worked for Albertsons for 10 years, between 1989 and 1999. In those days Albertsons was a company run by good ol’ boys (emphasis on boys). Once, my Store Director pulled me aside and informed me that “women just are not cut out to be leaders. Never forget this.” The men who worked at the district office took obvious pride in being tyrants. They would publicly berate store employees if there was a single item misplaced during a store visit. If I could unblock the bad memories, I could probably find hundreds of stories along those lines.
Nevertheless, these men grew their company until at one point Albertsons was the largest grocery store chain in the United States. But the company had grown larger than the mental abilities of its leadership. There was mis-management everywhere. Albertsons eventually collapsed and split into two entities, one of which was “saved” by Super Valu Foods and the other of which was “saved” by Cerberus Capital. Eventually the tentacle owned by Cerberus consumed the stores owned by Super Valu, and Albertsons became a single large company again. I remember reading that news, and thinking, “Good. All those years trying to build that company were not wasted.”
Recently, Albertsons has been involved in another industry soap opera. This time, it involves a small local chain called Haggen. I’ve been to a couple of Haggen stores–there is one near my grandparents’ house in Mount Vernon, WA and we ordered a complete Thanksgiving Dinner from them one year. I’ve always found their stores to be on the upper end of nice with a great selection of local products. Gotta root for the little guy.
Albertsons wanted to merge with Safeway, and in order to pass FTC anti-trust muster, they needed to shed some of their existing stores. Haggen saw an opportunity, and partnered with an investment capital holding company to buy 168 stores from Albertsons. This would have turned Haggen into a West Coast powerhouse.
But something was rotten in Denmark. The stores Albertsons sold to Haggen were not, shall we say, “premier properties.” Converting them in to Haggen stores (with Haggen selection and standards) turned out to be costlier than anticipated.
A chastened Haggen sued Albertsons for ONE BILLION DOLLARS, claiming (among other things) that Albertsons interfered with Haggen’s efforts to convert the stores and misrepresented the financials for those stores.
As of this writing, it is looking bleak for Haggen. They’ve declared bankruptcy. They are selling the stores bought from Albertsons and the top bidder for a handful of those stores is (wait for it) Albertsons. It also sounds like Haggen might be selling a few of their 18 stores that were thriving prior to their land grab in order to survive at all.
What is the lesson here? I currently work for another company, Amazon, whose stated strategy is to “get big fast”, and so far that hasn’t been a problem. It probably helps Amazon that e-commerce, cloud services, etc. are relatively young industries. Amazon is also quite good at leveraging its strengths to fund its investments. So I’d love to know where Haggen went wrong. For one thing, I think they tried to get too big, too fast. There must be academic research that identifies upper bounds on merger sizes–the little fish just physically cannot eat the big fish. Also, Haggen clearly assumed that Albertsons would negotiate in good faith, which is incredibly naive. Albertsons was never known to be a particularly good sport. Finally, it seems like another case of management reaching beyond their abilities–just like Albertsons did back in the 1990’s when they bought American Stores.
Occasionally, I miss the grocery industry–in fact, I still (17 years later) have recurring nightmares about being late to work on the night crew. But most of the time, I shop online, especially after reading stories like Haggen vs. Albertsons.