Eight months ago on this page I wondered aloud whether an investment banking firm was really committed to selling groceries to you and me. When the Florida-based Comvest Group offered to buy 146 Albertsons and Safeway stores across five Western states, I worried that the business model for investment bankers would favor a quick flip.
My March column ended with this line: “Haggen could sell you a frozen pot pie tomorrow that won’t expire until after Comvest’s money has left town for better luck elsewhere.” There’s probably a loaf of Wonderbread that hasn’t lost all of its wonder in the little time it took.
Since then, Haggen has sued Albertsons and Albertsons has sued Haggen. Disputes revolve (and revolve and revolve) around inventory accounting, pricing software, distribution control, and competitive discounting. Haggen declared bankruptcy and asked courts for additional relief for its employees as underperforming stores were shuttered.
Haggen complained that it relied on data provided by Albertsons, causing them to inadvertently set their grocery prices higher than what their customers expected. These higher prices resulted in fewer customers than Albertsons had projected for many of the stores.
Do these sound like the complaints of grocers or accountants?
In late September, Haggen’s parent company announced it would “right-size” its grocery store holdings to 37 stores across the region, divesting itself of three-quarters of what it bought just months earlier.
This week, Haggen announced that it was auctioning off scores of its stores, including one in Thurston and one in south Eugene. The opening bid for the Thurston store was one dollar. The price so far being offered for the south Eugene store on Hilyard is less than an average single-family home in the area would fetch.
The current high bidder for each store is Albertsons.
For those of you scoring at home, the play went like this. Albertsons wanted to buy Safeway, but anti-trust regulators balked at the behemoth, unless the two chains divested hundreds of stores across the country as part of the deal.
Comvest saw an opportunity, bought control of a distressed Bellingham, Wash. grocer, then bid to buy 146 stores across the West. Practically overnight, Haggen grew from a family-owned business running a handful of stores to a group of investment bankers controlling over 150 stores. A grocery store became an investment instrument.
Regulators were appeased. The sale went through. Comvest paid Albertsons approximately $300 million for 146 stores, then made most or all of that money back by selling the real estate beneath some of those stores. Half of at least 39 lease-back deals were done with Spirit Realty Capital, netting Comvest $224 million, according to securities filings.
Flush with new cash, signs were swapped, floors shined, doors opened. Then came lawsuits, bankruptcy, and auctions. Sometime soon, many of those stores may go back to being Albertsons.
Anti-trust regulators must be shaking their heads, wondering how all of these machinations could possibly be profitable for efficiency-obsessed free market capitalists. As if that’s who these players are. They’re not.
Firms like Comvest are not trading in broccoli. They relied on software to tell them what they should charge, when they could have sent a check-out clerk to visit the competition.
They’re not even trading in money. Selling a store for a dollar can’t make a lot of sense, no matter how you add it up.
They’re trading in trades — “churn” is the jargon term. Chances are good that the Thurston store will change hands four times in less than a year — Safeway to Albertsons to Haggen to Albertsons.
Why would Albertsons bid on that store, when they have a store already at that same intersection? Their one dollar investment will keep another grocer from moving in across the street.
This is exactly the scenario that anti-trust regulators were charged with preventing, but they left the theater after Haggen entered the stage.
It’s difficult keeping track of complicated deals like this, when all we really want is to be charged a fair price for our broccoli.
Don Kahle (firstname.lastname@example.org) writes a column each Friday for The Register-Guard and blogs at www.dksez.com.