California's grocery industry is among the most competitive in the nation and newcomer Haggen Inc., which opened 83 California supermarkets earlier this year, is rapidly finding that out.
The Bellingham, Wash.-based grocer has already laid off workers and cut employee hours and union officials fear more cuts could be coming.
Kathy Finn, director of collective bargaining for the United Food and Commercial Workers Union, Local 770, said the layoffs and reduced hours have affected many of the 2,000 Haggen employees scattered throughout Los Angeles, Kern, Santa Barbara and San Luis Obispo counties, including about 800 workers represented by her union.
"It's shocking ... I don't understand it," she said. "We met with them in advance before the stores opened and they said they were committed to making this a success. But it seems to me that you wouldn't just try it for six months and then pull up the anchor."
Finn suspects the cutbacks may not be over.
"We're hearing that there will be some more changes but we're not sure what will happen," she said.
Volume at the stores has fallen 20 to 30 percent, according to industry sources who spoke with Supermarket News.
Bill Shaner, CEO of Haggen's Pacific Southwest division, could not be reached for comment this week. But he did release a statement addressing the cutbacks.
"As we introduce Haggen throughout Southern California, Arizona and Nevada, our challenge is to establish and grow the brand in competitive new markets," he said. "To ensure we're operating as efficiently as possible, we have made the difficult decision to temporarily cut back on staffing at our stores, with specific reductions varying by store."
Haggen values the contributions employees have made, Shaner said, adding that the grocery chain is committed to "treating all employees respectfully and professionally" through the transition.
"Our focus moving forward is to continue to bring the complete Haggen experience to our stores - offering fresh, locally sourced products alongside everyday big brands - and establishing ourselves in the competitive grocery space," he said.
Shaner has indicated that the company plans to restore the reduced hours as Haggen captures more market share in the region.
Haggen's entry into the Southern California market came about through the merger of Albertsons and Safeway. Cerberus Capital Management, the private investment company that owns Albertsons, received approval from the Federal Trade Commission in January to buy Safeway (Vons' parent company) for about $9.2 billion.
In order to comply with antitrust laws that seek to preserve a competitive marketplace, Albertsons and Safeway had to shed a total of 168 stores. Haggen got 146 of them including the 83 California locations located in such communities as Santa Clarita, Woodland Hills, Torrance, Long Beach, Diamond Bar, Upland and Rancho Cucamonga.
The acquisition took Haggen from a small company in the Pacific Northwest with 18 stores and 2,000 employees to a regional presence with 164 stores and more than 10,000 employees.
Haggen's Southern California employees - some of whom had worked for Albertsons or Vons for 20 years or more - say Haggen has suffered from "pricing that is not attractive to customers" and a lack of adequate advertising, according to Finn.
One consumer expressed displeasure with Haggen in an online post to Supermarket News.
"In my area of SoCal, Haggen changed my favorite (Vons) Pavilions into a store with much higher prices," the customer wrote. "Their circulars are boring and the prices won't work in this economy."
Courthouse News Service also reported this week that Albertsons Cos. is suing Haggen for breach of contract and fraud after allegedly refusing to pay more than $40 million for inventory following Haggen's acquisition of the Albertsons and Safeway stores.
According to CNS, Albertsons alleges that Haggen agreed to pay for store inventory within 30 days. The suit said it paid for stock at 108 stores but not for inventory at the other 38 - $36.2 million that was due July 17 and another $4.9 million due on Tuesday of this week.
Finn said the company has shown no deference to workers with seniority.
"We have already filed a grievance based on the fact that they are letting senior people go," she said. "But it's mainly the hours that are being cut. The people with the most seniority are supposed to get the most hours."
Phil Lempert, a Santa Monica-based analyst of consumer behavior and marketing trends, said Haggen's advertising efforts haven't been aggressive.
"I haven't seen a lot of advertising out there," he said. "I think they didn't understand the L.A. market as much as they needed to. I think they just felt that if they built a great store and had great employees, a great assortment of foods and fair prices people would come. But they won't come unless you tell them about it. I haven't seen much activity on social media or advertising to let people know what Haggen is all about."
The nation's food industry has grown increasingly fragmented in recent years with more and more retailers like Walmart, Target and 99 Cents Only Stores offering expanded lines of grocery items.
And the competition will ramp up even more next year.
Aldi, a German discount grocer with nearly 1,400 U.S. stores, plans to open 45 locations in Southern California, with the first stores opening in March.
Lidl, another German discount grocer that operates about 11,000 stores in Europe, also plans to enter the U.S. with a barrage of 2,000 stores by 2020, according to Forbes.
Supermarket chains that want to survive need to differentiate themselves from each other, according to Lempert.
"If I was in charge of Haggen and had deep pockets I would come up with a program of deep discounts for a limited time to get people to come to the stores," he said. "I'd say 'We're slashing our prices on these items to introduce you to the Haggen experience.' I don't see a lot of excitement that's bringing people into the stores. That piece is missing, but I think they're smart enough to figure that out."