Haggen Inc.

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Haggen Inc.

2211 Rimland Drive
Bellingham, Washington 98226
U.S.A.
Telephone: (360) 733-8720
Toll Free: (888) 424-4367
Fax: (360) 650-8235
Web site: http://www.haggen.com

Private Company
Incorporated: 1933 as Economy Food Store
Employees: 3,500
Sales: $560.0 million (1999 est.)
NAIC: 44511 Supermarket and Other Grocery (Except Convenience) Stores

Haggen Inc. owns a chain of supermarkets located in Washington and Oregon that operates under the names Top Food & Drug and Haggen. Regarded as an innovator in the grocery business, the company focuses on operating full-service supermarkets with numerous specialty departments, including floral, videotape rental, deli, dry cleaning, and banking. Of the company’s 26 stores, 15 are “Tough On Prices” Top Food & Drug units and 11 are more upscale Haggen stores. The Haggen family owns the company.

First Store Opening in 1933

The Haggen grocery business began in 1933, in the trough of the Great Depression. Benett and Dorothy Haggen, along with Dorothy’s brother, Doug Clark, invested $1,100 in a grocery store in Bellingham, Washington, 20 miles south of the Canadian border. The family’s first store was called the Economy Food Store, which did well enough to justify a relocation to a larger site several years later. The new, larger store was called the White House Market, touting the slogan, “You may never be president but someday we’ll see you in the White House.” Despite the harsh economic climate, the Haggens’ grocery store did reasonably well, luring a steady stream of customers from the Bellingham area. Significantly, one of the Haggens’ attractions was an in-store baking operation established in 1941, the first hint of the full-service approach that would later define their company. By the end of World War II, the Haggens were ready to expand, with the White House providing the financial foundation for postwar growth.

In 1947, the Haggens built the Town and Country Shopping Center in Bellingham. The couple opened Haggen’s Thriftway and shuttered the White House, spending the next several years building business at the new location. During this period, the family business was incorporated as Haggen Inc., the name under which it operated when expansion into a retail chain commenced 15 years after relocating to the Town and Country Shopping Center. By 1962, the company had opened a second grocery store in Everett, Washington, halfway between Bellingham and Seattle, to the south. Next, the company continued to move south with establishment of a store in Lynnwood, Washington, in 1967, the same year the name of the burgeoning chain was changed to Haggen’s Foods.

As Haggen Inc. expanded, it did so by constructing its own stores, rather than acquiring existing stores or facilities used for other purposes. This was not an unusual method of expansion for supermarket companies during the 1960s, particularly in the relatively undeveloped, sparsely populated markets where Haggen Inc. was establishing stores. In later years, however, when expansion via acquisition became more common within the industry, Haggen Inc. continued to build its stores from the ground up, with only a few exceptions. The company’s rate of growth was affected as a consequence, taking on a pace more measured than that of those competitors who added new units by purchasing existing stores. Growth was further slowed by the company’s existence as a privately held concern, which meant it expanded without benefit of sizable infusions of cash from investors. Accordingly, as Haggen Inc. progressed, its success was determined by more than sheer size. Instead, astute management and innovation became benchmarks for the company’s success, qualities that began to emerge as Haggen Inc. entered the 1970s and fell under the second generation of family management.

Expansion and Innovation in the 1970s

The Haggen Inc. chain grew to five stores in 1970 with the addition of two more stores in Lynnwood. The debut of the Lynnwood stores also marked the year Don Haggen and his brother Rick paired together to run the family business. Under the brothers’ stewardship, which would endure for more than 25 years, Haggen Inc. became known as a successful innovator in the grocery business, establishing merchandising trends that were aped by much larger, higher-profile competitors. The brothers increased the number of stores to seven by 1977, all located in Washington. Two years later, they made their first memorable imprint on the supermarket industry. In 1979, the flagship Bellingham store was expanded greatly to 44,220 square feet, creating the company’s first superstore, a format that would earn wide acceptance in the 1980s and 1990s by nearly all types of retailers. Inside the store, the essence of Haggen Inc. under the control of Rick and Don Haggen was on display. The store housed a service deli, a large wine department, a pharmacy, and a floral shop—ubiquitous features of supermarkets at the century’s end, but novelties at the end of the 1970s. The creation of a full-service supermarket, particularly the store’s floral department and the catering service operated by the deli, enabled Haggen Inc. to compete effectively with supermarket chains pursuing a more aggressive expansion strategy. By positioning itself as a service-oriented grocer—one of the first companies to do so—Haggen Inc. could compete on factors other than price, giving the company an edge over fast-growing chains benefiting from economies of scale.

The innovative Haggen brothers pioneered another marketing idea three years after their signal success with the Bellingham superstore. In 1982, they unveiled two massive warehouse stores east of Seattle in Snohomish and Wenatchee. The stores, which were expansions of existing stores, housed a variety of specialty departments that were based on the Bellingham superstore. During the first six months of operation, the stores recorded sales figures that by far outpaced the results registered before they were expanded, with sales at the Wenatchee store increasing more than 45 percent and sales at the Snohomish stores swelling by nearly 65 percent. Called Top Foods—“Top” being an acronym for “Tough On Prices”—the stores became the Haggen brothers’ primary expansion vehicle for the future.

With the success of the store expansions in Bellingham, Snohomish, and Wenatchee, the Haggen brothers had discovered their niche in the grocery market. A Top Foods opened in Everett in 1984, a 71,000-square-foot store that ranked as the largest supermarket in the Pacific Northwest at the time. A flurry of store openings followed, as the company rolled out its proven market winner throughout the Puget Sound region. Between 1987 and 1994, Haggen Inc. opened eight Top Foods stores, adopting the new name Top Food & Drug in 1990.

Expansion in the 1990s

By 1994, there were 11 Top Food & Drug stores in operation and two Haggen stores, both in Bellingham. By this point in its development, Haggen Inc. ranked as the third largest grocery chain based in Washington. Revenues were expected to reach $350 million during the year, a total that would make Haggen Inc. the tenth largest privately owned company in the state. Size was not the company’s hallmark, however. Rick Haggen, who served as president, and his brother Don Haggen, presiding as chairman and chief executive officer, preferred to tout service and innovation over size. The company claimed to be the first to open an in-store espresso shop, a Starbucks that opened in 1989 at the 45,000-square-foot Bellingham flagship store. It claimed to be the first supermarket to remain open 24 hours a day and the first grocer in the Pacific Northwest to display fish on ice, an idea the company imported from Europe. “We travel to Europe every couple years and around the United States to see what others are doing,” Rick Haggen remarked in a June 24, 1994 interview with the Puget Sound Business Journal. “Also, we have valuable partnerships with other grocery companies that enable us to share ideas and marketing information. Those share groups have been a tremendous help to us,” he added.

As Haggen Inc. entered the mid-1990s, expansion continued, driven by a successful format that been honed for decades and kept in check by prudent management careful not to overreach the company’s capabilities. The company avoided entering the Seattle market, where competitors such as Quality Food Centers (QFC), upscale Larry’s Markets, Albertson’s, and Safeway saturated the metropolitan area. Instead, the company concentrated on less competitive battlegrounds, where its service-oriented stores stood in sharper contrast to the surrounding competition and where sites were easier to secure for its bricks-and-mortar method of expansion. New stores were scheduled for Stanwood, south of Seattle, and Kent, east of Seattle, as well as a third Haggen store in Bellingham. The company also planned to establish a presence in Portland, Oregon, its first step beyond Washington’s borders. The Haggen brothers hoped to cluster four or five stores on the west side of Portland and then penetrate the east side, using its more upscale Haggen format to secure a hold in the metropolitan market. The first Portland store was slated for its debut in late 1995.

As Haggen Inc. entered the latter half of the 1990s, a greater emphasis was placed on expanding its upscale Haggen format, at least in proportion to the additions made to its chain during the 1980s. Between 1994 and mid-1999, the number of Top Food & Drug units increased from 11 to 15 and the number of Haggen units jumped from two to seven. The pace of expansion paled in comparison with the rate recorded by Haggen Inc.’s larger competitors, but the company made no apologies for its methodical growth. Instead of focusing on chain expansion and market share, the company concentrated on maximizing the efficiency of its chain, implementing new marketing programs, and enhancing the services it provided to customers.

Company Perspectives:

For over 67 years, the Hag gen family has built a tradition of quality and service and earned the trust of our customers.

The company’s credo of improving service before expansion, a strategy espoused by the Haggen brothers for more than 25 years, was instilled in their successor. In December 1996, Rick and Don Haggen relinquished their respective posts of president and chief executive officer to Dale Henley, the company’s senior vice-president and chief financial officer. For the first time in the company’s history, day-to-day control over the Haggen franchise fell to a non-Haggen family member, although Rick and Don Haggen continued to exert their influence as co-chairmen.

Henley, like the Haggen brothers before him, professed a preference for building new stores from the ground up and pursuing a deliberate expansion strategy. Few industry observers chose to argue against the strategy. Haggen Inc. was recording impressive financial growth by concentrating in large part on the efficiency and performance of its existing stores. In 1998, revenues totaled $521 million, increasing substantially from the $433 million collected in 1997, yet the company had added only one new store in 1998.

Despite the vibrancy of the chain, Haggen Inc. was not without its share of concerns. The supermarket chains that embraced a growth via acquisition strategy were rapidly adding new stores and consolidating as the 1990s came to an end, making site selection difficult for the Bellingham-based company. The last years of the decade also saw the emergence of a new type of competitor, adding to the pressure already exerted by the larger supermarket chains. Companies such as Kirkland, Washington-based Homegrocer.com Inc., and Foster City, California-based Webvan Group Inc. represented a new breed of competitor, one that marketed groceries and a host of related items via the Internet for home delivery. Haggen Inc. found itself defending against the loss of sales to online shopping services, which eventually forced the company to develop a response to the threat of e-commerce grocers.

In late 1999, Haggen Inc. announced that it would unveil an online presence by 2000. The company’s Internet efforts were overseen by Jeff Haggen, Don Haggen’s son, who was promoted to the newly created position of vice-president of e-commerce. Jeff Haggen headed a small staff of three to five people to develop a presence for the company on the Internet, a foray that was defensive in nature. “The number one reason to offer that service to our customers is they are being confronted with other options out there,” Jeff Haggen was quoted as saying in the August 21, 2000 issue of Supermarket News. “While we don’t see a lot of market share being built in some of our smaller, micromarkets, it will prevent us from losing market share,” he added. Haggen Inc. planned to offer store-pickup service through its online shopping service, as opposed to the delivery service offered by Homegrocer.com and several large supermarket chains. Testing of the company’s online shopping service was under way in late 2000, by which time the company operated 15 Top Food & Drug units and 11 Haggen stores.

Principal Competitors

The Kroger Co.; Safeway Inc.; Albertson’s Inc.

Key Dates:

1933:: First store opens in Bellingham, Washington.
1941:: In-store bakery is opened.
1962:: A second store is opened, signaling the development of a retail chain.
1970:: Brothers Don and Rick Haggen take control of the company.
1979:: Company’s first superstore opens.
1982:: First Top Food & Drug store opens.
1996:: Nonfamily member Dale Henley is named president and chief executive officer.
1999:: Plans are announced for an online shopping service.