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San Diego
Thursday, May 30, 2024

Smart & Final Makes Big Moves Going After Haggen Locations

The dust has nearly settled on Northwestern chain Haggen Inc.’s ill-fated entry into the Southern California grocery market, and its quick departure has brought new or expanded footholds for several food retailers in San Diego County.

The court in Haggen’s bankruptcy case recently approved the sale of 32 store locations in California, including 11 in the local region, for approximately $68 million to Smart & Final LLC, the Commerce-based operator of discount warehouse-style grocery stores.

Upscale specialty grocer Gelson’s Markets of Encino acquired eight stores in California, including what will be its first three in the San Diego region, for $36 million.

Court filings indicate that Carson-based Bristol Farms, a specialty grocer with just one current San Diego location, now has one more, after purchasing the former Haggen site in Mission Hills for $1.5 million.

Asian grocer Tawa Inc. of Buena Park, which operates one local location of its 99 Ranch Market in Kearny Mesa, added locations in Chula Vista and Clairemont as part of its $3.3 million acquisition of three California Haggen sites.

Idaho-headquartered Albertsons LLC is getting back 30 stores in five states that it is buying back for $14.7 million, after selling them to Haggen earlier this year for an undisclosed price. The Albertsons banner is set to return in 2016 to four local stores, in El Cajon, La Mesa, Rancho Bernardo and Carmel Valley.

At press time, the status of four local Haggen locations had not been finalized. At least one of those sites, in San Marcos, was being sought by Carnival Supermarkets Inc., which serves the Hispanic community and has current stores in National City and Clairemont.

‘Everyone’ Participated

Reg Kobzi, a senior vice president at brokerage company CBRE Group Inc. who handles retail transactions but was not involved in the disposition of the Haggen stores, said the variety of acquiring grocers speaks to the demand within the industry for expansion locations in the local market.

Numerous retail and restaurant companies are seeking to expand in San Diego, but significant space availabilities at prime locations have remained hard to come by in the past decade, amid limited new construction.

“Everyone was able to participate,” he said of the Haggen outcome. “You had the specialty grocers, you had the discounters, and you had the traditional grocer, Albertsons, getting back some stores.”

Kobzi said the winning bidders in the Haggen case were able to get well-located spots, most of them the main anchors of their respective retail centers, at favorable terms under Haggen’s bankruptcy proceedings. The acquisitions also allowed the grocers to establish a strong local presence in a shorter time frame, and at lower cost, than it would have taken to build new stores and develop a customer following from the ground up, one store at a time.

A similar situation could arise with several local spaces recently vacated by the small-format grocer Fresh & Easy Neighborhood Market, he said, though some of those spots could eventually be filled by nonfood retailers and other types of businesses.

Smart Moves

The biggest beneficiary of Haggen’s exit locally appears to be Smart & Final, which by mid-2016 expects to more than double its current 10 San Diego area stores.

“It was a big opportunity for us to expand the Smart & Final Extra brand in San Diego and to make more people aware of the concept,” said Marisol Marks, director of communications at Smart & Final, which has 218 stores in three states and employs approximately 11,000.

Since 2007, the retailer has gradually been converting its stores to the “Extra” format, which expanded on its original nonmembership warehouse concept emphasizing packaged goods to include organic produce, oven-roasted chicken and other prepared and refrigerated foods. As of Dec. 2, it was operating 123 of its stores under the Extra format.

The non-union stores sell a wide array of discounted food and non-food products in bulk and in “club-sized” packaging, with a format — at around 26,000 square feet — about one-fifth the size of big-box warehouse competitors, such as Costco Wholesale.

Marks said all of the newly acquired local sites should be operating by the end of the second quarter of 2016, with each store employing about 50. The company will be evaluating its space needs by location, and at some sites could be seeking to sublet a portion to other tenants.

Local commercial brokers have said the Haggen sites range in size from approximately 25,000 to 45,000 square feet.

Budget-Minded Customers

Smart & Final has a history dating back to 1914, when businessmen J.S. “Jim” Smart and H.D. “Hildane”

Final purchased the Santa Ana Grocery Co., which was focused primarily on supplying feed and grain to farmers, and renamed it Smart & Final Wholesale Grocers.

The business model evolved over the years to focus on food-service and other small businesses, and more recently has broadened to target budget-minded consumers in general. Following several ownership and name changes over the past century, the company was acquired in 2012 by private investment firm Ares Management, which took Smart & Final public in 2014.

Federal regulators last year required Albertsons and Safeway Inc., parent of Vons, to divest more than 100 stores as a condition for the subsequent merger of the two supermarket chains. The companies were also required to wait at least 24 months before attempting to reacquire the divested locations.

A recent statement from Albertsons said the Federal Trade Commission granted the company’s request for an early termination of the waiting period, allowing Albertsons to participate in the auction process with respect to the 30 Haggen stores that it re-acquired. No specific timetable has been announced for the Albertsons reopenings.

“The process of re-opening these stores as Albertsons, Safeway and Vons locations will take some time for us to obtain the appropriate licenses, but we are confident that our operating playbook will help us create stores that customers will love to shop again,” said Bob Miller, chairman and CEO of the corporation now known as Albertsons Cos.


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