Haggen’s bankruptcy could be a blow to local businesses

Barbie Kraght, owner of Barbie’s Berries, fills up flats of fresh raspberries at a field south of Lynden on June 13, 2008. The Whatcom County berry farm is one of several local businesses owed money by Haggen.
Barbie Kraght, owner of Barbie’s Berries, fills up flats of fresh raspberries at a field south of Lynden on June 13, 2008. The Whatcom County berry farm is one of several local businesses owed money by Haggen. The Bellingham Herald

As Haggen continues the arduous process of reorganizing through Chapter 11 bankruptcy, it’s not just customers and employees who are being impacted but many businesses, including small local companies.

According to the court documents filed by the Bellingham-based grocer in a U.S. bankruptcy court in Delaware on Monday, Oct. 12 , more than 75 Whatcom County businesses, organizations or individuals are owed money as unsecured creditors.

Most of the businesses on the list provide products that makes Haggen known for its quality local offerings, including Avenue Bread, BelleWood Acres, Bellingham Pasta Co., Boxx Berry Farm, Joe’s Garden and Bellingham Bay Coffee. Plenty of well-established service companies are also owed money from Haggen, including Ludtke Trucking, Management Services NW, PogoZone and Marv’s Plumbing.

For most of the local businesses, the amount owed is less than $20,000, with many owed less than $1,000. A few businesses are owed a significant amount, including Walton Beverage ($139,758.40) and Tony’s Coffee ($82,617.63). Altogether the total is nearly $800,000 for local businesses, organizations and individuals. Given the size of this overall bankruptcy filing, the amount owed locally is small compared to the amount owed to national supply companies, such as Pepsi, Budweiser and Bimbo Bakeries. It’s estimated the amount owed to all its suppliers and partners is more than $50 million.

So what are the chances of local businesses getting money back from Haggen? The odds are not good, but local companies will have a few things working in their favor, even as unsecured creditors, said Tom Lester, a Bellingham bankruptcy attorney.

“The good news for local vendors is Haggen wants to maintain those strong relationships,” said Lester, who is not involved in this case. In its bankruptcy filing last month, Haggen said it wanted to save its core stores — indicating to Lester that if Haggen does survive, it will want to continue working with the companies that made it a successful regional grocer.

“I think they will do everything they can do,” Lester said

One other factor working in the unsecured creditors’ favor is the swiftness of the bankruptcy filing, Lester said. It may have been a head-scratcher to customers that Haggen would file for bankruptcy just months after buying 146 stores, but the quick filing means that Haggen has assets to sell to help repay the debt.

Several studies indicate the chances of a U.S. company successfully reorganizing through Chapter 11 bankruptcy is between 10 and 27 percent, according to a 2014 Notre Dame law review document. In most cases, Chapter 11 bankruptcy filings are either dismissed by the judge or converted into a Chapter 7 personal bankruptcy, making it much more unlikely creditors would be paid back.

Companies caught up in Haggen’s bankruptcy will have to keep track of plenty of paperwork in terms of notices, not just about what is owed but what they are continuing to supply the grocer.

“It is important for business owners to read all of the notices,” Lester said. “It’s a pain, but it is definitely worth it.”

John DeFreest, co-owner of Avenue Bread, said Haggen seems to be making an effort to take care of local companies. Avenue Bread’s sales have actually increased at Haggen stores in the weeks following the bankruptcy and the baker seems to be getting more prominent space inside the stores, DeFreest said. According to court documents, Avenue Bread is owed around $9,400.

“It’s a shame it happened, but I think they will get back on track,” DeFreest said.

$50 million Estimated amount Haggen owes its suppliers and partners

The bankruptcy filing came at a time when another supplier, Whatcom County’s Barbie’s Berries, had increased its involvement with Haggen, supplying strawberries, blueberries and raspberries for the grocer’s local produce departments. Barbie’s is owed about $11,800.

With the berry season complete, this is a wait-and-see period for the small farm. While disappointed that the Haggen bankruptcy is impacting the farm, Barbie’s co-owner Randy Kraght is supportive of the company.

“They’ve been great to work with and are a big part of the community,” Kraght said. “I’m hoping for the best.”

Haggen is very much in the paperwork phase of the reorganization plan. A recent court document shows a request for Haggen to pay five lawyers and four paralegals more than $171,000 in compensation just for the month of September. That’s for a variety of services, including research and putting together the court documents.

$800,000 Estimated amount Haggen owes Whatcom County businesses and individuals

The grocer said it has put together a vendor relations team that is focused on providing direct communication with suppliers.

“Our vendor relations team has completed over 6,000 communications with our suppliers to provide the information necessary for them to continue to supply to our stores,” the company said in a written statement. “We are overwhelmed and extremely appreciative of the continued support by the vast majority of suppliers to date, and we thank them greatly on behalf of our company and loyal guests.”

In the next few weeks, creditors will get an indication of how much money they could possibly see. The court has approved plans to allow Haggen to auction off the bulk of its stores, particularly those in California, Arizona and Nevada. Potential buyers have until Monday, Oct. 26 to let Haggen know they are interested, with the bid deadline of Monday, Nov. 2. A week later, on Nov. 9, those stores will be auctioned off. As the dust settles, Haggen is expected to be left with 31 to 37 stores, including 16 core stores it had before the purchase of the Albertsons and Safeway stores announced last December.

Haggen already has a buyer for some of its stores. Earlier this month, Haggen announced it was selling one Nevada and 27 Southern California stores to Smart & Final LLC and eight Southern California stores to Gelson’s Markets for about $92 million.

Reach Dave Gallagher at 360-715-2269 or Follow him on Twitter at @BhamHeraldBiz and on Facebook at BellinghamHeraldBusiness.