Haft Family: Shrewd and Determined

NEW YORK —  As drugstore industry executives tell the story, Robert M. Haft once sidestepped a local right-of-way ordinance by hauling dirt from his backyard through his house and out the front door. Since the dirt wasn’t removed around or to the side of the house, the story goes, Washington-area officials couldn’t object--and Haft built his swimming pool.

The anecdote, which couldn’t be confirmed because neither Haft nor his even more private father, Herbert H. Haft, returned a Times reporter’s phone calls, describes the determined style of the father-son team.

That determination is one reason why Wall Street investment bankers and analysts tracking the Hafts’ recent purchase of 6% of Safeway Stores’ stock say the Oakland-based company will have a tough time shaking off the Landover, Md., businessmen if they are serious about running the big grocery chain.

At this juncture, however, few are sure that they are.

“They’ve been putting out the word for a year that they want to make a major acquisition. But from my view, they’re more interested in making money than in running a business,” said a New York-based drugstore analyst who has followed the Hafts for more than a decade. The analyst believes that they are simply after “greenmail” from Safeway--that is, run up the stock price by threatening a takeover and then sell out at a healthy profit.

Even one of the Hafts’ admirers, a New Yorker who owns major interests in two Haft companies, said that “it’s not clear that they ever really will buy a company.”

Like most people willing to discuss the Hafts, neither the analyst nor the shareholder would be quoted by name.

“The Hafts,” the analyst explained, “are tough and shrewd; you don’t want to antagonize them.”

Herbert Haft, 66, and his 33-year-old son Robert are the kingpins of a corporate empire spawned 31 years ago from a single drugstore in the Washington area.

In those days, Herbert was a pharmacist and his wife, Gloria, a cosmetologist.

Today, the Haft business holdings include about two-dozen shopping centers and the Crown Book discount bookstore and Trak Auto discount auto-supply chains. Crown and Trak are now owned outright after Los Angeles-based Thrifty Corp. recently sold its minority interests in those businesses.

The Dart Drug chain, which launched the Hafts’ successful discount retailing ventures and changed the face of book and pharmaceutical retailing in this country, was sold to employees of the chain in 1984. The Hafts now own all of the voting stock of Dart Group Corp., the corporate entity that they most frequently use to manage their business affairs.

It is the cash that the Hafts received from the drugstore sale--some $160 million--combined with $250 million raised recently from a debenture sale that makes takeover targets such as Safeway nervous.

“They have more cash and seem to be financially stronger and more decisive than they were when they made their runs at (giant food conglomerate) Beatrice and Jack Eckerd,” the nation’s second-largest drugstore chain, observed a New Yorker who is a major shareholder in two Haft operations.

Alleged Self-Dealing

Both earlier takeover bids failed, although each time the Hafts made a substantial profit on their investments. They were rebuffed again two months ago, this time by Revco DS Inc., the nation’s third-largest drugstore chain.

The Haft empire has been criticized in recent years for alleged self-dealing.

In a lawsuit last year, the Jack Eckerd chain accused Herbert Haft of a “long history of exploiting public companies that he controls for his own purposes, including diverting corporate funds for personal use and appointing numerous family members and close personal associates to high-paying executive positions.” That suit is no longer pending.

In fact, father and son are among the highest paid corporate executives in the country. According to documents filed with the Securities and Exchange Commission, Dart Group paid Chairman Herbert Haft $5.5 million in the year ended Jan. 31, 1985, which made him the seventh-highest paid U.S. executive that year.

Son Robert’s pay was even greater. His $5.54 million from Dart and Crown Books placed him just ahead of his father and Chrysler Chairman Lee A. Iacocca in the compensation rankings.

That year, Dart Group also made an $801,000 interest-free loan to Herbert and a $176,000 interest-free advance to Robert. It also paid a $75,000 salary to Herbert’s wife, Gloria, who heads a Haft company known as Combined Properties, which owns many of the shopping centers in which Dart, Crown and Trak Auto stores are situated.

Under the terms of a 10-year employment contract, she is guaranteed a $75,000 base salary and a yearly raise of at least 10%.

Rarely Speak to Media

In a civil suit filed earlier this week, Safeway cited the Hafts for a “pattern of extensive self-dealing” exhibited by the multimillion-dollar salaries as well as by special leasing deals with family members. The lawsuit notes that Dart and Trak Auto lease extensive properties from private partnerships in which Robert and his sister, Linda Haft, own all of the partnership interests.

To all such criticism, the Hafts almost never respond. They rarely appear at public forums or speak to the media.

“Many of us started to think maybe Herbie Haft didn’t really exist,” said one Washington analyst who heard Haft give a rare speech to alumni of George Washington University, his alma mater, a few months ago. “We thought maybe there’s just a door that says Herbie Haft.”

The elder Haft is said to have never been gregarious. Acquaintances from his days at George Washington University, from which he graduated in 1941 with a degree in pharmacy, say he was exceedingly bright and a good bridge player but painfully introspective even then.

But it wasn’t until the mid-1960s that he became what one analyst calls “compulsively secretive.”

The noticeable change followed the opening of a large warehouse that subsequently encountered major start-up problems.

“That had a severe impact on profitability, and Herbie Haft just stopped communicating,” recalled Eliot Benson, research director for Ferris & Co., a Washington brokerage. “Today, the Hafts are the Greta Garbo of the corporate world.”

For their business skills, the Hafts score mixed reviews.

“They are extremely successful at making money,” Benson observed. “But their drugstores had a very volatile earnings record, and, with Trak and Crown, the early performances were good, but later on, they have not been so good.”

Ignored Prescription Drugs

David Pinto, editor of Chain Drug Review, a trade publication in New York, contends that the Hafts, in their drive to undersell competitors, practically ignored the core of the drugstore business: prescription drugs. Instead, they concentrated on charging half the going price for vitamins, bringing discounting to drug chains and earning them the enmity of their competitors.

When a lawsuit by some of Dart’s competitors was settled in the elder Haft’s favor by the U.S. Supreme Court, Dart expanded rapidly. Today, about 80 Dart Drug stores dot the U.S. landscape, principally in the East.

Son Robert brought national fame to the family by expanding into books.

While working on his MBA at Harvard, he frequented a bookstore owned by the New York-based discount bookseller Barnes & Noble. So impressed was he with that operation that his master’s thesis was a discourse on what would become the Crown Book concept. As he now summarizes that concept in ads for Crown Books: “You’ll never have to pay full price again.”

With his father’s backing, Robert opened the first Crown Book store in 1977, just five months after his graduation from Harvard. Two years later, he took the same discounting approach to the auto-supply business, opening his first Trak Auto store.

While Trak has expanded rapidly, it continues to lose money six years after its founding. Some analysts familiar with the operation, however, say it has cut its annual losses in half and could turn the corner later this year. DART GROUP AT A GLANCE The Landover, Md.-based company sold all its drugstores to a management group in 1984, leaving it with the Trak Auto and Crown Books chains and a financial arm that deals in bankers acceptances. The Haft family owns all the voting shares; non-voting shares are traded over-the-counter. Shares outstanding: 1.87 million. 12-month price range (OTC): $86.00 -- $149.50 Thursday’s close: $148.25.