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August 20, 2015

Jack Covert Selects: We Are Market Basket: The Story of the Unlikely Grassroots Movement That Saved a Beloved Business

By: Dylan Schleicher @ 12:03 PM – Filed under: Leadership & Strategy, Management & Workplace Culture

We are market basket

We Are Market Basket: The Story of the Unlikely Grassroots Movement That Saved a Beloved Business by Daniel Korschun & Grant Welker, Amacom, 256 pages, $24.95, Hardcover, August 2015, ISBN 9780814436653

When you hear about people taking to the streets over something a company has done, it is usually over some way they want that company to change their operations, to stop polluting, or raise wages, or remove a villainous executive from power, or to source their products locally. The story told in We Are Market Basket, a title taken from the chants protesters sang to the tune of Twisted Sister’s “We’re Not Gonna Take It,” is one in which people took to the streets to preserve a company—and remarkably, the company’s management.

Specifically, they wanted the return of their beloved boss and CEO, Arthur T. Demoulas, who had been ousted by his cousin Arthur S. Demoulas. Arthur T., a forty year veteran at the company that had just led six years of double-digit growth at the helm of the company, was the one man standing in the way of his cousin, who along with majority of the company’s shareholders and five of seven members of its board of directors wanted to leverage the company to pay “shareholders an immediate and continuous dividend of all excess cash, starting with $300 million in the fall of 2013.” These majority shareholders also seemed sure to quickly sell their shares to Belgain holding company Delhaize Group, which owned Market Basket’s local competitor Hannaford.

This alliance replaced Arthur T.—called Artie T. or A.T.D.—by his loyal, long-time employees and managers, with two new CEOs, one of whom had previously been CEO of RadioShack and had been with Sears and Kmart before that, all once beloved and iconic American retailers that are now on life-support. These new CEOs quickly purged Arthur’s most faithful managers, a move which backfired on them.

These managers, along with other employees, customers, suppliers, and eventually even politicians took a stance against those that would see the end of Market Basket as they knew and loved it, and to reinstate the man that had helped create and expand it.

 

They were fighting for the man who they believed had always fought for them and whose management style had fostered a unique company culture: He championed profit sharing; bonus checks that often paid four figures or more each year; paid days off if a worker needed to tend to a sick loved one; scholarships to help pay for employees to attend college; low prices, high quality, and exceptional service for customers; and flexibility and reliability to suppliers. His supporters wanted more than to save this man’s job, however. They saw this as a struggle to save a culture and business model that was important for New England. Market Basket was more than a grocery store for these people. It represented an ideal. A “way of life” that should not—could not—be tampered with.

An ideal and way of life that those who had ousted Arthur T. Demoulas were very much tampering with. Beside those that were fired (a list of those fired was referred to as “the butcher’s bill”), many others walked out in solidarity. And these were nonunion employees, so there was no professional organization behind it. It was a grassroots campaign that quickly spread to everyone touched by the store. But it was led by former management, most visibly Steve Paulenka, who in one of the most striking early scenes of the book does a roll call of the senior managers that were fired, and their tenure, in front of a group of protesters.

 

“Joe Gordon, forty years,

“Tom Gordon, forty-one years,

“Jim Miamis—if you count the seven years part time, seventy-six years,” he said, pausing for applause, “and one of the finest gentleman I’ve ever met."

The list named eighteen senior managers with a combined tenure of more than seven hundred years with the chain.


Then Paulenka turned to the co-CEOs who replaced Arthur T. : “Jim Gooch, three weeks. Felicia Thornton, three weeks.” Paulenka paused, allowing the boos to echo among the protestors. “I think that’s a bad deal.”

Now, if the chain had been failing and the employees demoralized or disengaged, that might not have been such a bad deal—it would have been saving a company, a potential “turnaround.” But, as I mentioned above, the chain had just achieved six years of double-digit growth and had one of the most engaged workforces in the region, as was evident in the fact that many of them were standing in front of Paulenka protesting what was happening to their beloved company.

And I’ve basically just taken you through the Prologue so far.

The story quickly backtracks in Part One of the book to the company’s origins in 1917 Lowell, Massachusetts. Anthanasios (who would come to be known as Arthur later on) Demoulas arrived in Lowell in the time of the famous Bread and Roses strike, which the authors will tell you more about, which not only helps frame the story, but which played a great role in development of a company culture that respects its workers, suppliers, and members of the community above all else. In the early days of the store:

 

It was frequented by mostly poor and working-class members of the Greek community on their way to the mills. [Arthur] also delivered groceries free of charge. In those days, it was common for customers to buy on credit. Especially in immigrant cities, customers would run a tab during the week and then pay the balance on payday. A great number of Demoulas’s customers paid this way, making him part grocer, part banker, all the while keeping him closely tied to the fortunes of Lowell’s working poor.

It is a tie to the community that the family has kept to this day, even as that community has expanded to include all of New England. The story of the company is a family story, and the culture is wrapped up in that original ethos. You’ll read stories of the original Arthur extending credit and giving a free piece of bread with ham to customers during The Great Depression, an act of charity that brought their business to the brink of insolvency eight decades before the more recent crisis. But that legacy of serving working families is a big reason prices at Market Basket are still cheaper than all their competitors (the authors share research that bears this out, and the difference is substantial) and have remained so even as their store evolved and expanded during “The Supermarket Revolution” of the 1940s and ’50s and competes with “superstores” today.

Part of the way they continue to keep them low is by not spending money on the branding their competitors drop millions on every year. Their image relies on more tangible, tactile elements. Besides keeping prices low, not spending their money on branding also allows them to make sure their in-store service leaves nothing to be desired. They stock shelves mostly during store hours, which assures an employee is in almost every aisle ready to assist customers trying to find a specific product. And:

 

When it’s time to check out, you notice that nearly every register is open. You do not see any of the automated self-checkout machines that are in fashion at other chains. As Chief Executive Officer Arthur T. Demoulas likes to say, it’s simply “a person serving another person.”

And because they maintain more employees than their competitors, their stores are also cleaner, the produce fresher, the shelves better stocked. And throughout the book, you’ll read stories from current and former employees about how close the family became with their employees, even as the chain expanded.

George and Telemachus Demoulas bought the store from the original Arthur in 1952 for $15 thousand, and they went about expanding their chain. Instead of expanding as widely and quickly as possible, though, they concentrated on higher density in low-income areas others ignored, once again tying themselves more closely to the working-class. This paid off in the tech boom of the 1990s, as Market Basket “suddenly found itself a dominant player in some fast-growing districts.”

Burt Flickinger, managing director at Strategic Resource Group, a leading consumer industry business consulting firm, says their biggest success factor is not luck, but their most basic philosophical cornerstone: “their commitment to fully staffed and fully stocked stores.” As the authors tell it:

 

Competitors continue to rely on quick-fix solutions to reduce costs. This usually means cutting staff and reducing the hours of those who remain. Then they cut the inventory levels. It’s a double whammy on store productivity because the workforce can become demoralized, and customers become frustrated when they can’t get help or find the products they need. Supercenter stores might only have four to eight checkout lanes open, even during peak hours. To add insult to injury, chains like Walmart have discontinued profit-sharing plans, which further distances employees from company goals.

Of course, there were obviously mistakes along the way, which culminated in the family feud and power struggle that prompted the movement the book is about. And it isn’t even the first public family feud in the company’s history: members of the family had a bitter court battle over how the company’s liquor license was handled in the 1990s, which affected how the company and its equity were split among members of the family, that turned into a media circus.

And that just gets us through Part One of the book. Part Two describes Market Basket’s “People First, Groceries Second” company culture. And this is where lessons for most businesses come into sharper focus. It will show you how Market Basket has become so ingrained in its community’s and employees' lives, and how “Blood Makes You Related, but Loyalty Makes You Family.” You’ll learn about their distributed leadership and communication practices, how they empower their front-line employees to meet the needs and concerns of customers. You’ll learn how they’ve bucked all industry trends, remained “an old-school, big, high-volume supermarket” while resisting the superstore model, and thrived because of it. You’ll see how they’ve strayed from the prevailing trends and wisdom time and time again, stuck to their founding philosophy, and carved out “a sweet spot in the competitive landscape” as a result. It is this differentiation that keeps them successful, a differentiation that was almost lost.

And so Part Three of the book returns to the story of the protests, which were a combination of strike, labor dispute, and boycott, and yet none of those. It is what the authors refer to as an act of “corporate disobedience” akin to “civil disobedience” against a government, but in this case to “save a beloved company.” And it all came down to two men with a shared name and a family business, with two very different visions of who that business existed to serve.

Arthur T. believes the company is there to serve customers, employees, and suppliers first. Arthur S. believed the company’s first responsibility was to its shareholders, and therefore to maximize short-term profits for them. This was largely the result of Arthur T. learning the business from inside, working in the company for forty years and rising through its ranks, while Arthur S. was more detached from the business and went to Babson College to get a business degree and develop skills in finance.

Being such a business that always relied on “a person serving another person,” and the people who made the connections with employees, customers, and vendors, when those that had those relationships walked off the job, the relationships vanished. And so, in the end, Arthur T. and the people on the ground won. A deal was brokered with the help of two state governors that restored majority control of the company to its Class B shareholders, and returned Arthur T. and his management team to work after “a year long protest and six weeks of complete shutdown.”

Part Four of the book addresses some of the challenges ahead, as well as what lessons this movement holds out for others—in business, in politics, and society—and there are many.

Arthur S. wanted to take over the company, and his shareholder theory is the dominant view in American capitalism today, but Arthur T.’s “People First,” mom-and-pop philosophy is slowly regaining its place in the debate, and We Are Market Basket is a great history of one of its early victories in this ongoing war of ideas.

 


About Dylan Schleicher


Dylan Schleicher has been a part of the 800-CEO-READ claque since 2003. Even though he's stayed on at the company, he has not stayed put. After beginning in shipping & receiving, he joined customer service and accounting before moving into his current, highly elliptical orbit of duties overseeing the ChangeThis and In the Books websites, the company's annual review of books and in-house design. He lives with his wife and two children in the Washington Heights neighborhood on Milwaukee's West Side.