Market Basket's Family Feud Risks a Loss of Its Loyal Following
Loyalty is a great business strategy. Just give customers a good value, hire great employees and treat them well, and workers and happy customers will tell their friends and the business will keep growing with word-of-mouth supplementing advertising. This model is often enlisted by many a family-owned business. But a New England grocery chain that has been riven by a family feud for decades is now in the process of destroying its loyalty-based business model.
Market Basket, which is based in Tewksbury, Mass., is the focus of a very unusual public battle between two cousins, as I discussed yesterday on Boston's WGBH-TV. In this conflict, former CEO Arthur T.Demoulas, backed by many workers, is pitted against two co-CEOs, recently appointed by his cousin who just gained control of the company's board.
While the grocery store industry in Massachusetts and rest of the region has had plenty of competition at the high end and the middle-priced segment, Market Basket, under its recently deposed CEO Arthur T.Demoulas, had carved out a successful niche in the low-priced segment, providing customers with great values and workers with excellent pay and benefits.
The result was customers who came back every week to shop at its stores. Many clients had been going there for 20 or 30 years to buy their groceries at good prices and enjoy the service of a stable workforce.
But underneath this happy picture of loyalty-based success lurked a nasty family battle between two similarly named cousins: Arthur T. Demoulas and Arthur S. Demoulas.
Arthur S. was recently able to tip the company's board in his favor and he ousted his cousin, Arthur T., from the helm and appointed a pair of CEOs from outside who have no experience in the grocery industry.
What happened next surprised many community observers. Crowds of Market Basket workers went on strike at many of its stores, demanding that the company put Arthur T. back in charge. Local politicians have gotten into the act, urging consumers to boycott.
And with Market Basket stores becoming a political battlefield with empty shelves, consumers are staying away. The longer this goes on, the more likely consumers will be to start setting up shopping routines at other supermarkets.
The new CEOs fired eight of the protesting workers and issued a statement urging the strikers to return to work and explained that employees had been fired because they were disrupting the business.
Applying that same logic, Market Basket could dismiss all the employees who are outside protesting on behalf of Arthur T.
Perhaps Arthur S. wants Market Basket to stop paying workers so generously and cut back on store expansion to make more money available to pay dividends to Demoulas family members who don't work at the company.
My advice to those workers out on strike is to find jobs elsewhere before they are fired and must compete with their former colleagues for scarce jobs at rival stores.
I think there is little likelihood that the protesters will get what they want and the best resolution would be for the company to be sold and placed in the hands of people who would operate the business using the loyalty-based strategy that previously sustained its success.
Arthur S. shareholders would obtain cash that they can invest in a more lucrative investment -- the grocery store industry has very thin margins (about 2 percent) -- and Arthur T. could take his money and pour it into a new grocery store chain that he could run as he pleases.
This story offers three lessons for entrepreneurs. First, a loyalty-based strategy is extremely effective but hard to sustain and easy to destroy. Second, don't let disputes between owners fester: Resolve them and move on. Finally, don't delude workers into confusing corporate boards with a democracy.