This article was first published at The McAlvany Intelligence Advisor on Monday, September 1, 2014:
The internecine warfare between Arthur T. DeMoulas and his cousin Arthur S. has finally come to an end. Arthur T. will buy out cousin Arthur S.’s 50.5 percent interest in the Market Basket grocery chain for $1.5 billion. The intra-family squabbles had been going on for decades, but hit a low point in June when Arthur S. fired Arthur T. – referred to fondly by his employees as “Artie T” – in June, and replaced him with two joint CEOs. This so outraged upper management and store managers that they went on strike and invited the stores’ customers to join them. Up until that moment in time, the chain had been enjoying sales of more than $4 billion annually from 71 stores throughout three Northeastern states: Massachusetts, New Hampshire, and Maine, as well as a Consumer Reports rating of Number Six among all national supermarkets in their 2014 report.
But when that boycott by both workers and customers took hold, it essentially shut down all 71 of those stores. The chain was reported to be losing an estimated $10 million a day. One of the remarkable things that made this incident nearly unique was that the store managers not only went on strike, but picketed in front of their own stores, urging their own customers to join in the boycott by shopping elsewhere.
The newly-minted co-CEOs issued a coldly worded announcement in early August that anyone staying out beyond Friday of that week would be terminated. Here are the operative words from that announcement:
You must return to [your job] ready to fulfill your duties no later than Friday, August 15, 2014.
Should you choose to ignore … these directives, the company will consider you to have abandoned your job, thereby ending your employment with the company.
The boycott began to catch national attention as workers demanded that their beloved Artie T be restored to his position as the chain’s CEO. Arthur S. dug in his heels and, for a couple of weeks there, it appeared that he was going to trash the entire chain rather than settle with his cousin. When Artie was able to come up with an extra $550 million from an outside private investor to sweeten his offer, the deal was sealed. Arthur S. is now history, the co-CEOs will stay on the job only until the agreement is signed in a month or so, and Artie now faces the daunting task of reviving, restoring, and strengthening the Market Basket chain. The announcement of the settlement reflected Artie T’s management style, in contrast to the “drop dead” directive issued by the two previous CEOs:
Effective immediately, Arthur T. Demoulas is returning to Market Basket with day-to-day operational authority of the company…. The current co-CEOs will remain in place pending the closing, which is expected to occur in the next several months.
All associates are welcomed back to work with the former management team to restore the company back to normal operations.
He will have a lot of help in performing that resuscitation. The loyalty of his 25,000 employees is deep and abiding. For years, Artie T, as the chain’s CEO, took a direct and personal interest in the welfare of his employees. He paid them well, he gave them annual bonuses often equal to two or three months’ salary, and he installed a retirement plan to which the company contributed 15% of their salaries every year. More than that, he had the remarkable knack of being able to remember the names and family situations of many of his employees, endearing himself to them. When cousin Arthur S. booted Artie T in June, the employees feared that the deal they had with Artie would disappear in favor of larger dividends to Arthur S. and his side of the family. The harsh language in the termination announcement in early August provides some evidence to back up that fear.
The employees were delighted with the settlement. Ann Rogers, a protesting employee who worked in the company’s accounts payable department, said: “It’s just fantastic. I’ve been working with this company for 28 years, and this has been hanging over the company’s head the whole time. This fight was absolutely worth it.” Claire Murphy, a cashier at a Market Basket store in Billerica, said that although she doesn’t want to go through this experience again, nevertheless, “It was an amazing experience. We are all so much closer now.” Even Steve Paulenka, a Market Basket manager who had been fired, dressed for work on Thursday morning anyway, noting wryly that “I think I’m employed. I’m not really sure.”
The benefit to Artie T is that now he will regain complete management control of the chain. In addition, he will not have to put up with or engage in shouting matches at the company board meetings with his cousin. For cousin Arthur S, he and his side of the family will pocket a cool $1.5 billion to go away. The vendors are happy as well, providing the goods to restock the 71 stores with more than 12,000 cases of steaks and other beef products, 100 tractor-trailer loads of produce, 15,000 boxes of fresh fish fillets and seafood, 187 tons of chicken, 60,000 cases of hot dogs and deli meats, and 3,750 tons of dairy products.
One of the vendors, Tony Piedimonte, owner of a 2,800-acre vegetable farm in upstate New York who has supplied Market Basket for more than 40 years, couldn’t wait for the final word to come out on Wednesday night and instead started preparing truckloads of green beans, cucumbers, peppers, cabbage, sweet corn, and other produce to get on the road to the stores early Thursday morning. He said: “One way or another I will get it to them. If I can’t get it all in one day, I’ll have a good portion of the stores started. I’ll do everything within my power.”
The governors of Massachusetts and New Hampshire are also delighted with the settlement. In a joint statement they said: “Market Basket is a major employer in Massachusetts and New Hampshire and an important local resource for the communities the company serves. We are delighted that the parties reached an agreement … so that employees can return to work and customers will once again be able to rely on the stores to meet their needs.” Missing from that statement was any mention of the restoration of tax revenues that will begin once again to pour into their states’ coffers as a result of the settlement.
The unions representing grocery workers were somewhat less enthusiastic. In an attempt to minimize and preempt any potential damage to unions’ reputations as a result of this settlement (Market Basket is nonunion), they claimed that the boycott which resulted in the restoration of Artie T as CEO was unique and therefore had no lesson for observers. Peter Derouen, a spokesman for the United Food and Commercial Workers Local 791 – a union that represents workers at Shaw’s Market, one of Market Basket’s competitors – tried to minimize the importance of the settlement and the success of Market Basket’s workers having their way with upper management: “There was no division about what they wanted. This was a one issue fight.”
That’s not exactly correct. The real issue that most observers missed is that the settlement served to expose the myth that labor and management are forever at odds, thus justifying the need for unions to balance the power of employees against management. Artie T’s philosophy, on the other hand, properly recognizes that both labor and management work in tandem for a third-party: the customers who part voluntarily with their money in exchange for goods and services that Market Basket provides in a free market.
Derouen knows full well that unions nationally are continuing to lose ground. According to the latest report from the US Bureau of Labor Statistics, only 6.7% of the private sector is unionized, and only 4.6% of those involved in retail trade, like Market Basket, are unionized. In fact, his own union called a strike at Shaw’s market back in 2010, sending warehousemen there out on strike over the issue of wages and benefits. After four months, the union caved and accepted the company offer that was almost identical to the one they rejected four months earlier. Nationally the number of strikes initiated by unions has plummeted from 317 in 1973 to just 15 last year, according to the US Department of Labor.
With the intra-family squabbles behind him, Artie T is now free to do what he does best: encourage and support his 25,000 employees in the task that they both are committed to: providing the best service and products they can to customers who willingly and voluntarily enter their stores to do business with them. In that, they are united.