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Tue July 22, 2014
How The Market Basket Debacle Has Affected The Brand
The shelves are bare at many of the 71 Market Basket locations from Massachusetts to Maine as the public battle over the future of the supermarket chain shows no sign of slowing.
Defiant workers gathered outside the company’s distribution center in Tewksbury today, demanding the reinstatement of ousted CEO Arthur T. Demoulas and demonstrating their contempt for anyone who hasn’t taken up the cause.
Peter Cohan is a management consultant and venture capitalist.
Ian Cross is a senior lecturer at Bentley University who specializes in marketing and branding.
Adam Reilly: My take is that Market Basket’s employees are winning this battle in the court of public opinion. Peter, you have a little bit of a different take.
Peter Cohan: Well, they may feel like they’re winning, but this is not a democracy. The decisions are made by the board of directors. The board of directors has been tilted to favor Arthur S. and Arthur S.’s side of the family, who wants to milk the business for dividends. Arthur T. was beloved by the employees and by the customers because he had a very effective strategy of basically having low prices, treating workers well and creating long-term customer loyalty, which is a great strategy for building a business and keeping it going for a long period of time. But Arthur S. wants to use the business as a piggybank, basically. And, in my view, if they run it the way Arthur S. wants to run it, what’s going to happen is that the employees are not going to be happy, they’re going to stop treating the customers as well, and the business may keep going on for a long time, but it will not be a successful business that can grow. And therefore, since there seems to be this dispute going on, perhaps from an investment standpoint, they’d be better off just selling the business. Maybe Arthur T. can take the money and start a new grocery store, since he seems to like to run that business, and then Arthur S.’s family can take that money and invest it somewhere else. Because it’s not a very profitable business, they’d probably get higher dividends and higher investment returns investing that money somewhere else.
Reilly: Ian Cross, do you agree with that take or do you agree with that angle?
Cross: Well I think that, as Peter said, in this hyper-competitive supermarket business, that with customers not going to the store, with the public value of the company declining, customers are going to lose confidence in the store, so profits and revenues are going to go down, which makes it a less attractive option. And if you look at the supermarket business in general, what Demoulas has very cleverly done is created a market for themselves with very low prices in a much friendlier environment than, say, a Walmart. So you’ve got customers that have been going to Demoulas’ for generations, and you can tell from my voice I’ve been in Boston for 20 years but we were always told when we moved to our town, go to Market Basket for the best prices.
Reilly: That was the advice that you got?
Cross: That was the advice that we got, that’s the best place to go for the best prices. So now when we shop, and this is true for many people in the state, if you want everyday low prices, to borrow Walmart’s phrase, you pretty much go to Market Basket for groceries. If you want specialty items, then you’ll go to Whole Foods. So the middle ground is being fought by the Stop and Shops and the Shaw's. Demoulas', you know, has really taken the bottom. They’ve really taken the everyday value side of the market. You know, the most effective strategy in marketing is word of mouth, and everybody in the street, all your coworkers, will be telling you there’s no point going to Demoulas’ right now. Despite what you might think, despite your opinions on whether the workers are right or the management’s right, there’s no point going to Demoulas’ right now because it’s a pain to be there, it’s an uncomfortable environment, and there’s no product on the shelves, so why go?
Reilly: But if that leads to, hypothetically, the reinstatement of Arthur T. Demoulas, then the workers who have protested will presumably go back to work. Do you think there’s any possibility that Demoulas will be reinstated?
Cohan: I don’t think so.
Reilly: Why not?
Cohan: Because the two have been fighting for decades over this business, and finally Arthur S. has had a victory. He’s gotten some board members on there who are a little bit more on his side, and I think that he’s not going to give up that victory because some of the workers, or a lot of the workers, are on the street. In fact, it’s very surprising to me — it’s almost like Tahrir Square. They think that by going out and protesting, they’re going to foment a change in leadership, but in business it generally doesn’t work that way.
Cross: I’d just like to jump in there. We’re talking about a Greek family so you can’t resist an analogy to the Trojan war here, and it seems that this could be a Pyrrhic victory for Arthur S. Yes, he has got his management team in place, but with the value of the company being driven down and fewer customers, what’s he going to be left with?
Reilly: Peter, you said that in business you don’t often have popular demonstrations leading to changes at the highest levels of management structure, but this is really a remarkably anomalous situation. I cannot think of another example within my lifetime where you had workers at all levels of a company this fiercely attached to an individual in the corporate leadership structure. Can you think of anything that’s analogous?
Cohan: I can’t think of anything analogous myself, but what is striking to me is that the people who are working in these jobs are not the highest skilled labor. It’s not like you have people with Ph.D.s from MIT, so in theory what management could do is they could replace all these people who are on strike with other people who will be happy to accept the job because we have, you know, not the lowest unemployment situation in the world, and basically those people would kind of go away.
Reilly: So Ian Cross, if management took that tack, how do you think customers and the public as a whole would respond?
Cross: Well I think that Demoulas' Market Basket has clearly lost the war. They’re losing the marketing communications war completely. They don’t have a coherent, credible message, and many of the people that work in Market Basket are somebody’s neighbors. And even if you’re not their neighbor, you still appreciate the value — you’re used to seeing the same people in the store serving you, you know, year after year, so I don’t think it is a credible strategy to simply fire all the workers.