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W W W. E V E N T I D E F U N D S . CO M
JANUARY 8, 2015
A Basketful of Business Lessons (Part I)
“Who could have guessed that the summer’s major labor story would not be
about a CEO saving the jobs of his workers but about the workers saving the job
of their CEO?” asked E.J. Dionne, professor at Georgetown University and senior
fellow at the Brookings Institution, recently in the Washington Post.
FAITH & BUSINESS
TIM WEINHOLD
Tim Weinhold serves as Director of Eventide's Faith
& Business Initiative, and has served in a faith and
business/investing thought leadership capacity
with Eventide since its founding. Since relocating
from Boston to Seattle a few years ago, Tim has
served on the Executive Advisory Council of the
School of Business and Economics at Seattle
Pacific University, and on the Executive
Committee of the school's Center for Integrity in
Business.
The same story led Thomas A. Kochan to write in Fortune: “Business schools
better revise their curriculums to catch up . . . These employees did more to
teach everyone about how to run a business that works for owners, employees,
customers, and community than any B-school case yet written.” Kochan should
know — he is the George M. Bunker Professor at the MIT Sloan School of
Management, and Co- Director of the Institute for Work and Employment
Research.
As some of you might guess, Dionne and Kochan are referring to the employees
of Market Basket, a regional, family-owned grocery chain with stores in
Massachusetts, New Hampshire and Maine. This past summer the company’s
workers staged an uprising unlike any in the long and tortured annals of
business- labor relations.
But not only does Market Basket have much to teach academics, it proves equally
enlightening for those of us interested in ‘faith and business.’ Most importantly,
the Market Basket saga emphatically illustrates Scripture’s mega-story: two
diametrically opposed kingdoms, with antithetical operating principles, leading
to radically different outcomes. And there are a great many other biblical
principles embedded in the story as well. But before we can distill the lessons, we
need the story . . .
Market Basket is the trade name for Demoulas Super Markets, founded almost a
century ago when Greek immigrant Athanasios (Arthur) Demoulas launched a
small grocery specializing in fresh lamb in Lowell, Massachusetts. Arthur provided
good value to his customers, worked hard, and achieved modest success.
Eventually he sold the grocery to his two sons, Mike and George. Together the
sons grew the business into a modern chain of 15 stores. Then in 1971 George
died suddenly of a heart attack, leaving Mike in charge. What happened next has
proven murky . . . and intractably contentious.
In one version, Mike systematically bought George’s ownership interest at
‘pennies on the dollar’ from his brother’s wife and children and, in other nefarious
ways as well, unfairly accumulated an 84 percent ownership stake in the
company. The alternative view is that George’s heirs were eager to ‘cash out,’
wanting nothing more to do with a prosaic grocery business, and Mike simply
accommodated their desire to sell.
Regardless, what happened next was thoroughly predictable. Mike and his son,
Arthur T. (‘Artie’) Demoulas, led Market Basket to greater and greater success. By
the early 1990s, George’s side of the family, now headed by his son, Arthur S.
Demoulas, realized how much more valuable the company had become and
Eventide | Faith & Business Blog Tim Weinhold on the Lessons of Market Basket
2
“Parsley, scallions,
watercress, fennel,
radishes, dinosaur kale,
you name it, all the
herbs and greens
practically glow with
freshness. This for
incredibly fair prices,
often much less than
other big stores.”
—Adam Ried
sued to regain the ownership interests they had sold two decades earlier. A
judge ruled in their favor, giving the Arthur S. branch of the family 50.5 percent of
the company.
Since then, an almost-comic amount of wrangling has ensued between the
family’s two sides — mostly legal wrangling but, at one point, actual fisticuffs
between the two Arthurs. All of which serves as mere backstory to the still-moregripping drama that unfolded this summer. But first we need to learn about
Market Basket under Arthur T.’s remarkable leadership.
Although the judge reduced the holdings of his branch of the family to 49.5
percent, Artie remained (pretty much) in control because one member of the
Arthur S. contingent consistently voted her shares with Artie . . . mostly because
he had demonstrably inherited his father’s passion and knack for the grocery
business. In fact, Artie has grown the company to 71 stores and $4.6 billion in
revenue, making Market Basket the 127th largest privately owned company in
America.
Artie says his approach to the business follows the formula he learned from his
father. “We keep it as simple as possible for people,” he said. “We keep costs low
and quality high. We keep the stores clean and offer service with a smile. And if at
the end of the day you have some success, then you share that with the
associates.”
Arthur T.’s description hardly does justice to the company and culture he has
built. Grocery stores, for example, are notorious for their low margins and, as a
result, for prices that don’t vary much between competitors. But a recent study
by the nonprofit Center for the Study of Services found that Market Basket’s
prices averaged an extraordinary 10-22 percent lower than at competing grocery
chains — lower even than Walmart.
Yet the company isn’t achieving its low prices by scrimping on quality. In fact, its
customers rave about quality. Listen, for example, to Adam Ried, who writes the
Boston Globe Magazine’s Cooking column, and appears regularly on America’s
Test Kitchen: “I’m a Market Basket devotee for the great quality, great prices, and
great selection. The produce department is particularly outstanding. Parsley,
scallions, watercress, fennel, radishes, dinosaur kale, you name it, all the herbs and
greens practically glow with freshness. This for incredibly fair prices, often much
less than other big stores.”
Hmmm, lower prices, higher quality. What’s the catch, right? Maybe they’re
following the Walmart model — low prices for customers funded, to a
considerable degree, by poverty-level wages for employees? Nope, not even
close. Starting pay at Market Basket is $12.00 an hour, and experienced clerks
regularly make $40,000 per year or more. And that’s just wages. All workers —
baggers, part- timers, everyone — receive profit-sharing bonuses. Depending on
the year, the bonuses add the equivalent of several weeks to several months of
extra pay. Coupled with the company’s rigorous promote-from-within policy, this
means managers and supervisors often make six-figure incomes as they advance
up the corporate ladder.
The company also contributes between 15-20 percent of wages to an employee
pension plan. Arthur T. describes his commitment to the pension plan as
“unwavering.” He recently recounted with obvious pride a retirement party at
which all four departing employees left the company with large nest eggs. Two
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Eventide | Faith & Business Blog Tim Weinhold on the Lessons of Market Basket
3
Earlier this year, Artie
cut Market Basket
prices across the board
by 4 percent (costing
the company an
estimated $170
million), saying, “The
customer needs the
savings more than the
company needs the
extra profits.”
store directors had more than $1 million; a produce supervisor had $800,000; and
a truck driver was leaving with more than $700,000. Not surprising, then, that the
company also offers excellent healthcare benefits, and even pays much of the
cost of college for employees.
So customers get both lower prices and higher quality? And employees get
substantially better compensation and benefits than at competitors? OK, so who
gets the short straw? Clearly, the company must be willing to make do with
meager profits, and meager returns to (family) shareholders. Nope, not even
close. The company sports an impressive 8.07 percent EBITDA margin (2012).
“They’re a wildly profitable company for the industry,” says supermarket industry
analyst Kevin Griffin (publisher of The Griffin Report of Food Marketing). All of which
allowed the company to distribute to Demoulas family members since 2000 total
dividends of more than one billion dollars.
Many observers might, therefore, consider Artie Demoulas a modern-day
alchemist, someone who magically turns groceries into gold — for everyone . . .
for customers and employees, for their communities, and for shareholders. And
they might assume, as well, that the Arthur S. branch of the family would be
ecstatic that someone capable of building such a successful company was
running the family business. Nope, not even close.
Instead of his broad, share-the-rewards approach, the Arthur S. family members
believe Artie should all along have been running the company focused narrowly
on maximizing the wealth transferred to shareholders (family members). They
believe Artie has been needlessly, even irresponsibly, generous with both
employees and customers. As business lawyer Scott Flegle notes, the two
factions embrace distinctly different visions for how business should be
practiced: “Arthur T. believed the company’s long- term interests were best
served by rewarding loyal employees and customers. Arthur S. placed a higher
priority on maximizing the returns for ownership and getting cash into their
hands.”
Two of Artie’s actions especially angered the Arthur S. branch of the family.
During the economic downdraft of 2008, soured real estate investments caused
the company’s retirement fund to suffer a $50 million loss. Artie didn’t like the
idea that employee pensions were taking a big hit, so he had the company make
a special $50 million contribution to replenish the retirement fund. The Arthur S.
contingent cried foul. Then earlier this year, Artie cut Market Basket prices across
the board by 4 percent (costing the company an estimated $170 million), saying,
“The customer needs the savings more than the company needs the extra
profits.”
This proved to be a tipping point. The Arthur S. cousin who had previously
supported Artie switched sides — putting the Arthur S. contingent in control of
the board. One of their first actions was to push through, over Artie’s vehement
objections, a special $300 million dividend to shareholders. They also demoted
Artie and brought in outsiders to serve as co-CEO’s. Then on June 23rd the board
fired Artie and two other long-time executives. Several additional members of
management were let go shortly thereafter. The coup was complete. And then it
wasn’t . . .
Workers were both frightened and incensed, certain that the new regime was
intent on overturning the long-standing commitments to customers and
employees that had made the company so special, and so successful. Within a
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Eventide | Faith & Business Blog Tim Weinhold on the Lessons of Market Basket
4
Seventeen
Massachusetts officials
signed a letter calling
for a boycott of Market
Basket and expressing
support for employees.
few weeks they organized protests attracting thousands, and urged customers to
boycott the stores, all focused around one demand: bring back Arthur T. as CEO.
They also used the media, especially social media, to adroitly explain their
narrative of what was at stake. On their newly- created website —
wearemarketbasket.com — they posted an open letter to customers that said:
We love our company. Together we have built one of the greatest business models
in the country. A rare place where everybody wins: the associates get great benefits
and excellent wages along with the promise that with hard work you will be
promoted; the customers get the best customer service, the best values and the
best selection and the best prices; the communities we serve see the creation of
hundreds of jobs; the shareholders possess an asset which has been unstoppable
in its growth . . .
We firmly believe that the firing of Arthur T. Demoulas and his management team
is simply the start of a process which will lead to the dismantling of Market Basket
as we know it for the enrichment of a few shareholders . . . We are resolved to do
what we can to stop them and take our company back.
Virtually the entire headquarters staff stopped coming to work. Then 68 of 71
store managers signed a petition saying they would only work for Arthur T.
Warehouse and delivery employees quit working as well — leading within a few
days to shelves bare of fresh items like meat and produce. Customers stayed
away in droves, some because of the missing food items, but many others to
support the workers in their fight to restore Artie as CEO, and to bring back the
kinder, gentler version of the company he had built. Before long, daily revenues
dropped by 90 percent, and the company started hemorrhaging money — more
than $10 million every day.
Eventually important suppliers broke ties with the company, often doing so
publicly. One was Extra Virgin Foods of Watertown, who ended its relationship
with the company to support Arthur T. and the other fired managers. This despite
the fact that “they’re about 60 percent of our annual business,” according to
owner Paul Hatziiliades. “But I’m just not going to deal with those people,” he
said, referring to the new co-chief executives James Gooch and Felicia Thornton.
As more and more customers joined protests and took to social media to
demand Artie’s reinstatement, politicians jumped on board. Seventeen
Massachusetts officials signed a letter calling for a boycott of Market Basket and
expressing support for employees. Eventually dozens more signed the letter.
Attorney General and candidate for governor Martha Coakley issued a statement
calling employees’ actions “inspiring.” Other prominent politicians offered
support as well.
Slowly, reluctantly, the Arthur S. contingent bowed to their grim reality. Realizing
they were captains of a rapidly-sinking ship, they announced just before Labor
Day that Artie would be reinstated immediately as CEO, and that they would sell
their stake in the company to him as well (for a very tidy $1.5 billion). As quixotic
as the workers efforts had seemed just a few weeks earlier, suddenly, improbably,
they had prevailed, besting Market Basket’s new management and board. And
besting, in the eyes of many observers, the toxic, profits-and-shareholders-aboveall-else approach that, like invasive kudzu, seems to have taken over American
business. Consider these comments:
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Eventide | Faith & Business Blog Tim Weinhold on the Lessons of Market Basket
5
In business, the choice
between kingdoms
turns on whether to
make people or profit
paramount — and
whether, as a result, to
pursue prosperity for
many or fortunes for a
few.
The broad base of community support for these courageous employees
suggests that many could relate to the causes they fought for — a boss who
cares for and treats employees with respect, a business model they can be proud
of and use to build bonds with customers, and a fair distribution of the profits
they help generate.
Business executives should take note that American workers, indeed the American
public, are fed up with owners and shareholders who try to maximize their shortterm gains at the expense of employees and customers. Executives are now on
notice that in today’s transparent world questions of business strategies and
governance are no longer off limits to employees.
Thomas A. Kochan
George M. Bunker Professor
MIT Sloan School of Management
Market Basket’s [workers], I believe, helped reinvigorate a needed debate about
corporate stewardship and whether management’s primary financial path should
be a focus on short-term dividends to shareholders or on additional investments in
growth, employee pay and benefits to develop a stable and loyal workforce. They
also brought back the concept of corporate responsibility as a critical part of the
conversation about business success.
Lauren Stiller Rikleen
President of the Rikleen Institute for Strategic Leadership
Executive-in-Residence at Boston College’s Center for Work & Family
There’s abundant evidence that a company organized as a common enterprise
does better over the long term than a company designed to maximize shareholder
returns over the short term. Arthur T. [understood] that giving everyone a stake in
the business would generate gains for everyone, including shareholders.
Robert Reich
Professor of public policy at the University of California, Berkeley
and former U.S. Secretary of Labor
All of which illustrates the mega-story of Scripture: An unrelenting conflict
between two kingdoms plays out invisibly, yet powerfully, across all spheres of
human life. One kingdom exalts service, the other promotes unbridled selfinterest. One kingdom knows ‘Love your neighbor’ to be the pinnacle of wisdom,
the other sees it as pure foolishness. In one, selflessness fosters a virtuous cycle of
human flourishing; in the other, selfishness provokes a vicious cycle of (shortterm gain followed by) decay and dissolution.
In business, the choice between kingdoms turns on whether to make people or
profit paramount — and whether, as a result, to pursue prosperity for many or
fortunes for a few. Arthur T. chose people over profit . . . and put his company on
a rising trajectory of blessing for all concerned. Arthur S. chose profit over people
and, in short order, put the company on a fast slide toward disintegration. The
Market Basket story reminds us, therefore, just how much rides on the choice to
prioritize people or profit — and that even in a business world that selfishly
venerates the interests of owners above all others, it remains possible to choose
light rather than darkness, life rather than death.
Parts II and III examine other biblical business lessons embedded in the Market Basket story.
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Unless otherwise noted, Eventide is not an investor in companies discussed in this or other of our
‘faith and business’ columns, nor is there meant to be an endorsement, explicit or implied, of the
entirety of any company’s business model, much less of all of a company’s business practices.
Rather, aspects of the business model or practices of particular companies are discussed only to
help illustrate contemporary examples of larger ‘faith and business’ topics.
The material provided herein has been provided by Eventide Asset Management, LLC and is for
informational purposes only. Eventide Asset Management, LLC serves as investment adviser to
one or more mutual funds distributed by Northern Lights Distributors, LLC, member FINRA.
Northern Lights Distributors, LLC and Eventide Asset Management are not affiliated entities.
4461-NLD-11/17/2014
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