To Demoulas Supermarkets Inc.’s directors: Smarten up

On July 31, 2014, in Latest News, by The Somerville Times

shelton_webBy William C. Shelton

(The opinions and views expressed in the commentaries of The Somerville Times belong solely to the authors of those commentaries and do not reflect the views or opinions of The Somerville Times, its staff or publishers)

Since your actions demonstrate that greed is your primary motivator, let’s realistically assess your chances of fulfilling those dreams of avarice. Considering the breathtaking rate at which you are destroying shareholder value, chances are slim.

Under the wise leadership of Arthur T. Demoulas, your chain grew to 71 stores. Last year’s profits were $217 million on sales of $4 billion.* Revenue growth was 6%. That’s enviable in a mature and hypercompetitive industry with notoriously thin profit margins.

Over ten years, that financial performance earned the nine of you a half-billion in dividends. But for your family’s greedier half, that wasn’t enough. They wanted to suck out another $1.5 billion, and last year they succeeded in extracting $250 million that could have been invested in growing the business.

With few exceptions, there are essentially only two strategies whereby a competitor in a mature industry can achieve exceptional profitability. Market Basket owns New England’s cost-leadership space, while Whole Foods dominates its differentiation space.

Now you want to abandon Arthur T’s conservative financial management in favor of extracting more cash. But if you sell off your extensive real estate inventory, you will initiate a cascade of consequences.

You will burden your cash flow to make rent payments to the properties’ new owners. You will be obligated to raise prices, which will lower your sales volume. Declining sales volume will reduce your bargaining power with vendors, increasing the prices that you pay for the goods that you sell, advertising that you buy, and supplies that you need.

A truly effective strategy, whether cost-leadership or differentiation, requires alignment of all a business’s elements—from market positioning, to operations management, to company culture. As you implement your new business model (assuming that you have one), these elements will become misaligned. You will be stuck in the middle with Stop-and-Shop, Shaws, and Hannaford, struggling to achieve ordinary profitability.

And that’s if everything in your new plan goes well. But it can’t, because you are destroying brand equity.

The essence of a brand is trust. Not trust in a company’s leadership. You have already eroded that. Rather, trust that the customers know exactly what they will be getting. Think McDonald’s or CocaCola. The changes that you contemplate will confuse the market regarding what constitutes Market Basket’s brand.

In fact, your foolish actions are already destroying value at a deeper, less abstract, and more human level. They are betraying the loyalty of workers, customers, and vendors alike.

These are groups whose relationships have ripened over generations. I feel personally connected to all the deli workers at the Somerville Market Basket, and I look forward to my conversations with them. Your actions make manifest where our true loyalties lie, and they aren’t with you.

Can you offer any other example where

  • Employees at every level took action to support their company’s fired CEO?
  • A non-unionized workforce effectively organized and mobilized itself in just a few days?
  • A company’s customer base, with little prompting, imposed a crippling boycott, buying from competitors and pasting competitors’ receipts to the boycotted store’s windows?
  • Elected officials across the political spectrum spoke out against a company’s management and in favor of its workers?

So even if you were able to beat your employees into submission, what would you have? A workforce that gleefully practices what organizational behaviorists call “malicious compliance,” and hundreds of thousands of customers who conduct the most effective form of advertising—word of mouth—against you.

If you and your CEOs’ management of current events is any indication, you understand little about how the company works and could not effectively manage whatever plan you devise.

Rather than showing the public a human face and making your case, Arthur S, Felicia Thornton and Jim Gooch have lurked in the shadows. They have abjectly lost the market communications war. They have no coherent or credible message.

They tell us that they “saw no alternative” to taking the “difficult step” of firing eight senior employees. No alternative to firing people simply for speaking their minds at a rally? This transparent rationalization proclaims that you have no mind, or no heart, or both.

There are, however, a few good things that you have accomplished. You’ve given courage to workers and consumers across New England to act against greed-inspired, short-term, bottom-line management. You’ve shown them that what they have in common is more important than their differences.

And you have given pause to financial industry analysts who exhort corporate leadership to milk their companies. Those analysts may be too myopic to compare Costco’s and Walmart’s price-earnings ratios, but they can’t ignore the populist reaction that you have inspired.

Now we learn that Arthur T has made an offer to buy a 50.5% interest. We don’t know what that offer is. But he has a universal reputation for fairness and honesty, and he understands the company’s value much better than you ever will.

So your wisest response would be to accept the offer and put the proceeds into the kind of exploitative investments that you favor. Otherwise, there is only one direction that your shareholder value is going: down.

* Note to ST readers: Profit rates cannot be determined from sales and profit figures alone, particularly in the supermarket industry where mark ups are only a few percent, but average inventory turns can be as many as thirty per year.

 

8 Responses to “To Demoulas Supermarkets Inc.’s directors: Smarten up”

  1. Johnnie Jazz says:

    Bill has proven once again – thru Arthur T and his PR minions – the old Barnum & Bailey adage about sucker being born every minute. One last time: Arthur T’s history is one of dirty tricks and losing in court, so he now is trying to pull a real dirty one and destroy the company so he can grab it back for pennies on the dollar. This isn’t rocket science here, folks.

    Every thing the board has done is legal. Arthur T lost control of the company and was told to hit the bricks. Being the hack that he is he decided that he was not going to chance losing again in court, so he went straight to his bag of dirty tricks. In this case, using the media to convince people of what a saint he is (he isn’t – trust me). The board is doing the right thing by giving the workers until Monday to report to work; if they don’t then there are plenty of people who will take those jobs.

    The message is to the workers: GET BACK TO WORK if you want to keep your jobs.

  2. A. Moore says:

    I hear there is supposed to be something on tonight on msnbc at 8pm on this. Not sure if it will be new news or old. Too bad to see this go this way for all the hard working people involved.

  3. Bethany says:

    It is NOT the workers who are not working. It IS the CUSTOMERS not shopping.
    #youcantfirecustomerswequit

  4. Dawn says:

    I am a customer of Market Basket. I worked there 20 years ago for about 10 years through high school and college. Very happy and proud of it at this point too. Personally, I do not care about the DeMoulas family drama, every family has that…theirs has just had a publicity due to their privilege of being born into that family. Their fighting over millions is a little hard to grasp from a regular Joe’s perspective anyway. Johnnie Jazz you are absolutely right to give Arthur T credit for this debacle, but not in the way you think. He has been the face the employees have seen benefitting them and supporting them, he has been the face so many customers have incredible generous stories about..while frankly all we as customers have seen is the “A” shareholders continue to profit while sitting on their laurels and then whine they weren’t getting enough money. How much money is enough? I stand on the boycott side not because of Arthur T., I stand because however he ran things made me a loyal customer, I stand because I love Market Basket for how it was run by him, not by what the BOD and co-CEOs hope to make it tomorrow..I’m pretty certain that’s why other customers and his employees are doing so too – not because of his “dirty tricks” as you put it. I’m not one of his PR minions, I have nothing to gain or lose by posting..I can tell you though, the BOD and co CEOs should certainly fire their PR folks because every time they flex their muscle and speak for “customers” they should realize a good portion are not theirs anymore to speak for. I choose where I shop and others do too, we have spoken by not giving any of hard earned money to them to send our message. Hire more people, go ahead…you and the BOD..keep blaming Arthur T, you are absolutely correct – how dare he run a successful business with happy employees and customers? I guess in your perspectives nobody should be happy in a business except for the shareholders. How is that working for your wallets now?

  5. PixiePocahontas says:

    Dawn,

    Jazz does not live in the real world, hasn’t got a clue of the economic suffering forced upon millions around the state and country by egocentric greed– truly that’s all it is along with the pathological minded. This is beyond resemblance of healthy capitalism when the rich once created jobs so people could live their lives without fear of being thrust into poverty based on syndicated collusion with few or more parties who benefit, leaving everyone else in the dust.

    I’ve been following articles from other media venues and the comments in the Lowell Sun ring true. I came across a letter from the wife of a longtime employees, worth reading. An excerpt of her letter:

    “I am extremely concerned that the Board of Directors is considering removing Arthur T. Demoulas as CEO of Market Basket for many reasons. I have met Mr. Demoulas on many occasions and have always found him to be a man of great integrity, honesty, and a man dedicated to each and every employee in the company…….None of these chains compare to Market Basket for pricing and customer service, and I firmly believe that is because of Arthur Demoulas’ vision, his commitment to the company and its employees, and the employees’ commitment to the company. If Mr. Demoulas is removed as CEO, that commitment, on both sides, will be gone. Nobody wants or needs another Walmart, trust me.

    I don’t believe there is any other company in the world (certainly not in any I’ve worked for) where the CEO knows ALL the full-time employees. I don’t know of another company in the world where the CEO reaches out to employees that have cancer or Cystic Fibrosis or any other medical condition he is made aware of. I don’t know of any other CEO in the world
    that makes a point to attend the wakes and funerals of his employees and their relatives. Mr. Demoulas isn’t doing this for attention…he has his own family and a job I don’t envy. He must have a million other things he could be doing, but he has done this consistently for the 30+ years I’ve known about him.

    I also don’t know of any other company in the world where an employee, with no college education, can simply work hard and move up the “chain of command.” To my knowledge, Market Basket doesn’t hire management from the outside. You simply work your way up in the company. How many companies can boast that? Few, if any. Market Basket employees are the most dedicated employees I know of because of this. They go out of their
    way to ensure a positive customer experience, they go into work when they don’t have to, they know if they work hard they will be rewarded. What other company in the world is like that? This lesson is taught to the employees by their managers who learned it first-hand from Arthur T. Demoulas. It’s all about caring for the employees.

    As the wife of an employee I am obviously concerned about my husband’s position in the company. I’m very concerned that without Mr. Demoulas at the helm the entire tenor of the company will change. I firmly believe Market Basket has been so successful because Arthur Demoulas has always put the company and his employees first. The company has only grown and expanded under his tutelage. The employees are happy working for him and are totally committed to him. It appears to me that Market Basket is financially solvent.

    As a consumer, I’m convinced that if Mr. Demoulas is removed as CEO, prices will increase and employees may lose their jobs”.

    I wish you much luck in you job at Market Basket. There are many of us praying he will persevere throughout and bring the employees back to stores so dedicated customers who can depend on great prices, quality, and customer service can resume without further disruption and cost to their household budgets.

    What everyone should be focused on is who benefits most from this crisis? There you will find the answer — I bet low customer base from other chains never got so good. Interesting how low profits can soar when you can get help with wiping out your completion.

    I guess their offer for Artie T., to return as management and accept their financing was suppose to be the their best offer, unbelievable. Without Artie T., there will never be a Market Basket or great profits. So what if the guy had control of the company- he made them all very wealthy and I really doubt that half could ever bring this company back on their own, that is why they are so hell bent on selling. They didn’t posses the human element of Artie and his workers, they were all too busy sucking off the money to be bothered and hired Mitt RomneyBain chopshop clones to enforce this destruction of a once great company that blew all others away.

    Best of luck to you Dawn and all the workers of MB as well as their fearless leader who continues to hang in there.

  6. PixiePocahontas says:

    The letter in its entirety can be found in article, “Demoulas: My ouster as Market Basket CEO would send wrong message to employees, customers”, 7/12/2014, Lowell Sun, first comment)

  7. Johhnie Jazz says:

    Pix, on the earlier I only got through “Dawn, ..” and then my eyes started bleeding. Can you summarize that tripe and no more googling stuff and saying “I know a guy, who knows aguy, who knows a dog, who knows that Arthur T is wonderful…!”. And please take your meds.

    Dawn, don’t take this the wrong way, but Arthur T and his PR / media minions have sold you all a bag of goods all along. He didn’t run anything and all he ever did was lose in court (badly!) control of the business that he had stolen from his cousin. So he did what any true low-life does and took his case to the court of public opinion and media. He knows and what I’ve come to realize (paraphrasing George Carlin) – ““Think of how stupid the average person is, and realize half of them are stupider than that.” Arthur T ought to be put on trial for destroying Market Basket, the emploiyees and his family’s wealth, but I enjoy a bit of schadenfreude as much as the next guy.

  8. PixiePocahontas says:

    Jazz,

    You are wrong about Arthur T, as you are wrong on just about every other topic except for city politics.

    The BOD and the dumb ass CEO’s tanked the company in purpose, never intending to keep employees because the saw a cash cow in SELLING out. That’s just what former Johnnies Foodmaster owner did and toss hundreds of employees out before they could cash their last paycheck.

    He walked away with over $60 million while Stop and Shop, Whole Foods stepped right in- oh except for Alewife, which waited about 12 months before getting a grocery store for low income and elderly residents, why should anyone care? Same on lower Broadway with former Shaws, continues to be abandoned.

    Radio Shack and Albertons were the CEOs last gig– we see how well that turned out. Employees knew what was coming. Arthur T., could turn this around but the other cousin won’t let it happen. I hope he’s forced to pay unemployment to his 2500 wrongfully terminated workers.

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