Demoulas Supermarket – Can an Ego Kill Market Basket?
When I read this past weekend that the current executive team at Market Basket ordered their workers back to work today or they would be replaced, it confirmed for me they didn’t get it. Unless Arthur T. Demoulas gets back in charge quickly this week, employees aren’t going to return and neither are many of their customers.
When I read this past weekend that the current executive team at Market Basket ordered their workers back to work today or they would be replaced, it confirmed for me they didn’t get it. Unless Arthur T. Demoulas gets back in charge quickly this week, employees aren’t going to return and neither are many of their customers. (As this goes to print Arthur T. has offered to go back-in and run Market Basket.)
Sadly, it appears the personal ego of Arthur S. Demoulas, which has been formed and worn down from years of family disputes, has caused this spectacle. And while he is not the first family member resenting being left out of running a family-business, his recent leadership will go down in future case studies as an example of what happens in family businesses when personal egos clash with a business success formula.
In March I wrote about the largest and oldest family-businesses in the United States and that Demoulas Super Markets, which was founded in 1917, made the list at #15. It is estimated that before the recent problem they had annual sales of nearly $4 billion, operated 71 stores, and employed around 25,000 employees.
The current dispute is really between two grandsons; both named Arthur in honor of the founder. Each present day Arthur is a son of two brothers (George and Telemachus), who bought the original business from their parents in 1954. George died in 1971; his son is Arthur S. Demoulas. Telemachus took over running the business then and in 2008 his son, Arthur T. Demoulas, was elected President.
It is common in family-businesses that when one partner dies or leaves the business and the responsibility of running the business falls on the shoulders of the remaining partner, resentments on both sides emerge. The person left running the business and bearing all the stress, especially in the early years, feels he or she deserves more of the upside in the future. The family of the other party eventually feels left out and if they learn the other side is benefitting more financially than their side, their resentment grows. This is clearly the case with the Demoulas family and there have been many widely published legal disputes over the years.
For my readers outside New England, here is a brief update on what has happened. The ownership of the business is not split 50/50. After a court-ruling in the 1990s, the Arthur S. Demoulas side of the family owns 50.5% and the Arthur T. Demoulas side holds the minority balance. Last month the Arthur S. side announced they had fired Arthur T. as President. They hired an outside management team and rumors circulated that Arthur S. was not happy with the company’s profitability and its “low-price” strategy and generous employee benefits.
Obviously, this move presented a huge risk to employees and they reacted strongly. Store managers and employees staged demonstrations and at every Market Basket in New England there were many employee picketers with signs saying “Bring Back Arthur T”. Their objective was to convince customers not to shop at Market Basket in hopes that this would force ownership to re-hire Arthur T. because employees knew he would take care of them.
The employee walk-out and picketing has certainly achieved one objective – customer traffic is down a reported 90% and they are losing millions of dollars a day.
What Have I Learned?
Watching this carefully over these weeks I have learned many things – here are three.
First, when a leader’s strategic actions threaten the livelihood of a large percentage of employees, he or she had better develop a strategy in advance for how to deal with side effects.
Second, while the employee walk-out and picketing is certainly forcing shareholders to change their decision, there may be unintended customer side effects too. Some of the customers not shopping at Market Basket are not doing so because they don’t want the hassle of “crossing” the employee picket line, not because they feel a particular bond with the workers. They have historically shopped at Market Basket for lower prices. These customers are finding other retail options and their buying habits are likely being altered. Also, with many suppliers being financially hurt, it is likely Market Basket will face higher prices in the months to come. And this will impact their profitability and may make it difficult for them to continue to be the low price choice. How these side effects will impact Market Basket’s eventual recovery are unknown.
Third, beware of egos when structuring and executing succession plans. One person’s dysfunctional ego can trump a successful business formula.
This story is still evolving and one way or another, its success formula is being altered. In a year or so we’ll see whether one person’s ego can kill a successful business formula.
What do you think?