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Arthur T.’s future role looms large in Market Basket talks

Most multibillion-dollar business acquisitions revolve around questions of financing, profit, and market share.

In the case of Market Basket, the biggest issue is flesh and blood. It’s ousted president Arthur T. Demoulas.

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With the parent of Hannaford Bros. Co. emerging as a serious bidder for the grocery chain, the future role of Demoulas looms large in negotiations over the sale and subsequent operation of the fractured company.

Demoulas himself is a competing bidder, and his side of the family has refused to sell its 49.5 percent ownership to anyone else. He has won the loyalty of employees who have benefited from solid wages, regular bonuses, and a generous profit-sharing plan. Many have refused to work until he is reinstated as president.

“You had Santa Claus in charge,” said David Livingston, a supermarket industry analyst at DJL Research in Milwaukee. “Every day it was Christmas.”

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But Livingston said Arthur T.’s policies might clash with those of Hannaford’s parent, Delhaize Group, a publicly traded company that also runs the massive Food Lion chain. “Hannaford wants to make some money out of this,” he said. “This is bad news for everybody, except shareholders -- bad news for customers and bad news for employees.”

A spokesman for Delhaize said on Thursday that the company would not “comment on rumors or speculation regarding plans to acquire or divest businesses.”

There is no sign that a deal is imminent. Market Basket’s board has said only that it was evaluating several offers for the company. Arthur T. has offered to buy the 50.5 percent of shares owned by his cousin Arthur S. Demoulas and other rival relatives.

People with knowledge of the negotiations said Belgium-based Delhaize would buy all or part of the company, and has not been scared off by the prospect of sharing ownership with Arthur T.

In the past, Delhaize has allowed a popular boss to keep the reins of an acquired company — for a while, at least.

Hannaford chief executive Hugh Farrington held on to his job for a year after Delhaize bought the company in 2000. Later, Farrington gave up the top job but remained with the company as a director.

Even after that acquisition, Delhaize operated Hannaford as a distinct brand. Analysts agreed the company probably would do the same thing at Market Basket, if its bid is accepted.

Hannaford is a well-known grocery name in much of New England, but its company culture differs from Market Basket’s.

Robert F. Bukaty/Associated Press/File 2009

Hannaford is a well-known grocery name in much of New England, but its company culture differs from Market Basket’s.

Combining Market Basket with Hannaford would more than double Delhaize’s market share in the Northeast, according to the Griffin Report of Food Marketing.

The combined business would become the region’s fourth-largest food retailer.

Hannaford operates 180 stores, and Market Basket runs 71 supermarkets. The companies compete directly with each other in many communities across New England.

A combination of the two businesses could raise antitrust concerns, possibly requiring them to divest some stores as a condition of any agreement.

But if its bid is successful, Delhaize would benefit from Market Basket’s extremely loyal customer base, which is drawn to its stores for low prices and good service.

“Market Basket is a great franchise — period,” said Andrew Wolf, a food industry analyst with BB&T Capital Markets in Boston. “If you can buy a great franchise and maintain what it represents, that’s what big companies are built to do.”

But Wolf said that the loyalty of customers and employees could also make it harder for Delhaize to tinker with the company.

“They have such a unique culture, and that’s on display currently,” he said, noting the massive rallies on Arthur T.’s behalf. ‘That culture is a wonderful thing, unless a new owner messes with it too much.”

Though the names might stay separate, Hannaford and Market Basket would be likely to merge operations, for the sake of efficiency — and that could spark a clash of cultures, said Edward McLaughlin, director of the food industry management program at Cornell University.

Hannaford sells mostly conventional, name-brand products, but Market Basket is known for a selection of ethnic — even exotic — foods.

Niche offerings can inspire customer loyalty, but they make it harder for a grocery business to streamline its supply chain, McLaughlin noted. It would not be surprising, he suggested, to see a Delhaize-owned Market Basket go mainstream.

“They would lose some customers, no doubt,” McLaughlin said. “But one of the first questions they would ask is, ‘Will we gain enough new customers by changing to offset the ones we lose?’ ”

The pressure to drop novelty items with lower profit margins has increased in recent years, as Walmart became a bigger player on the grocery scene, said Jack Plunkett, chief executive of the Houston-based retail tracker Plunkett Research.

“The supermarket business has become extremely competitive, and it’s hard to make a dollar now,” Plunkett said. “Margins have been falling for 15 years.”

Casey Ross can be reached at cross@globe.com. Callum Borchers can be reached at callum.borchers@globe.com.
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