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Anatomy of the Market Basket meltdown

Local CEOs, the former US secretary of labor, a MIT Sloan professor, and more offer their reflections on the company’s disastrous summer.

Meat clerk Eric Cabral, Market Basket store No. 39, Nashua.

Matt Hogan

Meat clerk Eric Cabral, Market Basket store No. 39, Nashua.

ROBERT REICH

On emphasizing profits over people

Lucinda Rogers

Under CEO Arthur T. Demoulas, Market Basket had a winning business model: He treated employees, managers, and customers as members of a common enterprise, from which everyone gained. Arthur T. rolled out a 4 percent discount on nearly all goods at the start of 2014, arguing his customers could use the money more than his fellow shareholders. He paid his employees and managers decent wages, and he treated them with respect. He made sure they understood the objectives, and then let them decide how to achieve them. The greed team that ousted Arthur T., by contrast, is running the company as if they’re take-it-or-leave-it martinets — and everyone is losing.

RELATED: Transcripts of Market Basket board meetings reveal ill will

At least one of the bidders who emerged to buy Market Basket was said to be offering more than Arthur T. was offering. They said they can squeeze more profits out of the company than when Arthur T. was CEO. They’re deluding themselves. Arthur T.’s business model worked precisely because he didn’t follow this route. Trying to squeeze out more profits will drive customers away, decrease employee loyalty, and increase worker turnover.

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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.’s business model wasn’t based on zero-sum thinking. He understood that giving everyone a stake in the business would generate gains for everyone, including shareholders. 

The reaction to Arthur T.’s ouster proves the point. Customers are staying away from Market Basket stores, even though it’s costing them, forcing them to buy more expensive food elsewhere. Striking employees are sacrificing paychecks and risk losing their jobs, but giving in means getting stuck with new CEOs and a board that are likely to cut pay and raise prices. Local politicians have weighed in with statements of support. This isn’t the age-old labor versus management conflict. It’s labor, management, customers, community, and fired CEO versus greedy directors — something rare in the annals of American business.

Solidarity — a term we haven’t heard much in recent years — means hanging in there together or you’ll hang separately. It entails short-term sacrifice for the sake of long-term gain. Arthur T. apparently understands this. I wish more CEOs and directors did.  

> Robert Reich, a former US secretary of labor and Massachusetts gubernatorial candidate, teaches public policy at the University of California, Berkeley.

ADAM RIED

On a foodie’s paradise in peril

Lucinda Rogers

When visitors arrive in Boston, their list of must-sees usually includes the same big hits: Harvard Square, Fenway Park, the North End, the JFK Library. When my friends — an admittedly food-obsessed lot of cookbook and blog writers — come to town, I include a less likely stop, the Market Basket in Somerville’s Union Square.

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.

GRAPHIC: How Market Basket prices compare to competitors

When I was talking to a fellow food writer about an assignment I’d received to develop a recipe for roast pork in banana leaves, she said, not surprisingly, “Well, where are you going to find banana leaves?” I figured I would have to scour the Internet or perhaps ask a friend in Costa Rica to FedEx a box full, but when I next went to Market Basket for my own dinner ingredients, it turned out they had banana leaves right there, both fresh and frozen.

Sour oranges to make an authentic Cuban mojo? No problem. Little Thai eggplants for curry or matsutake mushrooms for a stir-fry? You bet. Fresh sardines for the grill? They have those, too. I even get my preferred brand of cat litter there.

The people watching is good, too, from neighborhood old-timers to recent immigrants to Boston food royalty. I don’t like to drop names, but isn’t that Chez Henri’s Paul O’Connell over in the Goya aisle? Market Basket has something for everyone, and I hope we don’t lose it.

> Adam Ried writes the Globe Magazine’s Cooking column and appears regularly on America’s Test Kitchen.

RENEE RICHARDSON GOSLINE

On a story line fueled by social media

Lucinda Rogers

The heated drama of the Market Basket saga seems at odds with the prosaic supermarket filled with fresh vegetables, bags of rice, and the sounds of Muzak. But the study of economic sociology has shown that shoppers don’t just make a cold calculation that leads them to the seller with the lowest prices. Instead, our choices as consumers are embedded in real-life, warm-blooded social relationships.

In the case of Market Basket, consider the butcher, the cashier, and the bagger: These connections affect consumers’ attachments. The values espoused by Market Basket — local, family-owned, employee-friendly — have resonated with shoppers who may have felt that these principles were going the way of milk delivery and the doctor’s house call.

This kind of alignment of values is the foundation of building trust in any relationship, even one with a business. Research has shown that people can develop relationships with companies not unlike those they develop with other humans. If two people (or a person and a brand) can be characterized as “strangers,” trust is low, but so are expectations. And some consumers relate to certain brands in a closer bond, even a friend-like connection, as in the case of Harley-Davidson or Apple. The implication? Just like in human-to-human relationships, violations of established shared values can lead to feelings of betrayal.

MAP: Reports from Market Basket stores in the region

The rise of social media has greatly increased consumer-to-consumer influence on these relationship judgments. Everyone has a voice — and the people have spoken for Market Basket. How do consumers determine who deserves their support? In the case of Market Basket, a 71-chain corporation with $4 billion in revenue, a David and Goliath narrative has played a key role. Retweeting a story about the “good” CEO and displaced average Joe employees is taking a stand for the little guy. Clearly, the viral, social media potential of the story was large. Online activism allows people to easily signal their values and craft a desirable social identity. The lesson? A brand’s narrative is a powerful tool in shaping judgment, and it is co-created by consumers.

I always tell my students: If you’re not listening to your consumers’ opinions about your brand, you’re not doing your job. No matter who’s in charge at Market Basket, the organization should make choices that lead to customer forgiveness and a stronger relationship, not suspicion and the inevitable relationship downgrade that would follow.

> Renee Richardson Gosline is an assistant professor at the Massachusetts Institute of Technology’s Sloan School of Management.

ELIOT TATELMAN

On the pitfalls of running a family firm

Lucinda Rogers

My grandfather started Jordan’s Furniture in 1918 and brought in his brother-in-law. It was originally called Gray’s Furniture, and it was a tiny little store that they were running together. They decided to open another store, so they put a few names in a hat and they called it Jordan’s. They had a battle. My grandfather took Jordan’s and his brother-in-law took Gray’s, and they never got along after that.

Just being in a family and having everyone get along can be problematic. Now you put a business in the middle of it — and money and lifestyles and people’s personalities and who works harder than somebody else and who is smarter and who gets more respect or has more responsibility and who’s making more money — and it all leads to tension and problems that can cause a lot of grief for the company.

Barry and I learned from our parents that getting along was more important than the business. The business is secondary; family is first. We always made the same salary and thought that’s the way it should be. If we disagreed on something, one of us would give in and say it’s not worth it, and that would be the end of it. If maybe one of us had had a stronger personality, the same thing that happened to the Demoulases could have happened to us.

RELATED | Shirley Leung: Decision to sell is difficult for grocery families

But how do employees feel when management and owners aren’t getting along? And you think customers don’t feel that if employees do? You can find the best advertising, the best design, and the most beautiful store, put it in the best location, and have the best prices, but if every employee isn’t in a good mood, it all fails. It’s about the people. It’s not rocket science; it’s common sense. I spend most of my time at Jordan’s making people feel good.

I didn’t go to Market Basket all the time, but every time I went in there, the employees seemed to be happy and the place was busy. If you asked where something was, they’d take you to it. It seems Arthur T. had a way of motivating people and making them feel respected and allowing them to succeed and grow. Now with Arthur S. coming, they seem to think all that will go away. Whether it will or not I don’t know, but they’re all scared. Look what happened — the stores are empty, nobody’s there. It’s a disaster scene.

Arthur T.’s success, I believe, was in managing and promoting from within. Employees could start as a clerk and work their way up and be appreciated. They got good health coverage, and if something happened, the company would be there for them. And he developed managers all over with the same skills and the same corporate culture he had.

This was a successful company with happy people, and to have it all turned around like this is crazy. I feel bad for the people, but I have to say I am enjoying reading about it, because it’s a great lesson on business. It reiterates my theory of how important employees are. I don’t want to blow my own horn, but it’s a theory we’ve tried to use all along. We tried to make people feel good about working at the company, make raving fans of our employees. We’re probably not as good at it as Arthur T. is. I don’t know Arthur T., but I’d love to meet him, follow him around for a month and see how he accomplished what he did. My hat’s off to him.

 > Eliot Tatelman is president and CEO of Jordan’s Furniture. As told to Elizabeth Gehrman; interview has been edited and condensed.

LAURA SEN

On CEOs and their bosses

Lucinda Rogers

Much has been written about the leadership at Market Basket, and Arthur T. Demoulas must be quite a leader to have thousands of employees demonstrate in his favor. But the Market Basket issue is not one of leadership, despite what so many are insisting; it is one of ownership in a private, family business. It is that complication, more complicated than anyone outside the family can ever appreciate, that makes the ultimate path to resolution of the Market Basket imbroglio so difficult to see from where we are today.

There is no question that much of what is good and bad in the world of CEOs relates to leadership. Great CEOs can lead their companies to new heights, just as poor CEOs can be destructive. However, reaching the pinnacle of being a CEO brings perils of its own that are easily overlooked. It takes an even keel not to fall subject to the idea that you are always right when thousands of employees tend to agree with everything you say and seek to please you with everything they do.

RELATED: Who owns Market Basket? A look at the shareholders

But the Market Basket story is not really about what Arthur T. did or did not do to avoid the perils of CEO leadership or how he grew the company before he lost control of it. It’s not about his managing style or the apparently warm feelings his employees have for him. It is about the realities of the business world. And in this case the reality is that Arthur T.’s ownership block, since the defection of one relative, is less than 50 percent. For no matter how talented and beloved CEOs are, even they have a boss — the board of directors. And, yes, even the board of directors has a boss — the company shareholders. In a public company, it may be a long way from the CEO to the board, and even further up to the shareholders, but in the Market Basket world, the distance is inches.

One of my early bosses at Zayre Corp. (the company introduced the warehouse retail concept to the Northeast as the founders of BJ’s Wholesale Club in 1984) advised me to follow a simple rule of business — read the org chart and do what your boss wants. It may sound harsh, and there may be situations where that rule shouldn’t apply, but at the end of the day it often makes sense. Everybody has a boss. The Market Basket board is Arthur T.’s boss, and it fired him at the behest of the controlling block of shareholders. Arthur T. wants to buy the controlling shareholders’ interest so he can be both the CEO and the owner — a reasonable goal, from his point of view, making him the boss.

RELATED: Meet the Market Basket board of directors

But any person who has siblings knows that in family disagreements, a reasonable position is not always met with a reasonable result. Families are interesting entities, and the Demoulas family has been battling for decades. It is all about the ownership (not the leadership) at Market Basket, so no matter when it ends, don’t expect a logical outcome. Families often just don’t work that way.

> Laura Sen is president and CEO of BJ’s Wholesale Club.

MARK POTHIER

On customer loyalty’s dark side

Lucinda Rogers

The nice-guy boss just got fired. Naturally, you put your job at risk by demanding his return and urging customers to spend their money elsewhere until that happens. Sticking up for a newly unemployed multimillionaire is more important than making the mortgage, right?

I didn’t think so. But that was the remarkable course of action taken by thousands of employees at Market Basket. To hear the employees tell it, this battle was about defending the dwindling middle class and putting people over greed. We won’t answer to anyone but Arthur T., they said. Besides keeping prices down at the registers, he paid well, offered plush benefits, and knew legions of employees by name. Did I mention he paid well?

The mass uprising by workers was impressive, but something more profound was going on. In an age when fickle consumers flit from company to company, this was a rare display in the modern marketplace of customer allegiance to a brand.

Brand names once carried a lot of currency because impartial information about products and services was limited. My father bought only Buicks most of his life. He trusted Buick. Today, consumers take a “trust but verify” approach. They “can read reams of research about whatever they want to buy,” James Surowiecki wrote in a New Yorker piece earlier this year titled “Twilight of the Brands.” The Internet, he wrote, “has given ordinary consumers easy access to expert reviews, user reviews, and detailed product data.”

Consumer surveys reflect the erosion of loyalty. According to a 2012 Ernst & Young report, only 25 percent of Americans said they base buying decisions on brand, and a recent poll conducted for Capital One found just 9 percent of travelers factor in brand loyalty when booking a trip — they’re more keen on a bargain.

RELATED: Personal touches won loyalty at Market Basket

The problem is even more pronounced in supermarkets. Only 3 percent of shoppers visit one or two outlets for groceries, according to a 2012 study; 76 percent of us divide our food spending among five or more types of outlets, often several supermarket chains, plus places like CVS, dollar stores, and specialty markets.

Market Basket, however, bucks that trend with a cult-like following. The company built its enviable reputation in several ways, says supermarket analyst John Rand of Kantar Retail in Boston. The prices often undercut even Walmart, the stores have more employees on the floor than many competitors (so there’s always help nearby), and the stock turns over incredibly quickly (so food is always fresh).

But here’s a surprising lesson from this summer: Brand loyalty can also be a double-edged sword. When a beloved brand gets something wrong — like sacking a beloved president — the backlash will be brutal. “Consumers expect to be able to influence organizations to behave in a way that suits them,” the Ernst & Young study said. “Organizations must deliver a positive experience across every customer touch point, including all consumer communications.” Market Basket’s walled-off leaders seemed oblivious to the power loyal consumers wield.

In a full-page ad in the Globe, the company’s new co-chief executives appealed to customers, saying some workers had “lost sight of the top priority — taking care of you — and instead have engaged in actions that harm Market Basket’s reputation and prevent us from meeting our obligations to you.” Could they have been more off the mark? Anyone could see it was the anonymous executives — not checkout clerks and shelf stockers — whose priorities had gone astray. While corporate lawyers cooked up parsed statements, rank-and-file employees who had often spent decades building relationships with customers told the Market Basket story convincingly through personal, relatable stories.

Through the employees, customers knew what was at stake — preserving a business model the owners seemed bent on wrecking. I’d call that brand-name recognition.

> Mark Pothier is the Globe’s business editor.

The summer’s top tweets about Market Basket

I promise to spend at least $100, at #marketbasket competitor, for each employee that is fired. Who is with me . . .

Raymond Santos

July 30

4,900 retweets

When this #MarketBasket event inevitably becomes a movie, I want a pahhht. #headcashieah #producemanageah #devotedcustomah

Rachel Dratch

August 4

207 retweets

Source: SocialSphere

What’s your take on the Market Basket meltdown? Send comments to magazine@globe.com.
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