FB News

Market Basket family feud prompts staff and customer loyalty to ousted CEO

By Michael Finnigan

The ousted chief executive of US supermarket chain Market Basket has gained a level of support from employees that is uncommon outside of family businesses, according to a Harvard Business School academic.

Staff and customers have been boycotting the multi-billion dollar company since Arthur S Demoulas, who owns 51% of the company, removed his cousin Arthur T Demoulas from office last month, arguing that a popular profit-sharing scheme was cutting into shareholder profits.

Employees, fearful that the change of leadership will shift the company’s focus from stakeholders to shareholders, have rallied outside of Market Basket supermarkets in Boston, with a rally in Tewksbury last week reaching as many as 10,000 individuals.

Customers have also boycotted the chain, and last week Arthur T made a bid to buy out his cousin’s stake, in an offer worth close to $4 billion (€2.9 billion), according to media reports.

Harvard professor John A Davis says by creating an “extended family” within the company family businesses can garner strong loyalty from their employees.

“One of the attributes that family business academics believe contributes to higher performance and longevity in a family business is stakeholder loyalty,” Davis said. “In today’s world it is a really precious commodity. So when a company is able to have it, to build it, it can really be valuable, because it is very distinctive”.

Davis added: “Employees see Arthur T as being strongly aligned with growing the company and making it a great place to work, while they see the other side of the family as being more interested in taking assets out of the business.”

The different management techniques have caused media outlets to portray Arthur S in a poor light, according to Davis, but he said that having some shareholders with a strong investor focus could be good for a family business.

“Even in family businesses with a strong stewardship like Market Basket it generally pays to have some investor minded family owners, who are concerned with growing profit and operations, because it keeps management on their toes”, Davis said.

However, he explained that in the case of Market Basket the ratio has flipped to an unhealthy level, with the number of family members focused on the short term exceeding those taking a multi-generational approach to the business.

The only way to move forward is for one side of the family to sell out, Davis said.  

Supermarket analyst David Livingston of Supermarket Location Research agrees but suggested that Market Basket is likely to suffer permanent damage even if Arthur T manages to regain control of the chain.

“The protests have had a knock-on effect on suppliers and producers but the impact isn’t as much as you might think because their sales to competitors are going up,” Livingston said.

The movement of producers and shoppers to different stores could impact Market Basket in the long run because these individuals are less likely to return once they have set new supply chains and shopping runs.

Livingston also questioned whether Market Basket, under the management of Arthur S, would have been able to survive assuming that staff had continued to work.

“There are a lot of very well run regional grocers and Market Baskets’ strength was being a good store to shop in and being a good employer,” he said.

“When you have more money than God, an extra $2 million a year is not going to make a difference to lifestyle but it will affect the quality of the store."

"Arthur T got more satisfaction from having a great store and leaving employees wealthier. For him that was priceless.”

The DeMoulas Saga

Relatives of Arthur S were awarded the controlling stake of Market Basket in 1994 after a judge rule that Arthur T’s side of the family had revalued assets to dilute their relatives’ ownership stake.

Despite the feud, Market Basket, founded initially as a small grocery store in 1917, has grown to have annual revenues of more than $4 billion and more than 21,000 employees.

The Market Basket board is expected to deliver a verdict on Arthur T Demoulas’ bid this week. 

Top Stories