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Thursday, July 24, 2014

Analysts see bleak outcomes in Market Basket struggle


Staff Writer

ith an insurrection gaining steam among employees and customers vowing to boycott the grocery chain, Market Basket could be on the path to a debilitating struggle over the future of the company, industry analysts warned this week.

“I think there’s going to be bad blood for a long time,” said David J. Livingston, a supermarket consultant who has been watching the situation unfold. ...

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ith an insurrection gaining steam among employees and customers vowing to boycott the grocery chain, Market Basket could be on the path to a debilitating struggle over the future of the company, industry analysts warned this week.

“I think there’s going to be bad blood for a long time,” said David J. Livingston, a supermarket consultant who has been watching the situation unfold.

Deliveries to Market Basket stores across the region were interrupted this week as employees took to the streets to demonstrate in support of former CEO Arthur T. Demoulas. Demoulas was removed from his position by the company’s board of directors last month after a lengthy power struggle between factions of his family.

The development touched off widespread protests among employees, at least eight of whom were fired. It also left shelves bare in some stores, where workers have been asking customers to take their business elsewhere until Demoulas is reinstated.

The upheaval is unprecedented in the supermarket industry, said Livingston, who has tracked developments in grocery stores for three decades.

With new leadership in place, Livingston said he doesn’t foresee the board of directors reversing its course, and that could mean more layoffs for employees who don’t toe the company line.

At the same time, Livingston said he doesn’t anticipate the fervor among employees to die down soon. Market Basket workers have enjoyed above-
average benefits compared to others in the supermarket industry, he said, and

employees credit Demoulas with protecting that status for years.

One popular offering is the company’s profit-
sharing retirement plan, which is available to part-time and full-time workers alike. Under the plan, a percentage of the company profits are put into an account and begin to accrue, available at retirement age.

The company’s new co-CEOs have said Market Basket will continue to pay bonuses and honor the profit-sharing program, but employees fear that a change in working conditions is inevitable.

“For them to go cold turkey now and get off whatever that former CEO was giving them, it’s going to be hard, and it’s going to take time,” Livingston said. “It’s going to be bad blood for a long time. I think they’ll survive it ... but they’re going to be crippled for a while.”

Neil Niman, an associate professor at the University of New Hampshire and chairman of the UNH economics department, said he sees two likely outcomes for the grocery chain: Either the board will back down and reinstate Demoulas, or the company will face an economic collapse.

Niman said the low profit margins in grocery stores make the impact of an employee walkout even more acute. High sales volume is the only way to generate cash flow, and if sales are halted by the worker protest, Market Basket will quickly see the effects on its balance sheets.

Faced with that reality, Niman said the response to the unfolding crisis from the company’s board of directors has been unwise.

“It’s not clear to me that rational minds are making good business decisions,” he said. “You know, often in a family-run company – particularly when there’s some sort of schism between different factions in a family-run company – then people are making decisions based on not what’s good for the company but ‘how do I stick it to the other guy?’ ”

In a time of declines across the supermarket industry, Market Basket has been a rare standout, continuing to expand with new stores in New Hampshire and Massachusetts. Niman said the company is known for being the low-cost leader, managing to beat the prices even at Walmart, which has been heralded by economists for refining supply chain management and has moved aggressively into the grocery sector in recent years.

The key to Market Basket’s success, Niman said, is a base of loyal employees who have enjoyed more favorable working conditions than their counterparts at other stores.

“The chain is doing something right, and I would submit that what they’re doing right is in the personnel – in the people they have,” he said.

While the rabid loyalty that some Market Basket employees have shown to their former boss is unusual, Niman said the demonstrations this week are understandable because Market Basket’s workforce functions like an extended family – an attack on Arthur T. Demoulas is an attack on the family patriarch.

At the same time, workers fear that the board’s new leadership will move the chain toward being more like other large supermarkets, and that could mean a decline in working conditions.

“They’ve got their sort of future on the line as well,” Niman said of the employees, “and I think they see it and they realize it.”

Tom Juravich, professor of labor studies and sociology at the University of Massachusetts-Amherst, said the Market Basket protests underscore the poor working conditions across the supermarket industry. The situation is a bellwether for how frustrated workers have become, he said.

“Retail is not an easy sector to work in, and I think what you see here is that workers saw in this family dispute … a potential for their lives getting a lot worse. And guess what? They stood up,” he said. “I think that really speaks to a reservoir out there of people being upset and wanting to speak out.”

Market Basket employees are not represented by a union, making the scale and impact of the demonstrations this week all the more noteworthy, Juravich said. However, the labor movement is filled with examples of similar spontaneous actions. In the 1930s, for example, during the early days of organizing, it was not uncommon for auto workers to walk off the job when a worker was fired or work rules changed.

While the controversy at Market Basket involves a deposed former CEO, Juravich said underlying issues are the same – the desire for respect and better working conditions.

“It’s easy to cast this as ‘we like one manager over another,’ but it really does speak to a larger issue – and just how vulnerable these workers are,” he said.

Mike Berger, senior editor at The Griffin Report of Food Marketing, said the absence of a union at Market Basket has been one of the company’s strengths, coupled with the ability to run its own distribution system to stock its 71 stores.

While many have speculated that Market Basket would change its business strategy under new leadership, Berger said it remains unclear what steps the company would take.

However, one major signal about the company’s trajectory was the termination Sunday of several experienced managers who spoke out against the new leadership, he said. The situation is likely to reach a head within the next two weeks as vendors begin to feel the impacts of the unrest, he said.

“There’s no way I can guess what’s going to happen,” Berger said. “I don’t think that anyone can. This fight has been going on for decades. My own guess is that if this starts to impact the bottom line in profits, then things will start to change.”

Jim Haddadin can be reached at 594-6589 or jhaddadin@nashua Also, follow Haddadin on Twitter (@Telegraph_JimH).