TOPICS > Economy > Making Sen$e

Bare shelves for Market Basket as employees and shoppers unite in profit-sharing fight

August 8, 2014 at 6:28 PM EDT
The owners of a successful New England grocery store chain are in a family feud over whether company profits should go to shareholders or to employees, some of whom have abandoned their shifts and hit the streets. Economics correspondent Paul Solman reports on the solidarity of non-union Market Basket workers in protesting for their company's popular president.
LISTEN SEE PODCASTS

TRANSCRIPT

JUDY WOODRUFF: You almost never see employees hit the streets to save the job of their company’s president. But that scene is playing out in a most unusual battle in New England this summer, one involving a supermarket chain, a deep family feud, and set against the backdrop of big debates over wages, benefits, corporate profits and inequality.

Our economics correspondent, Paul Solman, has the story, part of his ongoing reporting Making Sense of financial news.

PAUL SOLMAN: In Tewksbury, Massachusetts, it was hellishly hot the other day, but that didn’t deter a holy ruckus.

MAN: Heavenly Father, thank you for giving us today as a new day, even though we find ourselves in the same situation as yesterday, without our true leader, Arthur Demoulas.

PAUL SOLMAN: That’s Arthur T. Demoulas, former president of Market Basket supermarkets, one of New England’s most successful retailers, with 71 stores, sales of $4.6 billion last year, 25,000 employees with above-average compensation and profit-sharing, and two million customers who enjoy below-industry prices.

But Arthur T. was fired in June by a board of directors controlled by Arthur S. Demoulas, who seems to think his cousin, Arthur T., was spending stockholder money too liberally. Neither cousin is giving interviews, but the basic fact is clear enough. The family-owned business has ground to a halt.

In mid-July, truck drivers and warehouse workers walked off their jobs, a non-union strike in support of their employee-friendly leader.

TOM TRAINOR, Fired District Manager, Market Basket: Two years later, I got fired, along with seven of my colleagues.

PAUL SOLMAN: For the likes of Tom Trainor, a bag boy 40 years who was until July 20 a district manager, it’s a throwback fight, Main Street vs. Wall Street, decent wages, caring management and instead of debt $500 million in cash to finance investment vs. maximizing shareholder value by distributing the money as dividends.

But last summer, the board did vote to distribute $300 million of the cash to shareholders.

TOM TRAINOR: They stripped $300 million out of the $500 million cash reserve just to give themselves a bonus, a dividend bonus. So they greatly reduced our capital improvement fund, which means they want to put us in debt, and then they are going to raise the prices, cap paying benefits because we’re paid higher than the average supermarket employees, destroy the business model, cut our profit-sharing. Nothing good can come of this.

CHRIS MACKIN, Founder, Ownership Associates: I think what we see here is the rise of the stakeholder model of the corporation, which here in Northern Massachusetts, these workers and managers are standing up and saying this is really our company.

That’s in contrast, says longtime worker-ownership consultant Chris Mackin to the maximum shareholder value mantra that has dominated American finance since the 1980s.

CHRIS MACKIN: There is a Tea Party-like flavor to this, but what’s interesting and different is that they’re pointing their anger not at Washington, D.C. They’re pointing it at a corporate model, a corporate financial model that they think doesn’t work, and that robs them of their livelihoods.

PAUL SOLMAN: Unsurprisingly, employees favor the stakeholder model.

(CHEERING AND APPLAUSE)

MAN: Artie T. has said a million times to me, we’re in the grocery business second, the people business first.

PAUL SOLMAN: But it’s a family business that has been family feuding for decades.

Market Basket was founded a century ago by Greek immigrant  Athanasios Demoulas with a single store in Lowell, Massachusetts. His sons, Telemachus and George, grew the business. But their kids, the Arthur T. and Arthur S. factions of the family, began tussling over ownership in the ’70s.

And the S’es wound up with 50.5 percent of the stock. They finally decided to dividend out the cash. When Arthur T. balked, they booted him. And thus the reinstatement rallies, demanding that Arthur S. and the board accept Arthur T.’s new offer to buy them out.

Meanwhile, many store workers have remained on the job and are still getting paid, but how much longer can that last?  With no deliveries, there’s no meat, no produce and except for the gluten-free stuff no bread. Why the employee loyalty?

WOMAN: We get a Christmas bonus, we get a march bonus, we get a other customer service bonuses throughout the year.

PAUL SOLMAN: And Arthur T. knows their names, their families.

CHARLES FLEURY, Clerk, Market Basket: He showed up at my grandfather’s wake for me and my mom, who both work for the company.

DIANE BELANGER, Employee: You stick your neck out for family.

JEANNINE MARQUIS, Employee: Stick out our necks for our family.

PAUL SOLMAN: And customers seem to feel like they’re part of the family, too. They have stayed away in droves, showing up mainly to take their receipts from other stores to the windows, signing petitions to bring back Artie T., friend of the working class.

Travis Pringle who takes a literally jaundiced view of maximizing shareholder value, shops at the Demoulas in Haverhill, Massachusetts.

TRAVIS PRINGLE: Friendly, friendly people. They all go out of their way to help you. You’re not just a dollar sign. You’re an actual person.

MICHAEL LAMONTAIGNE: This is the 20th day that I have been helping these folks out.

PAUL SOLMAN: Retired cop Mike Lamontaigne has been shopping at Market Basket for 46 years.

MICHAEL LAMONTAIGNE: A lot of people retired. And if they shop someplace else, we can’t afford it. Market Basket, you get the lower prices and you get that 4 percent.

PAUL SOLMAN: That’s the 4 percent instant rebate Arthur T. installed last year, saying that with growing income inequality, his shoppers needed the money more than shareholders like him, and of course further cementing the loyalty of his customers, like Noelle Gordon.

WOMAN: Let me tell you this. What was started as an employee action is going to be finished as a customer action.

PAUL SOLMAN: Customers and employees united, a stakeholder revolt, says recently fired 40-year veteran manager Steve Paulenka.

STEVE PAULENKA, Fired Facilities and Operations Supervisor, Market Basket: The customers are not coming back until we come back, and we are not coming back until the boss says come back.

JUDY WOODRUFF: And a postscript. Market Basket has started eliminating hours for many part-time workers as its business grinds to a halt. But the company emphasizes it is not laying people off.

Meanwhile, The Boston Globe reports that a rival grocery chain is emerging as a serious bidder for Market Basket, complicating Arthur T.’s efforts. Paul will be updating this story online in the days to come.