Market Basket Case Study

Danny Romeo Rios

SOUTH TEXAS COLLEGE

ORGL-4352 Capstone I

Dr. Sandra E. Trevino

October 23, 2020

   
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What makes the supermarket industry so competitive? The extent of this industry is so

complex that only a few competitors can compete with top corporations in the industry.  Within

this category falls this New England based supermarket chain known as Market Basket.  The

conflicts within this case as explained by Zeynep Tom, Thomas A Kochan, and Cate Reavis are

well outlined within the essay.  We ask ourselves, "What makes Market Basket different than a

lot of its competitors? What type of conflicts presented in this case were a pivotal moment for

the ousted Arthur T. to regain his chair within "Market Basket".  Arthur T. is an owner of the

New England based Market Basket supermarket.

    The inception of Market Basket formed back in 1917 by two Greek immigrants named

Athanasios "Arthur" Demoulas and his wife Efrosine.  They then sold the business in 1954 to his

kids Telemachus and George for an astonishing $15.000.  Little did they know that this would

create a dyadic conflict between the two brothers.  When George died in 1971, Mike

overwhelmingly took over the business and continued assisting George's widow and four kids

with many extracurricular activities and lavish vacations.  Among the many things he did, he

paid for was their education. 

Shortly after, intergroup conflicts begin to happen when Mike began to buy George's

shares in the company without the family knowing.  In 1996, after a series of contentious suits,

countersuits, and appeals, the judge ruled in George’s family’s favor and granted them a 50.5%

stake in the company. A year later, the court ordered Mike to pay George’s family $206 million.

Believing the judge in the case had been biased against their side, Mike’s lawyers tried to

pressure the judge’s clerk to provide evidence to support their claim of judicial misconduct. The
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plan failed, and two of Mike’s lawyers were disbarred and a third received a three-year

suspension (Joseph Pereira, 1994).

    Mike died in 2003 and Mike’s son, Arthur T., became president and CEO in 2008 and

carried on the company’s successful business model.  He told the board that his business model

comprised of three “vital pieces”: “No. 1 is its people. Without them this place goes down the

tubes quicker than you can say hi-ho. No. 2 is our low-price offering that we have and our low-

cost structure. And No. 3 is that we’ve got no debt.” (The Boston Globe, 2014).  Corollary,

Arthur T. went on to say and issued a statement that the success of Market Basket is the result of

a good business model that works and the execution of a dedicated and well-rounded team of

employees.  Part of their business motto was to beat the competition by selling in volume.  A

store director by the name of Ron Lambert explained, “You can go to the Stop & Shop and pay

$3.99 for a package of Oreos. They might sell 100 of them. We sell them for $1.50, but we’ll

sell 10,000. We’re going to win in volume. We always win in volume.”  (Zeynep Ton, Thomas

A Kochan, and Cate Reavis, 2014).  When it came down to the hiring process, employees would

be well versed with every aspect of the store and every assignment in the store.  This can be

attributed to why Market Basket is different than a lot of its competitors and why its business

model is so successful.  Part of this plan was for its customers, Market Basket had an easy

shopping environment.  There were no loyalty cards or self-checkouts like there is now and no

official websites.  Contributing to this plan of action to be successful was to always have an

employee available to the customers.  This included stocking on equipment during the day as

opposed to overnight.  This would assure that there was always an employee in or around the

shelves.  Market Basket was 10% to 21% cheaper than Stop & Shop and 22% cheaper than

Shaw’s, even inching out Walmart (Grant Welker, 2014). Market Basket also emphasized
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uniform pricing rather than having higher prices in locations where there was higher willingness

to pay (Zeynep Ton, Thomas A Kochan, and Cate Reavis, 2014).  Another tactic that made

Market Basket different than a lot of its competitors that they established the "10 foot rule".  This

meant that any customer within 10 feet of an employee would be greeted with a smile. 

Attributing to these factors was that employees wanted to work there.  The poor performers were

either let go or left voluntarily.  This behavior of great customer

service came with a compensation.  Employees who worked there had a beginning pay of $12.00

for cashiers.  The part timers were paid $8.00 an hour and time and a half on holidays.  They also

received a .25 increase every six months until they reached the $12.00.  One thing that the

company did was that they contributed between 15% and 20% of an employee’s annual pay into

the profit-sharing fund. In 2009, approximately 6,600 employees were eligible and the board

voted to contribute 20% of eligible wages approximately $40 million into the plan (The Boston

Globe, 2014). By the end of 2014 the plan was worth more than $612 million.  The company

was also very flexible with schedules.  Accommodating you if you needed to work a specific

schedule.  When it was time for promotions, the company would promote from within.  This

enticed employees to work harder and to continue to strive for their best when they were with the

company with hopes of moving up.  This would also assist with the part time employees.  If you

were a part time employee, you pretty much had to earn your way up.

    Intergroup conflicts played a role down the line when Arthur T.’s side of the family chose

two directors, two were chosen by Arthur S.’s side, and three were chosen by majority

shareholder vote.  Until 2013, Rafaele participated in a voting alliance with Arthur T., which

allowed him to control the board and grow the company. Some shareholders had opposed Arthur

T.’s management practices, accusing him of taking advantage of having almost no oversight—
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spending too much of the shareholders’ money on capital costs and entering into improper

business deals with companies owned by his wife and brothers-in-law (Zeynep Ton, Thomas

A Kochan, and Cate Reavis, 2014).  This represented a process conflict in how the work was

getting done.  Arthur T's management ideas came into question because he did not seek the

board's approval to pay out bonuses to the employees.  When Arthur T was asked about it, he

responded by saying that he would do what was in the best interest of the business.  This was

part of the process conflict within this case study.  Another downfall came in 2008 when their

$46 million dollar investment resulted in a loss. 

Because of Arthur T's management style, Arthur S. and his sisters decided to propose to

sell their share of the business to which a judge agreed that they can sell to a third party.  Adding

to the process conflict process of the five stages (Potential opposition, cognition and

personalization, intentions, behavior, and outcomes). When Arthur S family gained control of

the business because of the switching of Rafaele.   The dyadic conflict between Arthur S. and

Arthur T. went on until the beginning of 2014, when Arthur T. made a dynamic decision that

would reduce the prices of every item by 4% until the end of the year.  This bold move by Arthur

T. was expected to cause the company $170 million dollars.   On Monday, June 23, 2014, the

board fired Arthur T. and named Felicia Thornton, former CFO of Albertsons, and James F.

Gooch, former president of Radio Shack, as interim co-CEOs.   The firing of Arthur T. created a

reaction from employees, customers, and vendors.  Walkouts and protests formed outside Market

Basket headquarters and even outside the stores. Some employees walked out and refused to go

to the stores while others would picket and protest while on their time off for the reinstatement of

Arthur T.   Customers, too, showed their allegiance by shopping elsewhere, leaving evidence of

their defection by taping receipts from competitors on the windows of Market Basket stores
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(Zeynep Ton, Thomas A Kochan, and Cate Reavis, 2014).  The walkouts were based on Arthur

T's leadership styles.  He believed in taking care of the employees and customers first.  He made

sure that employees would receive strong benefits including the participation in a profit sharing

and scholarship program for kids in college.  The employees worried that the new leadership

wanted to operate the company in a way to purposefully nullify the profits.  The employees were

also worried that the new leadership would want to sell the company.  According to the case

study y Zeynep Ton, Thomas A Kochan, and Cate Reavis, The new co-CEO Thornton was

known to acquire companies and sell them for a profit.  Arthur T's loyalty to his employees and

to his customers paid dividends when the company began to experience all of these walkouts. 

There was instances where the warehouse employees would decline a delivery from a delivery

driver and this would cause the company to lose even more money.  The employees expressed

their concerns that they wanted to preserve the company for a long time because it was already a

family tradition to many.  The result of these actions and loss of wages caused the Market Basket

board of directors and shareholders to allow Arthur T. and his family purchase 50.5% of the

company from Arthur S. on August 27, 2014.   As part of the agreement, Arthur T. was

reinstated with his management team to run the company with full operational authority during

the transition period, and the two CEOs would stay on in a monitoring capacity and report to the

board during this time (Zeynep Ton, Thomas A Kochan, and Cate Reavis, 2014).  The

reinstatement of Arthur T. not only boosted sales but it also attracted new customers who had

never been to a Market Square Supermarket.  In 2014, their total revenue was $4.6 billion.  It can

clearly be seen that Market Basket's business model is sustainable given its new structure.  This

all attributes to the leadership of Arthur T. and to the essential rules the company has which are

the items they sell are based on the customer's needs and their commitment to their employees.
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    The impact that one person has over an entire company such as that of Market Square is a

feat that every company owner wishes to achieve. The task conflicts that were presented in the

case study such as everyone receiving the same bonuses with no importance to the size of the

store but rather the customer service that was offered is not a status quo to many supermarkets. 

While the intragroup conflict that occurred within the company did not show many of the

penalizations for the case study that came out for the members if any of them committed

mistakes.  We can agree that the head of an organization plays a vital role to every single piece

of the puzzle involved in the super marketing environment.  From promoting within, to offering

great wages to employees and to making sure that every customer is greeted at the store.  This

marketing strategy will supersede any other strategy out there. 

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REFERENCE

"WE ARE MARKET BASKET”Zeynep Ton, Thomas A Kochan, and Cate Reavis