An ode to Market Basket

Not enough has been made of the successful strike against the controlling interests of the Market Basket food chain. The alliance between workers and consumers may well set a precedent for the long awaited pushback of the middle class to the "hollowing out" of their income.

The facts of the occurrence reached the national news media and should be well known by now. Arthur T. Demoulas (ATD), the longtime CEO of the 71-store chain of Market Basket stores in the Northeast, was ousted by family member Arthur S. Demoulas (ASD) in June. Nine of ATD's managers were fired and 65 warehouse workers went on strike in support of the departed. For the past two-and-a-half months, customers and employees have been boycotting the stores in support of the old management. Why? Because ATD supported and encouraged employees with decent wages, benefits and an empathetic management style while providing customers with food prices significantly lower than virtually all other supermarket chains. Other Demoulas family members, led by ASD, wrested control because they wanted more in the way of income and dividends despite the fact that Market Basket has earned them over a half billion in the past 10 years. The implications of the new management were clear: squeezing worker pay and raising prices.

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The company was publicly valued at $3.5 billion and ATD eventually had an offer of $1.5 billion accepted by the 50.5 percent of the family that had initiated his ouster. The workers are back at work, the shelves are being restocked and the customers are returning. The celebration of workers and customers is both jubilant and emotional because their victory has several distinctive and impacting elements.

First and foremost, the company is non-union. So this was an unusual event where non-union workers were striking in unison. Secondly, what were they supporting? Their management; ATD is an owner/manager who paid above market wages, provided benefits, interacted with his employees and earned their loyalty. Thirdly, ATD's novel concept of stakeholder management was combined with a pricing philosophy that provided customers with 5 to 20 percent lower prices than competitors for most every item on the shelf. ATD was able to provide the prices and pay the wages by limiting some selection, limiting administrative overhead and using Market Basket's buying strength to get savings and then passing these on to customers. As the stores evolved, they became more and more of a mainstay for customers who had to make income stretch further because there were no increases in real income and had not been any since the middle 1970s.

Finally, it was the overwhelming support of customers of the boycott that carried the day. The real point of this story is the unprecedented way in which customers defied the greed of wealthy owners seeking to hollow out worker pay, benefits and an empathetic management style while making them pay more. It is true that Arthur T. Demoulas's dismissal spurred the firing or resignation of several key managers and subsequently warehouse employees went out on strike in sympathy. But empty produce shelves don't account for the wholesale support of that strike by customers willing to pay higher prices in other stores to support the strike.

The real message of the strike and the subsequent jubilation at its end was the emphatic statement by middle- and lower-income Americans that proper treatment of employees and lower prices through less greedy profit objectives is what is going to drive consumer decisions. As awareness grows as to the extent to which the quality of life for middle-income Americans has been sacrificed to benefit the very few at the top, more boycotts will follow. What was so heartening for the customers of Market Basket was the fact that it worked. The effort gained national attention and may have been a cautionary indicator for the Wal-Marts and McDonald's of the world that squeezing your employees so CEOs can gather millions and billions simply doesn't fly any longer.

For those who do not understand the stakes, a few things should be made clear. From 1948 to 1973, worker productivity in the U.S. increased 96.8 percent and compensation for the average worker tracked with wage and benefit increases totaling 93.7 percent. From 1973 to 2011 productivity gains exceeded 80 percent and increases to compensation increased a mere 4.2 percent. Put another way, had business leaders remained true to the stakeholder philosophy of post-World War II America (where management balances the needs of customers, worker and shareholders) the average worker in the U.S. would currently earn $12,000 a year more than he or she does. Put another way, had the stakeholder philosophy been in place from 1979 to 2006, American workers would have earned $743 billion more per year and the richest 5 percent would have earned $813 billion less. When people speak of executive compensation soaring from a multiple of 25 times that of their average worker to as much as 450 times greater, there is real impact and real damage.

The advent of globalization, the disproportionate consumption by Americans of the limited resources in the world, a post-Cold War hope and expectation of a more democratic world at no time contemplated the type of exploitation exhibited by American executives. A more equitable sharing and distribution of resources implied shared sacrifice, but it did not require the greed and self-aggrandizement to which we have been treated.

The irony is that all that greed is coming back to roost. An asset-driven return, which is what the recent stock markets have evidenced, will only take you so far and then there has to be consumption. All that diminished middle-income buying power makes for the sluggish economic recovery we are now experiencing. It is true that many large corporations have expanded worldwide so that domestic markets are less important and companies like Walgreens and Burger King are "inverting" themselves to further diminished government revenues. But Americans are beginning to connect the dots. The experience of workers and customers at Market Basket gives us a unique insight as to what happens when, at least in one instance, push comes to shove.

Russell is managing director of Cove Hill Advisory Services.