Retail

Why Market Basket Beats Walmart In The Grocery Game

Until about two years ago, very few people outside of New England had ever heard of Market Basket — a privately owned and operated supermarket chain located exclusively within southern New England.

Which is actually something of a shame because, despite being small — there are fewer than 100 Market Basket locations, all of which are found in New Hampshire, Massachusetts or Maine — Market Basket has spent at least a quarter of its 99 years in business being one of the most dramatic stories in the grocery business.

And, even more surprisingly, one of its more successful.

As of 2015, Market Basket was finishing its most successful year ever as measured by sales. It is also growing, having opened five new stores in the last year and two more under construction to open in 2016. It’s also expanding its offerings and seeing growth in areas that it might not have expected even five years ago, particularly in gourmet products and organic goods.

A result that is somewhat surprising, given that about a year and a half ago Market Basket’s board was at war with itself, its employees were protesting in the street, its suppliers were cutting ties and its current CEO was unemployed.

“Our business model is completely intact, and we’re running the shop with a lot less distractions,” Market Basket President and CEO Arthur T. Demoulas noted in an interview. “We certainly see growth in the future.”

So, how’d it get here from there?

 

A Brief History Of A Quarter Century In Strife

Founded in 1917 as a small “mom-and-pop” market by Athanasios ("Art") and Efrosini Demoulas and barely holding on through the worst days of the Great Depression, Market Basket enjoyed a period of peaceful expansion and growth between 1950 and 1991. During this period, the firm was co-run by Mike and George Demoulas and then by Mike alone after 1971 when George died.

Then, in 1990, the lawsuits started, kicking off what essentially amounted to a 24-year battle between the various heirs of George and Mike Demoulas over the still-expanding firm’s profits and future direction.

An extremely dramatic battle.

At various points, the fight for Market Bastet involved half of the Demoulas family electronically bugging the other half, acrid accusations of gross financial mismanagement and misuse of employee retirements funds and stories of children being coerced into signing away million dollar fortunes.

These are just the things that were directly litigated and confirmed by a judge's rulings in court. The accusations were a good deal wilder.

By 2014, however, the situation had significantly boiled over.

The first 20 or so years of the Demoulas family’s re-enactment of the show "Dallas" (but about groceries and not oil) was predicated upon fighting over a company that was growing and becoming more profitable. The last four were over a brand that was facing troubles; Market Basket’s profitability began to plunge in 2010–2011, consistent with the performance of other regional New England chains, like Stop and Shop and Shaw’s. But, unfortunately, much more damagingly to the much smaller Market Basket chain.

By 2014, the fight had basically come down to two guys named Arthur Demoulas: Arthur S., who had the backing of Market Basket’s board and was looking to sell the chain, and his cousin, Arthur T., the removed president and CEO, beloved by the staff.

So beloved, in fact, that upon the announcement of his removal, a huge percentage of that staff, more or less, went into full revolt and staged protests so large that customers stayed away and raucous employees kept suppliers from making deliveries. Which was probably for the best since Market Basket couldn’t pay for them since no one was shopping there.

The situation eventually had to be brokered by lawyers, professional mediators and two states' governors, and in the end, everyone sort of won, or at least got enough that the 25-year Demoulas family feud could come to an end.

Arthur S. Demoulas and the board got to sell Market Basket for $1.5 billion, and Arthur T. Demoulas got to buy the company and keep running it his way — for the bargain price of $1.5 billion.

However, with now undisputed control of the family firm and a mountain of debt, there was a lasting and serious question that expert eyes suddenly trained on Market Basket: What now? Given the scale and scope of the losses that had hit Market Basket and the very large pile of debt its new CEO was holding, one of two things was going to have to happen.

Either Market Basket’s very generous employee plans, which include $12 an hour starting pay for employees and profit-sharing, among other perks, or Market Basket’s very discounted pricing model was going to have to go.

But neither has happened.

 

Back To Basics

Market Basket still starts employees at $12, still has profit-sharing after the first year and its prices are still cheaper than its competition — according to Nielsen's latest report on the subject, about 15.9 percent cheaper, on average.

Market Basket’s CEO credits much of that to greater peace in the valley.

“The new board does not disrupt the flow of the company, and it’s working well for the whole organization,” Arthur T. Demoulas said. “You can conduct constructive discussions and talk about positive business issues that move the company forward in a very simple way.”

And Market Basket has a very obvious, and thus often easily overlooked, secret weapon.

It does basic grocery operations better than most stores. The stores are clean, well-stocked, easy to navigate and the staff gives the impression of being happy to be there and of knowing where the items in the store are located.

A regional grocery manager we spoke to noted that this was by design. Paying staff better or giving them an incentive to work long-term with Market Basket isn’t just a commitment to its employees' quality of life; it is also a commitment to a better customer experience, since better-paid, longer-term employees tend to be both more useful and more knowledgeable.

Market Basket also eschews self-checkout lanes, despite its "customer-friendly" reputation.

"What we found is they aren’t faster or easier unless they work perfectly," a Market Basket manager noted. "And rarely do they. There’s also something to be said for interacting with a human being. We get very few complaints about how much people really don’t want to deal with a cashier and how much they want to check out their own groceries.”

Consumers want a good experience, he noted, but a good experience isn't always “measured on a stop watch.” They also want it to be pleasant.

And cheap — an area where Market Basket also thrives.

 

The Quiet Magic Of Paying On Delivery

Market Basket's cheaper-than-average prices are often a source of confusion. How is a small chain that arguably overpays its employees still charging 15 percent less, on average, than the competition?

Simply stated, it pays its suppliers on time. Market Basket pays for goods when the goods are delivered — not with 30, 60 or 90 days as part of a complex invoicing dance.

“This means we get maximum flexibility to negotiate with our suppliers. And we can pass those savings on, however we get them, directly in our pricing.”

And those low prices have pushed Market Basket's growth. Customers get a low price and get to feel good about shopping at Market Basket.

"We are built directly next to a Walmart in a few of our locations, and Walmart can, and does, beat us on price on some items. But we offer a better deal for everyone involved with Market Basket, and I do think that makes an absolute difference to a consumer who is looking at two doors at the same time and deciding where to enter.”

 

What’s Next?

Market Basket, in many ways, marches to the beat of its own drummer. It doesn’t have a website, let alone a mobile app; it has no card-based loyalty program.

And it has no immediate plans for either.

It has changed up its offering quite a bit in the last 18 months. A gourmet cheese section has begun to appear in some of its locations, and its rather surprising success means the chain is considering plans to hasten openings of other such high-end-focused, in-store kiosks going forward.

What can be done is to do what it's done for 100 years and find ways to always do it better. Make sure customers can always find what they want on the shelf, buy it at a price they think is fair and have it serviced by a human being who cares about their experience in the store.

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NEW PYMNTS DATA: HOW WE SHOP – SEPTEMBER 2020 

The How We Shop Report, a PYMNTS collaboration with PayPal, aims to understand how consumers of all ages and incomes are shifting to shopping and paying online in the midst of the COVID-19 pandemic. Our research builds on a series of studies conducted since March, surveying more than 16,000 consumers on how their shopping habits and payments preferences are changing as the crisis continues. This report focuses on our latest survey of 2,163 respondents and examines how their increased appetite for online commerce and digital touchless methods, such as QR codes, contactless cards and digital wallets, is poised to shape the post-pandemic economy.

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