In 1999 Warren Buffett bought a small chain of furniture stores. Buffett is quoted as saying
“Jordan’s Furniture is truly one of the most phenomenal and unique companies that I have ever seen”
In 1950, Bill Rosenberg opened the first shop in Quincy, Massachusetts. Dunkin’ Donuts licensed the first of many franchises in 1955.
If something threatened your ability to stay in control of your business (for example, a competitor threatens to put you out of business) how loyal are your associates? Would they go on strike and risk their own jobs and their own financial security? Would customers boycott other businesses to improve yours?
The Demoulas Market Basket chain recently experienced that kind of loyalty. It started as one store by the grandfather of the Demoulas cousins, Arthur S. and Arthur T. Their fathers, who were brothers, built it into a number of stores. It is now known as Market Basket and is believed to be the 127th largest family-owned business in the United States.
Yet it consists of only 71 stores with the lowest prices in the supermarket industry. How does that compute? Some of you may realize that much of that industry depends upon low compensation to its employees to increase profits in most places in the industry.
But Arthur T has turned that model upside down. As a matter of fact, in 2014, realizing that the customers had been in dire economic straits after the after the Great Recession, he lowered prices by 4% across-the-board. Arthur T’s philosophy is if you take care of people they will take care of you.
How does this compute and how did he do it? First of all Market Basket pays well above the average wage for that industry. Secondly it has the lowest prices in the industry. So you would think that it’s margins would be extremely low and unprofitable. That model has proven that is not necessarily so.
There is an intangible in every business-the cost of help turn over and the cost of marketing to acquire and retain customers. That is where Arthur T’s model beats the others. Since the people are paid more and well trained, and they get bonuses based upon profits, they tend to be loyal. But that’s not all of the story. Arthur T personally make sure that he is in contact with as many of the people as he can personally, daily and especially when there is a family tragedy and/or celebration. What do you think that would do to your business? Low overhead from training and the need for lower human resource resources needs and costs.
Another major expense in this industry is marketing and sales. There again, the costs are considerably lower because the people serving the customers take good care of them. All of us at one time or another have gone into a grocery store and unable to find an item, assuming you can find someone to ask, what happens? They point to where they think it is, if they know. At Market Basket, the employees are visible, friendly and take you directly to that item.
Make for customer loyalty? Why did the customers boycott the stores when Arthur T was removed from control? Why did truck drivers refuse to move goods from the warehouse to the stores, boycotting and not getting paid even with the threat of losing their jobs? Why did the administrative people as well as those working in the stores boycott and risk their jobs, risk their financial security while boycotting company headquarters and picketing at stores? Why did the customers support the employees, even to the point of bringing in cash register tapes from other supermarkets that were displayed in the windows of the Market Baskets’ where they shopped rather than shop at Market Basket?
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