DeMoulas Market Basket

For the Texas and Louisiana chain, see Market Basket.
DeMoulas Supermarkets, Inc.
Privately held company
Industry Grocery
Founded Lowell, Massachusetts, United States (1917)
Founder
  • Athanasios Demoulas
  • Efrosini Demoulas
Headquarters Tewksbury, Massachusetts, United States
Number of locations
 75[1]
Area served
 New Hampshire, Massachusetts, Maine
Key people
  • Arthur T. Demoulas (Majority shareholder, Chief Executive Officer)
  • Keith Cowan (Chairman)

[2]

Products Bakery (not available at all stores), Dairy, Deli, Frozen Foods, Grocery, Meat, Health & Beauty Aids, Produce, Seafood, Snacks, Beer & Wine (NH and Maine stores only), Food service (not available at all stores)
Revenue US$4 Billion (2012)
Owner Arthur T. DeMoulas
Number of employees
 25,000 (2014)[1]
Parent DeMoulas Supermarkets, Inc.

DeMoulas Super Markets, Inc., under the trade name Market Basket, is a chain of 75 supermarkets in New Hampshire, Massachusetts, and Maine in the United States, with headquarters in Tewksbury, Massachusetts.[1]

From 1990 through late August 2014, the company was the center of a controversy over ownership and leadership, which culminated in protests receiving international media attention. On August 27, 2014, an agreement was reached between its feuding owners to sell the 50.5% stake of the company owned by the family of Arthur S. Demoulas to his cousin Arthur T. Demoulas for $1.5 billion.[2]

History

In 1917, Greek immigrants Athanasios ("Arthur") and Efrosini Demoulas opened DeMoulas Market, a grocery store in the Acre neighborhood of Lowell, Massachusetts that specialized in fresh lamb. In 1938, the store, which operated largely on credit due to the Great Depression, was being threatened with foreclosure. The Demoulases youngest son, Telemachus, also known as Mike, either quit or was expelled from school and went to work at the store full-time. Eventually the family earned the money needed to avoid foreclosure.[3][4]

After World War II, Mike's older brother George also joined the family business. Also after the war, housing projects were constructed in the Acre, which resulted in a larger customer base for the Demoulases. In 1950, the Demoulas Brothers opened a new store to replace the original market. In 1954, they purchased the business from their parents. By 1956, the market's sales had jumped from $2,000 a year to $900,000 and the brothers began expanding. Within 15 years, the two brothers had transformed their parents' "mom and pop"-style store into a modern supermarket chain consisting of 15 stores.[3]

The last use of the name DeMoulas on a facade was on this former store in Salem, New Hampshire.

On June 27, 1971, George Demoulas died of a heart attack while on vacation in Greece, making Mike the sole head of the Demoulas supermarket chain. Shortly thereafter, in an effort to skirt laws limiting the amount of beer and wine licenses one supermarket chain could have, Mike Demoulas began opening stores under different names. These stores, which eventually became the Market Basket chain, were controlled entirely by Mike Demoulas and his family.[5]

Lawsuits

In 1990, the widow and children of George Demoulas (including his son, Arthur S. Demoulas) sued Mike Demoulas, alleging that they had been defrauded out of their shares in the company. They claimed they had trusted Mike to take care of the family after George's death and that he exploited this trust in order to have them sell all of George's real estate and 84% of his shares in DeMoulas Super Markets to members of his own family pennies on the dollar.[3] Mike Demoulas contended that his brother's heirs had willingly sold their shares in the company because they wanted money and their stock in DeMoulas did not pay dividends. According to Mike Demoulas, George's widow, Evanthea, asked him to sell her shares so she could have money to raise her children, her son Evan sold his shares to he could began an auto racing career in Europe, and her two daughters, Diana and Fotene, sold their shares after they saw how much money their brother received. However, once the company began paying dividends in 1988, the family saw how much money they could have made if they had kept their shares and sought to "rewrite history" in order to regain what they had sold. George's children acknowledged that they had signed many of the documents authorizing the sales and transfers, but stated they were not aware of what they were signing because they were too young to understand and trusted their uncle to take care of them. A jury found in favor of George's family.[3][6]

A few weeks after the decision, George's son Arthur S. Demoulas filed a second suit, this time alleging that Mike Demoulas had diverted assets from the jointly-owned family company, Demoulas Super Markets, to ones controlled by him and his children, including Market Basket. After an eighty-four day bench trial, judge Maria Lopez found in favor of the plaintiffs. Lopez awarded George's family about $206 million for dividends on stock that had been improperly diverted and 50.5% of the company. She also ordered that all of the assets of Market Basket and the other companies controlled by Mike Demoulas and his family be transferred to Demoulas Super Markets and that Mike Demoulas be removed as president of the company.[6][7]

In early September 1990, six bugs were found at the headquarters of DeMoulas Super Markets. It was alleged that Arthur S. Demoulas had planted the bugs in order to listen to the legal strategy of the other side of the Demoulas family. Michael Kettenbach, the son-in law of Mike Demoulas, sued Arthur S. Demoulas, claiming that Demoulas had "invaded his privacy rights by having listening devices planted at DSM headquarters." In 1994, a jury found in favor of Arthur S. Demoulas.[6][7] However, a new trial was granted after a woman came forward with new evidence - a recording of her boyfriend admitting to bugging the office for Arthur S. Demoulas. The case was damaged though when the woman admitted to being a crack cocaine addict who received about $500,000 in housing and other expenses from the family of Telemachus Demoulas and the man on the tape testified that he had been lying during the recorded conversation. On August 4, 1997, Arthur S. Demoulas was again cleared of wiretapping charges by a federal jury.[6][6][8]

In 1991, George Demoulas' family sued Telemachus Demoulas, his son Arthur T. Demoulas, and DeMoulas Super Markets, Inc. chief financial officer D. Harold Sullivan, alleging that the three violated the Employee Retirement Income Security Act of 1974 by using their positions as the trustees of the company's employee profit-sharing plan to make fiscally irresponsible real estate loans to friends and business associates.[9] The United States Department of Labor filed a similar complaint six months later.[10] On May 31, 1994 the Department of Labor announced that they had reached a settlement in which the trustees agreed to sell $22 million of the loans by July 11 or purchase them themselves as well as pay the plan $750,000 to make up for the dropped interest rates on the loans (unless the loan recipients paid the money instead). The trustees also agreed not to make any similar investments. The trustees admitted no wrongdoing in the case.[11] Despite the heavy investment in risky real estate loans, the plan never posted a loss. In the civil case, Judge Rya W. Zobel ruled that the trustees' actions were "wrong but not corrupt" and that the settlement with the Department of Labor was "an adequate remedy". Therefore, she denied the request to have them removed.[12]

In 1997 the Massachusetts Supreme Judicial Court upheld a lower court's ruling that Arthur T. Demoulas had presented the DeMoulas Super Markets Board of Directors with “misleading, inaccurate, and materially incomplete” information in order to receive a rejection and keep his cousins from receiving any of the profits from Lee Drug, a pharmacy chain he started after the board rejected his proposal to start a pharmacy division of Market Basket.[13]

In 1999, Mike Demoulas resigned as president due to a court order. He was succeeded by William Marsden.[14]

Presidency of Arthur T. Demoulas

By 2002, Rafaele Evans, the widow of George's son Evan, was voting with Arthur T. Demoulas due to her displeasure with her brother-in-law, Arthur S. Demoulas, after he attempted to gain control of the trust that controlled her daughter's shares. This gave Arthur T. a majority vote on the Board of Directors.[15] In 2008, Arthur T. Demoulas was named President and CEO of DeMoulas Super Markets, Inc. During his tenure as CEO, sales grew from $3 billion a year to $4 billion, and the number of employees grew from 14,000 to 25,000. During the same time, competitors Stop & Shop and Shaw's closed many of their stores due to financial troubles. Market Basket also faced new competition from discount grocer Wegmans,[16] which opened its first Massachusetts store in 2011. On the employee front, Arthur T. was known for his ability to remember his 'associates' names, birthdays, and milestones, attending many of their weddings and funerals, checking in on ill employees, and asking about the spouses and children of his workers.[13][17] He was seen as a father figure by a number of his employees and compared to It's a Wonderful Life protagonist George Bailey for his willingness to put people over profit.[18]

Market Basket store in Bourne

Demoulas' opponents criticized him for being "openly defiant" of the board of directors and having a "dictatorial" management style.[16] In a 2010 memo to the Board of Directors, Arthur S. Demoulas accused Arthur T. Demoulas of "plundering" millions by paying millions in excessive real estate prices for new Market Basket store locations. One example cited in the memo alleged that Arthur T. had recommended that the company pay $20.9 million to purchase a property in Bourne, Massachusetts, owned by an entity in which he was a major investor. After the sale, Arthur S. had the property appraised by a Boston real estate executive, who valued the property at $9 million. He also accused Arthur T. of paying "grossly excessive fees" to Retail Development and Management Inc., a real estate firmed owned by his brothers-in-law Michael Kettenbach and Joseph Pasquale that oversaw Market Basket's real estate and helped it develop new stores. He and his attorneys argued that the 7.5% of the total development costs "was far in excess" of the prevailing market rate of 2% to 3%.[19]

Arthur T. denied his cousin's claim. He argued that Arthur S. trumped up the charges in order to take control of the company and pay himself and the other shareholders more money. Attorneys for Arthur T. noted that Cushman & Wakefield later appraised the Bourne property at $25.5 million. Arthur T. also defended his arrangement with Kettenbach and Pasquale, which he said allowed Market Basket to purchase properties without alerting its competitors, thus avoiding a bidding war and saving the company money.[19]

In 2011, the Board of Directors hired Mel L. Greenberg, a retired judge, to investigate Arthur S.'s claims. Greenberg found that there was no wrongdoing by Arthur T. in the purchase of real estate (including the Bourne property) that the fees paid to Retail Development and Management were not excessive. However, he did find that Arthur T. and the Board of Directors had neglected their fiduciary duties by not looking into whether or not the company would have been better off if it had exercised its option to purchase its store in Somersworth, New Hampshire instead of renting it from a company in which Arthur T. and his family owned a 55% stake.[19]

2014 firing of Arthur T. Demoulas and protests

Decades of resentment and legal spats between cousins Arthur S. and Arthur T. Demoulas came to a head in mid-2013, when Evans switched loyalties, tipping the majority vote from Arthur T. to Arthur S.[20] On July 18, 2013, the board did not take up a motion to remove Arthur T. as CEO after protesters gathered outside the meeting.[21][22] Five days later, the board voted to distribute $250 million to family shareholders, an action opposed by Arthur T.[23] In March 2014, two board members elected by Arthur T., William Shea and Terence Carleton, skipped a board meeting in which it was anticipated that there could be a vote to remove Arthur T. as CEO. Arthur S.'s side of the family sued Shea and Carelton, alleging they had boycotted the meeting. A Suffolk Superior Court judge ruled that Shea and Darman were required to attend the next meeting.[16]

Market Basket's flagship store in Chelsea, Massachusetts, site of June 24 rally

On June 23, 2014, three top-level executives - CEO Arthur T. Demoulas, Vice President Joseph Rockwell, and Director of Operations William Marsden - were fired by the board.[24] The Chief Executive position was filled by James Gooch, a former Radio Shack executive, and Felicia Thornton, formerly of supermarket company Albertsons, sharing the position.[25] In response, six high-level managers resigned, and 300 employees held a rally outside Market Basket's Chelsea, Massachusetts flagship store on June 24.[25]

Beginning on July 18, 2014, additional protests with as many as 5,000 employees and customers were held at the company's Tewksbury headquarters and other locations demanding the reinstatement of Arthur T.[18][26] Many warehouse and corporate office workers including delivery truck drivers went on strike, leaving some shelves bare at many Market Basket locations.[27][28] On July 20, seven employees were fired for their roles in organizing the protests.[29] In the midst of the protests, Arthur T. offered to buy the entire company from his cousins, an offer that the board (controlled by Arthur S.'s family) said it would consider. The board was reportedly also reviewing additional offers.[26]

Sale to Arthur T. Demoulas

On July 28, 2014, the Boston Globe reported that Arthur T. Demoulas was the only remaining bidder for the 50.5% stake of the company held by the family of Arthur S. Demoulas. All previous offers by outside parties to buy the company had been withdrawn and the board was reportedly "furiously negotiating" with Arthur T. to resolve the situation. The board denied this report, claiming that several offers were still being considered.[30]

On August 17, 2014, Massachusetts Governor Deval Patrick and New Hampshire Governor Maggie Hassan met with both sides of the feud in an attempt to broker a deal.[20] On August 22, Arthur T. made a $1.5 billion offer for the 50.5% of shares owned by the opposing side of the family; several subsequent days of negotiations initially failed to reach an accord.[31] Some analysts estimated the company to be in "dire" financial straits due to the weeks of protests.[20]

On August 27, 2014, the shareholders of Market Basket reached a deal to sell the remaining 50.5% shares of the company to Arthur T. Demoulas for $1.5 billion.[2][32] According to Fortune, Demoulas was backed by The Blackstone Group, a private equity firm that put up over $500 million towards the purchase price.[33] However, according to the Boston Globe, a source reported the deal was funded with debt, not private equity.[34]

Felicia Thornton and Jim Gooch remained as the Chief Executives of the company but Arthur T. was given full operational authority until the deal closed. On December 12, 2014 it was announced that the deal was complete.[34]

Market Basket today

A typical Market Basket store in Portsmouth, New Hampshire

Market Basket is distinguished from its competitors by providing the lowest prices. According to a 2013 study by Consumers' Checkbook, Market Basket's prices were on average about 20% lower than their competitors.[17] In their 2014 ratings, Consumer Reports ranked Market Basket at #6 among national supermarkets.[35]

As of November 2014, Market Basket currently operates 74 stores. The chain's footprint has expanded greatly in the past decade, and now encompasses an area stretching from Cape Cod to southern Maine, just shy of the Vermont and Rhode Island state lines. The first Maine location opened in Biddeford in August 2013.[36] The chain had two additional locations in Massachusetts either under construction or completed but not open in Athol (the Athol store opened in February 2015) and Attleboro.[37][38] These projects were stalled from 2013 to 2014 due to disputes between company president Arthur T. Demoulas and chairman Arthur S. Demoulas. After Arthur T. Demoulas gained control of the company in August 2014, he announced that he hoped to open two or three of these stores by the end of the year.[39] The first new store to open since the sale to Arthur T., located in Revere, opened on October 26, 2014.[40] A new store in Littleton opened on November 8, 2014, coinciding with the closing of the old Westford store.[41]

Market Basket's starting wages for full-time clerks are $12 an hour – above minimum wage. Employees who work more than 1,000 hours a year are eligible to enter profit-sharing program. Employees also receive benefits, including healthcare and paid sick leave.[17][42] Market Basket employees do not belong to any Trade union.[43]

Unlike most low price grocers, Market Basket does not use supermarket loyalty cards.[44] Market Basket also differs from other supermarkets because it typically does not feature pharmacies within its stores.[45] The company also does not have a website, although there is an independent website that contains weekly specials and store locations and hours.[46] Further, Market Basket does not have self checkout lanes. Company President Arthur T. Demoulas stated that he wanted "a human being waiting on a human being."[47]

References

  1. ↑ 1.0 1.1 1.2 Ross, Casey (10 August 2014). "‘Onerous’ terms prolong standoff, Arthur T. say". Boston Globe. Retrieved 12 August 2014.
  2. ↑ 2.0 2.1 2.2 Vaccaro, Adam (27 August 2014). "He’s Baaaaaack: Arthur T. to Buy Market Basket in $1.5 Billion Sale". Boston Globe. Retrieved 28 August 2014.
  3. ↑ 3.0 3.1 3.2 3.3 Zernike, Kate (11 January 1998). "Demoulas v. Demoulas".
  4. ↑ Pereira, Joseph (13 July 1994). "Family That Amassed Supermarket Fortune Splits in a Bitter Feud". The New York Times.
  5. ↑ Reidy, Chris (14 March 1997). "SJC upholds decision in Demoulas feud". The Boston Globe.
  6. ↑ 6.0 6.1 6.2 6.3 6.4 Frisch, Michael S. (Fall 2007). "Zealousness Run Amok". The Georgetown Journal of Legal Ethics.
  7. ↑ 7.0 7.1 Nealon, Patricia (16 July 1997). "Wiretap claims are key to DeMoulas fight". The Boston Globe.
  8. ↑ Nealon, Patricia (5 August 1997). "Federal court jury clears Demoulas". The Boston Globe.
  9. ↑ Kennedy, John H. (16 October 1991). "Demoulas family in another legal squabble". The Boston Globe.
  10. ↑ Zuckoff, Mitchell (13 June 1992). "Labor Dept. Joins Demoulas Family Fight". The Boston Globe.
  11. ↑ Kennedy, John H. (1 June 1994). "Demoulas pension plan suit is settled". The Boston Globe.
  12. ↑ Reidy, Chris (14 April 1995). "Pension trustees cleared". The Boston Globe.
  13. ↑ 13.0 13.1 Borchers, Callum (22 August 2014). "Arthur T. Demoulas’s personal touch can cut both ways". The Boston Globe.
  14. ↑ "Demoulas president resigns as court order takes effect". The Boston Globe. 7 February 1999.
  15. ↑ Bailey, Steve (23 June 2004). "Demoulas Redux". The Boston Globe.
  16. ↑ 16.0 16.1 16.2 Welker, Grant (27 August 2014). "How one woman set off the latest chapter in the Market Basket tale". Lowell Sun.
  17. ↑ 17.0 17.1 17.2 Gittleson, Kim (1 August 2014). "Market Basket: Workers risk it all for their boss". BBC News.
  18. ↑ 18.0 18.1 Tuttle, Brad (23 July 2014). "Meet America’s Most Beloved CEO—Too Bad He Just Got Fired". TIME. Retrieved 25 August 2014.
  19. ↑ 19.0 19.1 19.2 Ross, Casey (2 August 2014). "Legal memos trace acrimony between Demoulas factions". The Boston Globe.
  20. ↑ 20.0 20.1 20.2 Vaccaro, Adam (25 August 2014). "Updated: What the Heck Is Happening at Market Basket?". Boston Globe. Archived from the original on 26 August 2014.
  21. ↑ Springer, Jon (12 July 2013). "Demoulas CEO Facing Board Challenge". Supermarket News. Archived from the original on 28 July 2014.
  22. ↑ Ross, Casey (18 July 2014). "Market Basket CEO gets reprieve". Boston Globe. Retrieved 25 August 2014.
  23. ↑ Ross, Casey (23 July 2014). "Market Basket board votes to distribute $250 million to owners". Boston Globe. Retrieved 25 August 2014.
  24. ↑ Scott, Christopher. "Market Basket CEO canned". Lowell Sun. Retrieved 24 June 2014.
  25. ↑ 25.0 25.1 Vaccaro, Adam (24 June 2014). "Leaders Resign While Hundreds of Market Basket Employees Rally in Support of Fired CEO". Boston Globe. Retrieved 25 June 2014.
  26. ↑ 26.0 26.1 Unknown, Unknown (July 21, 2014). "Thousands Rally Outside Tewksbury Market Basket". Boston Globe. Retrieved 28 July 2014.
  27. ↑ "Market Basket shelves look bare during corporate strike". WMUR. 19 July 2014. Retrieved 27 July 2014.
  28. ↑ Associated Press (25 July 2014). "A tale of two Arthurs: Market Basket family feud sparks workers' revolt". The Guardian (West Bridgewater, Massachusetts).
  29. ↑ Ailworth, Erin; Adams, Dan (20 July 2014). "At least 7 Market Basket employees fired, protesters say". Boston Globe. Retrieved 25 August 2014.
  30. ↑ Schreiber, Jason (29 July 2014). "Market Basket board insists it is weighing several potential buyers". Seacoast Daily. Retrieved 25 August 2014.
  31. ↑ Ross, Casey; Newsham, Jack (24 August 2014). "No accord in Market Basket discussions: Sides at odds over terms of sale". Boston Globe. Retrieved 25 August 2014.
  32. ↑ "Deal reached to sell Market Basket to Arthur T. Demoulas". 27 August 2014. Retrieved 27 August 2014.
  33. ↑ Primack, Dan (28 August 2014). "Exclusive: Blackstone Group is Market Basket's mystery backer". Fortune.
  34. ↑ 34.0 34.1 Vaccaro, Adam (12 December 2014). "Market Basket Deal Completed". The Boston Globe. Retrieved 12 December 2014.
  35. ↑ Welker, Grant (5 April 2014). "Market Basket scores high in Consumer Reports ratings". Lowell Sun. Retrieved 12 August 2014.
  36. ↑ Anderson, J. Craig (22 July 2014). "Feud at Market Basket stalls growth plans in Maine". Portland Press Herald. Retrieved 25 August 2014.
  37. ↑ Brown,Karen (12 August 2014). "Athol, Mass. Officials Concerned About Market Basket Controversy". New England Public Radio Website.
  38. ↑ Foster, Rick (28 August 2014). "Opening of South Attleborough Market Basket Could Be On The Horizon". The Sun Chronicle.
  39. ↑ Newham, Jack (2 September 2014). "New Market Basket stores could take months to open". The Boston Globe.
  40. ↑ Reidy, Chris (30 October 2014). "Market Basket celebrates the opening of its new supermarket in Revere". Boston Globe. Retrieved 19 November 2014.
  41. ↑ Ciampa, Heidi Creighton (7 November 2014). "Market Basket to open 73rd store in Littleton Saturday". Nashoba Publishing. Retrieved 19 November 2014.
  42. ↑ Newsham, Jack (26 August 2014). "Market Basket crisis hits disabled workers hard". The Boston Globe.
  43. ↑ Nickisch, Curt (3 September 2014). "Market Basket Shows Power Of Organized Labor Without Unions". WBUR.
  44. ↑ Waterhouse, Gail (28 June 2013). "Shaw’s drops its loyalty card program". Boston Globe. Retrieved 12 August 2014. The move comes as Shaw’s prices increased compared to the competition, including chains such as Market Basket, which has no rewards card but is known for its low prices.
  45. ↑ Welker, Grant (3 September 2013). "Shopping cart full of changes looming for Market Basket". Lowell Sun. Retrieved 25 August 2014.
  46. ↑ Nickisch, Curt (23 July 2014). "The Mystery Of Market Basket’s Missing Website, And The Lone Shopper Who Filled The Void". WBUR. Retrieved 16 December 2014.
  47. ↑ Welker, Grant (27 July 2014). "How one woman set off the latest chapter in the Market Basket tale". Sentinel Enterprise. Retrieved 25 August 2014.