Market Basket's business model fascinates me. It's a micro-regional supermarket chain that occupies the market's lower rungs in terms of aesthetics and image and yet, it's always thronged and beloved by customers. I've yet to discover any other company that's so simple and so successful.
All of the company's details create an interesting profile: Founded by Greek immigrants in Lowell, it has 62 stores in greater Boston but none anywhere else. The stores are mainly located in working-class towns, such as Somerville, Dracut, etc. The founders' descendants fiercely sued each other through the 1990s over ownership, becoming one of the decade's best local news stories. The founding families are very wealthy. The stores make little, if any, attempt at branding. There is no company Web site (the above links are to the Wikipedia and Yelp pages), even in 2010! The prices are so cheap that I usually save at least $20 compared to my old weekly shops at Shaw's!
The shopping experience there is trying but wonderful. The parking lot and store are remarkably crowded, no matter the day or time. My fiancee says one needs to be in a patient, forgiving mood to go there or one will leave totally exasperated and defeated. She calls the back aisle, where the meat section intersects with almost all of the dry goods' aisles, the "straits of death" because it's impossible and impossibly frustrating to navigate a cart through there. We park our cart somewhere less crowded and carry individual items back. (It sounds tedious but is actually quicker.) I usually need to buy a candy bar to soothe myself after maneuvering through everyone.
Every item is cheaper, sometimes alarmingly so, than its equivalent at competitors. Despite this, the produce is as good, and often better, than the selection at competitors. There is a whole aisle devoted to Goya products and multiple ones for ethnic products, not only one "Shop the World" aisle. Every time I'm there I see at least one person from the GSD, in addition to Hispanic, Brazilian, Caribbean and Asian immigrants, and white, blue-collar locals, meaning the clientele is hipsters, immigrants and the middle class -- the most unlikely but welcome fusion of customers. Every company in the U.S. chases the immigrant market, but Market Basket, in its seeming indifference to marketing and focus-group testing, has organically captured it and stocks its aisles accordingly. In the absence of a company-created corporate image, the fan base created an enduring one. Is this grassroots capitalism?
The supermarket business is known for its tight operating margins. Considering Market Basket's ridiculously low prices, I always wonder how they make a profit. Their stores are as basic as can be in terms of design, aisle widths, etc, and they don't advertise much, but they must pay very low wages and have discount suppliers. I can't think of anywhere else they can cut costs.
Really, Market Basket is begging to be the Harvard Business School's next case study. It presents all these interesting lessons for retailers: Does price rule all? How can you capture immigrant and lower-class shoppers? How much does advertising matter and is it needed to create a brand? What do customers really care about? Can a company like this expand its model beyond one geographic market or does that dilute the company and/or turn it into Wal-Mart? HBS, call me.
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