The strike against Stop & Shop by UFCW workers has almost completely closed the grocery retailer’s New England business. As the Boston Globe reports, even in wealthy communities people aren’t crossing the picket line. In my own neighborhood, parking lots at the two Stop & Shop stores stand as empty at 10.00 am as they normally do at midnight — maybe even emptier, because on a usual midnight the Stop & Shop clean-up crew is working, and delivery trucks are being unloaded. Not now.

How did Ahold-Delhaize, the publicly traded international firm that owns Stop & Shop, so badly misjudge ? As the Globe story notes, if even five percent of Stop & Shop customers get used to shopping elsewhere and don’t come back, it’s terrible for a business that operates on a 1.5 percent profit margin. It’s not as though Stop & Shop has monopoly power. Shoppers have plenty of options, and Stop & Shop prices, on most items, are much higher than at Market Basket, for example; and Market Basket pays its workers better and offers them profit-sharing. I do stuff for a firm that performs contract work for Stop & Shop, and I am now shopping exclusively at Market Basket; the stores I shop at are super busy, and people who may not have shopped there before have to be amazed at the prices, compared to most offerings at Stop & Shop.

How the blazes did Ahold-Delhaize end up in this predicament ? I see a whole host of reasons :

( 1 ) as a publicly traded company, Ahold is, like all the rest, pressured by hedge fund speculators, quick flip day traders, and take-over specialists buying controlling amounts of company stock in order to force “maximizing stock value,” which almost always means squeezing thousands of workers out and cheating the rest, because the quickest way to widen a profit spread is to cut week to week costs. That this kind of very short term earnings boost hurts the company long term is of zero interest to the hedgers and quick flippers, because as soon as the stock price reflects the quick fix, they’re out, letting their buyers hold the wounded bleeding corporate animal their amputations leave behind. The only current way to avoid this kind of extortion is for management to own a controlling block of stock: but these days, few publicly traded corporations enjoy this level of long-term, stable financial commitment.

( 2 ) you do not try to protect corporate profits by squeezing workers at a time when there’s an actual labor shortage, as exists right now. Ahold can’t get replacement workers, because there aren’t any, and its strikers can easily find fill-in work themselves because almost every labor-intensive business needs line people badly.

( 3 ) the past two years, almost every kind of labor action, from teachers to utility workers to hotel and university service workers, has ended up a big win for the strikers. Did Ahold-Delhaize think things would be different ? For a business surrounded by easily accessible competition ?

( 4 ) If you operate a labor-intensive business, you have to accept that your workers are your asset — almost by definition. You cannot see them as a cost item, because that view leads to where Ahold is now. You really must follow the lead of Costco, Trader Joe’s, Target, and Market Basket : pay your workers a much higher wage than the minimum, offer stronger benefits and longer paid vacations than standard, and give every vested employee a profit sharing participation. This last item especially seems crucial. If your employee has an ownership stake in your success, she will work with some enthusiasm and also not seek a better job as quickly as possible, as many workers now do because they have to, given the minimal level of pay too many labor-intense businesses impose.

( 5 ) even a labor-intense business has to think beyond its niche. Business models aren’t guaranteed. Competition and innovation affect them. Grocery stores can’t continue to offer every sort of product on a very thin markup because far too many shoppers these days prefer special items that a general store can’t market as efficiently as a specialty store. Specialty retailers offer stuff that shoppers see as superior quality at premium prices — think Starbucks, Trader Joe’s, Whole Foods, but also small, local, one or two-location stores — and even people who use food stamps and thus have to budget rigorously are willing to buy less quantity in favor of higher quality, because who likes goods inferior ? No one that I know. Ahold stores offer specialty items that differ from store to store, but too much of what they try to sell doesn’t sell; every cycle, their reset teams remove tons of, discontinued items — called “disco” — that did not sell but occupied shelf space and required much worker time to stock. (You’ve seen, I’m sure, those workers stocking 22 aisles of stuff; they do it all day long, from 7 am to 9 pm.) Specialty stores enjoy much more efficient control over their stock. Because they appeal to niche markets, they offer only products in that niche, which means that they have much less product to waste work time discontinuing because it didn’t sell. Ahold operates almost like a consignment store : a product gets a shelf space — which shelf and where on it is decided by a computer-generated shelf plan — and if it sells, great; if not, it is de-shelved. Yet Ahold is NOT a consignment store. Consignment stores are specialty retailers. Consigned goods are all that they offer, and they are usually very small operations with very few staff who work mostly on commission. Ahold can’t do that. If it wants to offer specialty goods within its store space, it probably should lease out a portion to a concession operation — assuming that union rules allow it.

All of the above explain, I hope, the predicament that Ahold finds itself in and for which it has no answer except the huge blunder it now has to find a way out of.

—- Mike Freedberg / Here and Sphere