the future of bashas’
Things To Do
For free monthly updates, event invitations and exclusive deals, sign-up for our newsletter!
The Future of Bashas’
November, 2009, Page 116
In July, Bashas’ filed for Chapter 11
bankruptcy protection and then temporarily hired back retired Bashas’ CFO Darl Andersen to help oversee the process. Bankruptcy reorganization will allow the company to clean the debt off its books by paying its top creditors less than what is owed to them, possibly on a longer timetable. Court records show that Bashas’ top creditors cover all the staples, from milk and bread to eggs and produce. The largest locally based creditors are Shamrock Foods in Phoenix ($1.06 million) and Hickman’s Family Farms in Buckeye ($314,590).
In the grand scheme, these costs are eclipsed by the ongoing cost of leasing and cooling thousands of square feet. The company is currently using the bankruptcy reorganization process to get out of certain leases, which will save more money in the long run and allow Bashas’ to emerge even healthier. In theory, the remaining locations will be that much stronger.
“They grew too fast. They got too big for their britches,” David Livingston says.
Livingston is a national grocery store expert. With 27 years in the business, the Wisconsin-based analyst lives and breathes how and where supermarkets should operate.
He says that in Phoenix, local shoppers are seeing a drastic correction in the market. Like office space and everything else in the Valley, the grocery scene is terribly overbuilt and competing for a middle ground – the everyday, middle-class Jane and Joe Shopper – that is rapidly shrinking. More people are shopping at both ends of the spectrum – the high-end grocery stores and the low-budget superstores. This leaves the garden-variety grocery stores competing for the scraps.
“Something has to give. The market is working itself out,” he says.
Consider it a very visible lesson in grocery economics, where profit margins are razor-thin. Livinsgton says that grocery stores will typically see gross profits between 18 and 20 percent. With those revenues, you still have to pay for labor (the most expensive part), the utilities (think of all those coolers and open-air troughs for frozen drumsticks), maintenance and taxes. Oh, and if you run your own distribution center, like Bashas’ does, don’t forget to tack on fuel costs.
After all of that, you might carve out 5 percent of the profits for yourself, and that’s if you have no debt and no union labor (despite recent organizing activities, Bashas’ remains a non-union workplace).
Considering these daunting numbers, Bashas’ remains an anomaly that’s well known and respected across the grocery industry, Livingston says. It has steadfastly refused buyout offers, given away gobs of money to local charities and thrived largely because of the family’s charisma. These days, it would be hard for anyone to start something like Bashas’, Livingston says.
“Are you going to offer the lowest prices, like Wal-Mart? Are you going to offer the best service, like AJ’s, Sprouts or Whole Foods? Are you going to have variety, like Safeway or Fry’s? Someone tell me what independents can offer that’s so different,” Livingston says. “The only thing you can hope for is to have something completely different, and usually that has to do with the personality of the store and the managers.
“I’ve got a client in New Orleans,” he says, “and the man literally kisses every woman who comes in the store and tells her how beautiful she is. Now, there’s a lot of women who don’t deserve that compliment, yet they come to that store regularly because that’s the only time they’re ever going to hear that. The only time they’re ever going to get affection from someone is when that manager comes up, kisses them on the cheek, knows their name and checks in on their family. They’re coming in because you’re making them feel better about themselves.
“When you get up to about 100 stores, it kind of dilutes it,” Livingston says. “Put it this way: Could a Bashas’ manager really get away with going out and hugging all the customers? He’d have his ass in court. Whereas a local independent – Italian guy, connected, head of the local bar association, has the local police department in his pocket to protect his store anytime there’s a hurricane – no one is going to touch this guy. You’ve got to be really well connected in the civic area and in the business world.”
If these are the instructions an independent must follow, Eddie Basha Jr. practically wrote the manual. Bashas’ has sponsored hundreds of youth sports teams. Its long list of benefactors include Saint Vincent de Paul, the Juvenile Diabetes Research Foundation, Phoenix Children’s Hospital and more. One year, Basha phoned one of his closest friends and, together, they bought 500 turkeys for Thanksgiving and donated them all to local shelters. (To prove to his friend that his intentions were honorable, Basha bought all the turkeys at Safeway.) The company supports so many charities that it has a Charity of the Month program.
But Basha says his biggest achievement is his work on education issues. He and his wife, Nadine, helped spearhead Proposition 103 in 2000 to channel tobacco funds toward early childhood education programs. As a company, Bashas’ has given more than $6 million to American Indians to fund youth scholarships. It has also created a special program through state junior colleges that allow company employees to earn an associate’s degree in food retailing that’s recognized by a leading industry association.
The résumé goes on and on. But these days, résumés don’t buy cheaper groceries.
“You have to remember, the economy changed for the worse,” Livingston says. “And when it comes to the economy, all of a sudden people’s loyalties change. You’ve got to go where you’re going to get the best deal for your buck, and that’s Wal-Mart.”
t’s hard to debate Livingston on the economics. It’s simply a case of price and consumer benefits: When faced with two goods of the same quality or benefit, consumers will naturally pick the one with the lower price. Livingston says Bashas’ often loses in the price contest, and shoppers are voting with their wallets.
Still, one can debate whether all the classically trained economists and their slick graphs are missing the bigger picture: When factoring in the social impact Bashas’ has had on Arizona, is Wal-Mart really a better deal?
is also an Arizona legacy. Now 81, he came to Phoenix from Iowa in 1948 with $300 in his pocket. He formed Chanen Construction Co. and, judging by Phoenix history and Chanen’s accumulated wealth, he was in the right place at the right time.
Today, Chanen is a millionaire. He has garnered more than 50 community service awards and sat on the boards of Barrow Neurological Foundation, Samaritan Medical Foundation, Arizona Heart Foundation, Valley of the Sun United Way and other organizations. He was bound to cross paths with Eddie Basha Jr., and after that moment 40 years ago, Chanen has remained a steadfast friend. But it hasn’t been easy.
After Chanen was appointed to the Arizona Board of Regents in 1984 by then-Governor Bruce Babbitt, he and other trustees were considering increasing tuition prices for in-state universities. Chanen says Basha called him and scolded him. “You know, you regents sit up there in your ivory tower and all you do is raise tuition for the students,” he told Chanen. “You’re a bunch of snobs, and you oughta know better.”
One morning, a friend called Chanen and asked him if he thought his billboard in Downtown Phoenix was tasteful. “I said, ‘What billboard? We don’t do any outdoor advertising.’” His curiosity piqued, Chanen agreed to check it out and drove by the billboard on his way home.
In bright lights, it featured a huge picture of Chanen and these words in bold letters: “It’s difficult to be humble when you’re a regent.” Signed, Herman Chanen.
Chanen was mortified. He never authorized the ad. Almost instantly, he was bombarded by letters and phone calls from people who were outraged by his alleged arrogance. Chanen found out that Basha had taken up a collection from some of his affluent friends and bought the ad space for the next three months. Karl Eller, who owned the billboard company, was in on the prank and refused to take it down.
Then there’s the Johnny Carson incident. Chanen, whose company built the corporate headquarters for Warner Bros. in Burbank, California, had become fast friends with the famous comedian. When Carson died, Chanen says he received a letter from a lawyer representing Carson’s estate on the movie studio’s letterhead. It indicated that he was among a small, select group of people Carson had singled out in his will to receive a special gift upon Carson’s death, and that the gift was on its way. A package soon arrived containing a set of black, silk pajamas featuring “HEEeeere’s Johnny!” embroidered in white along the pocket.
Flattered by this apparent show of affection, Chanen framed the pajamas and hung them on his wall with a small plaque. He wrote a heartfelt letter back to the lawyer, asking him to thank the Carson family for the gesture.
A month later, Chanen and Basha were having lunch with friends. Someone brought up late-night comedy, and someone else piped in that Johnny Carson was the best host ever. It was a small opening, but it was all Chanen needed. He started gushing about his friendship with Carson and how touched he was by his friend’s gift. Suddenly, he noticed Basha choking back laughter.
“The whole thing was a sting,” Chanen says. The pajamas were fake, the letter was forged, the package was routed through Burbank to appear legitimate, and Chanen’s emotional letter went to a lawyer who didn’t exist. “And who do you think coordinated it? That’s right. Eddie Basha.”
Chanen can’t wait to retaliate. But all male bravado aside, Chanen admits he would do anything to help his friend. When Basha told him about the company’s bankruptcy, they both cried. “That’s the way we finished lunch,” Chanen says. “Neither one of us could eat.”
In response, Chanen launched the Friends of Bashas’ campaign with the help of other Valley influentials. The nonprofit raises money to fund media blitzes to educate the public about Bashas’.
The group has run full-color, full-spread ads in the front section of The Arizona Republic, thanking Bashas’ for their support and listing the names of everyone who declares themselves a friend of the company. It bought thousands of bumper stickers and T-shirts and secured discounted billboard space along major streets and freeways. There’s even a social media presence online that asks people to post their Bashas’ experiences on Facebook.
Mike Tart, aka The Granola Guy, is one of those contributors. Formerly a tech consultant for a Fortune 500 company, Tart went on vacation to Kauai with his wife, Brenda, in 2007 and discovered a rich blend of granola that was native to the Hawaiian islands. It had no distribution online or on the mainland – yet.
In March 2008, the Tarts took an entrepreneurial leap. With permission from the makers of the “Macamania” bar, they created a distribution arm for the company in the U.S. and sought a presence in local grocery stores. Tart says Safeway, Fry’s and Whole Foods didn’t feel right – “I’m a little guy, and I don’t have the distribution support to get in a store like that” – so the couple went to their local AJ’s.
“Next thing you know, I’m in 16 stores in about three weeks,” says Tart, who now does monthly tastings at AJ’s Fine Foods. He hasn’t quit his tech-consulting gig, but the couple’s business keeps growing. He’s sold 5,000 granola bars in Bashas’ high-end stores.
Tart’s entrepreneurial story, times a thousand, may be what saves Bashas’. Imagine, if you will, this scenario: Hundreds of local, newly unemployed individuals craft their own Arizona recipes and food products, offer those up for sale in local Bashas’ markets that are now smaller, more refined, debt free, flexible enough to enter myriad mixed-use projects and led by a group of young, hungry Basha scions. They’re a chip off the same block, but this time, they all have MBAs and they’re hardened by the bankruptcy experience.
Wal-Mart’s worst nightmare? Maybe. It all depends on the community, the same folks who propped Bashas’ up in the first place.
© 2007 Copyright Phoenix Magazine 15169 N. Scottsdale Road Suite C310 Scottsdale Arizona 85254
Travel & Outdoors
Best of The Valley
Phoenix Home & Garden Magazine
Advertise With Us
Web Site Design