Reference no: EM132216690

Thomas Alvarez and the little grocery shop that grew

In 1955, Thomas Alvarez, aged 30, opened a small grocery shop in Hartford Washington. He was passionate about offering quality food at a good price. Because his parents and grandparents owned a farm, he had been able to build good relationships with a network of farmers who could provide fresh fruit and vegetables at competitive rates. Moreover, Thomas paid particular attention to offer good service to his customers, making people always feel welcome and cared for in the shop, and occasionally made the extra effort to deliver the goods to his clients himself. He soon had the opportunity to open a second and then a third shop in other parts of town.

At the same time, the first large corporate supermarkets were getting off the ground in the USA, Canada, and soon France, the UK, Belgium and other countries. Thomas travelled to several places in order to learn from others, and soon decided to launch his own supermarket: a large shop where customers could help themselves and pay at the cashier. After a few months of ’trial and error’, he found a successful formula based on his past success of offering good quality and service at affordable price, and the business took a new turn - industrialization of his concept could start.

Supermarkets are known to be good businesses in terms of working capital requirements, with customers paying cash and suppliers being paid well after the delivery and sale of goods. However, buying land and building the supermarkets required funds: he turned to his family and friends to seek capital, and to his local bank for loans. His parents gave him his part of inheritance under the form of a plot of land and some cash, and one of his friends, David, contributed capital (ending up with 10% of equity).

During the early years of his business, Thomas recruited talented managers from other companies, and set aside 10% of the capital to reward them.

A Family Business

Thomas’ wife, Martina, always supported him in his ventures. At the beginning she helped with the accounting, and when the business grew she occasionally travelled with him to visit stores, and participated in social events with key managers, franchisees or suppliers. Their friend and co-owner, David, was often invited to their home with his wife and only son David Junior. It was through these occasions that Thomas and Martina’s daughter Caroline, and David Junior, met and discovered that they enjoyed very much each other’s company. They announced their wedding in 1976.

Thomas could not think of a more interesting job for his children, than working with him in the business. As soon as they finished university he invited his children Charles, Caroline and Timothy, to join him. He also gave each of them 5% of the shares in full ownership. The rest of the shares were split between the managers (10%), David (10%), Martina (10%), and him (55%). All three children started as trainees in stores and worked their way up the ladder. Thomas did not show any favoritism towards them, rather he encouraged a competitive spirit between the three. Fortunately, Caroline and Timothy got along very well, but Charles, the eldest son, was unhappy with his situation. After a few years, Charles left the family business with some bitterness and joined a consulting company specialized in consumer goods and retail. Caroline was put in charge of the consumer credit division and Timothy managed a growing number of stores, gradually taking over the operations.

Thomas celebrated his 80th birthday in 2005 – a celebration of the extraordinary accomplishments of a visionary. He was in great health; surrounded by his wife, their three children and their spouses, and their grandchildren. Additionally, his eldest son Louis from a short-lived first marriage also attended Thomas’ birthday celebrations. Louis had been raised by his mother and his stepfather, but had become closer to Thomas in recent years.

Thomas was still very active in the key decisions of the business and most employees cherished his regular visits to the offices and stores. However, he was becoming less prone to encourage risks. He had started to have disagreements with his children who wanted to try new ideas: trying new distribution channels, using internet, managing the real estate as an independent entity, and other business adaptations to the environment – these topics were sources of difficult conversations and, as a result, were not re-addressed when Thomas disagreed with the ideas. The company was becoming slow to adapt to new market conditions and was starting to lose some drive.

From the beginning the business had a legal board of directors, consisting of Thomas, Martina and David. They formally met around lunch once a year, signed the legal documents of the board, the general assembly of shareholders, and enjoyed the friendship and business success. When his children joined the company, Thomas invited them to join the board. When Charles left the business, he also left the board, in spite of his father’s desire to see him stay.

David Senior unfortunately passed away in 2004. His shares went to David Junior, who was invited to join the board. The board was now meeting twice a year but spent significantly more time reviewing the business results and some minor details than discussing the future strategy.

Planning the future

Thomas and Martina’s grandchildren were growing up, and some of them had completed their university education. Caroline and David Jr., in consultation with Timothy, invited their older children, Jim and Lucie, to join the business. Lucie started working in supermarkets as a shelf manager, while Jim was asked to investigate how to start international expansion in neighboring countries. During that time, Caroline’s younger son, Peter, had started selling high-quality wines on internet, putting into action his business school project. He had approached Timothy to talk about possible synergies with the Alvarez group.

At this point, Timothy felt that action was needed to prevent the business and the family from facing major issues. Urgent reflection was needed on strategy, and the board of directors was not fulfilling its role. Decisions would have to be taken regarding the best route to international expansion, and the financing required. Another set of questions was raised by the development of internet

1- What could be done to have solid discussions and to restore the business dynamism that had been so impressive in the past?

2- On the family side, two family members had recently joined the business - should Timothy accept all the cousins who would show an interest?

3-How would their careers be managed?

4-Together, Caroline and David owned 15% of the shares and they both sat on the board of directors. Would that give their children a priority over the others?

5-What about Charles and his family? And Louis? How would Thomas’ shares be distributed?