AMAZING! When the Free Market Is Allowed To Work

Businesses share similarities to people: they are both complex entities that are vulnerable to damage or destruction as a result of outside forces, inner-ailments, or neglect. However, both are capable of not only adapting to changes, but also growing if properly maintained.

Next month will mark the first anniversary of the demise of Chicago-area grocery store chain, Dominick’s. From the sad decay and loss of this part of Chicago history, to local and national competitors that have filled the void left by Dominick’s, there is a lesson about how the free market operates.

Since purchasing Dominick’s in 1998, Safeway had slowly alienated employees and customers by assimilating Dominick’s into the Safeway collective.

Safeway has a successful formula for operating its stores on the East and West coasts. Unfortunately, many companies that try to purchase and operate Midwest-based companies fail to recognize that the Midwest is a totally different creature in terms of culture than that of its coastal bookends.

Until the assimilation was complete, one of Dominick’s most endearing qualities was its large variety of ethnic foods. Unfortunately, the elimination of those ethnic foods was a big step toward the last day of Dominick’s existence. The second misstep was ignoring suggestions that were proposed by Dominick’s management, especially former CEO Bob Mariano, who had left the company shortly after the takeover.

However, before leaving the company, Mr. Mariano proposed several changes to Dominick’s stores in order to boost sales. Not only were those suggestions rejected by Safeway, “Chairman Bob” would later implement them after becoming CEO of Roundy’s, when he opened the first Mariano’s in Arlington Heights, Illinois in 2010. Ironically, one of the factors that lead to the downfall of Dominick’s was the realization of the ideas that could have saved that chain, when those ideas were realized in the form of a competitor.

Using my very un-scientific research method of shopping in former Dominick’s locations that are now operated by Mariano’s and local grocer Joe Caputo and Sons, these stores are busier than I had seen them in their final years as Dominick’s. Joe Caputo had developed a good reputation as a local grocer in Des Plaines, Illinois, and his constant need to expand his store was indicative of that reputation. As a result of running out of space to expand, he opened a second store in nearby Palatine.

Both Caputo’s and Mariano’s have large selections of ethnic foods. And, both have the local atmosphere that had been purged from Dominick’s when Safeway had implemented its generic, Borg-like characteristics into their storied conquest. When businesses reject the uniqueness of Midwest culture when they try to operate in the Midwest, rejection becomes mutual.

Dominick’s isn’t the first casualty as a result of Midwest culture shock. After a 1970s-era merger with an East coast drive-in restaurant chain, Dog n’ Suds had contracted to fewer than twenty restaurants today, from its pre-merger peak of around six hundred. The cause of this decline was the result of cost-cutting, such as a cheaper root beer formula, and cutbacks in management training that the new owners had mandated.

When it becomes apparent to the powers that be that the formula for success isn’t working in “flyover country,” corporate arrogance kicks in. The higher-ups assume that the problem lies with the alienated customers, not an incompatible business model that had been forced upon those customers.

When Macy’s management decided to rename all of their stores after the parent company, sales at the former Marshall Field and Company stores had dropped. With a sharp decline in sales due to what many former Marshall Field customers deemed as an insult, Macy’s pushed harder in terms of advertising and publicity to remind those former customers that there was no remorse for the name change. In fact, any reference to Marshall Field’s history in Chicago was replaced with references to the Macy’s name instead.

While Macy’s tried to justify dropping their local department store names in favor of the corporate name, the value of the Macy’s name seemed to drop as a result. Before the name changes, Macy’s was a department store chain that was synonymous with New York. Once there was a Macy’s in what now seems to be every shopping mall, shopping at Macy’s became no big deal; the novelty was gone. The same problem eroded the joy of buying Krispy Kreme doughnuts after the chain’s over-expansion around 2000.

People who operate businesses are obviously human beings, and therefore have the capacity to make mistakes, just like the rest of us; the same is true for politicians and bureaucrats. However, as an individual’s level of power and influence increases, the ripples from those mistakes are felt farther away from that person.

The transition from Safeway’s failure to the success of its Chicago replacements is how the free market is supposed to operate. When cronyism poisons the free market, many people confuse crony capitalism with the free market, and businesses that try to operate on their own merits end up paying the price.

What had happened during the course of Dominick’s demise was the combination of poor planning and arrogance; this has happened before, and it will happen again. However, if given the opportunity, other leaders who are students of history will intervene and try to succeed where their predecessors had failed.

Image: https://www.flickr.com/photos/chrisconnell/4340241609/