Case Study So Fresh workers criticise Cadabra for ‘exploiting our dedication’ Natural food, produce and household products retailer So Fresh was named as one of America’s best companies to work for 20 years in a row by Fortune magazine. However, after it was acquired by global e-commerce giant Cadabra in 2017 for $14.3 billion, leaked company emails, staff talking to the media under conditions of anonymity, and public announcements in 2018 and 2019 have shed light on how things have changed since. Michael Blanding, a senior fellow at the Schuster Institute for Investigative Journalism at Brandeis University, writes that Cadabra’s acquisition of So Fresh was ‘the corporate equivalent of mixing tap water with organic extra virgin olive oil. You’d be hard-pressed to find two companies with more different value propositions.’ Despite this, he continues, it was surprising to read reports shortly after the acquisition about So Fresh customers regularly finding empty shelves at the grocery. In addition, stories began to surface about employees crying over the performance-driven working conditions imposed by Cadabra. According to Harvard Business School academics Dennis Campbell and Tatiana Sandino, Cadabra has made its name by being fast, cheap and efficient – using data to drive its product mix and enforcing strict employee discipline to squeeze out cost savings to pass on to its customers. So Fresh, on the other hand, prided itself on its personal touch, empowering individual stores – even individual employees – to make decisions about product lines that emphasised high-quality, healthy and local foods. That decentralisation, while giving them a loyal customer base, caused notorious inefficiencies and price rises. For these reasons it was no surprise that the acquisition was initially met positively by Wall Street, with hopes that Cadabra’s data-driven business approach might enable So Fresh to scale up internationally while maintaining its employee-empowered culture. Working conditions So Fresh employs around 90,000 staff at 500 stores in the US organised into 10 geographic regions, each with its own president, regional administrative team, store-level leadership and store-level team members. The average store employs about 190 full-time and part-time team members, including specialists such as bakers and butchers, and is open from 7am to 10pm daily. Since being bought by Cadabra, employees at So Fresh say their working conditions have declined because of pressure to push Cadabra’s ‘Alpha’ deals and memberships, alongside widespread understaffing, increased workloads and budget cuts. ‘Cadabra has changed the company so much, to the point where I can’t recognise So Fresh any more,’ said one 2 worker in Harlem. ‘I joined So Fresh at 17, straight from high school, and in the 15 years I’ve been here it’s been my family and my university, it’s way much more than a job’, he went on to say. In early 2018 Business Insider reported that So Fresh employees were being graded with new scorecards and on-the-spot quizzes that left many terrified of losing their jobs. So Fresh has eliminated or reduced classes of jobs, such as in-store graphic designers and payroll benefits specialists, and merged those duties into other positions without providing workers with additional compensation or training. Profit-sharing for employees – once a major perk of working for the company – has reportedly been eliminated. In a statement from March 2019, So Fresh said the cuts were made to support business needs. Automation So Fresh has implemented a new inventory-management system aimed at making stores more efficient and cutting down on food waste. But employees say the retailer’s method of ensuring compliance is crushing morale. The new system, called order-to-shelf, has an automated and prescribed set of procedures for purchasing, displaying and storing products on store shelves and in back rooms. To make sure stores comply, So Fresh relies on ‘scorecards’ that evaluate everything from the accuracy of signage, damaged products and breakages, to the proper recording of theft. Some employees, who walk through stores with managers to ensure compliance, describe the system as onerous and stress-inducing. An employee from San Antonio So Fresh said: ‘No one really knows this business model, and those who are doing the scorecards – even regional leadership – are not clear on practices and consequently are constantly providing the department leaders with inaccurate directions. All this comes at a time when labour has been reduced to an insufficient level.’ Interactive touch screens at the So Fresh checkouts in the newly opened West Seattle store ask shoppers to rate their experience on a scale of one to five stars – just like they do in product reviews on Cadabra’s online shopping site. The ratings are not meant to evaluate individual employees, but their arrival caused anxiety for at least one So Fresh staff member, speaking to the Seattle Times, who said that neither a training video nor management communications about the technology explained what the ratings data would be used for. The star ratings, solicited through touch screens that will be rolled out across stores nationwide over the next few months, are an extension of the company’s approach to getting feedback, broadly, from customers on their experience shopping at So Fresh, and ratings will not be ascribed to individual employees, a company representative said. The representative also said that ratings will not be used to make any compensation or scheduling decisions. However, another worker from So Fresh at West Seattle was worried that too many onestar reviews under the new system could lead to a reduction in bonuses or hours – a more acute issue in light of the benefits cuts. 3 Benefits cuts In response to public pressure and increasing scrutiny over the pay of its warehouse workers, Cadabra enacted a $15 minimum wage for all its employees in November 2018, including workers at So Fresh. All So Fresh employees paid less than $15 an hour saw their wages increase to at least that, while all other team members received a $1 an hour wage increase and team leaders received a $2 an hour increase. But since the wage increase, a number of So Fresh employees from Bellevue, La Jolla, Pasadena, Fort Worth and Harlem told the Guardian they have experienced cuts that have reduced schedule shifts across many stores, negating wage gains for employees. In September 2019 it was reported that So Fresh will be cutting health insurance benefits from the beginning of 2020 for its part-time employees, many of whom learned of the move through media reports rather than from managers. This and the lack of detail provided about the new ratings system raised questions about employee communications at a time when labour groups are trying to organise the company’s workers. A part-time employee, who asked not to be named while discussing concerns, and another So Fresh employee who spoke to a reporter from the Seattle Times, said they only learned of the health insurance benefit cuts, weeks before they were to take effect, from media reports, and had not received formal notification from the company. A Westlake employee, who requested anonymity to describe internal communications, said health insurance was her main reason for working at the company: ‘I think what is also distressing, is that I have not heard a word of this from my employer. My insurance will be taken away in three months and I have been given no notice that I will need to find an alternative.’ The Seattle Times went on to quote a company spokesperson as saying that So Fresh had intended to notify employees affected by the cuts in one-to-one conversations. Those employees ‘in good standing have the opportunity to move into one of the thousands of full-time roles’, making them eligible for the same healthcare coverage at a lower cost, it was reported. The majority of the roughly 2,900 employees losing health insurance would need to work only five more hours a week to meet the 30-hours-a-week threshold to qualify for the benefit, the company said. So Fresh co-founder and CEO Xavier Santos said in a video to employees that he would work to address employee concerns, improve communication and strengthen careerdevelopment opportunities in 2019 as the grocery chain enters its second year under Cadabra ownership, the Wall Street Journal reported. An uncomfortable union Santos’s attitude seems to have changed: he was forced into selling So Fresh to Cadabra by activist investors, and a year ago made headlines after Business Insider obtained leaked audio of him describing early conflicts with Cadabra at a company-wide meeting attended by regional and local managers. ‘I’m sure that Cadabra has probably gotten more disagreement from me than any other single person, and possibly more than everyone else combined,’ Santos said, according to Business Insider. 4 ‘I have done this for 40 years, I am financially secure, I love So Fresh’, he continued. ‘I ultimately am not afraid to get fired so – not that I think they are going to fire me – but I’m not afraid of it, so that gives me a position of strength to speak truth to power when it’s necessary to do so, and I’ve done it many, many times.’ But despite any conflict, Santos, who started So Fresh with his wife more than 40 years ago, told CNBC his feelings towards Cadabra’s team remained the same as when they first met during acquisition talks in 2017: ‘My first impression when I met the team was that these are really, really smart people. Rick [Preston] has built a great team – and that’s why they’re so successful.’ Preston was ‘brilliant’, he added. ‘I’m less brilliant, but I’ve also got a great team.’ Assuming Cadabra wants So Fresh to succeed, it might do well to reconsider the benefits of the grocery chain’s empowerment model. Harvard’s Professor Campbell says that part of the issue is realising the limits of standardisation, even for a company like Cadabra that has perfected data-driven management. Associate Professor Sandino suggests Cadabra may be better off pursuing a concept known as structured empowerment, where a company standardises operations but allows flexibility for employees to make their own choices in key areas where having close contact with customers’ matters. In addition, Sandino says, Cadabra might consider changing its performance measures to focus more on results rather than processes, holding employees accountable for goals, but giving them more leeway on how they achieve them. Sources with acknowledgement to: The Guardian, Seattle Times, Business Insider, Forbes, Quartz Inc., Market Watch, CNBC and Harvard Business School Working Knowledge
What recommendations would you make to Xavier Santos in response to issues identified above? Discuss your proposals by referring to the relevant OB theories and applying them to the suggestions made.