When something as innocuous as a grocery store has a cult following, sometimes it is helpful to pay attention. When that store also has net income margins 2x to 3x those of its peers, you should definitely pay attention.
Barron’s recently featured Publix Super Markets. Founded in 1930, Publix operates about 1,300 stores and more than 800 of them in its home state of Florida. And as Barron’s points out, if you are chomping at the bit to own the stock, you’ll have to grab a green apron: Publix is privately held and is owned by employees, board members, and the founding Jenkins family. According to Barron’s, Publix had a valuation in November 2021 of approximately $45 billion.
Other than enjoying the free cookies (which my daughters insist upon as we enter the parking lot), what can we take away from Publix? While there are likely dozens of lessons to be learned from Publix, family business owners and leaders should consider three areas key to Publix’s success over the last 90 years: long-term planning, smart diversification, and strong family culture.
Management succession is often a hiccup in a family business’s long-term planning. Estate plans may be in order and stock secured in tax-advantageous trust entities, but who is actually going to drive the boat once current leadership cycles out of the captain’s chair? We highlighted previously that the majority of family businesses have no succession plan at all.
Who is actually going to drive the boat once current leadership cycles out of the captain’s chair?
What about Publix? Its CEO, Todd Jones, started with Publix 41 years ago and began as a store clerk. Jones has a reputation as a workaholic and exhibits many of the values of the family and the company. Additionally, Jones is the first CEO not to be a member of the Jenkins family. It is apparent the Jenkins family and ownership have fostered a management program that builds its leaders from within while maintaining the company’s long-term vision. While many family businesses may struggle with handing control over to a non-family CEO, Publix and its shareholders appear to have a solid understanding of what the business means to them and have decided having a Jenkins family member at the helm is not a requirement for the family.
So how should family businesses think about diversification? When evaluating potential uses of capital, family business managers and directors should consider not just the expected return, but also the degree to which that return is correlated to the existing operations of the business. Depending on what the business means to the family, the potential for diversification benefits may take priority over absolute return.
The potential for diversification benefits may take priority over absolute return.
Part of Publix’s success is owed to its ownership of a considerable amount of real estate, including its distribution centers and manufacturing facilities, signaling a priority on diversification over absolute expected returns. While real estate may not be a “core competency,” holding many of its facilities and hard assets diversifies its fortunes away from its operating grocery business. This has been accomplished while building a strong balance sheet: virtually no debt, $2 billion in cash, and over $13 billion in investments.
Strong Family Culture
An unfortunate myth that has perpetuated itself regarding family businesses is the “shirtsleeves to shirtsleeves in three generations” adage damning the fate of family businesses. Josh Baron and Rob Lachenauer, whose Harvard Business Review | Family Business Handbook we reviewed previously, illuminate a number of findings that fly in the face of this axiom. You can read the full article here, but to simplify, “The data suggests that, on average, family businesses last far longer than a typical public company does.”
While public companies plan for the next quarter, successful family businesses plan for the next decade.
So it would appear family businesses may have an advantage over their publicly traded counterparts regarding longevity. As we have repeatedly highlighted on Family Business Director, while public companies plan for the next quarter, successful family businesses plan for the next decade.
So what is Publix doing to maintain a strong family culture? One, over 90% of the company’s 225,000 employees own stock through its ESOP (something we here at Mercer Capital, an employee-owned company, understand well). Shares are granted annually to staff, and employees can also purchase shares from the company. And while Publix does not share its average employee ownership, the figure is estimated at more than $150,000 in stock, adjusting for the $8.8 billion stake reportedly held by the Jenkins family. Many longtime staff members are millionaires. The company’s ownership structure is conducive to multi-generational value creation, aligning employee incentives with long-term thinking. Despite having outgrown “mom-and-pop” status years ago, the business still exhibits characteristics typical of smaller family businesses that keep the focus on the long haul.
The share price is many times seen as the ultimate “scoreboard” for a company. Publix’s stock price (per internal reporting) has risen from $47.10 in November 2019 to $66.40 in November 2021, a 41% increase over the period. This, coupled with its quarterly dividend of $0.37 cents a share ($1 billion of annual payments to shareholders), large cash and investment balance, and little debt, gives a strong case that whatever they are doing at Publix appears to be working. Family businesses have multiple areas to consider when looking at the Publix success story. It would be wise to heed some of the characteristics they exhibit. Give one of our professionals a call today to discuss how we can help you guide your company to long-term value creation.
Plus, you can’t beat free cookies.