We recently introduced the KPMG Sages Family Business Story – a series of fictional case studies based on the SAGES Family Business, a little grocery store that began in the 1950s and became a significant retail group.
“In 1954, Thomas Sages, aged 30, opened a small grocery shop in his home town. 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 vegetable at competitive rates.
Moreover, Thomas paid particular attention to offer good service to his customers, making sure people always felt welcome and cared for in the shop, and occasionally making the extra effort to deliver the goods to his clients himself. Demand was high. He soon had the opportunity to open a second and then a third shop in other parts of the town.”
“During that time, the first supermarkets were getting off the ground in the USA, Canada, and soon France, the UK, Belgium and many other countries. Thomas travelled to several of these new supermarkets in order to learn from others, and he 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 – the 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 to a capital increase (ending up with 10% of equity). As part of the expansion, Thomas also started to develop franchisees: independent store owners who could use the brand against the payment of a fee, and who bought most of the merchandise through a newly-created central buying structure.”
“During the early years of his business, Thomas recruited talented managers from other companies, and set aside 10% of the capital to reward them. 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 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 favouritism 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 specialised 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.”
This family’s story is like an unfolding soap opera. Written by Christine Blondel (INSEAD – Senior Advisor to KPMG on Family Business Intelligence), the case studies enable us to relate to the various challenges the “Issues of Ownership” bring.
KPMG firms are committed to working with and supporting family-owned businesses; they are an important part of the global economy and our business, so we are dedicated to understanding them in greater depth. We recognise that the “Issues of Ownership”, sometimes known as the family component, bring unique concerns and challenges, which if overlooked have far reaching implications.