Great A&P and the Struggle for Small Business in America

“The Great A&P and the Struggle for Small Business in America,” by Marc Levinson, Hill and Wang, NY, 2011. This 358-page paperback is a complete history of the A&P grocery store chain from its beginning in about 1859 to its bankruptcy filing in 2010. For much of that period, A&P was the largest retailer in the US. In 1929, Sears was the largest retailer of dry goods (sales $415MM), while A&P was 2.5 times larger with sales of $1054MM. Hence, this is the story of an industry leader, but also of one of the first chain stores. The book covers changes in the grocery trade over the years as well as the cries often heard from independents threatened by large chains. The arguments now commonly aimed at Walmart date back to at least 1900.This is also the story of an entrepreneurial family company that prospered with a winning strategy under strong leadership. But on the death of the leaders, the heirs seemed more interested in dividends. The company, once a driver of innovation, failed to keep up and fell to competition.Levinson notes that several histories of A&P have appeared describing the company's beginnings, but evidence fails to support those descriptions. The founder was apparently George Francis Gilman who established a leather trading business in New York City in 1858. In 1859, he entered the tea trade. Early stores sold tea and coffee. Sugar was added after the Civil War. In about 1862, the company adopted the Great American Tea Co. name, and soon established five store fronts selling both retail and wholesale. Bulk sales to tea clubs across the country was a specialty. In 1869, the Great Atlantic and Pacific Tea Co. name was adopted. In the 1870s, full color pictures (chromolithographs) and trading stamps that could be exchanged for china or glassware were customer incentives. After the 1871 Chicago fire, the company opened a new store there. Success was followed by rapid expansion into 16 cities. By 1884, stores extended as far west as Kansas City and South to Atlanta. Wagon routes from stores brought groceries to farms throughout the east.In 1884, the company began selling A&P branded products. The first, baking powder, had a reputation of adulteration. Individual packaging and branding offered consistency and quality. The grocery store of the day carried mostly bulk products in barrels (molasses, pickles, crackers, washing powder), slabs of bacon, and wheels of cheese. Produce was limited without refrigeration–usually potatoes and cabbage. Fruit was available in season. Cardboard boxes became available in 1878 (Metropolitan Paper Bag of NYC) making possible printed packages. Although canning had been invented for Napoleon in 1795, it became widely accepted after the Civil War when automated machinery made cans economical. A&P soon added condensed milk, butter, and spices, and by 1890 became a grocery store chain. Gilman died in 1901, and the company was soon incorporated with control passing to the Hartford family. A&P had 198 stores and $5MM in revenue.In response to increased competition, A&P saw the advantage of owning its own warehouses. This allowed direct purchase from manufacturers and negotiated quantity discounts. In 1907 an office warehouse was constructed in Jersey City, NJ. Facilities included coffee roasting and grinding, chocolate/cocoa, macaroni, and a bakery.In 1907, management passed to the next generation, John H. and George L. Hartford. The name changed to A&P. In 1912, A&P pioneered the Economy Store. It offered no credit, no premiums, no trading stamps, limited hours, reduced range of merchandise, and only one employee, the manager. This allowed lower prices which attracted more shoppers.By 1920 A&P had become the world's largest retailer with $235MM in sales and 4588 stores. In the 1920s, most independent grocery stores offered free delivery and gave credit to their customers. Higher prices covered those costs, but they drove customers to chain stores. Lack of refrigeration meant that stores did not offer milk, poultry, or fresh produce. Before refrigeration, many shopped daily for groceries. A typical store served a few dozen customers within walking distance. One in four stores failed in a typical year. Manufacturers sold boxcar loads to warehouses. Stores were supplied by wholesalers, commissioned brokers, and specialists who handled some items like produce or deli meats.A&P parlayed its chain store advantages to build bigger stores in the 20s. In 1919, vertical integration was expanded. American Coffee Corporation was created to produce Eight O'Clock coffee. In 1922, White House Milk Co. was acquired to make condensed milk. Bakeries were acquired to supply A&P bread. In 1922, A&P leased three salmon canneries. Quaker Maid, initially the canning subsidiary, expanded to make an array of packaged foods from peanut better to gelatin. Quaker Maid made its own cans and printed its own labels. Box cars of fruits and vegetables were shipped to Quaker Maid factories for processing and canning.A&P reorganized to create regional management. A&P now demanded advertizing allowances and payment of sales commissions for shipments direct to A&P. If a supplier offered the right price, A&P deferred manufacturing competitive product. If leading suppliers refused to offer attractive pricing, A&P advertized its house brand. Shelf position or refusal to stock were additional levers used to negotiate favorable terms.A&P entered the produce business in 1924 creating Atlantic Commission Co. By 1929 it was buying 80,000 carloads per year from farmers under contract to raise crops for A&P. Surplus was sold to other retailers. With assured supply A&P expanded produce departments in its stores.A&P rarely owned its stores. Low investment meant stores were easily moved to new locations when the lease expired. Later this strategy worked against the company when the population moved to the suburbs after World War II. Refusal to buy and anchor attractive locations relegated the company to second tier sites. In 1927, the company moved its headquarters to the Graybar Building near Grand Central Station in Manhattan.By 1930, the arrival of refrigerated cases made it practical to stock perishables. Home refrigerators allowed people to shop less often. The result was a major shift in grocery retailing; specifically the supermarket. Stores added meat, poultry, and produce. Cellophane arrived by 1927 allowing prepackaged meat and sliced bread. Cars gave shoppers a wider range. Michael Cullen, a Kroger manager, outlined the basics of the new supermarket: away from the main shopping area to allow ample free parking; 300 items priced at cost; 200 at cost plus 5%; and heavy advertizing featuring those items. The first store opened in Jamaica, Queens in Aug, 1930.Independent retailers fought chain stores often in the state legislature or Congress with laws that outlawed discounts, required minimum pricing, or with special taxes on stores with multiple locations. In 1929 and 1930, 142 bills were introduced in 29 state legislatures to tax chain stores. Some were enacted; some were challenged in court. Usually the tax was per store but increased sharply for larger numbers of stores. In 1936, Congress passed the Robinson-Patman act which limited the discounts that supermarkets used to keep prices low. The result was reduced profits at supermarkets. A&P hesitated to open supermarkets as they reduced sales at other smaller stores, but chain store taxes favored smaller numbers of larger stores. Grocery wholesalers formed their own chains to compete with national chains.Stores added frozen food cases in 1946. In 1944, a study in Ohio found that prepackaged produce sold well and losses to damage were reduced by half.In 1949, A&P and the Hartford brothers were convicted of criminal restraint of trade. An antitrust suit followed. In 1953, A&P settled by agreeing to close Atlantic Commissions, its produce brokerage. In 1951, the US Supreme Court overturned fair trade laws making possible discount retailers.John A. Hartford, the creative force behind the company died in 1951. David Bofinger, the executive groomed to succeed him, had died in 1950. Control of the company was left to Ralph Burger, an A&P lifer, but one unprepared for the job. As business moved to the suburbs, A&P hesitated. New stores had air-conditioning and evening hours. The company was reluctant to carry higher-margin, non-food merchandise. When George L. Hartford died in 1957, control passed to the John L. Hartford Foundation. In 1958, the shares were listed on the New York Stock Exchange.Hartford Foundation wanted dividend income, but Levinson believes that reduced funds available to modernize. Hence, market share declined due to outmoded stores. Burger was forced out in 1963, but the decline continued. Kresge opened its first Kmart in 1962 and Target soon followed. Business moved to the suburbs, but A&P remained downtown. Share prices continued to decline until finally the company was sold to Tengelmann, a German grocer, in 1979. A company that had been worth $1B twenty years before was now worth only $190MM. Gradually the company sank into bankruptcy.This is a nicely done story of A&P with good coverage of history of the grocery business, as well as the long standing battle vs chain stores. The book is highly readable and will be of value to those interested in business history and the food business. Photos. References. Bibliography. Index.

These days Walmart proudly touts itself as the "world's largest retailer". The company boasts more than 8500 stores in 15 countries under 55 different names. Most people seem to have strong feelings about Walmart and the way they do business. You either love them or hate them and for many there is simply no middle ground. Unbeknownst to me another great American retailer evoked the very same passions in people and set off similar debates about competition and the merits of capitalism back in the 1920's, 1930's and 1940's. The Great Atlantic and Pacific Tea Co. was founded in New York City by George Gilman in 1859. It began life as a small chain of tea and coffee stores and would eventually evolve into a retailing behemoth. Author Marc Levinson has chronicled the impressive history of the company that would one day become A&P in his new book "The Great A&P and the Struggle for Small Business in America". This is an important addition to the literature on retailing in the United States and my guess is that the book will be used as a case study for business students at colleges and universities for decades to come.In "The Great A&P" Levinson describes in intimate detail the incredible story of how this relatively small concern managed to reinvent itself time and again and ultimately become the largest food retailer in the United States. For more than half a century A&P was guided by John and George Hartford after their father acquired the company in 1878. Both John and George proved to be gifted businessmen with innate abilities and instincts that would serve A&P well for many decades. Much of the success of A&P can be attributed to the "high volume--low price" stategy embraced by the Hartford brothers back in the 1920's. John and George kept their company privately-held and as a result did not have to answer to a board of directors. The Hartford's were firm believers in no-holds-barred competition and were the first to figure out many of the efficiencies that would allow them to rapidly expand the company. In 1912 A&P decided to embark on a new strategy of what they dubbed "economy stores". This "no-frills" approach to retailing was am immediate success and by the middle of the decade A&P boasted more than 1600 stores. Furthermore, the Hartford's quickly figured out that by being the largest, most successful food retailer in America they should be able to extract concessions from jobbers and wholesalers or even bypass them altogether. This would allow A&P to slash their prices even more and give the company an even greater advantage in the marketplace. And unlike other chain stores that were emerging during this period A&P chose to rent their locations rather than build the stores themselves. John and George believed that this gave the company greater flexibility to respond to ever changing market conditions. Whatever they were doing it was working like a charm. A&P would continue to experience exponential growth over the next two decades.But there was trouble on the horizon. The success of A&P and other chain stores posed a serious threat to tens of thousands of family-owned "mom and pop" grocery stores and to the thousands of locally-owned wholesalers and jobbers who supplied them. There was a growing undercurrent among a certain segment of the population and a growing number of opportunistic politicians to rein in the chains. The movement found a champion in Congressman Wright Patton (D-TX). Elected to Congress in 1928, Patton was a populist who believed that the explosive growth of chain stores was doing irreparable harm to family-owned businesses and local economies. Patton proposed a whole host of new taxes and regulations that would effectively squelch the growth of chain stores and most especially A&P. Furthermore, in 1936 Congress passed the landmark Robinson-Patman Act which prohibited anticompetitive practices by producers, specifically price discrimination. These developments would seriously hinder A&P in some ways but despite it all the company bobbed and weaved and changed and adjusted and continued to grow for another decade. Although there were always pockets of resistance to the growth of the chains the vast majority of Americans seemed to embrace the concept.As I indicated earlier ""The Great A&P and the Struggle for Small Business in America" is a terrific case study and should be required reading for all serious business students. We hear the very same arguments today regarding the way Walmart conducts its business. But there are some very clear differences between the two companies which should become quite apparent to you as you read this book. Although I found the writing to be a bit tedious at times I believe this is a book that is well worth your time and attention. Recommended.

actually a fascinating read too...

Great book. Gives valuable insight, into not only A&P, but grocery retail as a whole. In terms of A&P, it is also a trip down memory lane because in the city where I live the A&P store was book-ended by serious competitors who ultimately won out. Classy, unforgettable corporate logo, as well.