Friday, December 11, 2009

A&P Goes to War!

Probably not the war you’re thinking of, although World War II fits in at roughly this point in the timeline. No, this was a war of A&P’s own – one that started earlier and ended much later.

As far back as the mid-1920’s, there were grumblings about the growing power of “the chain stores”. Most of this concern, understandably, was on the part of independent grocers, who by the mid-1930’s were looking at a full third of their potential market going to one competitor – A&P. Predictably, it wasn’t long before politicians on a variety of levels took notice. As a result, throughout the 1930’s, over half of the individual states passed laws regulating the operation and expansion of chains, and in nearly all cases a “chain store tax” was levied for good measure. By necessity, A&P took these as they came, complying quietly in nearly all cases.

As far as A&P’s business was concerned, they had weathered the Depression far better than most companies. Their aggressive pricing policies accounted for one reason, but another key factor was George L. Hartford’s insistence on short-term leases for all A&P stores. Very short term, in fact – the typical A&P store lease was for one year with nine one-year renewal options. In later decades this policy would come back to bite A&P in a big way, costing them many prime early shopping center locations, but the flexibility it gave the company to close or relocate unprofitable stores was an asset in the darkest days of the 1930’s.

Another development was the conversion to supermarkets. Faced with upstart competition from the likes of Michael Cullen, a former A&P employee who had started a chain of giant, self-service food stores called “King Kullen”, and others, it became evident to John Hartford that A&P would have to jump into the fray in order to remain competitive in their key New York/New Jersey markets and elsewhere. After considerable egging on by his brother, George Hartford, the conservative one who controlled the purse strings, agreed to a 100-store experiment with the newfangled supermarkets in 1936. Success soon caused the experimental number to be upped to 300. Before long, the “experimental” designation was dropped altogether, and supermarkets became the way forward for A&P.

In early 1938, according to the 1970 Progressive Grocer A&P Study, while supermarkets constituted just 5 percent of their store base at that point, they were contributing 23 percent of sales and nearly half of the company’s profits. As author William I. Walsh points out in his history of the company, “The Rise and Decline of the Great Atlantic and Pacific Tea Company”, although A&P didn’t come up with the supermarket idea, the fact that the company opened the first supermarkets to be seen in many locales often led people to credit A&P with the concept.

Further adding to the excitement, A&P decided to enter the publishing business. For some years the company regularly issued an illustrated giveaway recipe booklet, called simply “Menus”, but would now introduce a full-fledged women’s magazine, to be entitled Woman’s Day. The decision was spurred on in part by the success of another magazine, The Family Circle, which was then reaching nearly 1.5 million households through five major grocery chains, according to an October 1937 Time article. A&P’s new magazine would carry “menus and home hints”, but “no fiction or film gossip as does Family Circle”, according to Time. Twenty years later, A&P would sell the magazine off to an independent publisher, who made it available to all grocery outlets and other retailers. Of course, Woman’s Day and Family Circle remain staples of supermarket checkouts everywhere, alongside some distinguished longtime competitors and some shall we say “less uplifting” publications. (Personally, I miss the “Weekly World News”. You just can’t find solid news reporting anymore!)

On a more somber note, the “anti-chain store movement” was rapidly growing in intensity by the late 1930’s. By this time, the movement had an official face. Congressman Wright Patman, a firebrand who was aptly nicknamed “the fighting Democrat from Texas”, had taken the issue up as his personal crusade, and his sights were set directly on the good old A&P. In 1936, he had won passage of the Robinson-Patman Act, still a cornerstone of U.S. commercial policy today, which essentially prohibits manufacturers from selling the same item at different prices to different entities, in effect leveling the playing field for smaller retailers who are unable to purchase at the volume level of their larger competitors. (I’m massively oversimplifying this, for space reasons. And in the interest of keeping you awake.)

Two years later, Patman introduced a new bill to curb the influence and spread of chain stores, (accurately) nicknamed the “Death Sentence Bill”. The centerpiece of the bill was a national chain store tax of $1,000 per store, but “with a final clincher”, as the Progressive Grocer study put it – “the total tax would be multiplied by the number of states in which the chain operated”, a provision that would have meant utter devastation for A&P. The numbers in A&P’s case would have added up to a half a billion dollar tax for the company for 1937 – 60 percent of total sales and a mere 6,000 percent of profits. Bye, bye Tea Company, along with Safeway, Kroger, Woolworth and host of other household names. Even cooperative organizations such as IGA would have been under threat, according to the study. Fortunately, Patman’s bill never made it out of committee.

It wouldn’t remain quiet for long, however. In the early 1940’s, the Justice Department’s Antitrust Division filed two landmark lawsuits against A&P, one in Dallas in 1942 and a second in Danville, Illinois, in 1944. For the second suit, the list of charges filled ten pages, which Progressive Grocer condensed to a page and a half and I’ll further boil down to a few lines (This is “Web 2.0”, right? Whatever the heck that means.) as follows. The main points of the lawsuit alleged:

· That A&P purposely ran stores at a loss to drive out competition.
· That A&P held a “partial monopoly”, because of “illegal” practices in manufacturing, wholesaling and retailing.
· That A&P was able to obtain preferential allowances and discounts in violation of the Robinson-Patman Act.
· That A&P took profits from its manufacturing plants and used them to subsidize its retail stores.
· That A&P’s produce subsidiary, The Atlantic Commission Company, which sold to other chains as well, dominated or controlled markets, overcharging or selling inferior products to competitors.

A&P lost the case and a subsequent appeal, eventually agreeing to pay a $175,000 fine and to dismantle the Atlantic Commission Company. The judge who handled the case still had words of praise for A&P: “To buy, sell and distribute to a substantial portion of 130 million people (the U.S. population at the time) one and three-quarters billion dollars worth of food annually, at a profit of 1.5 cents on each dollar, is an achievement one many be proud of.”

Yet it wasn’t over. In September 1949, less than a year after the previous case finally ended, the Attorney General of the United States filed a new lawsuit – this time calling for no less than the Breakup of The Great Atlantic and Pacific Tea Company. Rumors were floating that the government was proposing a plan to split A&P into seven separate regional companies. (For those of you who are at least my age or maybe a few years younger, this may “ring a bell”. Get it? Ok, I’ll stop.)

A&P had used advertising to a limited extent in their previous struggles to help rally public opinion to their side. Exasperated that they were facing this situation yet again, they declared an all-out P.R. war this time around. In late 1949, a series of full-page newspaper ads were taken out in (according to Time Magazine) some 1,800 papers across the country, laying out A&P’s side of the story in painstaking detail.

By far, the most intriguing of these ads appeared on November 11, 1949, featuring testimonials from several of the company’s competitors, undertaking an impassioned defense of A&P. “Who hollered for Uncle?” “We Agree With A&P” “We Don’t Want the A&P Put Out of Business”, and so on, followed by detailed explanations of their positions. The motivations were wide-ranging –including a genuine respect for A&P as a major food supplier for millions, and concern for their tens of thousands of employees. Several of them started their careers with A&P before striking out on their own, the sentimental ties still evident. And then there were the objections on principle – as a “threat against our system of free enterprise”, a threat to growth aspirations of their own. Or perhaps the objections stemmed from a sense of being exploited, regardless of the potential financial gain for them should A&P go down.

The strategy worked. Before long, letters began pouring into Washington D.C. from hundreds of consumers, upset that the government was threatening to mess with “their A&P”. It soon became evident that a majority of people were convinced that the government’s case against A&P lacked merit. The case slowly faded away, ending in 1953 with a consent decree that called for a handful of wholly inconsequential changes at A&P.

Sadly, the one person who no doubt did the most to help A&P weather these storms passed away before their final legal victory. At age 79, John Hartford was still as active as ever, running A&P along with his brother and sitting on a number of other corporate boards. On September 20, 1951, Hartford collapsed and died moments after attending a Chrysler Corporation board meeting in their famous namesake building in New York City. It would be years before the full magnitude of the loss to A&P, in terms of ingenuity, judgment and fine-tuned empathy for the customer, would be completely realized.

At least now, though, A&P was finally free from all of the legal distractions and could chart its own destiny again.

The photos above are all from Chain Store Age, and from top to bottom, show – an unknown exterior from 1941, the meat counter from the Rockville Centre, Long Island, NY store from 1937, an exterior view from Birmingham, Alabama in 1939, an interior from Pittsburgh in 1937, exterior and interior views from Asbury Park, New Jersey (Or is that Granada I see? No, just Asbury Park.) in 1937, and finally two views of another Birmingham unit from 1939, from the Five Points shopping center, with Scott 5 and 10 next door.

Pictured below are John and George, the brothers Hartford, in contrasting styles of dress and matching Bakelite telephones, as photographed for Life Magazine in 1949. Two of the 1949 ad campaign newspaper pages can be seen in the background. (Thanks to Richard of the great Viewliner Ltd. site for the tip on the Google Life Magazine archives. Some fine stuff there!) Lastly, for your reading pleasure, are the two ads pictured behind the Hartfords. Click to enlarge and read.


  1. A few observations:

    1. What was done to A&P could easily be done to Wal Mart today, given the current political climate. Never mind that the consumer is benefiting from lower prices, it is important to kill the retail/grocery behemoth. I will never understand that line of thinking. Business evolves, the strong and innovative survive, the weak and complacent die.

    2. I miss the Weekly World News too, it was one of the most entertaining aspects of my weekly trip to the grocery store. I wonder what Bat Boy is up to these days?

  2. It's funny how businesses fight anti-trust action because they're worried about saving "free enterprise". they simply don't want new competition or scrutiny of their own anti-competitive actions.

    Wal-Mart's low prices have been subsidized through development deals with cities, incentives from states and the rest of us subsidizing the food stamps and medicaid their employees need to survive. They have squeezed suppliers and forced jobs to leave the US. They are hardly the only culprit, but the biggest, most aggressive and most forward moving. Now they're stuck with a merchadising model that can't increase profits in their core business---they drive volume with low margin items with food and derive profits from peripherals like check cashing and wire transfers. Economists who've done the math have noticed that Wal-Mart wouldn't have to raise its prices very much to be less of a burden on the rest of us. Defend them all you want, after all you're subsidizing their business even if you never shop there.

  3. My thoughts were along the line of the competition of A&P supporting A&P's facing anti-trust were primarily that the competition didn't want scrutiny as they were also chains. Kroger and Safeway were already widespread and had extensive manufacturing facilities of their own. National was also drawing some anti-trust notice due to its rapid expansion, which was primarily fueled by acquisitions. Oddly, a little more than a decade later, Winn-Dixie would be supermarket to attract anti-trust attention due to its acquisitions and would be hit with a 10 year moratorium on mergers in 1966.

    Very few of Walmart's competitors would rally to the company's defense today, given the different retail environment. A&P was better able to appeal to its customers in improving its consumer image than Walmart has so far been able. Even in comparison, A&P's market share was never as high nationally as Walmart has managed to obtain. At the max, current estimates are that A&P never had as much as 25% of the nation's food dollars, though anti-trust advocates made it sound much higher at the time. Even today, Walmart accounts for less than a third of the dollars spent for groceries nationally, and some of the nation's most populous markets still have very little Walmart penetration. But no retailer has been as able to dictate to the manufacturers how they package, market and price their products the way Walmart is able to.

  4. Relevant to past discussions. Some stores in the pics had coffee grinders at the cash register, some didn't. perhaps, this was a regional office or store size decision for a long time.

    A&P also must have been experimenting with the number of cash registers. These stores from the 30s and 40s have more registers than was common among many stores they opened a in the 50s and 60s, although these stores were probably the same size or smaller than the ones they opened later. It was not uncommon for an A&P to have perhaps 3 registers, one of which might have been an express. They must have cit back at some point, because the stores from the 30s and 40s that remained in operation often only had 2-3 registers.

  5. David – I think the one thing that has staved off the same sort of treatment for Wal-Mart has been the severe economic slowdown of the last couple of years. When things (hopefully) improve, we could well see more governmental focus on Wal-Mart. I know that there are strong opinions on all sides of this issue, but my own view is that “monopolies” tend to fall on their own – look at GM, IBM and of course A&P, all considered impenetrable monopolies in their day. Where those companies are concerned at least, that kind of talk would be laughable today.

    And we’re all starved for news on Bat Boy! The Enquirer and Star have “gone respectable” (relatively speaking, of course) and no one’s left to update us! :)

    Anonymous – Thanks for the comment! I think the interesting thing here is the fact the A&P’s competitors were also raising the “save free enterprise” argument. The job exodus began long before Wal-Mart was the major force in the market. I can remember watching a 60 Minutes story in 1982 or so, when I had just started college, about the closing of General Electric’s household iron plant in Connecticut (the jobs went to another country, but I can’t remember which one) and thinking what a travesty that was. Sadly, this trend has been underway for a very long time, with no end in sight, and has since spread well beyond the manufacturing sector. Near where I live, there is a very large information services company that is about to outsource hundreds of I.T. development jobs to China, where people with masters’ degrees in computer science earn 10 to 12 grand a year. I think the ultimate culprit is the fact that we’ve become used to a high standard of living for a very low relative cost, and no one I can think of (including myself) is keen on giving that up. It’s fascinating to look at old magazine ads from the 60’s that show prices for TV’s, stereos, etc., and the huge percentage of disposable income people had to fork over for them. No easy answer to this one, I’m afraid!

    Ken – Excellent points all around! Anti-trust enforcement was far more stringent in years past than it is now, in my opinion. Today, the W-D decision seems extreme to me, and forced selloff of Shopping Bag by Von’s in 1967 just seems wrong.

    I agree that there would probably be little sympathy on the part of Wal-Mart’s competitors in a similar situation, simply because their share of the market, as you say, is much higher relative to A&P’s back in the day. Also, the “sentimental factor” doesn’t exist. I’m hard pressed to think of any independent discount chain that was started up by grateful former Wal-Mart execs, though I can’t conclusively say there haven’t been any.

  6. A&P's dominance varied a lot, by market, and so the impact of their anti-competitive activity also would have varied. Although A&P has always been associated with the Northeast, they never had the market dominance of First National in New England or Safeway (and later Safeway and Giant) in DC. They did well in some very competitive markets like Cleveland, where they briefly were the market leader in the mid 60s and had high penetration of city neighborhoods and suburban areas, only to be done in by the revival of Fisher Foods and the continued growth of other local chains. OTOH, they were a second tier operator in other Ohio cities where Kroger and/or local competition like Big Bear or Foodtown created barriers. They also never seriously challenged National and Jewel in Chicago duringthe super market era, although they probably had done better before Jewel's entry in to the grocery business.

    Wal-Mart's grocery footprint varies, but the impact of their general merchandise business is more pervasive and effects suppliers generally. A&P always maintained a middle brow image and was well-liked for their private label merchandise. Their produce was usually lacking, but their meat was usually competitive. A&P's lack of expansion into fresh food departments and their slower than average adoption of new brand name merchandise were among the factors that harmed them in the 60s and 70s. The conduct of their inhouse manufacturing would have been an issue that will never face wal-Mart.

    Wal-Mart once was the "anti-K-Mart" and courted a middle brow image, but their aggressive cost cutting eliminated that advantage and made it easy for Target to establish itself as the "anti-Wal-Mart", with Costco even more successfully taking on Sam's from a similar perspective. They've really boxed themsleves into a business model that can't sustain profit growth without new approaches to merchandising or new businesses, plus they're stuck with some underperforming foreign businesses and Sam's Club. It will be interesting to see who they try to squeeze next--I'm guessing it will be lower and middle levels of management.

  7. Read this post on Sunday off my Ipod in a greasy Burger King (Love technology!) but I didn't get a chance to respond until now. In the interest of keeping me wide awake, this was such a well written and interesting post. I actually wanted to know more about the Patman bill.

    I love the look of the store in the first photo and I, too, miss the World Weekly News and the wacky stories. The other tabloids are so boring.

    Regarding what SanDiegoDavid said I don't have an issue with the weak dying and the strong surviving, that's what being competitive retail wise is all about. I, personally, do not like how Walmart and others such as Target (which is just as bad) got there. They didn't just compete, they shook down everything to get what they wanted. I don't call that competition fair at all. And what are the choices and the outcomes that we are left with? Nothing but a relative few. I'd rather see the diversification that once was the rule in retail, not the exception then this because it gets tiring to have the same set of choices and nothing more. When it comes down to Christmas shopping and already exhausting the big brand name options, you really want to bang your head against the wall as I certainly have wanted to the last few days.

  8. UPDATE: A lot of what you wrote in this post is now part of a new book titled"
    The Great A&P and the Struggle for Small Business in America by Marc

    I'm into the middle of the book now, the early years of the Big War for the company. Very interesting reading