Lessons for Big Retail from The Great A&P and the Struggle for Small Business in America

Marc Levinson has a good history of one what probably should be characterized as the first dominant grocery retailer in America, the Great Atlantic & Pacific Tea company, or as ever more frequently known, the great A&P.   Histories of retail often benefit from the abundant number of records kept and A&P is no exception save for a mysterious void of corporate records from the 1920s.  This is an unfortunate loss whose vacuum is filled more by minuate of political response to A&P, most notably in the person of Congressman Wright Patton.  The more juicy loan  made by John Hartford under apparent pressure to Elliot Roosevelt is comparatively unexplored!

The book adopts the lens of political and small business response to the company, both judicially and politically, how retailers who used scale and branding to outperform smaller retailers: a theme that had been loudly voiced in America with Wal-Mart’s and Amazon’s growth but feel it subsequently has faded from the public imagination either from those firms’ total victory or consumers’ simple recognition of the value of better prices.

The Great A&P and the Struggle for Small Business in America covers the company’s origins as simply a tea importer and the founder George Gilman’s bouyant marketing and branding sensibilities in an era of the late 19th century where food was very expensive as a percent of families budgets and the retail landscape diffuse and unreliable.

A small antebellum New Jersey operation, A&P went from being a well-branded tea and then coffee story to a grocery story after the diversification efforts made in 1880 — tariffs dropped on the caffeinated goods and they diversified into sugar and baking powder.   George and John Hartford took over the company completely after Gilman’s death in 1901 which left a mess of legal claims but ultimate control by the brothers.

A&P became a leader in both the number of stock keeping units in a given stores but also in allowing customers to pull the goods from the shelves for purchase themselves instead of having the storekeeper get the goods for you.  The connection that the phenomenon of self-serve was made possible with the rise of packaged, branded goods is made by Levinson (author of “The Box” ) but not emphasized.

A&P avidly used a point reward system for purchasing but ultimately dropped it in most stores in favor of “every day low prices” so to speak but  the story of early gamification of your purchasing was looked askance as well by authorities for building in lock in of a consumer base!

The grocery market was fractured, and often run by ethnic groups who were patronized by members of their own ethnicity mostly (a Chicago social worker had surveyed 90 immigrants and 74 of them said they bought from a grocery store owner of their own ethnicity p. 80.)

A&P was managerially forward-thinking allowing first profit sharing within the stores with store managers then allowing employee stock ownership in the firm itself — after five years employees could put 15% of their salary to stock, which in turn would be sold in the “Curb Market” of Wall Street.  More details on the secondary market pricing and how those records would in turn be kept would have been welcomed (the preferred stock paid a 6% dividend, what was the common which is what would have been earned?)

Their move west with the populus was slow — the A&P only entered California in 1930 but tried to catch up by adding over 100 stores in LA county in that year — when there were thousands nationwide.

Beseiged by their own comfort in the position and failure to adapt to mail retail and subsequently the ability to do discount retailing made possible by 1951 Supreme Court ruling striking down “Fair Trade laws” are the mysteries but the Hartford brothers were old and presumably exhausted by their rear guard fights against municipal, state, and federal authorities to justify their value proposition.  The book had interesting ancedotes of the hiring of PR advisers to fight these fights but overall the failure of the management who feel they were munificent to employees and good for customers inured them to understanding the competitive and legal challenges.

The decline of A&P is more thoroughly told in The Rise & Decline of The Great Atlantic and Pacific Tea Company by William Walsh.  From a peak of $70/share in 1961 there was a slow painful decline into the 1970s where after several offers were made and rejected by company, control was taken by the Tengelmann Group of Germany looking for a larger U.S. presence for $7.38/share in the late 70s.  This devastated the un-diversified charitable Hartford Foundation that had been the nation’s fourth largest in 1959.  A&P filed for bankruptcy on December 12, 2010.

It emerged from bankruptcy this year.  Marc Levinson wrote in the Harvard Business Review:

A&P remained so powerful for so long for one reason only: because the two brothers who controlled it, George L. and John A. Hartford, remade their company again and again to keep in step with changing times…Bankruptcy proceedings may have freed A&P of its debts, but they have not endowed it with a strategy for survival. In a food retail sector that is morphing at warp speed, A&P has nothing unique to offer. Its real estate, not its business, will draw suitors. When one of them swallows it up, a name that was once the most powerful in American business will likely vanish, a reminder that companies that cannot reinvent themselves are destined to die.

WalMart and Amazon have reshaped retail.  Will they last?  Brands live on in low margin retail business, sometimes for an astonishingly long time.  On p 113 there is a list of the largest U.S. Retailers of 1929:

A&P, Sears Roebuck, F.W. Woolworth, Montgomery Ward, Kroger, Safeway, J.C. Penney, S.S. Kresge, American Stores, and Gimbel Brothers. A&P had sales of just over 1 billion, with Sears to Gimbel ranging from 415 to 125 million.

The same list is provided for 1951:

A&P, Sears, Safeway, Montgomery Ward, J.C. Penney, Kroger, Woolworth, American Stores, Federated Department Stores, and First National Stores

Wal-Mart replaced Woolworth in the Dow Jones Industrial Average in 1991, and wound up buying the shell of the remaining stores (though Woolworths Group plc is a corporate descendant.)  Montgomery Ward went bankrupt in 1997, Safeway a famous early takeover story but stumbled under the debt loaded upon it.  S.S. Kresge became the famed discounter KMart but fell to bankruptcy in 2002.  Sears was absorbed by KMart narrowly avoiding bankruptcy itself several times and appears to be in the same terminal decline juicing cash flow at the expense of the stores like A&P did.   Federated went bankrupt in 1990.  American Stores was acquired by Albertsons and has had plenty of brand acquisitions and disposals since, Sav-On and Lucky’s now having long been in the Albertson’s family with little brand equity in the opinion of this California consumer.  Gimbels was acquired by British American Tobacco (ah, conglomerates) in 1973, and whose stores were subsequently disposed of over the next two decades.  First National (which with I was entirely unfamiliar) was acquired by Pick-N-Pay in 1978.

Kroger and J.C. Penney quietly prospered long term — from the 60s to late 90s but like many of their S&P 500 peers not done much in the last decade.

Chart forThe Kroger Co. (KR)

Chart forJ. C. Penney Company, Inc. (JCP)

Quite often it is the founders that inspire retail greatness, only to have their firms quickly fade after their death.  Wal-Mart appears to be an exception so far — over twenty years after Sam Walton’s death.  Wal-Mart traded in the low teens in April 1992 now in the low 70s.

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