The Great A&P and the Struggle for Small Business in America (10 page)

It was the nationwide movement for a pure-food law that led to the formation of the National Association of Retail Grocers in 1898. Few grocers actually belonged: in 1905, at the peak of activity leading to the passage of the Pure Food and Drug Act of 1906, the association claimed 11,382 members, roughly 3 percent of the nation’s grocers, and most of those would resign their memberships once the long-sought law was enacted. The costs of the national association and its state affiliates were largely paid by the Sugar Trust and by wholesaler groups, such as the Southern Wholesale Grocers’ Association, whose well-being depended upon the survival of independent grocers.
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Aside from pure food, the National Association of Retail Grocers’ main concern at the turn of the century had been the parcel post. Congress was considering whether the U.S. Post Office should deliver packages weighing more than four pounds. Small grocers were dead set against the plan, fearing that the parcel post would be a low-cost alternative to rail or wagon delivery, making it cheaper for catalog merchants such as Sears, Roebuck and Montgomery Ward to sell staples by mail. Chain stores were not controversial, because there were few chain stores in most parts of the country and almost none outside the cities.
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Political views changed as the expanding chains began to squeeze independent grocers’ profits. In 1903, the National Association of Retail Grocers debated whether manufacturers should be allowed to give volume discounts to large retailers just as they did to wholesalers. The following year, Massachusetts became the first state to impose a tax on coupons or trading stamps, which were deemed to give chain stores an unfair advantage. By 1905, wholesalers were threatening boycotts of manufacturers that sold directly to large grocers, and Missouri grocers backed a state law to curb competition by requiring prospective grocers to pass a licensing exam, like plumbers or electricians.
American Grocer
led the attack on price discrimination by manufacturers that sold more cheaply to chains than to independent grocers, declaring, “It is the bounden duty of the manufacturers to protect the retailers’ profits.” In Iowa and Minnesota, engaging in a “gift enterprise” by giving trading stamps with a purchase was made a misdemeanor. The campaign against price-cutting spread to the point that a federal judge in Colorado had to restrain a retailers’ association from fixing local grocery prices.
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Despite a few successes, independent grocers and their wholesale backers were unable to shackle the chains. At the end of the century’s first decade, the chain phenomenon was still modest in size and existed mainly in the Northeast and Midwest. Most Americans had never entered a chain grocery store and had no reason to care, and some appreciated that the large operators’ “scientific methods” were holding down handling costs. In 1908, grocery wholesalers in Boston petitioned Congress to permit manufacturers to fix retail prices to help grocers “preserve their commercial existence in the face of the efforts of powerful and selfish monopolies to gradually eliminate the individual dealer,” but no legislation followed. The public was far from convinced that chain stores were a problem.
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7

THE ECONOMY STORE

The Hartfords were an instinctively conservative family. George Huntington Hartford, whose caution had moderated George Gilman’s flamboyance in the tea company’s early days and cooled the warfare among Orange’s political factions in the 1880s, was not seduced by the conspicuous consumption of the Gilded Age; he lived unpretentiously in the house on Ridge Street until his death in 1917. Minnie, the eldest child, married in 1881, but moved no farther than the house next door to her parents; her son and son-in-law both worked for the Great Atlantic & Pacific. Marie Louise, the youngest child, remained in her parents’ home even after marrying the company executive Arthur Hoffman in 1907. George Ludlum Hartford, the treasurer of a sizable business, lived with his parents until 1908, when he was forty-two years old. Upon marrying Josephine Burnet, a forty-four-year-old widow with a teenage daughter, George L. relocated only to the adjacent town of Montclair, into a house he would occupy for half a century.
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While such familial closeness has its virtues, a keen sense of changing societal trends is unlikely to be among them. The Hartfords were fortunate that two of George H. and Josephine’s sons were cut from very different cloth. Edward, the middle son, avoided his father’s efforts to bring him into Great Atlantic & Pacific. Instead, he moved into New York City and entered the leading-edge industry of his day, automobiles. Traveling in France in 1899, Edward attended a bicycle race and observed that a spring attached to the front fork helped stabilize the winning cycle. He and his father bought the patent rights, and Edward developed the concept into the shock absorber, soon to become standard on every car. Edward went on to invent brakes, jacks, and other auto components, all of which were produced at the Hartford Suspension Company’s plant in Jersey City, adjacent to Great Atlantic & Pacific’s headquarters. Although Edward never worked for the grocery chain, he served as corporate secretary, participating in the direction of a company in which he, as an heir of George H. Hartford’s, had a significant financial interest. He would have brought a very different perspective to the Hartfords’ family councils.
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John was by far the most convivial of the Hartford offspring, and unlike his brother George he had no aversion to enjoying the family’s wealth. In 1893, when he was twenty-one, John married Pauline Corwin of Goshen, New York, whom he likely had met while visiting his mother’s family. In his mother’s eyes, he was a loving and obedient son. “I can say in all sincerity that John has never caused his father or myself an hour’s anxiety,” Josephine Hartford wrote to his intended bride. “I can assure you that John is guiltless of an evil habit.” But John had a strong streak of independence. He and Pauline chose to live in New York, not Orange, eventually taking an apartment at the elegant Hotel Marie Antoinette at Sixty-sixth Street and Broadway. He developed a taste for horses, becoming a fixture at the National Horse Show, New York’s most important society event. He and Pauline earned a listing in
Dau’s Blue Book
, indicating that they hobnobbed with the city’s elite, even if they were not listed in the
Social Register
. Most important of all, John spent time on the road, meeting with store managers, grocery manufacturers, and executives at other companies. He was exposed to new ideas in a way that his father and his brother were not. Had it been up to George H. and George L., the Great Atlantic & Pacific would likely have remained but one of many grocery chains, expanding deliberately into new markets. John had a different vision.
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In 1912, John Hartford decided that Great Atlantic & Pacific needed a new approach to running grocery stores. Company lore has it that he was fed up with the high cost of premiums and trading stamps, but there was more to the story than that.

Food was a much-debated subject in 1912. Rising food prices were a major issue in that year’s presidential campaign, and were tracked closely by the newspapers and the government’s Bureau of Labor Statistics. Sanitary concerns were widespread even after the Pure Food and Drug Act of 1906 authorized the government to ban unsafe ingredients; in 1911, New York City inspectors condemned one hundred tons of poultry and nearly two hundred tons of fish on sale in public markets. The discovery of “vitamins”—a name first applied in 1912 to the substances that became known as vitamin A, vitamin B
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, and vitamin C—helped fuel a new public consciousness about nutrition, and the typical American diet, heavy on fats and carbohydrates, was found wanting.
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Most of all, the food distribution system itself was seen as an embarrassment. Scientific management was taking firm hold in manufacturing and in the popular imagination; in 1911,
American Magazine
, one of the most widely circulated publications of the time, serialized “The Principles of Scientific Management” by the famed industrial engineer Frederick Winslow Taylor for a popular audience. By contrast with industry, the process of getting food from farm to table seemed hugely inefficient. Tens of thousands of peddlers eked out precarious livings selling eggs and melons door-to-door. Large quantities of produce and milk simply went to waste. Local prices of fruits, vegetables, and eggs could fluctuate wildly, collapsing as a trainload of new merchandise glutted the market and then soaring as producers responded to the low prices by sending their goods elsewhere. By one estimate, wholesaling and retailing costs accounted for nearly half of New Yorkers’ food outlays, with food that sold for $350 million a year at New York rail terminals costing consumers $645 million at the city’s grocery stores. The issues were so widely debated that the august American Academy of Political and Social Science devoted an entire issue of its
Annals
to “reducing the cost of food distribution,” and the new Harvard Business School, established in 1908, began a series of studies of retail efficiency.
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Other grocery chains had taken the lead in applying scientific management by standardizing stores and abandoning costly practices such as credit and delivery. John convinced his reluctant father and brother to try something similar. In 1912, they opened an unmarked store in an unprepossessing, two-story structure at 797 West Side Avenue in Jersey City, two miles from the company’s headquarters. At a time when most grocery stores were small, the new store was even smaller, just twenty feet wide and thirty feet deep. The furnishings were simple, only a few shelves and counters and a small ice refrigerator for butter, lard, and eggs; George Gilman’s glittering chandeliers, red-painted pagodas, and Chinese wall hangings were banished. Unlike Great Atlantic & Pacific’s other stores, the experimental store offered no credit, no premiums, and no trading stamps. There was no telephone, so customers could not call in orders for delivery. The manager, the sole employee, locked the door when he went to lunch. The company’s total investment, including inventory, came to only $2,500. The small investment and minimal labor expense permitted low markups, so the store could offer very attractive prices. The first Economy Store did not advertise, lest customers demand Economy Store prices in the regular store nearby. With no promotion beyond low prices, shoppers came in droves.
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As was the case with almost everything else they did, the Hartfords were not innovators when it came to low-price retailing. Their strength was figuring out how to turn others’ innovations into profitable strategies. Their 1912 test in Jersey City showed, unsurprisingly, that a store with limited hours and a small stock of merchandise sold fewer groceries than the average Great Atlantic & Pacific outlet. But it also revealed an important lesson: lower costs could lead to a higher return on investment. The Hartfords concluded that if they opened many locations, the new format could propel both higher profits and faster growth. They called the design the A&P Economy Store, putting the initials A&P on a store’s nameplate for the first time. The acronym stuck; henceforth, customers would think of the place where they did their shopping as “the A&P.” With George L. keeping a close eye on costs, the Hartfords plunged in, against the resistance of most of their supervisors. In 1913, they opened 175 Economy Stores, more than 5 each week. In 1914, another 408 Economy Stores opened up, including 100 in Boston alone, giving Great Atlantic & Pacific the large local market share it had lacked. By 1915, when the company opened 864 more Economy Stores, the low-price banner accounted for more than half of total sales.
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The birth of the Economy Store coincided with an important political shift, for it was in 1912 that chain retailing first surfaced as a national political issue. Chains, which originated in the tea trade, were expanding across the retail sector. Some 257 sizable retail chains were operating in the United States in 1910, nearly five times as many as in 1900. The F. W. Woolworth Company was created in a 1911 merger of six “5 & 10 Cent” dry-goods chains that operated 596 stores in forty-eight states; the company was so profitable that it was about to occupy the tallest building in the world, paid for entirely in cash. The United Cigar Stores Company, organized in 1901 and closely tied to the tobacco trust that controlled cigar and cigarette production, had more than 900 stores by 1913. The growth of pharmacy chains showed that chains could penetrate even a field in which highly trained specialists were needed to manufacture and dispense the goods.
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Independent retailers and wholesalers tried to hobble the chains by discouraging manufacturers from dealing with them. In 1909, they convinced the Kellogg Toasted Corn Flake Company to abandon discounting. Henceforth, Kellogg would offer no volume discounts to chains such as Great Atlantic & Pacific. Instead, it would sell its cereal to wholesalers only at $2.50 per case of thirty-six boxes, less a 2 percent discount for cash payment. The wholesalers had to agree to sell to all retailers, regardless of size, for $2.80 per case. Retailers, in turn, were obligated to sell the cornflakes at ten cents per box. This system meant that a case of cornflakes sold by Kellogg for $2.45, including the cash discount, would bring $3.60 at retail, a 47 percent markup. “The one-case price is exactly the same as the 1,000-case price,” a Kellogg official insisted, explaining that lowering prices for big customers would “demoralize trade.” The courts, however, rejected most efforts to fix prices. In 1908, the U.S. Supreme Court ruled that a publisher could not tell a retailer what price to charge for a book. In 1911, it ruled directly that a manufacturer that tried to set the retail price of its products violated antitrust law.
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Their losses on the legal front pushed independent retailers and their wholesale suppliers into the national political arena. An anti-chain measure came before Congress for the first time in 1912, prohibiting premiums and trading stamps in connection with the sale of tobacco. This bill was important to independent cigar-store owners, but it was of little interest to other retailers and had no serious chance of passage. Separately, small-town clothing and hardware dealers sought to rein in the parcel-post service, established that same year, but both this proposal and merchants’ petitions that mail-order retailers be required to pay local taxes wherever they sold their goods were so contrary to the interests of small-town shoppers that they fell on deaf ears. Complaining that chain stores were selling goods too cheaply was not an approach calculated to earn sympathy from the consuming public, so the organizations representing independent merchants adroitly rephrased their complaint. Their objection, they said, was not to chains or low prices but to “unfair competition.” The practice on which they focused was price discrimination.
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