The Great A&P and the Struggle for Small Business in America (2 page)

In 1920s America, every town of any consequence had its grocers, its food brokers and wholesalers, its bottling plants and flour mills. These enterprises provided a tax base for their communities, a cadre of owners and managers to serve as civic leaders, and a major source of jobs. Just the retail side of the food business provided livelihoods for 1.2 million workers on the eve of the Great Depression, many of them self-employed proprietors. Food retailers, wholesalers, and processors together engaged one out of every eighteen nonfarm workers in the entire country—more than apparel and textile factories, iron and steel plants, coal mines, or even railroads.
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Americans paid a high price to support this balkanized system for conveying food from farm to table. Food was hugely expensive, relative to wages. The average working-class family in the 1920s devoted one-third of its budget to groceries, the average farm family even more. Most households spent more to put dinner on the table than for their rent or their mortgage. And for the average housewife, shopping for food consumed a large part of the day. This money, time, and effort bought plenty of calories, but only moderate amounts of nutrition. With neither display space nor refrigeration, many neighborhood stores carried only token stocks of fresh fruits and vegetables. Fresh fish and poultry were rarities. The poorest third of American households consumed a sorely inadequate daily intake of vitamins and minerals, because there was little of either in the food that their neighborhood shops had for sale.
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The Great Atlantic & Pacific did much to destroy this world. The Hartfords were among the most rigorous managers of their day. At a time when many grocers consulted self-help books to figure out how to price their goods, the brothers pored over data to fine-tune operations, closing this store, relocating that one, dropping a product whose sales languished, adding another that promised better margins. They totally reshaped their business at least four times. At its peak, their company owned nearly sixteen thousand grocery stores, seventy factories, and more than a hundred warehouses. It was the country’s largest coffee importer, the largest wholesale produce dealer and butter buyer, the second-largest baker. Its sales were more than twice those of any other retailer. Their basic strategy was so extraordinarily simple it could be captured in a single word: volume. If the company kept its costs down and its prices low, more shoppers would come through its doors, producing more profit than if it kept prices high.

The Great A&P transformed the humble, archaic grocery trade into a modern industry, but its relentless expansion posed a mortal threat to a sector of the economy upon which so many families and communities depended. Those mom-and-pop grocers, local wholesalers, and small manufacturers understood the threat full well, and they fought back with a vengeance. The Hartfords were in no sense robber barons, yet they became the most controversial, and most reviled, American businessmen of the first half of the twentieth century. Had Mr. George tuned his crystal radio to America’s most widely heard station in the 1920s, he would have heard diatribes against the “childless brothers” who monopolized food retailing. When Senator Huey Long warned in 1934 that “about ten men” have “chained the country from one end to the other,” he was talking about Mr. George and Mr. John. When a lawyer working for the administration of Franklin Roosevelt called the country’s largest retailer “a gigantic blood sucker,” there was no question he had the Hartfords in mind: it was he who convinced Judge Lindley to convict them.

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A contemporary of the Hartfords, the economist Joseph Schumpeter, coined the phrase “creative destruction” in 1942 to describe the painful process by which innovation and technological advance make an industry more efficient while leaving older, less adaptable businesses by the wayside. For the economy as a whole, creative destruction is enormously beneficial, permitting a shift of labor and capital from sectors where less is required into areas where new products and services are in demand. It is precisely such shifts that make economies grow. For many individuals and many communities, on the other hand, creative destruction is painful, entailing business restructuring, job elimination, and the disappearance of companies and industries that have provided the economic base for a particular town or an entire region. Whatever its advantages, economic change inevitably leaves major losses in its wake.
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When creative destruction brings layoffs to autoworkers or closes coal mines across an entire region, the world pays close attention. When it means the closure of a family-run grocery store or the replacement of a failing supermarket by another store down the street, though, creative destruction does its work unremarked. This invisibility reflects the sheer lack of drama in the retail trade: a shuttered store leaves no gargantuan machinery standing idle, no angry workers milling around outside a padlocked gate. The building, torn down for parking or converted to some other use, will quickly fade from memory. The workers will be expected to find other jobs wherever they can. Displaced industrial workers, tough, rugged, and usually male, are presumed to have had important dreams and plans tragically destroyed by the vagaries of economic change and to merit public sympathy. Displaced grocery clerks rarely get such respect.

That neglect speaks to the prejudices of social thinkers of many ideologies. Thomas Jefferson, along with his contemporaries in the Enlightenment, saw special merit in the toil of the farmer, but very little in the work of the merchants who dealt in the farmer’s produce. Karl Marx and Friedrich Engels judged that the course of history would be shaped in vast factories by workers engaged in physical production; the labor of the merchant, they wrote, “is not labor that creates value.” Their near contemporary William Graham Sumner, one of the most influential American social thinkers of the late nineteenth century but decidedly no Marxist, fully agreed with their point. “Wealth comes only from production, and all that the wrangling grabbers, loafers, and jobbers get to deal with comes from somebody’s toil and sacrifice,” Sumner wrote.
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The effect of economic change on store owners occasions particular ideological confusion. After all, the independent grocers displaced by the growth of the Great Atlantic & Pacific were capitalists, even if their capital was only a few hundred dollars. Their wives, by extension, were capitalists, too, even if being capitalists did not absolve them from twelve-hour days totting up purchases and keeping the books. When larger competitors undercut their prices and decimated their businesses, these small-time capitalists received neither sympathy nor a mention in the unemployment statistics. They simply vanished.

In the first half of the twentieth century, the Hartfords turned their company into one of the greatest agents of creative destruction in the United States. Although shifts in the way the world buys food are far less heralded than innovations such as cars and computers, few economic changes have mattered more to the average family. Thanks to the management techniques the Great A&P brought into widespread use, food shopping, once a heavy burden, became a minor concern for all but the poorest households as grocery operators increased productivity and squeezed out costs. The proportion of workers involved in selling groceries plummeted, freeing up labor to help the economy grow. And the company’s innovations are still evident in the supply chains that link the business world together. Although the Hartfords died decades before the invention of supercenters and hypermarkets, they employed many of the strategies—fighting unions, demanding lower prices from suppliers, cutting out middlemen, slashing inventories, lowering prices to build volume, using volume to gain yet more economies of scale—that Walmart’s founder, Sam Walton, would later make famous.

The bitter political and legal battles surrounding the Great Atlantic & Pacific Tea Company were limited to North America, but they presaged similar conflicts around the globe. Under Japan’s “big store law,” in force from the 1970s, anyone seeking to open even a modest supermarket had to gain local competitors’ approval by paying them compensation. West Germany protected mom-and-pop retailers in 1956 by allowing stores to open only from 7:00 a.m. to 6:30 p.m. Monday through Friday and until 2:00 p.m. on Saturday; a worker with a daytime job was essentially forced to patronize grocery stores and butcher shops near home or workplace because there was no time to shop elsewhere. In France, a 1973 law to aid artisans and small merchants restricted the opening of large stores and prohibited manufacturers from selling more cheaply to big merchants than to small ones. Everywhere, the complaint was the same as it had been in America: the unchecked growth of large retailers threatened the traditional role of local merchants and destroyed opportunities for economic independence.
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Such restraints faded toward the end of the twentieth century, in part because consumers demanded lower prices, in part because as working hours grew more diverse, more people needed to shop at nontraditional times. Yet the century-old battle between independent merchants and large retailers was by no means over. In the United States and Western Europe, critics of “industrial food” advised consumers to avoid the processed goods at the supermarket and purchase locally grown foods from farmers and independent retailers; the Hartfords’ great achievement, making food affordable, was now looked upon with disdain. Merchants’ protests led Thailand’s government to halt expansion by grocery chains in 2006. In 2010, the Czech Republic required minimum price markups in order to keep chains from undercutting mom-and-pop stores—precisely the same obstacle A&P confronted in the United States in the 1930s.
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The Hartfords’ enterprise did not prosper without its founders. Within a few years of their deaths, the once-mighty A&P was a basket case, staggering from one failed strategy to another as better-run companies passed it by. Soon enough, the company that had decimated independent stores by the thousands became a victim of the creative destruction it had once meted out. But while A&P’s fortunes waned, the economic forces it helped unleash only grew stronger. It made the process of moving goods from producer to consumer impersonal and industrial, but also cheap and efficient, a job for the big, not for the small.

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THE FOUNDER

In their later years, after they became immensely wealthy and exceedingly controversial, George L. and John A. Hartford allowed certain legends to grow up around the family business. “Back in the year 1859, a little store opened its doors on Vesey Street, New York,” the official company history recounted. “This was the first store of the great chain of grocery stores now operated by the Great Atlantic & Pacific Tea Co. George H. Hartford, the Founder, had a vision—the hope of a great national business.” In some tellings, George H., the visionary entrepreneur and father of George L. and John A., was claimed to have been the company’s first president, the creator of the first of the great chains that would soon dominate American retailing. An even more elaborate version credited George H. with starting the great enterprise by acquiring an entire shipload of tea in 1859 and selling it to the deserving public at 70 percent off the going price.
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Those legends, and much else that has been written about the Hartfords and their powerful company, are at best misleading, if not simply false. The story of how an obscure tea-store clerk and two of his sons would come to run the most admired, and reviled, business in America is more improbable, if less heroic, than the myths.
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The founder was not George H. Hartford but George Francis Gilman, a man destined to become one of the more bizarre characters in American business history. Gilman, born in Maine in 1826, could trace his ancestry back to the
Mayflower
. His father, Nathaniel Gilman, had become wealthy as a privateer and embargo runner during the War of 1812, and became involved in New York’s booming leather industry in 1834, when he came to sell a cargo of African hides and formed a partnership with a young tanner and leather merchant named Thomas Smull. New York was the center of U.S. leather manufacturing, and the fetid alleyways of the neighborhood known as the Swamp, just two blocks east of City Hall, were lined with tanneries soaking and pounding imported hides into leather. Gilman, Smull & Company was soon among the largest hide and leather dealers in New York. Nathaniel Gilman, a newspaper wrote later, “was a queer individual, a daring speculator, a taciturn, secretive trader.”
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Over time, much of the tanning process, with its noxious fumes and poisonous runoff, was moved upstate, near supplies of hemlock or oak bark used to make the tannic acid that rendered hides soft and flexible. New York City’s erstwhile tanners turned themselves into merchants, buying hides at the docks, storing them, sending them off to be made into leather, and marketing the finished leather to boot and shoe manufacturers. Dozens of leather merchants were located cheek by jowl along Beekman, Spruce, Gold, and Frankfort streets and two alleys, known as Ferry and Jacobs streets, that had been cut to provide access to tanneries built on interior lots. Gilman’s partnership with Smull ended around 1845, but by the early 1850s Nathaniel Gilman and three of his sons had three leather warehouses in the Swamp and owned tanneries northwest of the city.
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Their father’s dynastic dreams abruptly came undone when Nathaniel Gilman Jr., the heir apparent, died in 1853 at the age of thirty-eight. Nathaniel Gilman & Son was dissolved, finally allowing George Gilman, then twenty-seven, to strike out on his own. In 1858, he erected a five-story brick building at 98 Gold Street for his own leather firm, Gilman & Company. His father died in December 1859, leaving an estate worth a million dollars and a tangle of claims and counterclaims that would take nearly half a century to resolve.
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