The Great A&P and the Struggle for Small Business in America (18 page)

The company’s impressive profits and rock-solid balance sheet financed newer and larger stores, upsetting the food trade in places where chain retailing had not previously been an issue. Chain grocery stores were rare in Texas before A&P opened its first outlet in the Dallas area around 1924. By 1927, A&P had 80 stores in Houston alone. The first red-front A&P stores opened in Montreal in May 1927, the forerunners of a sizable Canadian operation. Stores in Minneapolis and Oklahoma City followed. By 1929, A&P had 16,000 stores covering thirty-four states east of the Rocky Mountains and two Canadian provinces. In the densely populated Northeast, from Maine to Washington, D.C., A&P captured one of every eight dollars of retail food sales. When A&P made its long-awaited move into California, in 1930, it did so in force, opening 101 stores in Los Angeles in less than a year. Merchants everywhere had reason to fear it.
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So did wholesalers. Not only did A&P’s expansion destroy wholesalers’ customers, but A&P’s insistence on direct relationships with manufacturers and its refusal to pay brokerage commissions meant that wholesalers sold almost nothing to A&P stores. A Federal Trade Commission investigation found that A&P bought from wholesalers and jobbers “only to meet exceptional situations.” Data compiled by the commission revealed just how serious this loss of business was. The smallest chains, those with five or fewer stores, spent around 60 percent of their purchasing dollar with wholesalers. The biggest grocery and meat chains, at the other extreme, obtained just 1.5 percent of their merchandise from wholesalers. A&P’s business with wholesalers was even smaller than that, because, unlike some other big chains, it bought none of its fresh produce through the wholesale channel. “This chain is becoming independent of the wholesaler by performing through its own organization a complete wholesaling function,” the commission found. A&P bought milk and cream directly from farmers, purchased fish from fishermen at the Boston docks, aged most of its cheese in its own warehouses. In a single year, 1928, it moved 205,164 full railcar loads of merchandise through its own distribution system. For the wholesale grocery industry, the flourishing of A&P was unambiguously terrible news.
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The Great Atlantic & Pacific was by no means a monopoly or a trust, as its critics readily charged. It manufactured only 13 percent of the groceries it sold. Even where its retail position was strongest, in the suburbs of New York City, it was responsible for only one of every five dollars of food sales. But A&P transformed American retailing in the decade after World War I. The Hartford brothers implemented a strategy that changed the way Americans bought their food, and soon enough would change the way Americans shopped for other products, too. While other large retailers foundered or even failed, the Great Atlantic & Pacific grew relentlessly. By the end of the 1920s, it operated stores in thirty-eight hundred communities. One-tenth of all sugar sold in the United States passed through A&P’s hands. The largest coffee buyer in the world, it sold one-eighth of the country’s coffee and one-seventh of its tea. It met 10 percent of the nation’s demand for Alaskan salmon, half of that from its own canneries, and furnished 12 percent of the country’s evaporated milk. Its thirty-five bakeries made 600 million loaves of bread per year, more than all but one baking company in the United States. It sold more butter and more cigarettes than any other retailer in the world. It competed head-to-head with retailers, wholesalers, and manufacturers, and in its determination to have the lowest retail prices and the greatest volume, it squeezed the margins of all of them. In a country of thirty-two million households, A&P served five million customers a day. In 1929, it became, as John had predicted, the first retailer anywhere to sell $1 billion of merchandise in a single year.
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For all its modern methods, A&P remained as paternalistic as ever. When Clark Equipment Company, which sold A&P warehouse equipment, ran into financial problems, John Hartford proposed that the company pay its workers in scrip that A&P would redeem at face value. When the stock market crash of 1929 triggered higher unemployment, A&P accelerated planned construction work in order to provide jobs in ten different cities. Although his company now had eighty thousand employees, far more than he could ever hope to meet, John still emphasized his personal relationship with everyone who worked for A&P. “What the average man on the job wants is a good job and a feeling that as long as he does what is right he can keep it,” John wrote to his workers in 1930. “If a man is to have this feeling—and he cannot do good work without it—then the company must be loyal to him. As a matter of sound business policy, it is just as necessary that the company be loyal to the employee as it is that the employee be loyal to the company.”
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A&P’s relentless growth turned a formerly obscure grocery chain into one of the country’s most prominent corporations, the object of endless curiosity and envy. Jersey City was no place for a company like this. In 1927, the Hartfords moved their headquarters into the Graybar Building, a prestigious new office tower adjacent to Grand Central Terminal in midtown Manhattan, where Mr. George and Mr. John shared an office suite on the twenty-second floor. In an indication of the business world’s newfound respect for their achievements, John was invited to join important boards: the Guaranty Trust Company, the New Haven Railroad, the Chrysler Corporation. When the president of the Pennsylvania Railroad Company invited two hundred prominent businessmen and government officials to his summer home in September 1929, John A. Hartford was among the guests who mingled with members of President Hoover’s cabinet. The scion of a self-made grocer, himself with little education save what he had learned on the job, was now among the nation’s business elite.
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MINUTE MEN AND TAX MEN

“Big Business Now Sweeps Retail Trade,”
The New York Times
declared in a 1928 headline running the entire width of a page. “Huge Corporations, Serving the Nation Through Country-Wide Chains, Are Displacing the Neighborhood Store.” Across the United States, the newspaper reported, some thirty-eight hundred retail chains were operating 100,000 stores. “Out of every dollar spent in retail stores today 17 cents goes into the treasury of chain corporations.” Of course, most of those chains had only a handful of stores, but a few were quite large. Foremost among them was a single company operating twice as many stores as the next seven chains combined, with sales more than four times those of the next-largest food retailer. “By all odds the largest retail trade trust in the world is the Great Atlantic and Pacific Tea Company,” the
Times
affirmed.
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The
Times
deemed A&P an “amazing concern,” but most of the 2.1 million Americans who earned their livings making and selling food had a decidedly different view. The company’s headlong growth and rampant price-cutting were a threat to every part of the food distribution system. A&P’s demands that suppliers slash prices and provide advertising allowances cut into grocery manufacturers’ profits. Its insistence that food processors, soap makers, and fruit and vegetable growers deal with it directly, without middlemen, endangered tens of thousands of agents, jobbers, and wholesalers whose purpose was to link food suppliers with individual grocers. A&P’s financial strength, giving it the ability to plant a store anywhere it chose, darkened the prospects not only of the 400,000 people who ran independent food stores and their families but of uncounted numbers of men who dreamed of someday becoming merchants and of the small-town bankers and insurance agents who counted local retailers among their clients.
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The woes of small merchants were especially acute in the small towns of the South and Midwest, where farm-based economies reeled under sagging commodity prices even as the big cities prospered. Through the first half of the 1920s, wholesalers and independent shop owners in these regions pushed political leaders to act against the chains. The first success came in 1925, when the town of Danville, Kentucky, population five thousand, required an annual license fee of grocery stores, with “cash and carry” grocers—such as chain stores—required to pay several times as much as “regular service” grocers. The ordinance was quashed by a state court, but the reprieve for chain stores would prove temporary.
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New fuel was added to the conflict when the two largest catalog retailers, Sears, Roebuck and Montgomery Ward, began opening retail stores in 1925 and 1926. With their vast selections and money-back guarantees, Sears and Montgomery Ward had long taken business from small-town retailers, but their appeal was constrained by the need for customers to order by mail and wait for their purchases to arrive. The prospect that Sears or Ward’s might open a store on the local Main Street encouraged hardware dealers and shoe-store owners to make common cause with grocers and druggists, who had been fighting the chains for years. In 1926, storekeepers in Petersburg, Virginia, organized a mass protest meeting. Similar groups formed to mount “trade at home” campaigns in one small town after another. State legislators responded. Four states enacted anti-chain laws in 1927. Maryland prohibited any chain from owning more than five stores in Allegany County and taxed each chain-owned store in the county $500—a tax that would have taken nearly half the profits of an average A&P store. Georgia slapped a $250 tax on each chain-owned store over five. North Carolina charged any company with more than five stores $50 per store. Pennsylvania provided that only registered pharmacists could own drugstores. These laws, as well as a $100-per-store tax enacted by South Carolina in 1928, were invalidated by courts, but their very passage demonstrated the growing political power of the forces opposed to chain retailing.
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The political success of state-level anti-chain efforts reverberated around the country. In April 1928, the National Association of Retail Meat Dealers—influenced by A&P’s decision to begin opening meat departments—accused chain stores of misleading advertisements, short weights, and false sales. The Meat Dealers asked the Federal Trade Commission to investigate. A week later, J. H. McLaurin, president of the American Wholesale Grocers’ Association, told members that “the Atlantic & Pacific … as now conducted, possesses the potentiality of a control of retail food distribution to such an extent as to threaten the best interests of the American public.” Perhaps, McLaurin said, the Justice Department will look into things. The alarm was bipartisan. Smith Brookhart, a Republican senator from the farm state of Iowa, authored a congressional resolution directing the Federal Trade Commission to investigate whether chain retailing was creating monopoly or unfair competition. The commission also was to determine whether chain stores’ growth was based upon “actual savings in costs of management and operation.” The resolution led John A. Hartford to speak out on a matter of public policy for the first time in his long career. “We have nothing to fear from any such investigation,” he told reporters. “If sufficient reasons appear to justify an inquiry into the industry as a whole, our company would welcome it.”
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A 1928 study supported by the Chamber of Commerce of the United States concluded that “the death knell has been sounded for one-third of all retail outlets in the country” due to the growth of chains. Spurred by such inflammatory reports, the FTC launched two investigations—one of chain stores in general, and one focused on A&P. In June 1928, an FTC attorney sent the company pages of questions about its purchasing, pricing, and advertising practices to find out why A&P was selling name-brand merchandise more cheaply than other grocers. A few months later, the attorney wrote to ask whether A&P “has partially abandoned cut price appeal in its advertising.” Finding no wrongdoing, the commission terminated the investigation in 1929, but the reprieve would prove temporary: A&P would be under federal investigation continuously for the next quarter century.
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No factual investigation, however, could quell the growing concern about chain stores, for the worry had less to do with price competition than with the survival of small-town America. The chain store altered economic geography. Thousands of towns were home to grocery warehouses or the offices of small retail companies. A chain such as A&P, on the other hand, obtained economies of scale by centralizing its warehouses and offices in regional business centers. In small towns, it had only stores, with few employees and no highly paid executives. As local competitors fell by the wayside, jobs vanished with them, destroying the social fabric and leaving communities bereft of capital and civic leadership. “If businessmen become purely representatives of a large corporation without residence, property, or direct personal interest in the local community, the significance of such a change in community life is indeed apparent,” one of the earliest scholars of the chain store wrote in 1927. Agreed a Michigan newspaper, “The consumer who patronizes the chain store, instead of the regular merchant, is effectually destroying the value of any property he owns in the town in which he lives.”
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