The Great A&P and the Struggle for Small Business in America (20 page)

The controversy was equally intense outside the legislative halls. The Federal Trade Commission began releasing results from the chain-store investigation directed by Congress in 1928, providing a flood of data for the use of partisans on both sides. Its findings, which would eventually fill thirty-four volumes, found their way into high schools and colleges, where thousands of debaters squared off over the topic: “Resolved: that chain stores are detrimental to the best interests of the American public.” The American Management Association published a study of chain stores, and the American Economic Association held a panel debate.
The Nation
, one of the country’s most prestigious magazines, devoted a four-part series to the chain phenomenon, concluding that “the chain principle of distribution is economically sound,” but urging “new policies of community spirit” to control workers’ hours and wages and to protect the interests of food producers.
The New Republic
, similarly influential, followed with a series of its own. When legislators such as Senator Arthur Capper, a Kansas Republican, tried to stake out a middle ground, praising the virtues of chain stores while proposing to allow the makers of trademarked articles to set retail prices so as to stop the “profiteering price cutter,” they could hardly make themselves heard amid the anti-chain cacophony.
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In May 1931, Indiana’s chain-store tax, enacted in 1929, was upheld by the U.S. Supreme Court in a case called
State Board of Tax Commissioners v. Jackson
. The Indiana tax charged $3 a year for a single store, rising to $25 for each store over twenty under the same management or ownership. A federal district court had rejected that fee structure, holding that Indiana lacked a legitimate basis for distinguishing between chain and independent merchants. The Supreme Court reversed. Chain stores, it ruled, were a different type of business from individually owned stores and could be taxed differently. This logic extended a blatant invitation to other jurisdictions to tax chain retailers. Among the five justices voting to uphold the Indiana statute was Louis Brandeis, still an implacable opponent of chain retailing, but now in a position where his views could directly shape the law. In
A&P v. Maxwell
, a few weeks later, the same 5–4 majority upheld the constitutionality of North Carolina’s $50-per-store tax on anyone owning more than a single store.
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The
Jackson
and
Maxwell
decisions opened the floodgates. In the three years from 1931 through 1933, 525 chain-store tax bills were introduced in state legislatures, and 18 of them were enacted. Although chain-store taxes were invalidated by state courts in Vermont and Wisconsin, they were upheld by courts in other states. By the end of 1933, retail chains in seventeen states from Florida to Idaho were subject to special tax levies, many of them far more onerous than those in Indiana and North Carolina.
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No company stood to be hurt as badly by this new form of taxation as the Great Atlantic & Pacific. The specific form of tax approved by the Supreme Court linked the tax to the number of stores in a state and not to sales. For A&P, with more stores than its top five competitors combined but far lower sales per store, a fixed per-store tax meant that it would pay a higher proportion of revenue to state tax collectors than any competing grocer.

A&P’s lawyers sought to block the taxes in state courts, without success. Yet as the storm confronting chain stores grew more intense, the world’s largest retailer tried to steer clear of the controversy. As early as 1927, Sullivan & Cromwell, then A&P’s law firm, had urged the company to combat anti-chain propaganda. The Hartfords refused, agreeing only that all press releases should be issued centrally by John Hartford’s office. When the National Association of Chain Stores set up a committee in 1931 to plan an educational campaign, A&P did not participate. When the association doubled its budget to combat the taxes, A&P lent no support. A&P’s own advertising said nothing of taxes on chain stores, and its magazine for store managers focused on opportunities for advancement rather than political struggles. Nor did the company hire lobbyists to plead its case. “It is not the company’s policy to do any lobbying or anything that smacks of lobbying,” division executives in the Midwest were instructed in 1931. Far from being the slaves of Wall Street, as critics charged, George and John Hartford were used to running their business privately, without outside interference, and they intended to keep doing so.
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The brothers did not take the threat of chain-store taxes seriously. Perhaps, having spent their entire lives in and around New York City, they did not understand the depth of anger toward big business in some of the nation’s more rural quarters. Or perhaps, having been associated with the Great Atlantic & Pacific for their entire lives, they failed to grasp that the company they saw as so benevolent was viewed by others in a harsher light. “The public … would not countenance radical legislation that would penalize efficient distribution,” John Hartford told a management meeting in 1928. Two years later, in a rare interview with
The New York Times
, he brushed off the risk of rising anti-chain sentiment: “Chains … are now recognized as rendering so great a public service that I do not believe there is any cause for worry on that score.” This comfortable judgment was to prove disastrously wrong.
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12

THE SUPERMARKET

The year 1930 found John and George Hartford at the top of the business world. Their company had just become the first retailer ever to sell $1 billion of merchandise in a single year. A&P’s after-tax profit had topped $26 million, an all-time record, yielding a solid 24 percent return on investment. Despite the worrying stock market crash in October 1929, George’s stubborn insistence that A&P avoid owning property and rent stores only on short-term leases offered protection against a steep drop in revenue.
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The Hartfords were by no means resting on their laurels. They recognized that the way Americans got their food was changing dramatically, and they understood that their company had to keep pace.

As the Great Depression arrived, three technological developments were reshaping the grocery trade. The most important was refrigeration. Before commercial-size electric refrigerators first appeared in 1922, stores that sold meat or fresh milk struggled to keep their goods cold in coolers chilled with hundred-pound blocks of ice. Reliable electric refrigerator cases, which were widely used by the late 1920s, finally made it practical for grocers to sell perishable foods without worrying that their stock would go bad. Shoppers, accustomed to making daily visits to the grocer, the butcher, the baker, and the produce vendor, embraced one-stop shopping enthusiastically. As they did, retailing’s traditional boundary lines began to erode. By 1929, one in three grocery stores sold meat and poultry, while many meat markets sold groceries and produce. In 1930, U.S. factories turned out a million home refrigerators as refrigerators outsold iceboxes for the first time. The families wealthy enough to afford them could stock up at the grocery store, rather than buying one day’s fresh food at a time.
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The second big change sweeping through the food industry was packaging. Cellophane, a clear film derived from wood fiber, was invented in France in 1908, but it arrived in North America only after Du Pont licensed the patents in 1923. The invention of a waterproof cellophane in 1927, along with Du Pont research showing that cellophane in bright colors stimulated impulse purchases, convinced manufacturers to use it to wrap candy, baked goods, and cigarettes. Retailers could expand their product lines, selling slower-moving items without worrying that they would go stale. Cellophane was a godsend for grocery-store meat counters: shoppers resisted precut meats wrapped in brown butcher paper, but they readily accepted packaged pork chops and chicken legs when they could see the product. Coupled with the newly invented slicing machine, cellophane wrap made it practical to sell sliced loaves of bread that would stay fresh for more than a day on a grocer’s shelf. Cellophane was more expensive than other types of packaging, but it could be used to competitive advantage: when makers of gelatin desserts began promoting the freshness of their products, A&P responded by advertising that Sparkle gelatin powder, produced by Quaker Maid, was the only gelatin wrapped in cellophane to ensure freshness.
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The other technology buffeting the food trade in 1930 was the automobile. Passenger cars were still luxuries in the early 1920s, but by the end of the decade twenty-three million private cars were on American roads. Cars brought dramatic changes in shopping patterns. Car-owning families did not need to lug their purchases home from a neighborhood store, and they were certainly not bound to an independent corner grocer who provided home delivery. Car owners could drive to the store of their choice, roaming far afield in search of the best bargains, and purchase more than they could carry in their arms. Conversely, a retailer could now appeal to shoppers outside its immediate environs. If its prices were sufficiently low, its products sufficiently attractive, or its advertising sufficiently outrageous, customers would drive from miles around.
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All three of these technological changes led in one direction: larger stores. Around 1930, most grocery stores, including most A&P stores, were still extremely small. The industry norm was a modest space perhaps twenty feet wide and thirty feet deep, with canned goods stacked toward the front and fast-moving staples like bread and sugar displayed near the refrigerator case at the rear. A&P, like other retailers, was gradually shifting from these spartan outlets to larger “combination” stores that carried meat, poultry, and a larger selection of produce. Combination stores were bigger than stores without meat departments—the average traditional store had two employees, including the proprietor, whereas the average combination store had three—and had much higher labor productivity, selling about 20 percent more groceries per worker. Yet the “model” combination store recommended by
The Progressive Grocer
was no more than thirty feet wide and forty feet deep, perhaps twice the floor area of a traditional store, and the magazine specifically warned readers against making their stores too big. When the Rockmoor Grocery opened in a forty-by-seventy-foot space in Miami in 1926, the owners worried that its size was excessive. Marketing techniques throughout the industry were still so primitive that
The Progressive Grocer
’s 1931 guide advised, “Every item that admits of being handled must be so displayed that it can be picked up and handled by the housewife.” While experts were now advising grocers to get rid of counters and to stop displaying merchandise in barrels and boxes, the idea that an attractive store design could bring higher sales was only starting to penetrate merchants’ thinking.
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A&P led the shift to the combination store. In 1923, it had cautiously begun adding produce to its stores, and it opened its first meat counter late in 1924. In 1926, it began introducing combination stores, usually replacing two or three traditional stores with a single, larger unit. “The chain grocery store is rapidly become a chain ‘food’ store, selling every article formerly sold by the old-time independent from meat to fruit and vegetables,” one expert wrote in 1928. The new stores had far more decoration than the ones they replaced, and many were located in upper-income shopping areas to attract more prosperous housewives. Although most A&P stores were still of the traditional variety in 1930, the company had thirty-nine hundred combination stores and made 10 percent of its revenue from meat. A few of its new stores were quite sizable. Most, however, were small and still relied on clerks to wait upon customers. A model A&P combination store in New England in 1932 was thirty-four feet wide and fifty-two feet deep, with one side wall lined with meat cases and the other with shelving behind a wooden counter, where customers could not reach it; the only items customers could select for themselves were fruits and vegetables, which were displayed in the middle of the store.
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The reality was that small stores had become unprofitable even before the Great Depression. In 1928, A&P’s 1,615 traditional grocery stores with weekly sales below $700 were money losers. The grocery departments in one-third of the combination stores lost money, as did more than half the meat departments. A&P’s own accounting showed that scale was vital: combination stores with sales above $3,000 per week produced annual returns on investment above 80 percent. The Hartfords planned to increase store size as they opened two thousand new locations a year, increasing average sales per store by more than one-third by the end of 1933. By then they expected A&P to have twenty-three thousand stores and $2 billion of annual sales. For a company of A&P’s size, the speed of the planned shift to bigger stores was ambitious. But those thousands of combination stores were never built. Instead, the shift to bigger stores was driven by a development the Hartfords had not foreseen. It would become known as the supermarket.
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*   *   *

The supermarket has many fathers. Like most innovations, it developed over time rather than springing fully fledged from the mind of a clever entrepreneur.

Large food stores had existed, in very small numbers, for three decades by 1930. Some were like department stores, with clerks in each department to wait upon the customers. Others combined sections operated by the owner with stands leased by other vendors. In Southern California, Alpha Beta, famed for arranging its products in alphabetical order, and Ralphs, a grocery company dating to 1873, both ran self-service grocery stores of up to twelve thousand square feet—the size of ten standard A&P combination stores. There were twenty-five such stores in Los Angeles at the start of 1930, with average sales twice those of the average chain-owned combination store. The big Southern California stores, though, did not feature low prices; rather, their big draw was free parking in a city that was already becoming dependent on the automobile. In any event, Southern California in those days was still a remote outpost of the U.S. economy, and its large drive-up grocery stores drew little attention in New York and Chicago.
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