The Great A&P and the Struggle for Small Business in America (28 page)

First, Ewing sought to find a way around the ban on retailers accepting brokerage commissions. In July 1936, headquarters informed its regional brokerage offices that they would henceforth be known as field buying offices and should no longer accept commissions from food processors and other suppliers. However, as the field offices were saving suppliers the expense of using outside brokers, they could insist—according to A&P’s interpretation of Robinson-Patman—that A&P deserved lower prices than competitors because its account cost the suppliers less to service. One month later, in August, A&P required suppliers to sign two amendments to its standard contract. One committed the supplier to pay A&P a 6 percent advertising commission, in return for which A&P accepted only a general obligation to advertise the supplier’s products. The other specified that A&P would receive a 5 percent volume discount. Both forms required the manufacturer to certify that it was not engaging in illegal price discrimination by avowing “its willingness to make the same agreement as is hereby made with any other purchaser similarly situated and on proportionately equal terms.”
15

*   *   *

Ewing’s approach seemed to allow A&P to protect the low purchasing costs that let it sell groceries so cheaply. Its open flaunting of the law, though, provoked the Federal Trade Commission to start an investigation, which upheld A&P’s new policies on advertising allowances and quantity discounts but objected to A&P’s insistence on payments in lieu of brokerage commissions. The FTC soon discovered that the R. J. Peacock Canning Company in Lubec, Maine, gave A&P a 3 percent discount from list price on sardines and that A&P’s bakery division purchased Fleischmann’s yeast at fourteen cents a pound while smaller bakers paid twenty-five cents. These favorable prices were the result not of advertising allowances or quantity discounts but of A&P’s demand that suppliers charge it less than their list price. Suppliers that refused price concessions went on the “unsatisfactory list.” After Stokely Brothers, a canner, announced on August 31 that it would no longer pay brokerage allowances or other rebates, A&P canceled options to buy more than ten thousand cases of tomato soup. For A&P, these tactics were intended to hold prices down and protect its position as America’s biggest grocer, but to the Federal Trade Commission they looked suspicious. In January 1937, the commission charged A&P and some of its suppliers with violating the Robinson-Patman Act. No longer passive, A&P fired back defiantly, declaring publicly that the Robinson-Patman Act was unconstitutional.
16

Even as A&P came under legal attack, another piece of anti-chain legislation was moving through the U.S. Senate. The Miller-Tydings Act was crafted to overturn the Supreme Court’s old rulings that manufacturers’ attempts to fix retail prices violated antitrust law. Miller-Tydings permitted each state to allow the maker of a branded or trademarked product to require its customers to agree to charge at least the specified minimum retail price, thereby assuring small merchants they could not be undersold by chains. Roosevelt opposed the bill at the request of the Federal Trade Commission, but support in Congress was strong, and the House majority leader, Sam Rayburn, convinced the president not to stand in the way. Miller-Tydings, though, offered little to independent grocers: coffee processors and vegetable canners could not set retail prices by contract, because their wholesale prices fluctuated constantly as commodity markets moved. Patman tried to add something for the grocers, coupling Miller-Tydings with a heavy tax on chain stores in the District of Columbia, where A&P was a leading grocer. That plan passed the House but failed in the Senate, which approved the Miller-Tydings Act in August 1937.
17

The anti-chain forces were swarming state capitols as well. In 1935, a group called the Anti-monopoly League, which claimed to represent eighty thousand independent merchants, announced its intention to drive chain retailers out of California. The league pushed two bills through the legislature in Sacramento. One was a steep tax on chain stores. Any company with nine or more stores in the state faced a tax of $500 per store, nearly half the profits of the average A&P. The other new law, the Unfair Trade Practices Act, prohibited retailers from selling any item below cost, including an imputed share of the cost of doing business, and also required any chain to charge uniform prices throughout the state save for differences attributable to transport costs. Quite aside from the fact that competitive conditions in San Diego might be very different from those in Eureka, nearly seven hundred miles to the north, assuring uniform pricing was almost impossible for a food chain: the wholesale prices of many foodstuffs fluctuated frequently due to changing commodity prices, and a retail grocer violated the law every time it failed to change an item’s price in all of its California stores at the same moment.
18

Unlike in other states, retailers in California, led by Safeway, the state’s largest grocery chain, mounted a sweeping counterattack. They went to court to overturn the Unfair Trade Practices Act, winning an injunction in early 1936. To fight the chain-store tax, they decided on a different course. California’s constitution provided an opportunity for voters to reject any state law by referendum. By September 1935, pro-chain forces collected the requisite 116,487 signatures to put the chain-store tax on the November 1936 ballot, giving them fourteen months to organize support. Their vehicle was the newly formed California Chain Stores Association, with sixty-five member chains. The association hired an advertising agency, Lord & Thomas, to run the campaign. The Lord & Thomas strategy was to show the advantages of chains while avoiding attacks on independent shopkeepers. Chain-store managers were directed to join local civic groups to counter charges that chain stores had no interest in their communities. Advertisements discussed the chains’ role in providing a better life for average families and described the many small chains based in California. Educational tours took housewives through chain-store warehouses and factories.

Opportunity fell into the chains’ lap when the California Canning Peach Growers asked the Chain Stores Association for help unloading a surplus of peaches. Food chains, including A&P, which had 104 California stores, undertook a nationwide campaign to convince Americans to eat more peaches. The campaign led to legislative hearings on the connection between chain stores and farm prices, allowing an A&P executive to explain how his company played the role “of a coordinating factor between the producer and the American consumer.” Similar campaigns for beef and dried fruit followed, helping the chains collect important friends in California’s huge agricultural industry. Then scandal hit the anti-chain campaign, when it was revealed that its chief fund-raiser kept 40 percent of everything he collected from mom-and-pop merchants across the state. Just ahead of the vote, Lord & Thomas shifted from promoting the virtues of chain stores to direct attacks on the tax, calling it “a Tax on You.” The slogan worked: majorities in fifty-seven of the state’s fifty-eight counties voted to repeal the tax, demonstrating that on this controversial and emotional subject, public opinion was ripe to be molded.
19

California offered the first evidence that the anti-chain crusaders were overreaching. More such evidence came from Oklahoma, where independent merchants failed to collect enough signatures to obtain a referendum on the most onerous tax plan yet, imposing an annual tax of $7,500 on each store over seventy-five owned by a single chain. Yet in most of the country, the anti-chain fervor remained strong. Kentucky, where A&P had 178 stores, passed an unfair trade practices law similar to California’s in 1936. The Food and Grocery Conference Committee, an organization of grocery manufacturers, wholesalers, and retailers, tried to stave off more draconian legislation in other states by endorsing a “model” state law to require a minimum 6 percent markup on all grocery products, a proposal that would have hurt A&P. In 1937, bills to restrict price-cutting by retailers were debated in twenty states. Legislatures in four additional states—Georgia, Montana, South Dakota, and Tennessee—adopted taxes on chain stores, while Minnesota required retailers to sell all merchandise for at least 10 percent above the manufacturer’s or wholesaler’s list price. In Florida, one house of the state legislature overwhelmingly approved a bill prohibiting chain stores altogether.
20

Most worrying to A&P, anti-chain-store sentiment was spreading to the highly urbanized states of the Northeast, where shoppers had been patronizing chain grocery stores for three decades. In June 1937, Pennsylvania’s governor, George Earle, signed a bill imposing a tax of $500 per store on any company with more than five hundred stores in the state. A&P, with two thousand Pennsylvania stores, faced a tax bill of $1.05 million a year and promptly closed eighty stores that, it claimed, the tax rendered unprofitable. Even in New York, where A&P was based and where it was far and away the largest grocer, the company had been threatened with the loss of its milk license for selling milk too cheaply in 1936. By 1937, a chain-store tax bill was thought to have a serious chance in the coming year’s legislature. This represented a dangerous threat, because New York, home to twenty-four hundred A&P stores in early 1937, accounted for one-sixth of A&P’s pretax profits.
21

George L. Hartford’s attitude was unchanged: he thought the company should ignore the controversy and concentrate on selling groceries. But with the business under mounting assault, John Hartford understood A&P could no longer remain aloof from politics. In the winter of 1937, Waddill Catchings, a well-known New York investment banker and economist, invited John to the Cloud Club, the elite luncheon club near the top of the Chrysler Building, to make the acquaintance of Carl Byoir.
22

*   *   *

Byoir, forty-eight years old in 1937, had already enjoyed a long and colorful career by the time he met John Hartford. He first made his mark in 1911, while attending Columbia University Law School, when he bought the American rights to the works of the Italian educator Maria Montessori and introduced the Montessori method into the United States. After selling advertising for the Hearst newspapers, he served on President Wilson’s Committee on Public Information during World War I, distributing propaganda films and creating a front group, the League of Oppressed Nations, to support the Allies’ cause. He attended the Paris Peace Conference to tout Wilson’s peace plan. The Committee on Public Information brought Byoir into close contact with Edward Bernays, one of the early practitioners of public relations. After the war, Byoir represented Thomas Masaryk, the president of newly independent Czechoslovakia; joined with Bernays on a campaign for Lithuanian independence; and represented the developer of the Biltmore Hotel in Coral Gables, Florida. In 1928, he visited Havana because he heard that the climate would be good for his sinus problems. He soon bought two English-language newspapers, made friends with politicians, and developed a lucrative specialty working with Americans seeking to invest in Cuba. “When their business gets down to brass tacks, they ‘see Byoir,’ who now almost amounts to President Machado’s Department of Commerce,” reported
Time
, presumably at Byoir’s behest.
23

While still living in Cuba, Byoir talked his way into a lunch with Herbert Hoover in July 1931 to discuss using public relations to improve America’s mood. The following year, he moved back to the States for good. Building on an idea hatched by members of an Elks Club in Muncie, Indiana, he publicized the “War Against Depression,” a national campaign asking one million employers each to add one job for six months, putting a million people back to work. The campaign won the support of the American Legion and the American Federation of Labor, giving Byoir entrée to two of the most important organizations in the country. In 1933, Carl Byoir & Associates took on two highly controversial clients. One was the German tourism ministry, which tasked him with promoting tourism to Nazi Germany. The other was Henry L. Doherty, the founder and controlling shareholder of Cities Service Company, a New York–based oil, gas, and pipeline company. Doherty was a wealthy but unsavory character, his reputation tarnished by claims that he evaded income taxes and misled investors into buying Cities Service stock. He liked to spend time in Florida, where the warm winters offered him relief from crippling arthritis. Doherty had acquired a string of Florida resorts at Depression prices. He hired Byoir to manage some of his hotels and to revive Miami’s moribund tourism industry.
24

Byoir first knocked on Franklin Roosevelt’s door in May 1933, two months after the inauguration. An intermediary in New York asked Marvin McIntyre, Roosevelt’s secretary, to arrange a five-minute interview between the president and Byoir, whom he identified as “a personal adviser to Bernarr Macfadden.” Macfadden was the controversial publisher of lowbrow magazines with vast circulations and a well-known advocate of health food and bodybuilding, and he wanted Byoir to discuss some business matter with Roosevelt. That meeting never occurred, but Byoir did not need to wait long for access to the president. The opportunity came in the form of a call from Keith Morgan, a Roosevelt friend who raised money for the Warm Springs Foundation to seek a cure for infantile paralysis—a cause near and dear to Roosevelt, a victim of the disease. When Morgan asked Byoir whether Henry Doherty might contribute to the foundation, Byoir suggested Morgan speak with Doherty directly. He did, telling Doherty he should support the cause “because it might get an old pirate like you into heaven.” Doherty and Byoir formed a committee, which hit upon the idea of arranging fund-raising balls across the country on Roosevelt’s birthday. On July 13, 1933, Morgan, Doherty, and Byoir discussed the matter personally with the president at the White House.
25

The President’s Birthday Ball, held in thousands of towns on the evening of January 30, 1934, was a roaring success, raising $1.1 million for the Warm Springs Foundation, and became an annual event. As the general director, Byoir was the man most responsible for organizing the nationwide extravaganza in support of the president’s favorite cause. In return, he had access, strengthened by close ties to McIntyre and to Stephen Early, the president’s press secretary. In late 1936, McIntyre and his wife vacationed at the Doherty-owned Biltmore in Coral Gables as Byoir’s guest, and Byoir tried to hire Early as a partner in his firm. During Roosevelt’s first four years in office, Byoir paid fourteen recorded visits to the White House. On October 10, 1934, he met with the president to offer a plan to put people back to work. In November 1935 and again in 1938, high-ranking White House staffers scrambled to respond to Byoir’s desire for a promotion from lieutenant colonel to general in the Army Reserve. On January 7, 1937, Byoir and eight businessmen met with Roosevelt. The evening before Roosevelt’s second inauguration, January 19, 1937, Byoir dined with the president at the White House.
26