The Great A&P and the Struggle for Small Business in America (40 page)

As supermarkets surged, mom-and-pop grocers were roadkill. In 1948, the retail census had recorded 504,439 food stores in the United States, including many small stores bought or started by ex-servicemen using low-cost government loans. The store count had dropped nearly one-fourth by 1954, despite robust population growth, and another 30,000 food stores disappeared between 1954 and 1958. Independent stores still held two-thirds of all grocery sales, but most of the thriving independent stores were supermarkets whose owners had ascended into the upper middle class, with homes of their own, 1.7 cars, kids in college, and an average income six times that of all Americans. Although the vast majority of food stores had three or fewer paid employees, those traditional grocery stores, collectively, sold only one-fifth of the nation’s food. One-third of all food was purchased at stores with thirty or more employees and sales exceeding $1 million. The world Wright Patman feared had come to pass: in food retailing, there was almost no way an ambitious young man could go into business for himself and hope to make a living.
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Yet even as the grocery chains triumphed, the world was beginning to turn away from A&P. The 1950s were California’s golden years. The state’s population grew by half as it added 5.1 million residents. A&P, though, had only a modest presence in Los Angeles, and no stores at all in most other California cities. The Los Angeles stores were an afterthought, managed as part of the Eastern Division, based in New York. There were no high-ranking executives located in the Golden State, and no one in A&P’s executive ranks pushed hard to expand there. A&P, led entirely by men who had spent their entire careers east of the Mississippi, chose not to invest in the state that would have the nation’s fastest population growth in each decade through the end of the twentieth century.
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In those places where it was expanding, A&P’s fiscal orthodoxy began to have dire consequences. Burger had inherited the financial views of George L. Hartford, who preferred to avoid owning real estate and rarely agreed to long-term leases. This caution had saved the company during the Great Depression, but it was disastrous in an era when developers were building new shopping centers designed around the needs of specific tenants. A&P was locked out of the most modern structures in the best locations, because its competitors would sign long-term leases while A&P would not. Its new supermarkets were disproportionately located in older buildings in the urban neighborhoods that upwardly mobile households were starting to flee, not along the highways where affluent suburban housewives went to shop.
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Nor did A&P push to broaden its product line. Other supermarket operators in the 1950s dedicated space in their large new stores to nonfood items, from pots and pans to ready-to-wear clothing, which typically offered much wider profit margins than food. By 1959, the average supermarket carried fifty-eight hundred items, some two thousand more than at the start of the decade. A&P resisted the trend. Its stores did not even carry toothpaste and shaving cream until it undertook a cautious test of one hundred items in the autumn of 1951—by which time 85 percent of supermarkets were selling nonprescription drugs and toiletries. A brief trial of magazines and comic books, which other supermarkets sold profitably, was discontinued in 1954. “We have always considered ourselves food merchants,” Ralph Burger told a reporter. That attitude, reflecting the inbred nature of A&P’s top management, would strand the company on the wrong side of economic change. In 1951, when Burger took charge, more than 21 percent of consumer spending bought food and alcoholic beverages for at-home use. A decade later, food and drink for at-home consumption captured barely 17 percent of the consumer’s dollar as rising incomes gave Americans the money to spend on cars, clothes, and household goods—things A&P did not sell.
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A&P’s conservatism brought disaster. While its largest competitors were adding popular product lines to big stores in the best locations in fast-growing parts of the country, A&P voluntarily confined itself to its traditional line of business in places it had operated for decades. No longer was there a voice in the executive suite insistently pushing the company to change with the times.

Of all of A&P’s strategic missteps in the 1950s, perhaps the most serious was forgetting John Hartford’s dictum that volume was the key to growth. Gaining market share by discounting should have been easier than ever, because the spread of large retail outlets was turning public opinion against anti-discounting laws. Only fourteen states had chain-store taxes by the middle of 1953, down from twenty-nine states in the late 1930s, as legislatures repealed their laws or state courts voided them. A New Jersey court threw out a state law allowing only pharmacies to sell aspirin and cough syrup in 1953, and in early 1955 courts in Georgia, Arkansas, and Nebraska annulled those states’ laws letting manufacturers fix retail prices. Two months later, a federal antitrust advisory committee condemned such laws. “It seems evident that the absence of competitive pricing under ‘fair trade’ results in higher pricing for the consumer,” said Eisenhower’s attorney general, Herbert Brownell, recognizing a trade-off that the Roosevelt and Truman administrations had been unwilling to acknowledge.
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Such powerful assertions of consumers’ interests freed A&P to slash its margins without political repercussions for the first time in thirty years—but it did no such thing. Instead, perhaps chastened by decades of legal battles over pricing, Burger seems to have backed away from John Hartford’s insistence on being the lowest-price grocer in any local market. Although A&P still had the slimmest profit margin among the ten largest food chains, its margins edged wider, irreparably damaging A&P’s cherished position as the price leader—with precisely the disastrous consequences of which John Hartford had frequently warned. From 1950 to 1960, while A&P’s sales were rising 65 percent, each of its four top competitors saw sales growth above 200 percent. A&P’s customers began defecting in droves.

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George L. Hartford commuted almost daily to the Graybar Building until 1955, when he was ninety years old. Two years later, on September 23, 1957, he died in the New Jersey house where he had lived since 1908. He was buried in the family mausoleum in Orange, accompanied to the grave by an honor guard of longtime A&P executives. His entire estate, including one-fifth of A&P’s shares, was willed to the John A. Hartford Foundation, instantly making it one of the largest charitable foundations in America.
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Mr. George’s death was the end of an era. Under the arrangements made by his father in 1915, the George H. Hartford Trust was dissolved upon the death of his last surviving son. Forty percent of the shares, representing the ownership stakes of George L. and John, were turned over to the John A. Hartford Foundation. The remainder was divided among the two children of Edward V. Hartford, the two children of Marie Louise Hartford Hoffman, and the six grandchildren of Minnie Hartford Clews Reilly. Ralph Burger, not a family member, owned little stock, but he held a position of strength nonetheless. He was the boss of the thirteen other members of A&P’s board of directors, whose total service to the company came to more than six hundred years, and as president of the John A. Hartford Foundation he had sole power to vote 40 percent of the company’s shares.
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The ten Hartford heirs who held the other 60 percent had few sentimental ties to the company run for so long by their uncles and granduncles. Just one worked for A&P, as did the spouse of another. The others knew little about the performance of the firm whose shares they had just been given. Around the time of John Hartford’s death, seven of the heirs had signed a legal agreement to pool their voting power as soon as they received it. Collectively, though, these seven descendants of George H. Hartford controlled only 40 percent of the shares. The balance of power rested with Rachel Carpenter, a granddaughter of Minnie Hartford Clews Reilly, and Edward Hartford’s daughter, Josephine Hartford Bryce, a noted philanthropist and sportswoman. Each of the women had 10 percent of the votes. Josephine Bryce sat with Burger on the board of the John A. Hartford Foundation and was thought to be friendly with the chief executive. With her support, Burger was in a position to maintain control.

In anticipation of a public stock sale, the price of the company’s nonvoting common stock, mainly held by employees, rose from $175 in October 1957 to $485 in November 1958. That month, fourteen months after George Hartford’s death, A&P announced two major changes. Six outsiders were appointed directors—the first non-employees ever to sit on A&P’s board. At the same time, the company was reorganized. Preferred stock and nonvoting common shares were exchanged for common stock with voting rights, putting 18 percent of the shares in the hands of some twelve thousand people unrelated to the Hartfords. The shares were listed on the New York Stock Exchange, giving family members and the John A. Hartford Foundation a way to sell. Huntington Hartford and his cousin Marie Hartford Robertson each put 900,000 shares on the market almost immediately, allowing outside investors to acquire a further 8 percent of A&P. That sale, at $44.50 per share, placed a market value of $1 billion on the entire corporation.
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There may never have been a major company so ill suited to public share ownership. A&P was still extraordinarily secretive, as it had been under George L. and John A. Hartford and under their father before them. When researchers from the government’s Bureau of Labor Statistics came to check prices for the monthly consumer price index, A&P sent them away. When the National Labor Relations Board sought to interview supervisors to resolve union complaints, A&P refused. A&P, unlike its competitors, declined to provide data on sales of individual items to A. C. Nielsen, the market-research service; it alone saw proprietary value in its internal information—an attitude that would be emulated half a century later by Walmart. Unlike other retailers with publicly traded shares, which published their financial results once a quarter, A&P released its financials only once a year and omitted information routine in other retailers’ reports, such as the cost of goods sold.
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The public listing of A&P’s shares subjected A&P to attack from shareholders and investment analysts, two unfamiliar sources of criticism. News articles drawing on information from unhappy family members highlighted A&P’s conservatism, pointing out the embarrassing fact that the giant company still operated several door-to-door truck routes first served with horse-drawn wagons in the nineteenth century. Analysts noted that A&P’s sales were growing far more slowly than those of most other chains, and more slowly even than those of independent grocers. When a stockholder asked at the first public shareholders’ meeting in December 1958 why A&P did not increase its profits, the chairman and president could offer only a strained explanation: “The company does not believe in profiteering on food.” It was only in January 1959, in his eighth year of leading one of the largest companies in America, that Burger finally granted his first interview to the press.
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The speed of A&P’s decline was shocking. At the start of 1961, it was still the largest retailer in the world, with 4,351 stores selling an average of $1.2 million of groceries. Its profits in 1960, up 13 percent on the previous year, hit a record as a growing economy helped A&P achieve the highest sales in its history. Yet signs of rot were everywhere.

John A. Hartford had always kept an eagle eye on A&P’s gross profit—the difference between the amount it paid for goods and the amount it received by selling them. In the years before the 1925 reorganization and again in the early 1930s, when the company refused to cut wages despite falling grocery prices, gross profit had been over 20 percent of sales. For John, a high gross profit was a warning, a signal that the company was failing to hold down operating costs. Between 1933 and 1941, his constant push to make A&P more efficient had driven gross profit down from 22 percent to 13 percent of sales, creating huge savings for A&P’s customers and bringing in throngs of shoppers. In the 1950s, after John’s death, gross profit began to creep higher, year after year. Gross profit was rising across the industry, but the rise at A&P was especially steep. In 1960, A&P resumed handing out trading stamps for the first time in decades, and that alone raised costs by around 2 percent of sales at the stores where stamps were given. In 1968, gross profit would top 20 percent for the first time since 1934. Its wide margins meant that A&P was no longer delivering bargains to shoppers, and shoppers responded, as John Hartford always feared they would, by taking their patronage elsewhere.
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At the store level, higher prices meant lower volume; dollar sales at the average A&P store would not exceed the 1960 level until 1969, and the company’s total grocery tonnage would be lower in 1970 than it had been in 1952. Inventories were rising rapidly, a sure sign of poor management; by 1964, A&P’s inventories, relative to sales, would be the highest since 1947. While A&P still had hundreds of small urban stores with minimal parking and few amenities, shoppers were flocking to bigger, newer stores, often featuring clothing, toys, small appliances, and phonograph records along with food. By 1961, discount stores collected around 2 percent of all grocery-store sales, selling food slightly cheaper than supermarkets and personal-care products at much larger discounts. A&P couldn’t decide whether to embrace the discount-store concept or run from it. In early 1960, Burger declared that the average housewife, possessing a bigger refrigerator and more cabinet space than ever before, was buying so much food on each supermarket visit that she did not want to shop for anything else. A year later, reversing course, A&P discussed joint ventures with a discount operator and a drug chain. Then it opened its own nonfood discount store in Pennsylvania as a test—only to close it two years later. The company had lost its way.
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