The Great A&P and the Struggle for Small Business in America

by Marc Levinson

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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.8

  It took a brash grocer named Michael J. Cullen to shake up the industry. Cullen, the son of Irish immigrants, had learned the grocery trade as a clerk at A&P just after the turn of the century, and later worked as a regional manager for the Kroger chain in Illinois. In 1930, when he was forty-six, Cullen wrote to the president of Kroger to propose a new kind of store. The store, Cullen thought, should be “monstrous,” four or five times the size of the typical grocery store. It should be located not on a busy shopping street but a few blocks away, where rents were lower and parking ample. It should offer a wide variety of branded merchandise, generating massive traffic by selling three hundred items at cost and another two hundred at cost plus 5 percent and advertising those low prices heavily. Sales would exceed $600,000 per year—ten times the average of chain-owned combination stores. The store would hold operating expenses per dollar of sales to half those of the average combination store by relying on self-service and keeping the staff small. The targeted annual profit was $16,900 per store. Relative to sales, such a profit would be no larger than A&P’s or Kroger’s. But Cullen’s large store would need far less investment per dollar of sales. He calculated that each store would require $30,000 of equipment and inventory, so a profit of $16,900 implied a stunning 56 percent return on capital. Even A&P’s pretax return of 27 percent looked anemic by comparison. “I would lead the public out of the high-priced houses of bondage into the low prices of the house of the promised land,” Cullen wrote.9

  Perhaps the management of the Kroger Grocery and Baking Company found such bombast off-putting. In any event, Cullen’s letter received no response. He quit his job, moved his family to New York City, and leased a vacant garage in Jamaica, Queens. In August 1930, the King Kullen Grocery Company opened its doors. Under bright lights, cans and packages were neatly stacked on tables, and wicker baskets holding discounted specials lined the aisles. All items had prices clearly marked, allowing the shopper to make her selections without the help of a clerk. As predicted, crowds streamed in to buy seven-cent cans of Campbell’s soup for four cents and three cans of Krasdale tomato sauce for a dime. Calling itself “The World’s Greatest Price Wrecker,” King Kullen was reported to be operating eight stores by 1932, with average sales of more than $1 million per store.10

  Imitators arrived very soon, often financed by grocery wholesalers. During the second half of the 1920s, many wholesalers had fought back against the food chains by organizing their customers into “voluntary” chains whose independently owned members adopted a common brand name. That brand was then used on the canned goods and staples manufactured by the wholesaler, allowing the small stores to benefit from a large wholesaler’s economies of scale. In many cases, the wholesaler coordinated advertising, creating much more prominent newspaper promotions than the stores could have afforded individually. Wholesalers, with far more food-retailing experience than most retailers, also provided management advice. In some instances, store owners bought shares in their wholesaler, creating a sort of cooperative arrangement. Voluntary chains gave wholesalers direct experience in retail operations. In the 1930s, wholesalers applied that expertise to helping ambitious retail grocers open larger stores.11

  The first of these was the Big Bear market. Located on the first floor of a former Durant Motors auto factory in Elizabeth, New Jersey, Big Bear was owned by the American Grocery Company, a wholesaler, and two entrepreneurs, Robert Otis and Roy Dawson. In fifty thousand square feet of floor space—four times the area of Cullen’s first store, forty times the size of an A&P combination store—they sold not only food but also paints, tires, hardware, even radios. Big Bear opened in December 1932, with a flurry of advertisements proclaiming, “Big Bear Crashes into New Jersey.” In its first full year, 1933, the store purportedly sold $2.2 million of merchandise and made a net profit of $166,507 on an investment of less than $10,000. Big Bear was so successful that competitors pressured newspapers to refuse its advertisements, forcing the store to resort to handbills to tout its discount prices. Other entrepreneurs came to Elizabeth to tour the new facility and went home to open their own Big Bears in places like Boston and Columbus.12

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  The new form of competition was not a major concern for George and John Hartford. They had more pressing worries. A&P’s profits soared in 1930; although sales per store fell with the onset of the Depression, profits per store hit a record $1,954. John Hartford interpreted this jump in profits as negative, not positive. Unit managers were setting prices too high, boosting profits in the short run, but eroding volume and driving business to competitors. John was especially annoyed that some unit managers had adopted the strategy of selling selected products below cost and raising prices on other items to make up the difference. He ordered a return to the basics: no drastic price cuts, no special sales, all merchandise sold with narrow markups week in and week out. His managers, he fretted, simply didn’t understand his philosophy that volume was what mattered: “Sometimes the body gets so large that the pulsations fail to reach its extremities.”13

  Indeed, the pulsations were getting nowhere near the extremities. The Hartfords had pushed authority out to the division offices, so the prices for A&P’s products were not set in New York. In a difficult economy, many division executives favored taking whatever profits could be had by keeping prices high. Reducing margins in order to lower prices might be good for the company’s long-term growth, but it meant less profit in the short term. While that was John Hartford’s desire, his managers were not in agreement. Unit managers were loath to close “red-ink stores,” because the closure of a store would shift its overhead costs, including its share of warehouse operating expenses, onto the remaining stores. Putting up prices often served to make underperforming stores profitable in the near term, even if the longer-term impact was to tarnish A&P’s reputation for low prices. John stumped the country, meeting with the boards of A&P’s divisions and trying to persuade them of the virtues of low prices and high volume. The minutes of one division board meeting break into capital letters to repeat the message Hartford delivered: “LOWER EXPENSE RATE INCREASED TONNAGE INCREASE IN CUSTOMERS.”14

  Nothing better illustrates the wisdom of John Hartford’s approach than A&P’s coffee business. In the early 1920s, after organizing the American Coffee Corporation, A&P had taken extremely generous markups on coffee, selling it for almost twice its wholesale cost. Its high prices limited sales, holding A&P’s share of total U.S. coffee sales to less than 5 percent. As the company slashed its markup, sales took off. By 1932, it controlled one-sixth of the U.S. coffee market, and the average A&P store was selling nearly three times as much coffee as it had seven years earlier. John Hartford’s aim was to replicate this performance in other product lines, using low prices to bring customers into the stores.15

  At the same time as John Hartford wanted to hold prices down, though, there had t
o be a floor. Individual store managers were perpetually facing challenges from local competitors who advertised extraordinary bargains on ketchup or soap powder. Store managers were naturally tempted to hold on to their customers by matching those prices, even if that meant selling products for less than the wholesale price. The Hartfords strongly condemned this practice. Not only did they dislike the idea of losing money on any sale, but they knew that below-cost sales could furnish ammunition for government investigations of unfair practices. In 1931, the company ordered that no merchandise be sold in any store for less than a 3 percent markup without approval from the division president, and that nothing be sold below replacement cost without approval of headquarters.16

  In the face of such internal issues, the Hartfords were not preoccupied with the threat from large stores opened by independent retailers. “We did not take it seriously at first,” John Hartford would testify years later. This neglect was not illogical. Of the $9 billion or so of retail food sales in 1933, these big stores, just becoming known as supermarkets, accounted for only 1 or 2 percent. And it was far from certain that supermarkets were the future. “It is to be hoped that gradually this type of competition will ease off,” managers of A&P’s New England Division concluded in 1933. “They are undoubtedly losing a great deal of money and will have to either go out of business or change their policies very soon.” In any event, supermarkets’ stunts and giveaways created what one writer terms a “carnival atmosphere” far from the sober, value-for-money approach John Hartford favored. A&P executives hoped that once the Depression was past and shoppers were less concerned about pinching pennies, the appeal of large, bare-bones stores far from home would wane. Even if it did not, supermarkets were a small-time business. No company owned more than a handful. No supermarket operator had the buying power of A&P, nor the canneries or bakeries or meat-buying companies or produce wholesaling operations such as the Atlantic Commission Company. If the supermarket turned out to have staying power, A&P, with its enormous logistical infrastructure, would be able to catch up quickly.17

  Although the Hartfords never discussed the matter publicly, politics may also have had a role in A&P’s reluctance to build large stores. The early supermarket operators were overwhelmingly independent grocers. A&P was already under serious attack for trampling independents, whose complaints had grown louder as competition squeezed margins across the industry. In the spring of 1932, the National Association of Retail Grocers’ annual convention branded A&P a monopoly, condemning it for operating “in control of every function as grower, packer, manufacturer, broker, commission merchant, wholesaler and retailer.” Retailing experts advised independent merchants to cut their costs, improve their merchandise, and spruce up their stores. A direct counterattack on independents trying to refashion themselves by opening larger and more efficient stores would have been highly impolitic.18

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  In the summer and fall of 1931, the Hartford family’s private affairs titillated the American public once again. This time, the stories involved the children of Edward Hartford and Edward’s widow, Henrietta. Both of the young people would presently become far more famous than their grocer uncles.

  Josephine Hartford O’Donnell and Josephine’s brother, George Huntington Hartford II, had grown up amid wealth and privilege, first in a Park Avenue apartment, then in the exclusive shoreside town of Deal, New Jersey. Jo, as she was known, was born in 1902 and was educated in Paris as well as New York. As many gender barriers broke down in the 1920s, she was able to follow her passions. She was a concert pianist, a tournament tennis player, an airplane pilot. Her father’s death, in 1922, left her independently wealthy. She married in 1923.

  In July 1931, when she was twenty-eight, Jo traveled to Reno, one of the few places in America where divorce was easy. A few weeks later, she sailed to Paris to wed Count Vadim Makaroff, a former Russian naval officer and diplomat. Makaroff, who was making a new career as a caviar importer, was a yachtsman. He may have gotten to know Josephine through her brother, with whom Makaroff sailed near Seaverge, Henrietta Hartford’s “cottage” in Newport, Rhode Island, where America’s wealthiest families converged each summer.

  Huntington Hartford, nine years younger than his sister, was in his second year at Harvard in 1931. His mother had encouraged him to enjoy his wealth. In 1926, she had petitioned a court to increase the amount Huntington could draw annually from the Hartford trust from $100,000 to $150,000, explaining, “I do not believe that he should come into his inheritance with desires ungratified and wishes thwarted.” But Henrietta herself would soon do the thwarting. Disapproving of Huntington’s infatuation with a Broadway showgirl, she purportedly called upon a blond, blue-eyed pianist named Mildred King, whom she had met at a musical event in Boston, and asked her to serve as a “love pilot” and steer Huntington away from trouble—or so King claimed in a lawsuit seeking $100,000 for her services. “I never even saw this Miss King” was Henrietta’s response. By the time the suit was filed, Huntington had eloped with a third woman, a college student from West Virginia named Mary Lee Eppling, and Miss King received a secret settlement.

  The loves of the wealthy grocery heirs were fodder for newspapers from coast to coast. Invariably, the reports included embellished accounts of A&P’s history and descriptions of the Hartford family’s vast wealth. Some mentioned Henrietta’s newly built home, a thirty-two-room mansion at Lexington Plantation, near Charleston, which she bought in 1930. At a politically sensitive moment, with big chain retailers standing accused of destroying economic opportunity for the average man, it was not the sort of publicity that stood the family company in good stead.19

  Henrietta and her children would remain in the spotlight for years to come. Jo’s 1937 divorce from Makaroff and her third marriage, a few weeks later, made headlines, with articles describing her “squadrons of servants” and her love of parties. The public was further engrossed by Henrietta’s marriage that same year in Rome to Prince Guido Pignatelli, which brought a lawsuit by the prince’s first wife contending that they had not been legally divorced. Huntington joined the A&P in 1934, after graduating from Harvard, but he lasted only a few months; his uncles fired him from his job keeping track of bread and pound cake sales after he skipped work to attend the Harvard-Yale football game. Like his sister, he would be married four times. As a theatrical producer, art collector, resort developer, and bon vivant, he would never escape the public eye.20

  Huntington Hartford, his sister, and his mother were never involved in running the Great Atlantic & Pacific Tea Company. Years later, Jo and Huntington’s constant need for cash would help speed the company’s decline. But for now, their goings-on provided a ready source of ammunition for the company’s critics. John A. Hartford, whose own marital travails had landed in the press a few years earlier and whose entertainments and travels with Pauline were regularly released to the society pages, may not have been bothered by the lifestyles of his late brother’s widow and children. The opinion of George L. Hartford, a man who avoided flaunting his wealth and who did all he could to keep his name out of the newspaper, was not recorded.

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  Even amid the general prosperity of the 1920s, the growth of chain retailing discomfited many Americans. For all its mighty cities, the United States was mainly a rural country: 44 percent of the population lived in places of 2,500 people or fewer in 1930. Many more resided in small towns; the hundredth-largest city in the country, Rockford, Illinois, had only 85,864 inhabitants. Locally owned businesses were the lifeblood of these small communities. Chain stores were often seen as intruders, destroying not only the small retailer but also the local jobber that supplied it, the local stationer that printed its circulars, and the local bank that held its receipts. While there were anti-chain forces in the cities as well, young urban men at least could aspire to the many factory or office jobs being created in a growing economy. In more rural areas, where the agricultural economy was moribund through the 1920s due to fallin
g crop prices, young men without prospects on the farm saw their aspirations to enter business blocked by the giant chains. Their best opportunity, it seemed, was to become a clerk for a company such as A&P, trading dreams of independence and upward mobility for a steady if none-too-generous weekly paycheck from a chain retailer that, it was frequently alleged, paid lower wages than independent grocers.21

  As the Great Depression deepened, these resentments only mounted. Lack of alternatives drove even more people to try the grocery trade. Although severe food-price deflation decimated sales, cutting receipts at food stores from $10.9 billion in 1929 to $8.4 billion in 1935, the number of grocery stores rose 15 percent. Between 1930 and 1937, perhaps a quarter million independently owned grocery stores opened their doors. As A&P increased its share of the country’s grocery-store sales from 14.4 percent in 1929 to 16.4 percent in 1933, at the expense of independent grocers, more people than ever before had cause to fear it.22

  Public attack on the chains focused on their heavy use of “loss leaders”—products sold at a price that, even if not leading to actual loss, was too low to provide a normal profit. The research director of the Chain Store Research Bureau estimated that the leading chains of all sorts were selling 15 percent of their merchandise without profit in the late 1920s, and the Federal Trade Commission found that “an important aspect of chain-store price policy is the frequent use of ‘leaders’ consisting of specially low selling prices on particular items.” Food chains used loss leaders extensively, but so did the independently owned supermarkets, whose entire strategy depended upon heavy promotion of a few very cheap items. For big stores, offering special sale items at prices that left little or no profit made great sense, as they drew customers who would then buy high-margin merchandise as well. From the viewpoint of mom-and-pop grocers, on the other hand, loss leaders, whether offered by food chains or by supermarkets, were simply unfair, a form of “destructive competition.” The small grocers and their wholesale suppliers had been fighting “below-cost sales” for decades. In 1933, they finally had an opportunity to stamp out the plague.23