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

by Marc Levinson

  13

  FRANKLIN ROOSEVELT

  In March 1933, Franklin Roosevelt took office as president of the United States. Chain stores were the least of his worries. America was in its fourth year of the deepest depression in four decades. One worker in four was without a job, the banking system was on the verge of collapse, the farm sector was a disaster. Roosevelt had won election the previous November as the candidate of hope. His defeated Republican predecessor, Herbert Hoover, had offered one program after another to ease the country’s distress, but nothing had brought improvement. With Democratic majorities in both houses of Congress and broad support among a desperate populace, Roosevelt had a commanding political position that freed him to try almost any policy he thought might extricate the country from depression and despair.

  His ability to make a connection with average Americans was part of Roosevelt’s genius. The journalist Jonathan Alter put his finger on the matter: “While FDR knew how to say ‘My friends’ in several different languages and appear to mean it in every tongue, Hoover could seem as if he were addressing strangers even in a roomful of friends.” Hoover, one of the most accomplished men ever to occupy the presidency, had spent much of his life running large organizations in and out of government. He knew how to manage bureaucracies, but he had little feel for connecting with people, creating confidence, restoring a sense of possibility. Nor did he fathom how radio, just starting to become an important source of information, was changing the way in which people came to know their leaders. Roosevelt, an aristocratic New Yorker, was far more skilled at communicating with the common man. He understood radio and used it to powerful effect. When he spoke, whether in a formal address to Congress or in one of the series of “fireside chats” that began eight days after his inauguration, average people from Maine to California felt his empathy with their problems and their worries.1

  Some of those average people ran grocery stores. Even before Roosevelt took office, they were begging his help to save the small retailer. “I remember in times past when your boy or mine if he could not get a job we could start him in business for a small capital and he could get along fine and be contented, but now under these chain store methods it is different,” wrote Thomas Seamans of Jackson, Michigan. George Rund, owner of Universal Market in Princeton, Indiana, suggested a tax of at least $2,000 on each store over fifty owned by a single chain. F. H. McKay of Greenville, Michigan, wrote approvingly that “Germany locked up its Chain Stores because they considered them a bad thing for the economy.” Mrs. Jennie Applegate, a grocer’s wife from Bound Brook, New Jersey, sent the president a poem in her careful script:

  The old home town has changed a lot since I was just a lad.

  For in those days the home owned stores were all we ever had.

  I remember how the boss could come and meet us at the door.

  And he always made us feel at home when we were in his store.2

  At the same time, Roosevelt heard from every corner about the struggles of consumers. Before the world war, consumers had rarely identified themselves as such. The consumer movement arose from the long campaign for woman suffrage, which in 1920 won ratification of a constitutional amendment giving women the right to vote. The first books promoting consumers’ interests came in the mid-1920s and the formation of the first national consumer organization, Consumers’ Research, in 1929. Consumer consciousness was in full flower by the time of Roosevelt’s election. Prominent consumer advocates joined his administration, and federal agencies created consumer advisory councils to make sure the interests of the “citizen consumer” were represented. Roosevelt’s appointees never forgot to emphasize the consumer’s importance. The central role of consumer concerns, one New Deal economist asserted, was “a new development in American economic policy—a development which offers tremendous opportunities for social well-being.”3

  There is no doubt that consumers were in need of help, for the Depression was devastating living standards. Between 1929, when the stock market crashed, and 1933, Roosevelt’s first year in office, total consumer spending fell by an astonishing 40 percent. Even allowing for a 32 percent drop in the consumer price index, many households’ living conditions deteriorated sharply. Millions lost their homes to foreclosure or turned to charity to survive. Although workers lucky enough to hold on to their jobs saw their buying power surge because wages fell much less than prices, they were nonetheless fearful of the future. Travel fell sharply. Sales of clothing, cars, and radio sets collapsed. People worried first and foremost about keeping food on the table.4

  One prominent version of New Deal history depicts the Roosevelt administration as the first pro-consumer government. Many decades after the fact, that depiction served a variety of political purposes, countering claims that the New Deal was too conservative and turning socialist and communist groups, women’s groups, immigrant organizations, and activists of myriad other flavors into important historical actors. The consumerist story is not entirely without foundation: the 1930s saw consumers standing up for themselves as never before. Housewives organized boycotts to force down meat prices in a dozen cities, including a “meat strike” against forty-five hundred butcher shops in New York. Neighborhood committees checked poultry weights and measured the contents of food cans. Women’s clubs and labor unions demanded that government take consumer interests into account in writing laws and regulations. Many of those grassroots activists drew strength from what they imagined to be the strong support of Franklin Roosevelt. “Never has there been such a wave of enthusiasm to do something for the consumer,” insisted The Nation.5

  Yet the claim that the New Deal was a pro-consumer program is too simple by half. An important part of Roosevelt’s constituency had a very deep distrust of big business. Groups such as the Farmer-Labor Party in Minnesota, Father Charles Coughlin’s National Union for Social Justice, and Huey Long’s Share Our Wealth campaign were the heirs to the Populist movement of the 1890s. Their members, mainly working-class people and farmers, distrusted the chain stores as their grandfathers had distrusted the railroads, and no talk about efficiency would change their minds. The administration’s own economic experts had no time for these neo-Populists; for all of their kind words about consumers, it was producers who had their attention. They overwhelmingly diagnosed the Depression as the result of excessive competition that was forcing down prices, decimating profits, and causing employers to lay off workers. Stopping deflation became one of the administration’s first economic objectives. Holding up prices is as anticonsumer an activity as one can imagine, but when it came to choosing between aiding business and aiding consumers, there was no contest.6

  The scholarly literature on the consumer and the New Deal scarcely makes mention of the Great Atlantic & Pacific. It is a curious omission, for during the presidencies of Franklin Roosevelt and his successor, Harry Truman, the world’s largest retailer was under almost constant government attack. Both administrations, many members of Congress, and Roosevelt supporters in state and local governments all found it opportune to wage war on the Hartfords and their company, regardless of the cost to the consumer.

  * * *

  The day he took office, Roosevelt shut the nation’s banks. Depositors in those days had no insurance to protect against bank failure, and as they panicked, pulling out deposits and demanding gold in exchange for their currency, they made the banks even weaker. Roosevelt’s “bank holiday” was intended to stop the panic by halting withdrawals until Congress could enact a new banking law. The bank holiday quickly starved the economy of cash. Some employers gave workers scrip in lieu of paychecks. Others issued paychecks that, at least for the moment, no bank could cash. Most retailers muddled through, extending credit so their customers could buy the necessities of life. A&P did not. Hewing to established policy, A&P stores did business in cash only. They offered no credit and refused to accept scrip or to cash checks. Financially, it was a sound decision for the company. Politically, it was a poor way to start a
relationship with the new administration in Washington.7

  Truth be told, the Hartfords sought no relationship with the new administration in Washington. This was not as remarkable as it sounds. Until the 1930s, most businesses had no involvement with the federal government. The government’s main role in economic regulation concerned transportation, so companies had little reason to spend time and money influencing Washington unless they were seeking higher import tariffs or lower freight rates. In any event, the Hartfords had little interest in politics. John, like most of his friends who sat on the boards of major corporations, was a Republican, but hardly an ardent one. In 1932 he donated $1,000 to William J. Donovan’s unsuccessful campaign for governor of New York, in which Donovan, a Republican, was crushed beneath a Democratic landslide. That same year, Pauline Hartford donated $1,000 to help cover expenses remaining from Hoover’s reelection campaign. John had no known relationships with Calvin Coolidge or Hoover, and he did not seek ties to Franklin Roosevelt. George, following his natural inclinations, avoided all contact with politicians. He would have opposed A&P’s involvement in political affairs even if John had grasped that the relationship between business and government was about to change in a fundamental way.8

  That change was codified in two laws enacted in the spring of 1933, during the congressional marathon that became known as Roosevelt’s “Hundred Days.” The Agricultural Adjustment Act was meant to prop up farm commodity prices by paying farmers to take land out of production and to slaughter hogs and cattle. It also required handlers of agricultural commodities to obtain government licenses, making them subject to regulations designed to “eliminate unfair practices” and to speed “restoration of normal economic conditions.” That broad language gave the new Agricultural Adjustment Administration (AAA) enormous power not only over farmers and grain handlers but also over retailers such as A&P that dealt in large volumes of milk, butter, and wheat. A similar new law, the National Industrial Recovery Act, called for “codes of fair competition” governing individual industries. Such codes were to be written by industry groups supervised by the new National Recovery Administration (NRA). The codes were required to address work hours, minimum pay rates, and workers’ right to union representation, and could also regulate other aspects of competition. Once accepted by the government, a code would apply to every company in the industry with the force of federal law. If a company failed to adhere to what was in effect a privately written statute, the U.S. district courts could levy a fine of up to $500 per violation per day and, in some cases, even impose prison terms.9

  Neither law made the least mention of retailing. Yet both struck directly at the way A&P conducted its business.

  The scale of the threat became clear on June 23, when the AAA convened food-industry executives in Washington. John A. Hartford was in the audience as Charles Brand, briefly serving as the agency’s co-director, laid down rules that went far beyond the language of the new laws. No food distributor, Brand said, had the right to sell commodities produced from one set of materials at a loss and make up the loss on commodities produced from other materials. Though the language was obscure, it meant that the administration was joining the battle against big grocery chains. Independents had long accused the chains of selling some items at money-losing prices—loss leaders, they were called—in order to bring customers in the door. Brand’s words meant that government would no longer allow some goods made from farm products to be sold at a lower profit than other goods. Nor could the retailer use advertising and brokerage allowances to reduce the price to the consumer. As A&P took in far more in advertising and brokerage allowances than any other retailer, the new rules seriously restricted its ability to set prices below those of competitors.10

  Worse was to come. The AAA was overseeing the development of marketing agreements among distributors of some agricultural products, such as milk. As early as July 1933, AAA rules forced A&P to raise the price of White House milk, canned in the company’s Wisconsin factories. A&P was required to charge at least seventeen cents for three cans of milk, executives in the Southern Division complained, while small competitors “have made inroads on our business through offering specials at 5¢ per can or less.” Federal officials had no realistic way to police such violations at the hundreds of thousands of independent grocery stores, but the nation’s largest grocer could not avoid compliance.11

  Food manufacturers, wholesalers, and retailers all were expected to adopt codes of fair competition under the National Industrial Recovery Act. Administration officials made clear that grocery wholesalers were to write one code, grocery retailers another. Chain and independent grocers were to be covered by the same code. And what if they could not agree what that code should say? “The government’s thought in this connection is that when an industry comes together to draw up a code, the thoughtful men in every line will pretty nearly embrace the same opinion,” an AAA representative explained helpfully. The food retailers, he added, were expected to agree to “a truce in competition.”12

  Like groups in hundreds of industries, food wholesalers and food retailers spent the summer of 1933 drawing up codes of fair competition for government approval. Fair competition, as the National Recovery Administration defined the term, meant that competitors should have similar cost structures so that they could charge similar prices. The results would have the force of law, but the process was nothing like lawmaking. The grocery code was to be drafted by various state and national organizations, which were deemed to represent the interests of all firms in the industry, whether or not individual firms concurred. The draft code was to be submitted for a formal hearing, at which witnesses could object to particular provisions or offer substitute language. The NRA’s consumer, industrial, and labor advisory councils could weigh in as well. After these procedural niceties, agency officials would negotiate with the groups that drafted the code, agree on final language, and submit the finished product for President Roosevelt’s approval.13

  This process allowed wholesalers and retailers to write rules that could be used to strangle competition to the advantage of small retailers. The National Association of Grocery Wholesalers, one of two nationwide wholesaler groups, dominated the writing of the food wholesale code. While the National Association of Food Chains helped draft the code for grocery retailers, its interest was the many chains owning only a few stores, not the large retailers. A&P, which had sales greater than those of the next seven food chains combined, was not an association member. Although A&P accounted for one-sixth of all sales at grocery stores in 1933, it was not invited to join the code-writing bodies. Nor did those bodies have the slightest interest in efficiencies that could reduce the cost of distributing food to consumers. The codes turned out to be competitive weapons, and A&P was in the line of fire.14

  The grocery code, signed by Roosevelt at the end of 1933, was an independent grocer’s dream. Like all NRA codes, the grocery code was stuffed with provisions to stabilize labor costs at a time when falling prices and high unemployment were pushing market wages down. Individual employees could work no more than ten hours in a day and forty-eight hours in a week. Children under sixteen could work no more than three hours per day. The minimum wage for grocery clerks would be $15 a week in large cities, $10 per week in small towns. Workers had the right to form unions to bargain with employers. But none of these provisions applied to family labor in independent stores or to small independent stores operating in rural areas. Of the 482,000 food stores in the United States, upwards of half were unaffected by the labor rules in the grocery code, while chains were uniformly forced to comply.15

  The pricing provisions of the codes were even more damaging to the chains. The grocery code barred the sale of any grocery product for less than the invoice cost plus freight plus a 6 percent markup. This required markup on food was set lower than the independent grocers and wholesalers hoped for, and in November 1933 representatives of the National Association of Retail Grocers and the National-American Who
lesale Grocers’ Association visited Marvin H. McIntyre, Roosevelt’s secretary, to plead unsuccessfully for a mandatory 10 percent markup. Even so, minimum selling prices on everything except meat, which was covered by a separate code, were a direct attack on John Hartford’s philosophy of cutting prices to increase volume. The NRA food code would not allow more efficient grocers to operate with lower prices than competitors, even if they could do so profitably. This hardly served consumers’ interests, but it served the administration’s objective of keeping less efficient retailers in business to avoid adding to unemployment. Protests by the NRA Consumer Advisory Board against the ban on below-cost sales were ignored.16

  With a stroke of the president’s pen, the codes rendered many routine food-trade practices illegal. A&P and other grocery chains frequently accepted slim margins on sale merchandise to entice shoppers who would fill their baskets with more profitable items. The chains often found such sales profitable after taking manufacturers’ allowances for advertising, brokerage, and fast payment into account. Now, however, allowances could not be considered in setting prices; any retail price below 106 percent of invoice price plus freight constituted unfair competition. A&P often featured low prices at new stores to build a clientele, and this, too, was barred by the codes. Selling one product with a low margin subsidized by the high-margin sale of another product was illegal. Fresh milk had to be sold at a single wholesale price across an entire region; coupled with the rules on minimum markups, this effectively meant that all retailers in a city had to charge the same price. The NRA macaroni code barred sales “below a fair and reasonable price,” leaving it to bureaucrats to decide when the manufacturer’s wholesale price constituted “destructive price cutting.” The codes prohibited rebates of brokerage fees to grocers that did not buy through brokers, such as A&P, and required that advertising allowances be offered equally to all grocers, even mom-and-pop stores that never advertised.17