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

by Marc Levinson

  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

  In short, Carl Byoir was one of the best-connected people around. Over lunch at the Cloud Club in early 1937, he explained to John Hartford what public relations advisers did. Hartford discussed the anti-chain campaigns, which he felt were targeting A&P. “I remember him saying that it seemed to him it had gotten so that a man is almost ashamed to work for chain stores—so many people believe this stuff,” Byoir recalled eight years later. They made no arrangement, as John could commit to nothing without his older brother’s agreement. Three months later, John Hartford asked Byoir to come to the Graybar Building for a talk with Mr. George. The encounter did not go well. George Hartford made clear he had no use for public relations, saying, “Well, now, Mr. Byoir, we have tried to run this business clean, and we have tried not to hurt anybody, and if a lot of people want to believe all these lies about us, it just does not bother me very much.” The brothers thanked him for coming.27

  * * *

  Another three months passed before Byoir heard again from John Hartford. In September 1937, John proposed to engage Byoir’s services, but not at the corporate level, which would have required George’s involvement. Instead, John wrote to ask Byoir to meet with William Byrnes, president of A&P’s Eastern Division in New York. Byrnes told him of the bill in the New York state legislature to impose a tax on chain stores, a tax that would cost A&P $2 million a year. Byoir was offered a contract to organize a public relations campaign against the bill. He was not to lobby directly by contacting legislators. The politics of the situation seem to have been a bit unusual. In most parts of the country, support for taxing the chains was strongest in small towns and rural areas. In New York, however, the lead sponsor was Jacob Schwartzwald, a Democratic senator from Brooklyn, suggesting that it was immigrant grocers, bakers, and butchers who were most worried about chain competition. No retailer would have been affected more by his bill than A&P.28

  Byoir had not been involved with the 1936 California campaign, but he drew lessons from its success. Carl Byoir & Associates contacted several hundred consumer, farm, and labor organizations to explain the legislation. It wrote to every farm group it could find in New York state to expound upon the advantages of chain stores. It met with the editors of farm magazines and small-town newspapers, with economics professors, and with union leaders. It may even have encouraged A&P to strike some deals: federal investigators later claimed, although never proved, that through the efforts of a public relations man A&P shifted its milk purchasing in Buffalo to a dairy controlled by the Dairymen’s League, in return for the league’s aid in fighting the Schwartzwald bill. But the Dairymen’s League had plenty of company. The senate committee hearing on Schwartzwald’s bill lasted for four hours as the likes of the Brooklyn Consumers Committee, the Women Investors of America, and the New York State Turkey Association stood to oppose chain-store taxes alongside the New York Board of Trade, the most powerful business group in New York City. Byoir managed to orchestrate this successful lobbying effort without leaving fingerprints. New York’s newspapers linked neither him nor A&P to the tax bill’s demise.29

  John A. Hartford, who had once thought it improper to meddle in political issues, was converted. He immediately engaged Carl Byoir to handle A&P’s political problems nationwide.

  16

  FRIENDS

  Toward the end of 1937, Wright Patman determined to renew his attack against the Great Atlantic & Pacific. His proposal to prohibit manufacturers from selling at retail, which would have dealt A&P a serious blow, had gone nowhere in Congress because it required impossible legal distinctions: barring A&P from combining manufacturing with retailing also would have kept family-owned bakeries from vending their own bread. But A&P’s blatant challenge to his treasured Robinson-Patman Act convinced Patman that further legislation was needed. In January 1938, he invited other representatives to become “one of the original congressional sponsors of a national anti-chain store movement” and a co-sponsor of a federal anti-chain bill. A few days later, the Federal Trade Commission ruled that A&P was violating the Robinson-Patman Act by receiving discounts from manufacturers in lieu of brokerage commissions. A&P, it found, “is thereby enabled to resell such commodities at prices substantially lower than those at which its competitors can resell them.” By pressing suppliers so it could sell to consumers more cheaply than other grocers, A&P had broken the law. The commission entered a cease-and-desist order, exposing A&P to fines in th
e event of future violations.1

  The bill Patman proposed to introduce overflowed with populist language. Labeled a bill “to prevent monopoly in the field of retail distribution,” it began with the claims that “chains of retail stores operating under absentee ownership and control are approaching a condition of monopoly”—a questionable assertion, given that A&P, the largest chain by far, collected only one of every ten dollars Americans spent at the grocery store. There was more: “The economic values inherent in the chain store method of distribution are outweighed by the pernicious social consequences of absentee ownership and control of distribution.” And more: “A democracy of opportunity and the freedom of individual initiative cannot survive in competition with the unnatural and inherent economic and financial advantages of the chains.”2

  Patman’s co-sponsors persuaded him to erase most of that inflammatory wording before introducing the bill on February 14. What remained, sponsored by seventy-five legislators from thirty-three states, was a tax on companies owning ten or more stores. The basic tax would start at $50 annually for the tenth store and rise to $1,000 for each store over five hundred. Chains operating across state lines, however, faced a far steeper burden, because a company’s tax liability would be determined by multiplying the basic tax by the number of states in which it operated. The large majority of chains, those with fewer than ten stores or annual sales below $250,000, would pay no tax. A&P, at the other extreme, would be devastated. In February 1938, when the bill was introduced, A&P owned 13,200 stores, some 9,000 more than any other retailer, and operated in thirty-nine states plus the District of Columbia. As proposed, the tax would cost it half a billion dollars a year—more than half its sales. A&P’s annual profit had never exceeded $2,000 per store, but Patman’s bill would tax it $38,000 per store. Its tax liability would be six times that of F. W. Woolworth, seven times that of Kroger, eight times that of the dry-goods retailer J. C. Penney. Were the Patman bill to pass, A&P’s tax bill would be roughly equal to that of all other retail chains combined.3

  Patman described his legislation as “a bill to regulate selfishness and prevent greed.” To prove that his intent was to help small merchants, not to hurt the chains, he agreed to reduce the levy for two years after enactment. That would give the big retailers time to sell their stores “and give other people, especially local citizens, a chance.” For A&P, Patman’s offer of a transition period was an empty gesture. If his law passed, it would cripple the company. The many state chain-store taxes and the growing number of local taxes, in combination, cost the company less than $3 million a year. Patman’s bill would cost it 160 times as much. And while the Roosevelt administration had conspicuously failed to endorse a federal chain-store tax, it had not condemned the proposal, either. Just a month earlier, on January 3, 1938, Roosevelt had sent Congress a message criticizing “practices which most people believe should be ended … unfair competition which drives the smaller producer out of business.” Although Roosevelt might not favor the bill, he might sign it if enough members of Congress wanted it badly, just as he had done with the Robinson-Patman Act.4

  Patman’s proposal changed the terms of debate. Until then, Congress had sought to cripple big retailers by halting discount competition so small retailers could survive. The Patman tax bill went much further, imposing taxes so onerous that interstate chains could not survive. Claims about big retailers’ “unfair trade practices” gave way to assertions that size itself was evil. “Regulation obviously is not the aim of the Patman bill,” The Wall Street Journal commented acidly. “The tax rates are entirely too steep for any such purpose—the objective is the destruction of the big, national chain-merchandising corporations.”5

  The bill was introduced too late in the Seventy-fifth Congress to have a chance in 1938, but it brought the topic of concentration in the U.S. economy to center stage. On March 1, the New York Board of Trade announced plans for a national organization to combat the chain-store bill. In a nationwide radio broadcast on March 6, the New York congressman Emanuel Celler accused Patman of trying to “murder the chain stores.” Patman counterattacked in a broadcast that same evening, using one concern “that now owns more than 15,000 retail grocery stores” as an example of the evils he wished to combat. Patman barnstormed the country to mobilize support. He spoke for the tax on the Columbia Broadcasting System and talked up local ownership on the NBC Red Network. In March, he told a joint session of the South Carolina legislature that chain stores were a form of Yankee exploitation. In May, at a meeting of lumber dealers, he re-created a vanished past: “I remember when we did not have absentee ownership in this country. Then, I believe, we had a far better country than we have today. At that time, we did not have relief rolls; we did not need them.” In Chicago, he debated Godfrey Lebhar, editor of Chain Store Age, before newspaper business editors. In Los Angeles, he spoke to local drugstore owners. He won endorsements from an anti-chain leader in Indiana and a union of strawberry farmers in Louisiana. He arranged for state pharmacy associations to send out 41,450 copies of his anti-chain speeches in envelopes bearing his name, with the government covering the postage.6

  Patman tried to maneuver Roosevelt into supporting his bill. When the president’s advisers decided that concern about monopoly was intense enough to justify a message to Congress, Patman sent him a special-delivery letter urging him to go on the attack against the “feudalistic chain store system.” Patman suggested Roosevelt propose letting chain retailers keep the stores they already had but prohibiting further growth. Alternatively, the president might back a plan to restrict chain stores to a single state. Roosevelt ignored the suggestions. His message affirmed “the right of the well-managed small business to make reasonable profits” but proposed no restrictions on chain stores. All that came of it was the creation of the Temporary National Economic Committee, comprising six members of Congress and six administration officials, to study the concentration of economic power. Patman was not named to the committee.7

  Through the winter of 1938, as chain-store advocates and opponents faced off around the country, the Great Atlantic & Pacific was silent. Preparing to do battle, Patman asked the Library of Congress to compile a list of every court case and federal regulatory complaint involving the company since 1928. But A&P said nothing publicly during the New York legislature’s debate over a chain-store tax in March, nor did it comment on Patman’s proposed federal tax. Only the most careful watchers of events in the Graybar Building would have detected a sign that the company’s attitude was about to change. In April 1938, Fortune printed a sympathetic profile, suggesting that A&P suffered from too much commitment to its longtime employees and too little political savvy. That A&P would welcome a reporter was surprising. That the reclusive George L. Hartford would sit for an interview was unprecedented.8

  Almost certainly, the Hartfords opened up to Fortune on the counsel of their new public relations adviser, Carl Byoir. Fresh from defeating the proposed New York state chain-store tax in Albany, Byoir had entered the Hartfords’ inner circle. His official job was to organize a national campaign to blunt political attacks against chain stores. Together with Caruthers Ewing, he was to find a way to keep Patman’s chain-store tax bill from passing Congress. Behind the scenes, he was to advise John Hartford and other top executives on protecting the company’s public image.9

  * * *

  On March 15, 1938, Byoir created a new entity, Business Organization Inc. Carl Byoir & Associates had many clients; Business Organization Inc., with offices one floor below at 10 East Fortieth Street in New York, would handle only the A&P account. A&P agreed to pay Business Organization $75,000 a year, plus costs and personnel expenses, to conduct public relations efforts on its behalf. To help run the campaign, Byoir hired thirty-two-year-old Victor Schiff. Like Byoir himself, Schiff, a former journalist, had learned the public relations trade at the feet of the great Edward Bernays.10

  On April 16, 1938, Franklin Roosevelt directed his secretary, Marvin McIntyre,
and his press secretary, Stephen Early, to schedule a fifteen-minute appointment the following week with John A. Hartford. Nothing was arranged, but following a handwritten reminder from the president, McIntyre offered Hartford an appointment on May 19. Hartford declined, averring, “I have not at the moment anything in mind which would enable me to be of service to him,” leading McIntyre to respond that Hartford was welcome to an appointment with the president anytime he wished.11

  Why, seemingly out of the blue, did Franklin Roosevelt want to see John Hartford? And why, in May 1938, did Roosevelt ask his staff to set up meetings with “Pres. Retail Grocers Assoc.” and the head of the Independent Grocers’ Alliance of America? It is no stretch to imagine that Carl Byoir was attempting to enlist the president to mediate a cease-fire in the chain-store wars—but if that was his purpose, why would Hartford, his client, have rejected the president’s overture? A more likely explanation is that the initiative came not from Byoir but from Wright Patman, who had a personal meeting with Roosevelt at the White House on April 5. Patman had reason to urge Roosevelt to meet with John Hartford, as any compromises by A&P would have handed Patman a political victory. Hartford may have smelled the trap, which would explain why he took the extraordinary step of declining an invitation to a private meeting with the president. Whatever the case, the effort to involve Roosevelt directly in the battle over chain retailing failed. It appears that none of the meetings requested by the president ever took place.12

  * * *

  Byoir and Schiff assessed the political situation and quickly determined that A&P needed friends. They found them first in a most improbable place: the labor movement.