The Great A&P and the Struggle for Small Business in America
Page 26
John A. Hartford, on the other hand, seems omnipresent in the company records. Far more vigorous than his older brother, he traveled widely, conferring with division-level boards of directors in Detroit, Boston, Pittsburgh. He visited bakeries, sat with executives of the National Meat Division, met with produce suppliers and grocery vendors. When the division presidents convened each quarter, he participated from beginning to end. There was hardly a meeting at which John’s thoughts were not cited, even if he was not personally in attendance. What emerges from the records is a company in which Mr. John was the driving force and Mr. George, more often than not, was manning the brake.
John, always dapper in his tailored suit and polka-dot bow tie, was A&P’s public face. When speaking to the press was deemed useful, John took on the task. Internally, he represented the company to A&P’s own employees. He responded personally to their letters. When headquarters wanted to communicate with store managers, whether to explain a recent labor dispute or to threaten firing of any manager alleged to have sold short weights, the communication often took the form of a personal letter from John. When he was on the road, he occasionally gathered local store and warehouse managers to meet him over dinner or at special events with the singer Kate Smith, who was featured in A&P’s advertisements and radio programs. Although he often spoke in the first-person plural, representing his brother as well, to employees, it was Mr. John who personified A&P.13
But John was no front man. Since 1912, when he convinced his father and brother to let him test the Economy Store concept, he had been the company’s visionary. The reorganization of 1925–26, in which A&P curbed its investment in manufacturing to focus on increasing sales volume in its retail stores, was largely John’s achievement. The campaign against the Patman tax bill, which saved the company from annihilation, had come at his initiative, against his brother’s opposition. The company’s quick transition to the supermarket between 1937 and 1940 was John’s doing as well, often against the resistance of his brother and longtime executives. At the same time, John was a hands-on manager with detailed knowledge of the company’s business.
In principle, the brothers had removed themselves from day-to-day operating responsibilities in 1925, when they decentralized store management and manufacturing and put an experienced executive in charge of each division. The Hartford philosophy was that men should be given responsibility and left to do their jobs. “As much responsibility as possible should be thrown upon the key men as it is only in this way we discover a man’s capabilities,” one division president told his managers, echoing John with every word. In practice, though, John Hartford had a hand in everything, and no A&P executive, no matter how senior, made a significant decision without his knowledge. When the quarterly meeting of division presidents resolved on June 25, 1931, that no merchandise would be sold at a markup below 3 percent without the approval of the division president, it was carrying out John’s wishes. When they agreed, against their better judgment, to reduce margins in stores in an attempt to sell more groceries, they did so because John wanted it done. When a truck driver sued the company, alleging injury from a knife thrown by an A&P clerk, John, according to company lore, practiced throwing knives at the distance claimed until he convinced himself that the incident could not have occurred.14
John’s management style was a curious mixture of quantitative analysis and old-fashioned paternalism. A&P was a leader when it came to finding ways to quantify performance. Its armies of office clerks collected numbers on everything, and participants in management meetings pored over thick packets of figures, neatly typed on stencils and duplicated on mimeograph machines. No subject was too unimportant to be broken down by division or unit, allowing for easy comparisons. If one division or unit lagged others, the executive in charge was well-advised to come armed with a plan to fix the problem. Store managers who failed to attain sales and profit goals found themselves replaced: in 1927, a time when rapid expansion forced the company to promote large numbers of untested men to run stores, one-third of all managers were replaced in a nine-month period. Managers who met their profit goals by overcharging customers were prone to lose their jobs as well if detected by the company’s ubiquitous auditors or by the “secret shoppers” who checked to make sure prices were posted clearly on the shelves.15
Yet John also assumed personal responsibility for people who had devoted themselves to A&P. If a manager who tried to follow company policies nonetheless failed in his job, John believed, the fault lay with the company’s inadequate training; rather than being fired, he should be moved into a position to which he was better suited. Store managers who could no longer do the job due to age or physical infirmities but wanted to continue working were kept on the payroll as clerks. While his paternalism had limits—A&P hired few black workers before World War II, and female clerks and secretaries had little chance for promotion—his unwillingness to displace thousands of loyal employees was partly to blame for delaying the shift to supermarkets, which eliminated seven thousand jobs, mainly those of store managers, between 1937 and 1940.16
John’s paternalism often brought him into conflict with his executives. Division managers and their subordinates, the unit managers, were meant to keep costs low, but they were to do so by careful management—finding good store locations, minimizing inventory, advertising wisely, bargaining hard with vendors. John’s fervor for cost control did not extend to squeezing workers. Although very few A&P workers were represented by unions before 1938, John is often to be found urging district and unit executives to raise wages and improve benefits. During the Depression, when many employers slashed wages, the Hartfords refused to do so. Division presidents were urged to grant paid vacations, and in July 1931, John asked the Southern Division to raise clerks’ wages “to make our proposition more attractive to the young men in our organization, who are really entitled to further remuneration.” In 1935, he told the unit managers of the Central Western Division, in Chicago, that he was “apprehensive” of the salaries of store clerks. “He has received letters from clerks who have terminated their services with the company, in which charges have been made that their positions had been eliminated in order to make way for a new clerk at a lower wage,” the division’s minutes report. “He felt that the excess we earn over our dividend requirements should be thrown back into the business to further reduce our retail prices and to improve the income and working conditions of the managers, and particularly the store clerks.” A year later, he wrote to the Southern Division asking that it institute sick pay.17
Division managers often failed to heed John’s advice, because raising labor costs, in the short term, lowered profits. When that occurred, John could not dictate a change in policy—he had, after all, decentralized authority—but he could embarrass the local management by raising the issue again and again. After the Central Division in Pittsburgh ignored John’s suggestion that it raise pay in 1935, he persisted. According to the minutes of a division board meeting in January 1936, “Mr. Hartford has brought up the subject of our low clerk salary in practically every meeting he has attended in the Central Division during the last few years, and it was humiliating to the committee for him to bring it up again. It was felt that he was justified in taking any steps he thought wise to bring about a higher wage for the clerks however it was still felt we could correct the situation.” The division’s board met again the following Monday and did as Mr. John had dictated, bringing average pay for full-time clerks to $17 per week. “It is hoped that Mr. Hartford will not again find it necessary to bring to our attention that we pay our clerks too little,” the minutes affirmed. As A&P opened more supermarkets, he was concerned that division managers failed to appreciate that running a supermarket was far more difficult than managing a much smaller combination store, and he repeatedly urged pay raises for store managers and assistant managers. He believed “the future of this type market depends to a large extent on the personnel, and they should be compensated according to ability
and achievement,” the 1940 minutes of the Eastern Division record.18
Such issues were addressed in personal visits and in voluminous correspondence, all of it formal. A&P’s competitors were far less starchy. At Safeway headquarters in Oakland, California, President Lingan A. Warren was prone to address his managers as “Dear Tom” or “Dear M.L.,” and many of them wrote back to “Dear Ling.” At Kroger’s general offices in Cincinnati, executives frequently sent out brief memos on standard forms rather than resorting to letters. There was no such familiarity in the Graybar Building. Even an executive such as the Southern Division’s chairman, O. C. Adams, who had worked with the Hartfords since 1894, was addressed as “Mr. Adams,” and Adams corresponded with his subordinates in the same vein. John’s courtliness was an integral part of his image, but it must have seemed very old-fashioned to new A&P employees in the late 1930s.19
Decentralization or not, John could not resist becoming involved in details. He wanted his executives to know that he knew about their businesses, and he poked his nose into everything. Auditors advised headquarters whenever they found a store selling merchandise below cost, and John personally reprimanded offenders. In 1936, after a court in Washington, D.C., found A&P guilty of selling short weights of meat, he personally signed an individual letter to each of forty-five thousand store employees warning that anyone accused of cheating customers would be fired. In March 1939, he telephoned the chairman of the Southern Division to ask about the wide margins reported by two supermarkets in Georgia. In November 1939, the Atlantic Commission Company’s methods of purchasing oranges from a Florida cooperative were on his personal agenda. In 1940, he looked into large stock gains at certain stores in Virginia, which could mean that the managers were setting prices higher than the company desired. In 1941, he had an extended interchange with the president of the New England Division on the way a regional competitor accounted for depreciation. But there may be nothing that illustrates John Hartford’s management style more fully than the case of G. D. Keller.20
Keller, the former manager of A&P’s store in Oberlin, Ohio, sent Hartford a three-page handwritten letter on April 16, 1939. Keller explained that he had left A&P after eleven years in a dispute with an assistant superintendent, whom he accused of having affairs with female store clerks. He had then raised the money to open his own grocery store in Oberlin, only to find that A&P had lowered prices in its store to put him out of business. “I had the pleasure of meeting you in Cleveland at Kate Smith’s party and do not believe you are a man to condone such tactics,” Keller wrote.
On April 19—no more than a day after receiving Keller’s letter—Hartford wrote to D. F. Meier, head of the Cleveland unit, asking him to look into the situation. Meier explained that Keller had a drinking problem and that the assistant superintendent had been trying to help him. The Oberlin store was one of fifteen in the unit where prices had been cut, he said. On May 5, Hartford sent Meier’s response to C. A. Brooks, president of the Central Division and Meier’s boss, and asked him to investigate to make sure Keller had not been treated unfairly. Brooks wrote to Meier, then phoned him, and wrote to Hartford that the price reductions in Oberlin were not intended to hurt Keller. Hartford wrote back almost immediately, demanding the dates and store locations where prices had been cut. Brooks again wrote to Meier, who supplied more details. Hartford refused to drop the matter. He telephoned Brooks, then sent him a stern letter on June 7. “I believe in carrying out this plan of action in this store you made a very grave mistake,” he wrote. “After developing this story through my correspondence with you, I feel it to be indicated that we did exactly what Mr. Keller describes in his letter.” Hartford’s executives knew when to grovel. “Your valued favor of the 7th received,” Brooks replied to Hartford. “I agree with you that it was a mistake, and I believe unintentionally on the part of Mr. Meier.” Brooks phoned Meier once more, and the unit manager paid a personal call on Keller to apologize and let him know the local A&P would be raising its prices. Only then did Hartford contact Keller directly: “I wish to take this opportunity to thank you for writing to me in this regard.”21
That the president of the largest retail organization in the world would even read a three-page handwritten letter from a disgruntled former employee is remarkable enough. That he would intervene personally with high-ranking executives on four separate occasions concerning a problem at one of his company’s nine thousand stores, repeatedly challenging their explanations and ultimately accepting the former employee’s story over theirs, is extraordinary. But if such interventions could be humiliating for the employees concerned, they were a critical management tool. Mr. John was watching everything, or so he wanted his people to believe. And every A&P employee knew that if there was something wrong, Mr. John would try to set it right. That remarkable loyalty extended even to ex-employees such as G. D. Keller. In April 1940, a year after his first letter to John Hartford, Keller sent Hartford another handwritten note to say that business was better and he hoped soon to be out of debt. “I want to thank A&P for teaching me the grocery business,” Keller wrote.22
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John A. Hartford took an extremely long-term view of his family’s business. For A&P executives, John’s demands could be infuriating. Rather than urging higher profit margins, he often insisted on the opposite. His view that A&P should focus on return on investment rather than profits as a percentage of sales was not widely shared within the company. To his division presidents, who were overseeing thousands of stores or substantial industrial operations, a large profit, relative to sales, indicated good performance. To John, though, a large profit was a warning light, signaling an attempt to maximize short-term returns by paying workers inadequately or by holding prices too high. Either way, too much profit in the short term was bad for the company’s position in the long term. As he saw it, excessive prices would reduce volume. Once that occurred, A&P would be forced to spread the fixed costs of its warehouses and factories across a smaller customer base, which would require it to raise prices even higher. No matter what the short-term implications for the bottom line, damaging A&P’s reputation as the low-price grocer was a risk he was unwilling to take. In 1940, John went so far as to tell his division presidents the company should not attempt to earn more than $7 per common share; if earnings were above that, then their prices were simply too high.23
So long as it could hold down costs, A&P could undercut the competition even under the tight legal constraints on prices. The supermarkets brought lower costs, and their lower prices brought customers flocking back. In 1940, according to the company’s estimates, it captured 10 percent of the available business in the places it had stores—more than it had held before the National Industrial Recovery Act, state chain-store taxes and fair-trade laws, and the legislative efforts of Wright Patman. In Pittsburgh, where its pre-Depression market share had been around 12 percent, A&P sold 20 percent of the groceries in 1940. In Chicago, its market share climbed from 11 percent to 14 percent, in Detroit from 10 percent to 15. Perhaps, John Hartford suggested, the relentless political attacks on A&P had backfired by focusing public attention on the fact that A&P was the cheapest place to shop. Whatever the cause, A&P found itself in a virtuous circle just as he had predicted: low prices brought higher volume, and volume boosted the bottom line. A&P’s pretax return on equity climbed above 15 percent in 1940 for the first time since 1933. The fourth revolution, bringing A&P quickly into the supermarket age, proved to be the company’s salvation.24
19
THE TRUSTBUSTER
The demise of his bill to tax chain stores in June 1940 brought an end to Wright Patman’s hopes of pushing anti-chain legislation through Congress. It also doomed Patman’s ambitions to enter the U.S. Senate. Patman had long coveted a Senate seat, and the death of Senator Morris Sheppard in April 1941 created an opening. When he tried to rally support across his huge state, though, Patman found he lacked for friends as well as money. The flamboyant populism that endear
ed him to voters did not appeal to potential patrons such as Sam Rayburn, now the powerful Speaker of the House, and Franklin Roosevelt. Roosevelt’s support went to a young congressman, Lyndon Johnson, who then lost to the conservative governor, W. Lee “Pappy” O’Daniel, in a fraud-ridden election. Patman, humiliated, abandoned the race and sent a pitiable missive to the Democratic Party boss, Edward J. Flynn: “Having been a loyal Administration supporter, I am hoping that I will be considered the next time a situation arises in Texas that will warrant an evaluation of my merits.”1
The tax bill’s crushing legislative defeat did not mean the end of the anti-chain crusade. Far from it. The cause was taken up by a most unlikely protagonist, Franklin Roosevelt’s antitrust chief, Thurman W. Arnold.
Arnold shared Wright Patman’s small-town roots, but not much more. Born in Wyoming in 1891, Arnold had struggled through Princeton before flourishing at Harvard Law School. He opened a law practice in Chicago in 1914, handling divorces, collecting debts, and struggling to make ends meet. The call to military service was timely. In 1916, his National Guard unit was ordered to Texas to help track down the Mexican guerrilla leader Pancho Villa, and that adventure was followed by wartime service in France. Following his military career, Arnold moved back to Wyoming and won a seat in the state legislature, where he was the only Democrat. His most famous initiative involved nominating himself to be Speaker of the House, rising to second his own nomination, and then rising once more to proclaim: “Mr. Speaker, some irresponsible Democrat has put my name in nomination and I wish to withdraw it.”2