A&P filed its reply to the suit in April 1950. “By its very nature this industry is one in which monopoly is impossible,” its brief asserted. Another advertising campaign followed. Citing a letter in which Judge Lindley wrote, “I have not made a finding which could be the basis for a suit of dissolution,” full-page newspaper advertisements accused the government of wanting to put A&P out of business. Again, the company succeeded in drawing a large public response. The Justice Department’s archived records include four large cartons of letters concerning the civil case against A&P, many of them handwritten. “Dear Sir,” a Massachusetts woman wrote to Attorney General McGrath, “I am dropping you a line to see if you will try and help us housewives save our A.&P. stores. We surely could not make our money go so far in small stores and will cause hardship on large familys.” Concurred a Tennessee man in a handwritten letter to Harry Truman, “If it were not for big chains like the A&P my family could not eat as well as we do.” In Texas, A&P store clerks pleaded with Sam Rayburn to help save their jobs. The manager of the A&P in Paris, Texas, sought help from Patman, who responded: “I would like to see you own the store instead of two childless brothers in New York.”20
In September 1950, Herbert Bergson resigned his position as head of the antitrust division to pursue a better-paying career in private practice. His post was left vacant until January. With its chief antitrust enforcer gone and the political tides running in A&P’s favor, the Truman administration sat on its hands. No trial was scheduled.21
Meanwhile, the A&P public relations machine continued to operate in high gear. The Hartford brothers granted an unprecedented five-hour interview to Time, arguably the nation’s most influential magazine, with which Carl Byoir had close connections. John Hartford visited an A&P store with a researcher and a writer from Time, lamenting the high cost of radishes, and raked leaves with them at Buena Vista Farms. The result was a cover story humanizing the brothers and warning that the breakup of A&P would drive up the price of food. “I don’t know any grocer or anybody else who wants to stay small,” John Hartford told the magazine. “They all dream about building something bigger. The whole country’s growing—our cities, schools, labor unions, everything. I don’t see how any businessman can limit his growth and stay healthy.” In his annual year-end statement, John pointed out that Americans were eating more and better food than ever before. A few months later, John received even more gushing attention in Coronet magazine, which devoted a five-page article to the folksy philosophy of “the enlightened head—and heart—of the world’s largest grocery chain.” If it was going to press its case, the government would evidently need to show the public why it was persecuting two nice old men.22
Delay worked in A&P’s favor. In January 1951, an influential study group headed by the former dean of Harvard Law School suggested repealing the Robinson-Patman Act. Four months later, the U.S. Supreme Court dealt a devastating blow to state “fair trade” laws, holding that retailers could not be compelled to sell above minimum prices set by manufacturers unless they had signed contracts agreeing to do so. The decision opened the door to a new type of enterprise—discount retailing.23
21
THE FALL
On September 20, 1951, following a board meeting of the Chrysler Corporation, John A. Hartford collapsed with a heart attack in an elevator in the Chrysler Building in New York. He was not immediately identified, because he had left his wallet in his office, a block away. A physician declared him dead on the scene. His funeral, at Buena Vista Farms, drew four hundred mourners, so many that some had to listen through loudspeakers set up on his private golf course. With John’s death, A&P lost its most visible leader and the man most responsible for navigating the company through changing markets and political headwinds. Even after substantial gifts to the John A. Hartford Foundation during his lifetime, John’s assets were valued at $55.6 million—the equivalent of half a billion dollars in 2011. Almost everything, including the mansion, was left to the foundation, a charity he had set up in 1929 but had never taken an active role in running.1
John was seventy-nine years old at his death. He and George had made careful preparations for succession. They had named David T. Bofinger executive vice president in 1947, and had put him in charge of the grocery business in February 1949. Bofinger, sixty-three, had joined A&P as an office boy in 1899, and had run the vital purchasing operation for three decades. His post as president cast him in a public role for the first time. In December 1949, the Senate Agriculture Committee asked him to testify on the price of coffee, and threatened him with a subpoena when he requested a delay. Two weeks later, Bofinger died of a heart attack at a company banquet, leaving the succession plan in tatters.2
The brothers’ second choice was an executive unknown outside the company, Ralph W. Burger. Burger, then sixty, was also an A&P lifer. His father had worked for A&P at the turn of the century, and Ralph had joined in 1911, working as a part-time store clerk and then helping on a horse-drawn wagon. In 1912 he had moved to the Jersey City office as a bookkeeper, working directly with George L. and John Hartford, and had later become the corporate secretary. Since 1927, when headquarters moved to the Graybar Building, his office had been between George’s and John’s on the twenty-second floor, literally putting him in the middle of every major decision. He had never run a store or a factory, purchased an advertisement, or negotiated with a supplier. Like the Hartford brothers, he was childless. In the late 1940s, after Pauline Hartford’s death, Burger and his wife spent most weekends with John Hartford at Buena Vista Farms, frequently accompanying him to visit stores. As a longtime executive said of Burger in 1945, “The average person at headquarters looks upon him as an assistant to Mr. John Hartford.”3
John Hartford’s death left Burger in an entirely unaccustomed position. Long a backstairs operator, he was now head of the fourth-largest business enterprise in the United States, ranked by sales. George L. Hartford was still chairman of the board and came to the office daily, but at age eighty-six he wanted no management responsibilities. A&P was Ralph Burger’s to run, but he had to run it without John Hartford’s vision to aid him. Burger had another job as well. John Hartford’s will directed that he become president of the John A. Hartford Foundation. John had convinced Burger to take on the position, but Burger had refused the proposed $25,000 salary. Instead, the two had agreed on a fee of one carnation per day—often, a red carnation, of a strain developed and worn by John Hartford.
Burger’s priority was to end the quarter century of conflict between the government and A&P. The 1949 antitrust suit still threatened A&P’s breakup. Truman’s latest antitrust chief, H. Graham Morison, seemed sympathetic to the company, as he criticized state laws restricting price discounting and called for repeal of the Robinson-Patman Act. But scandals enveloped the Justice Department in the autumn of 1951, and Attorney General J. Howard McGrath’s resignation in April 1952 was followed by Morison’s departure at the end of June. Settlement of the lawsuit had to await the inauguration of Dwight Eisenhower in January 1953 as the first Republican president in thirty years. A deal was struck late that year: A&P would close down the Atlantic Commission Company, its controversial produce brokerage, but the government would abandon its other demands to break the company apart. For the first time since the 1920s, A&P could do business without Washington watching over its every move.4
* * *
The company Ralph Burger took over was a dominant force in American retailing. A&P’s balance sheet was extraordinarily solid, thanks to George Hartford’s aversion to debt. Its market share had rebounded from wartime lows: in 1951, A&P accounted for 12 percent of all sales at U.S. grocery stores. It operated in forty of the forty-eight states, making it the only grocer with a national footprint. Sears, Roebuck & Co. was the only retailer in the United States with even half its sales (Table 4). A&P was still, by a very wide margin, the largest retailer in the world. Although price controls and an excess-profits tax enacted in response to the Korea
n War decimated profits, they also meant that A&P faced few competitive threats to its position.5
When wartime controls ended in 1953, though, all bets were off. With steel for construction available once again, food chains raced to the suburbs with bigger, fancier stores, building more supermarkets in 1953 than in any year since 1940. Those new stores, on average, were twice the size of the stores built in the late 1940s, and frequently featured two amenities unknown a few years earlier—air-conditioning and regular evening hours. The cost of building a supermarket was three or four times what it had been in 1948, putting new construction beyond the reach of many independent grocers. In 1954, Congress changed federal tax law to provide generous tax benefits for owners of new retail buildings, further stimulating construction of suburban shopping centers with supermarkets. America’s new way of selling food attracted worldwide attention: when Britain’s Queen Elizabeth visited Washington, D.C., in October 1957, she requested her State Department hosts to arrange for her to visit a supermarket.6
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.7
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.8
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.9
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.10
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.11
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.
* * *
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.12
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. Ha
rtford Foundation he had sole power to vote 40 percent of the company’s shares.13
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.14
The Great A&P and the Struggle for Small Business in America Page 30
