The Great A&P and the Struggle for Small Business in America
You can view this book's Amazon detail page here.
I really enjoyed this book. It’s the story of the development of The Great Atlantic and Pacific Tea Company from it’s creation as a tea importer before the Civil War to it’s distressed sale to Tengelmann in 1979. Founded by George Gilman in 1859 as a tea importer, Gilman was a master marketer and found innovative ways of selling tea and garnering attention in the crowded tea and coffee importation space in New York. In the 1880s, Gilman turned over the reigns of the company, including its assets to George Hartford, Sr. who had been his financial person. Hartford brought two of his sons into the business, George Jr and John and together they moved into groceries.
They grew the company with Gilman’s marketing flair and Hartford’s fiscal eye. They expanded rapidly, building a chain of grocery stores that competed with mom and pop shops. Their view was always to sell groceries at the lowest possible price and the highest possible volume. They expanded rapidly, designing their stores to maximize sales. Each store looked pretty much like the rest and the shopping experience was similar from store to store.
By the 20s, groceries cost a family about 30% of their income. More than rent. The Hartford’s low-price position helped them grow very fast. By the early 30s, the Hartfords had 16,000 stores with total revenue of about $1B. While the company was public, it was very closely held – mostly by the Hartfords who owned all the common stock. There were few family members and trusts who owned some preferred stock, but high dividends were paid to the preferred stock holders and the stock never traded hands. One of the reasons that A&P fared well through the depression is that George refused to by property or even sign long-term leases. All leases were for a year and this allowed the company to shed unprofitable stores easily.
In the 20s, the sons took over. George Jr. was fiscally conservative and John was the marketing replacement for Gilman (sort of a Steve Jobs of his day). Their philosophy was to minimize short term profit and maximize long-term ROI. In fact, the brothers saw high profit as a harbinger of problems. They just wanted enough profit to cover the dividend. Anything more was invested back in the stores. John said, “I’d rather sell 200 lbs of butter at a $0.01 profit than 100 lbs at a $0.02 profit.” This, of course, got them many long term customers. They were the largest retailer in the world from the early 20s until the early 60s.
This success didn’t go unnoticed, of course. Some of the low prices that A&P were able to provide came out of the hides of producers, distributers and middlemen, who weren’t happy. Neither were independent stores, who suffered and couldn’t keep up with A&P’s prices. They all complained to the government and many politicians took up the cause. States started to enact chain taxes, where any company with more than a handful of stores had to pay a tax that sometimes was equivelent to half the store’s annual profit. The federal government steped up too with the Robinson-Patman act. This anti-price descrimination act made it illegal for manufacturers or producers to sell food at lower prices to chains than anyone else. Eventually, people realized that this was going to cost them money and its enforcement was reduced. A&P also found some ways around it.
They also had trouble when some New Deal legislation, the NRA in particular, created a set of minimum prices that all food sellers had to follow. This seems strange given the fact that there was little money and food represented such a high percentgae of a family’s income, but the fear of broad job loss by independents made it palatable for the government.
Initially, the Hatfords were apolitical, but after seeing huge hits to their busiess (there stock price dropped a lot and never really recovered from this), they fought back by highering a lobbyist who was successful moving public and political opinion. Even though A&P was accused of being a monopoly, they never sold more than 10% of the groceries throughout the nation. They did, however, reach higher percentages in some regions.
In order to lower prices, the Hartfords vertically integrated A&P. They owned fish canning plants, bakeries and coninuted to manage their own coffee and tea supply chain. Even their own dairy. Because of the size of the chain, there were able to substantially lower prices this way.
The Hartfords are credited with four innovations through A&P.
1. The chain store
2. The economy store
3. Vertical Integration in the food supply
4. Supermarkets
After the death of John Hartford, the company’s fiscal conservativism following George Hartford got it in trouble. It didn’t expand into California – the fast growing area of the US for the coming three decades; because it would only sign short term leases, it couldn’t move into malls; and it didn’t expand its product line beyond groceries. By the 50s, groceries had dropped to 17% of an average family’s income. They wanted to spend money on other things, none of which A&P expanded to carry.
After the death of George, new management tried to make the company more profitable by increasing pricing and margins. This drove away their customers who went to more convenient and cheaper competitors. Over the years, they went into a tailspin from which they never recovered. In 1961, they were still the largest retailer int he world. Then Kresge opened K-Mart, Hudson Stores opened Target and Sears became the world’s largest retailer by 1963.
You get the sense that their is some revisionist history being told here. The Hartford’s are just a little too good at what they do. That said, the story certainly gives you a sense about the empire they built and how they built it. If you’re at all interested in business or even just the expansion of the American economy, I highly recommend this one.
- Started reading:
- 8th October 2011
- Finished reading:
- 1st November 2011