The Great A&P and the Struggle for Small Business in America Page 2

  In the first half of the twentieth century, the Hartfords turned their company into one of the greatest agents of creative destruction in the United States. Although shifts in the way the world buys food are far less heralded than innovations such as cars and computers, few economic changes have mattered more to the average family. Thanks to the management techniques the Great A&P brought into widespread use, food shopping, once a heavy burden, became a minor concern for all but the poorest households as grocery operators increased productivity and squeezed out costs. The proportion of workers involved in selling groceries plummeted, freeing up labor to help the economy grow. And the company’s innovations are still evident in the supply chains that link the business world together. Although the Hartfords died decades before the invention of supercenters and hypermarkets, they employed many of the strategies—fighting unions, demanding lower prices from suppliers, cutting out middlemen, slashing inventories, lowering prices to build volume, using volume to gain yet more economies of scale—that Walmart’s founder, Sam Walton, would later make famous.

  The bitter political and legal battles surrounding the Great Atlantic & Pacific Tea Company were limited to North America, but they presaged similar conflicts around the globe. Under Japan’s “big store law,” in force from the 1970s, anyone seeking to open even a modest supermarket had to gain local competitors’ approval by paying them compensation. West Germany protected mom-and-pop retailers in 1956 by allowing stores to open only from 7:00 a.m. to 6:30 p.m. Monday through Friday and until 2:00 p.m. on Saturday; a worker with a daytime job was essentially forced to patronize grocery stores and butcher shops near home or workplace because there was no time to shop elsewhere. In France, a 1973 law to aid artisans and small merchants restricted the opening of large stores and prohibited manufacturers from selling more cheaply to big merchants than to small ones. Everywhere, the complaint was the same as it had been in America: the unchecked growth of large retailers threatened the traditional role of local merchants and destroyed opportunities for economic independence.13

  Such restraints faded toward the end of the twentieth century, in part because consumers demanded lower prices, in part because as working hours grew more diverse, more people needed to shop at nontraditional times. Yet the century-old battle between independent merchants and large retailers was by no means over. In the United States and Western Europe, critics of “industrial food” advised consumers to avoid the processed goods at the supermarket and purchase locally grown foods from farmers and independent retailers; the Hartfords’ great achievement, making food affordable, was now looked upon with disdain. Merchants’ protests led Thailand’s government to halt expansion by grocery chains in 2006. In 2010, the Czech Republic required minimum price markups in order to keep chains from undercutting mom-and-pop stores—precisely the same obstacle A&P confronted in the United States in the 1930s.14

  The Hartfords’ enterprise did not prosper without its founders. Within a few years of their deaths, the once-mighty A&P was a basket case, staggering from one failed strategy to another as better-run companies passed it by. Soon enough, the company that had decimated independent stores by the thousands became a victim of the creative destruction it had once meted out. But while A&P’s fortunes waned, the economic forces it helped unleash only grew stronger. It made the process of moving goods from producer to consumer impersonal and industrial, but also cheap and efficient, a job for the big, not for the small.

  2

  THE FOUNDER

  In their later years, after they became immensely wealthy and exceedingly controversial, George L. and John A. Hartford allowed certain legends to grow up around the family business. “Back in the year 1859, a little store opened its doors on Vesey Street, New York,” the official company history recounted. “This was the first store of the great chain of grocery stores now operated by the Great Atlantic & Pacific Tea Co. George H. Hartford, the Founder, had a vision—the hope of a great national business.” In some tellings, George H., the visionary entrepreneur and father of George L. and John A., was claimed to have been the company’s first president, the creator of the first of the great chains that would soon dominate American retailing. An even more elaborate version credited George H. with starting the great enterprise by acquiring an entire shipload of tea in 1859 and selling it to the deserving public at 70 percent off the going price.1

  Those legends, and much else that has been written about the Hartfords and their powerful company, are at best misleading, if not simply false. The story of how an obscure tea-store clerk and two of his sons would come to run the most admired, and reviled, business in America is more improbable, if less heroic, than the myths.2

  The founder was not George H. Hartford but George Francis Gilman, a man destined to become one of the more bizarre characters in American business history. Gilman, born in Maine in 1826, could trace his ancestry back to the Mayflower. His father, Nathaniel Gilman, had become wealthy as a privateer and embargo runner during the War of 1812, and became involved in New York’s booming leather industry in 1834, when he came to sell a cargo of African hides and formed a partnership with a young tanner and leather merchant named Thomas Smull. New York was the center of U.S. leather manufacturing, and the fetid alleyways of the neighborhood known as the Swamp, just two blocks east of City Hall, were lined with tanneries soaking and pounding imported hides into leather. Gilman, Smull & Company was soon among the largest hide and leather dealers in New York. Nathaniel Gilman, a newspaper wrote later, “was a queer individual, a daring speculator, a taciturn, secretive trader.”3

  Over time, much of the tanning process, with its noxious fumes and poisonous runoff, was moved upstate, near supplies of hemlock or oak bark used to make the tannic acid that rendered hides soft and flexible. New York City’s erstwhile tanners turned themselves into merchants, buying hides at the docks, storing them, sending them off to be made into leather, and marketing the finished leather to boot and shoe manufacturers. Dozens of leather merchants were located cheek by jowl along Beekman, Spruce, Gold, and Frankfort streets and two alleys, known as Ferry and Jacobs streets, that had been cut to provide access to tanneries built on interior lots. Gilman’s partnership with Smull ended around 1845, but by the early 1850s Nathaniel Gilman and three of his sons had three leather warehouses in the Swamp and owned tanneries northwest of the city.4

  Their father’s dynastic dreams abruptly came undone when Nathaniel Gilman Jr., the heir apparent, died in 1853 at the age of thirty-eight. Nathaniel Gilman & Son was dissolved, finally allowing George Gilman, then twenty-seven, to strike out on his own. In 1858, he erected a five-story brick building at 98 Gold Street for his own leather firm, Gilman & Company. His father died in December 1859, leaving an estate worth a million dollars and a tangle of claims and counterclaims that would take nearly half a century to resolve.5

  * * *

  George Gilman entered the tea trade sometime in late 1859 or early 1860. Evidence suggests that by then he was working with not one Hartford but two: George Huntington Hartford and George’s younger brother, John S.6

  George H. and John S. Hartford grew up in modest circumstances in Augusta, Maine, just twenty miles from George Gilman’s birthplace in Waterville. George Huntington Hartford was born in 1833, seven years after George Gilman. John Soren Hartford was born around 1836. Their parents kept a boardinghouse and ran a livery stable, among other ventures. The 1850 census found the brothers boarding together in Boston, working as shop clerks. After further travels, the young men surfaced in St. Louis in 1859, working for the local office of George F. Gilman’s hides and leather business at 31 South Main Street.7

  The official corporate version of the Great Atlantic & Pacific’s founding has George Hartford spending two years in the leather trade in St. Louis, then moving to New York to become a clerk in Gilman’s business. Several aspects of this rendition are noteworthy. First, it places George H. Hartford alongside George Gilman at the birth of the tea company that would grow t
o become the world’s largest retailer. Second, it mentions John S. Hartford not at all; the younger brother does not register in any history ever published by the company. Third, the official company history has George H. Hartford moving from St. Louis to New York to work with George Gilman in 1859. The historical record confirms none of these points. The first published reference to George Gilman’s tea business, in June 1860, mentioned John S. Hartford but not George. Census takers counted both Hartford brothers at the family home in Augusta in June 1860, but John S. was listed as a “merchant” with a personal estate worth $500, whereas George H. gave his profession as “Box Maker” and claimed no assets—a hint that John, although younger, was the more established. And even if George H. Hartford did move to New York to work with Gilman in 1859, Gilman had no tea shop or other business on Vesey Street in that year. In 1860, Gilman & Company, “Importers of Tea,” was operating at the same address, 98 Gold Street, at which Gilman had dealt hides. For a year or two, Gilman may have run the tea business and the hide business simultaneously.8

  Why did George Gilman start dealing teas and coffees alongside hides? The simplest answer is the most likely. Trading hides could not have been a particularly pleasant vocation. His father’s death left Gilman wealthy, and there is no question that he aspired to a higher status in New York’s increasingly stratified society; he would shortly be the owner of three carriages, two watches, one piano, and a house on Lexington Avenue in the newly fashionable Murray Hill neighborhood. Working around piles of filthy cattle and goat skins would not have suited his pretensions at a time when New York’s capitalists were distancing themselves from the physical labor performed in their firms. The tea trade, which usually involved dealing in coffee as well, was altogether more pleasant and prestigious, and offered opportunities to interact with some of the city’s most influential merchants.9

  Dealing in tea and coffee drew on many of the skills and connections Gilman would have developed as a hide dealer. Like hides, tea and coffee arrived by ship; in New York, hides were second only to coffee in terms of import value in 1860. Gilman would have known his way around the docks, and would have had experience with the commission merchants who received and distributed imports. He would have been familiar with the biweekly Shipping and Commercial List and the daily Journal of Commerce, both of which were filled with intelligence about shipping and commodity trading; indeed, it was not unusual for seven or eight merchants to offer calfskins, salted goatskins, and buffalo hides on the Journal of Commerce’s dense front page. Undoubtedly, he would have known that tea consumption had soared since 1843, when China opened additional ports to U.S. trade. By 1860, an average of one vessel a week was arriving in New York from China. Clipper ships frequently made the run in less than three months, assuring that the tea, packed in lead-lined chests, arrived fresh. And Gilman would have been quite aware of the great public fascination with tea that began in the late 1850s, when leading magazines devoted long articles to tea plantations in distant China, the raucous tea markets of India, and the elaborate Asian rituals of tea drinking. George Gilman was certainly not the only merchant to notice these things: New York, which received 90 percent of U.S. tea imports, had some seventy-five tea dealers in 1860.10

  Some New York tea merchants were willing to sell in small quantities to individual consumers. Among them was J. Stiner & Company, America’s first known chain retailer, which operated several tea shops. The main business of most tea merchants, though, was wholesaling. In some cases, an arriving tea cargo would be offered privately to a merchant, who would inspect individual leaves, taste the tea, and make an offer for hundreds of chests. In other cases, the cargo would be offered for auction one chest at a time. The merchants who bought the imports, in turn, sent samples to representatives in other cities, who would show the teas to retailers or to wholesalers serving smaller towns nearby.11

  The business was arduous at a time when communications between cities were still poor; the New York dealer might have sold out of a proffered tea by the time an order arrived by post from Buffalo or Cincinnati, or local market conditions might have made the New Yorker’s price expectations unrealistic, requiring a further exchange of correspondence before a sale could be arranged. Tea merchants typically extended thirty to ninety days’ credit to their customers, and when payment finally arrived, it usually took the form of a draft on a distant bank that the New York merchant would have to sell at a discount to bankers on Wall Street. Customers faced risks, too. Merchants were known to ship tea that was not identical to their samples, that was adulterated with sawdust, or that was not the variety it was claimed to be. Consider this proposition from a sales representative in Boston to a tea merchant in New York: “I fear the Souchong will not sell @22¢ at present or as long as good Congo or Souchong is selling at 18¢. If you will have it labelled Ningyung, I think I could sell it better.”12

  By the time George Gilman entered the tea and coffee business, the established merchants were facing competition from a new type of wholesale distributor, the jobber. Although the distinction was not precise, jobbers generally had less capital and operated on a smaller scale than the better-established wholesalers, filling one-off orders from retailers rather than cultivating long-term relationships with wholesalers in other cities. Gilman may have begun as a jobber. He undoubtedly had the necessary capital, and he would have been very comfortable with the requisite wholesale wheeling and dealing. In 1861, he decided to concentrate entirely on tea and coffee, apparently turning his remaining leather interests over to his brother Winthrop. The substantial building George Gilman had erected at 98 Gold Street in 1858 was not appropriate for a tea company: polite New Yorkers would not have wanted to shop for teas and coffees amid the tanneries and stables of the Swamp. At some point between June 1860 and May 1861, Gilman & Company relocated to rented quarters at 129 Front Street. George H. Hartford later claimed to have joined Gilman around this time. As for John S. Hartford, we know only that he is said to have returned to Maine and died there in 1863. No extant records mention him in connection with the business after 1860.13

  Front Street, where Gilman & Company made its new home, ran parallel to the East River waterfront. South Street, along the water, was lined with four-story brick buildings occupied by shipping companies, importers, and exporters. Sailing ships docked so close that their prows reached almost into second-story windows, and the street was choked with horses, handcarts, passengers buying steamship tickets, and barrels and bags of cargo. Front Street, just a block away, had an entirely different atmosphere. Almost every one of the brick structures from Whitehall Street, at the south end, to the Fulton Market, at the north end, was occupied by the counting room and warehouse of a provisions merchant. These men dealt in the tea and coffee, whiskey and sugar, salt pork and lard arriving on the piers, storing the goods in their warehouses before sending them by ship to customers in other cities or, in the case of grains and cotton, to buyers in Europe. Sturges, Bennett & Company, one of the city’s biggest tea and coffee dealers, was at 125 Front Street, two doors down from Gilman & Company, and John Scrymser, another tea and coffee dealer, was across the street at number 126. The Front Street merchants did business with one another on a daily basis and also traded flour and grains at the rooms of the New York Corn Exchange, on South Street, so having their establishments in close proximity was a great convenience.14

  Gilman & Company would not have stood out among the hundreds of food merchants on Front Street in 1861. It was far too small to merit much attention from the five largest provision dealers, who were said to “run the works,” manipulating prices. Neither Gilman nor anyone from his firm was involved in 1860 when important produce merchants formed the New York Commercial Association to construct a proper exchange building. Gilman was not among the 204 merchants and shipping executives who subscribed to the stock offering used to acquire a square block at Water and Whitehall streets and erect an impressive brick edifice. Some twelve hundred people paid the $20 fee to b
ecome members when the New York Produce Exchange opened for business on April 22, 1861, including men from at least sixty-five firms with addresses on Front Street, but there was no one from Gilman & Company. The exchange, where trading opened at 10:00 a.m., six days a week, and closed with the sounding of a gong at 1:00 p.m., did not trade coffee or tea, and Gilman apparently had no interest, yet, in sugar or other commodities.15

  Nothing, beyond the Front Street location, is known of Gilman’s business in 1861 and 1862. The imposition of steep import duties in 1862 to finance the Civil War, fifteen cents per pound of tea and four cents per pound of coffee, probably hurt profits; coffee imports collapsed, and much of the available supply was purchased by the U.S. government, which is unlikely to have patronized dealers as small as Gilman & Company. Even if the firm was prospering, it was doing so on an extremely small scale. George H.’s role during those years is as mysterious as the firm’s performance. The New York postmaster Abram Wakeman, who claimed to have known Gilman well at the time, recalled that the Front Street store was run by one Alex. Davidson. Hartford did not earn a mention in Wakeman’s memoir.16

  Whatever the case, being a tiny tea dealer did not satisfy George Gilman’s ambitions. After taking a couple of years to learn the business, he struck out on a radical course, establishing himself as a marketer of no small genius. First came a new name. At some point between June 1861 and early 1863, Gilman & Company became the Great American Tea Company—a startling departure from the universal practice of merchants putting their names on their businesses. The Great American banner was soon attached to five different storefronts selling tea and coffee, and Gilman identified himself as both a “retail dealer” and a “wholesale dealer” when paying his federal income tax. By 1863, the company office and warehouse had moved to the five-story brick building at 51 Vesey Street that would later become part of the foundation myth. The Vesey Street location, on the Hudson River side of the island, was just steps from Washington Market, a large produce market, in an area crowded with housewives and servants making their daily purchases of food.17