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

  Grocery manufacturers were not enthusiastic about the explosive growth of the A&P Economy Store. One secret to the format’s success was that the Hartfords used their company’s size to demand special terms from suppliers: they asked manufacturers to ship goods directly to Great Atlantic & Pacific’s warehouses, without going through wholesalers, and to give it the standard wholesaler’s commission. This put the makers of brand-name products in a difficult spot, because Great Atlantic & Pacific was effectively paying less than other retailers. The makers of Campbell’s soups and Bon Ami cleanser voiced misgivings. The Cream of Wheat Company, purveyor of a popular breakfast cereal, agreed to sell to Great Atlantic & Pacific without using wholesalers, but insisted that A&P charge retail customers at least fourteen cents a package so as not to underprice the manufacturer’s smaller customers. When the A&P Economy Stores put Cream of Wheat on sale for twelve cents, the Cream of Wheat Company cut off supplies. Great Atlantic & Pacific sued, accusing the cereal company of illegally monopolizing trade by refusing to sell it Cream of Wheat.21

  Judge Charles Hough handed the Hartfords a decisive legal defeat. The Cream of Wheat Company, he ruled in July 1915, was no monopolist, and was acting in a way that would promote competition among retailers. The true monopolist, the judge wrote, was the plaintiff, Great Atlantic & Pacific, which was using low prices to stifle competition by driving other grocers out of business. If the cereal company was forced to supply Great Atlantic & Pacific, “defendant and many retailers would be injured, and the microscopic benefit to a small portion of the public would last only until plaintiff was relieved from the competition of the 14 cent grocers, when it, too, would charge what the business would normally and naturally bear.” In the eyes of the law, low-price retailing had become a highly suspect enterprise.22

  The Cream of Wheat case revealed a shift in public sentiment: price-fixing by manufacturers, once widely condemned, was now accepted. “The reaction against the punishment of price fixers is unmistakable,” The New York Times wrote, adding that “traders’ rights are having their day, as buyers’ rights had their day.” Yet neither the highly publicized congressional hearings on chain stores nor the lawsuit over Cream of Wheat seems to have had the slightest effect on Great Atlantic & Pacific’s business. On the contrary, business was so good that the Hartfords encountered a new sort of problem: they needed cash to expand.23

  In more than half a century of involvement with the Great American Tea Company and the Great Atlantic & Pacific, George H. Hartford, so far as is known, had never borrowed a nickel. He had earned his equity in the firm by serving as George Gilman’s partner and then, after the founder’s death, by persuading Gilman’s heirs that their best hope of realizing a return from the tea companies was to put all of the common stock in his hands. The Gilman descendants had received $1.25 million of preferred stock paying a 6 percent annual dividend; from the Hartfords’ perspective, the attraction of preferred stock over borrowed money was that if business turned bad, the preferred dividend could be skipped. Starting in 1913, many Gilman family members decided to cash out, and by 1916 more than half the preferred stock had been redeemed.24

  To raise the capital it needed, Great Atlantic & Pacific offered $3 million of bonds to a wildly enthusiastic public in June 1916. The five-year bonds paid 6 percent interest and were convertible into preferred stock paying a 7 percent dividend. The offering opened a window on the Hartfords’ closely held finances, revealing that Great Atlantic & Pacific had earned a healthy $1.8 million in the year ending February 1916 on assets of $10 million. Although investors were not informed at the time, sales for that year were $44 million, meaning that net profit was an impressive 4.1 percent of sales. In short, the Hartfords were running an extraordinarily profitable enterprise. Management forecast earnings of $2.5 million for 1917 and $3.5 million once the stores to be funded by bond issue were opened—a doubling of profits in just two years. In a stodgy industry, this was a remarkable growth story.25

  With the money from the 1916 bond sale and a smaller bond sale in 1917, the Hartfords opened new stores at a frenetic pace. From 480 stores in 1912, the year the first A&P Economy Store was opened, the store count had reached 1,817 by the end of 1915, then doubled over the next two years. Business boomed, due to both the growing number of stores and the inflation caused by World War I: Great Atlantic & Pacific’s sales, $24 million in 1912, reached $126 million in 1917.

  How the Hartfords managed this fast-growing organization is a bit of a mystery: almost no corporate records from the second decade of the twentieth century survive. This was an era of dramatically new ideas about management. The biggest businesses now had tens of thousands of employees, and executives sought new tools to keep track of diverse, far-flung operations. The answer, according to the leading management thinkers, lay in quantitative management, collecting and analyzing large amounts of data to identify rational solutions to business problems. Frederick Winslow Taylor and his acolytes barnstormed the country, teaching executives to make factories more efficient by timing and measuring each step in the production process. Howard E. Coffin, president of the American Society of Automobile Engineers, led a successful effort to rationalize auto production by standardizing parts. Arch Shaw, founder of System magazine, and Edwin Gay, the first dean of the Harvard Business School, preached the gospel of standardized cost accounting. As World War I raged across Europe, the government created the Council of National Defense and its civilian Advisory Commission in 1916 to prepare for possible U.S. entry into the war. The Advisory Commission’s task, as Wilson explained, was to bring rational thinking to relations among business and the government, “efficiency being their sole object.”26

  The new Federal Trade Commission undertook to bring this sort of quantitative management to the retail sector. In July 1916, the FTC published A System of Accounts for Retail Merchants, designed as a basic guide for storekeepers. The slim booklet told merchants how to keep a daily journal, a cashbook, an invoice book, and a general ledger, and even listed the headings for each column in each book. The booklet included model forms to use in constructing a monthly business summary and a balance sheet, so the retailer might figure out whether the store was actually making a profit. The commission’s chairman, Edward Hurley, introduced the booklet by emphasizing the need for the merchant to have accurate information in order to compete: “The Federal Trade Commission has found that the majority of retail merchants do not know accurately the cost of conducting their business and for this reason they are unable to price their goods intelligently.”27

  George L. and John Hartford seem to have stayed abreast of these intellectual trends. In 1916, A&P created the Managers’ Benefit Association as a vehicle for training store managers. The association was organized locally in cities where the company had large numbers of stores. It served a social function, bringing isolated store managers together for dinners and recreational outings, but it also offered classes in accounting, merchandising, and the other skills a modern store manager needed to know. Members received a new magazine, The Tattle Tale, filled with company news and pearls of management wisdom. Store managers’ pay had long included a percentage of their store’s sales, but late in 1916 a company-wide profit-sharing program was added to give store managers a stake in the corporation’s performance. At the end of the fiscal year in February 1917, the program paid every store manager 6 percent of salary.28

  * * *

  On August 29, 1917, George Huntington Hartford died suddenly at the age of eighty-three during his regular summer vacation at the New Jersey shore. True to form, visiting a store to check on business was one of the last acts of his life. Although his sons had been running the company for a decade, the elder Hartford remained active in the Great Atlantic & Pacific until the end. The company was imbued with his management philosophy. George H. Hartford was a decidedly paternalistic manager, but his paternalism extended strictly to the business; unlike many other paternalistic capitalists of his era, he made no effort
to regulate his workers’ private lives. He expected his managers to show ambition and initiative while at the same time following the company’s rules, and he made sure they were paid well if they did so. In 1915, he passed on his wisdom in a booklet called Manual for Managers of Economy Stores. “Service to the customer and cleanliness in your store should be your aim,” the elder Hartford advised. “Don’t try to sell a customer something he or she does not seem inclined to buy.” “Don’t touch with the hands Tea, Coffee, Beans, etc., if possible, when weighing same. This is an age of cleanliness.” “Don’t be a pessimist. Every cloud has a silver lining.”29

  During George H. Hartford’s nearly six decades with the Great Atlantic & Pacific and its predecessors, the retail business had changed beyond all recognition. George Gilman’s primitive tea and leather business in the Swamp had become a lavishly promoted tea-store chain, then a mail-order pioneer, then the first chain grocery company, and then a price-slashing grocer with a radically new format that was taking the country by storm. George H. Hartford did not found the Great Atlantic & Pacific, but his managerial skill and financial acumen enabled it to prosper through depressions and to profit amid major shifts in consumers’ expectations. Although he was unknown to the general public—his obituary in The New York Times was all of seven lines long—he was among the most capable and innovative business executives of his time.30

  Hartford had prepared for the future with typical prudence. The house on Ridge Street went to his widow, Josephine, to be passed on to Marie Louise, the younger Hartford daughter, upon Josephine’s death. Minnie, the elder daughter, already owned the property adjacent to her parents’; her father left her $40,000 in cash. George L. received the family homestead in Augusta. “This was the home of my father, Joshua B. Hartford, and I have kept it because of memories of my youthful days,” George H. wrote in his will. Despite his father’s wish that the property remain in the family, George L. sold it within a year to the City of Augusta for $1. The house and stables were replaced by the Hartford Fire Station, a two-story redbrick structure that, at George L.’s insistence, was capped with a clock always set to the correct time. Control of the Great Atlantic & Pacific passed into the hands of a trust, of which George L., Edward V., and John A. Hartford were the trustees. The brothers had complete control. Their debts were minor and their cash flow ample, so they could ignore the entreaties of bankers and bondholders. The company was theirs to run as they saw fit.31

  World War I temporarily slowed the Great Atlantic & Pacific’s headlong expansion. Even before the United States entered the war in April 1917, surging food prices led to riots in half a dozen major cities. President Wilson responded by creating the U.S. Food Administration to keep America fed while exporting as much as possible to Western Europe. Four months later, Congress authorized the Food Administration to control prices, limit consumption, and stop hoarding. In its first year, the agency promoted voluntary action. It asked households to observe wheatless Mondays and Wednesdays. Retailers were requested to apportion sugar equitably among customers, “so that no one of such customers receives more than his fair share,” leaving it to the grocer to determine what share was “fair.” The Hartfords responded with appropriate patriotic fervor. Their marketing experts prepared a show window to help the Food Administration’s pledge campaign, promoting potatoes and rice as alternatives to wheat. Each store soon displayed a loaf of oat bread and a knife, alongside the sign: “Put the loaf on the table and slice as needed.”32

  As the Food Administration built its nationwide bureaucracy, it imposed more serious measures to regulate food supplies. Although the Federal Trade Commission continued to argue against the dangers of unrestrained price-cutting, the Food Administration’s concern was the opposite. In the autumn of 1918, it cracked down on price gouging: grocers were told to limit their markup on eggs to seven cents per dozen, on lard to 18 percent, on canned peas to 25 percent. A rationing system likely would have followed, but most food regulations were suspended immediately after Germany signed an armistice on November 11, 1918.33

  The Food Administration’s efforts notwithstanding, the need to feed Western Europe during and after World War I had a dramatic effect on food prices. On average, the prices of twenty-two grocery items tracked by the government doubled between 1915 and 1920. Wages did not begin to keep up; an hour’s work at union wages bought 17 percent less food in 1919 than it had six years earlier. Drawn by its low prices, hard-pressed shoppers flocked to the A&P. The company responded by opening hundreds more locations. In 1920, two years after the war’s end, the Great Atlantic & Pacific Tea Company sold $235 million of groceries from 4,588 stores. It had become the largest retailer in the world.34

  8

  THE CHAIN-STORE PROBLEM

  In the waning days of the First World War, Walter and Bertha Abbott bought a house near the docks of Portsmouth, New Hampshire. Walter, forty-seven, was a railroad man, a laborer for the Boston & Maine. Bertha, two years younger, had spent her working life at a laundry. Their new two-story home on Jefferson Street, built in 1722, would serve as more than just a place to live. It offered a way for a working-class couple to move up in the world, for the west side of the ground floor had been remodeled into a storefront. Soon after they moved in, the Abbotts opened a grocery store.1

  Walter and Bertha Abbott were following a well-worn path. Selling food at retail may have been America’s most popular career in the early decades of the twentieth century, drawing millions of workers searching for a secure living and a reputable profession. The retail trade was easy to enter, and while the workday was long, the tasks at hand were safer and less strenuous than stoking the boiler of a locomotive or digging ditches for the country’s rapidly spreading networks of water and sewage pipes. Owning a grocery store, a bakery, or a butcher shop offered a certain status as well, because such people were often significant figures in the neighborhood, familiar to all who lived nearby. Best of all, opening a food store meant becoming an entrepreneur. With a little luck and a little skill, one might earn enough profit from a single store to open a second and a third, building a substantial business that could carry the family up and out of the working class to prosperity, financial security, and that cherished goal of every industrious grocer, independence.

  The few square blocks of Portsmouth’s dockside neighborhood were home to no fewer than 6 grocery stores in the 1920s, of which the Abbotts’ Little Corner Store was only one. And Portsmouth was no exception. Chicago had an estimated 11,865 grocery and meat stores in 1923, or one for every fifty-two households, not counting the thousands of bakeries, dairy stores, and produce shops. Atlanta, the leading metropolis of the South, boasted 1,715 groceries, bakeries, butcher shops, and other types of food stores within its city limits in 1926. This retail profusion made shopping convenient. In the urban America of the 1920s, almost everyone could walk to the grocery. In rural areas, the food trade was dominated by general stores, more than 100,000 of them selling food along with clothing and other merchandise, but even small towns had grocery and butcher shops. Everywhere, food shoppers could deal personally with the storekeeper whose name was above the door.2

  The stores of the era were hardly temples of consumption. A typical grocery store in the 1920s was perhaps twenty feet across, the width of a brick row house, and only slightly deeper, occupying space leased at a cost of $60 per month. The floors were usually of wide wood boards, sometimes strewn with sawdust. Metal fixtures shading weak incandescent bulbs hung from the ceiling. Dark wooden counters ran down each side. Behind them, against the walls, were tall wooden shelves displaying canned goods, cleansers, and packaged teas. Bushel baskets or wood crates held a selection of whatever produce was in season, and glass cases, prominently positioned, offered candy and cigarettes. Refrigerated display cases were rare in the early 1920s, although later in the decade the store probably had a bright red machine selling bottles of Coca-Cola chilled with ice. The bulk goods—coffee, sugar, barrels of pickles, wheels of cheddar
—were kept in the rear, where a scale and a coffee mill rested on a separate counter that offered a cutting surface as well. Often, a doorway hidden by a curtain of fabric or beads led to the owner’s living quarters upstairs or in the back.3

  The front door was open early in the morning, as soon as the proprietor returned from his predawn trip to the wholesale produce market, and it remained open until well into the evening. No one could afford to close if competitors were staying open. In many communities, grocery store owners agreed among themselves to close Wednesday afternoon or Saturday evening, but such pacts could be voided by the decision of a single grocer to keep longer hours. In some places, not even Sunday was a day of rest. The work was endless. “You get up at 4 in the morning. You go to the market. You work all day. Your wife works all day. About 7 at night you close up. You go to bed,” remembered the son of a Washington, D.C., grocer. Working conditions at chain stores were not much easier. Maurice Hartshorn, who managed a store for the Skaggs company in San Francisco, recalled that his shop was open six days a week, from 7:30 in the morning until 6:30 at night, except on Saturday, when business continued until 9:00. Once the doors were locked, there were still shelves to stock and a floor to sweep. “You usually got through at about 1 [a.m.] on Saturday nights because you were closed Sunday and had display windows and everything else to put in,” Hartshorn remembered.4

  Bakeries and stores selling meat typically had at least one or two paid employees, but many grocery stores, vegetable markets, and candy stores relied entirely on family labor. Often enough, the owner himself—92 percent of food-store proprietors were male—and his unpaid wife made up the entire staff. If government figures are to be believed, the tales of industrious schoolboys coming in the late afternoon to sweep the floor and deliver orders were more apocryphal than factual. Only one food store in three reported having any part-time workers on the payroll—although they may not have thought of delivery boys paid mainly by tips as employees.5