Before There Was Walmart, There Was A&P

By Randy MyersBusiness on Main

Small businesses have struggled to compete against larger ones for generations. ‘The Great A&P’ offers a historical look at the country’s first retail giant.

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At one point, it was opening new stores nearly as fast — seven per day — as some competitors could open their mail. A relentless cost-cutter, it hewed to an everyday-low-prices business strategy that valued volume over high margins. When squeezed vendors couldn’t meet its price demands, it dropped them — sometimes manufacturing and selling its own private-label goods. It was the world’s largest retailer, helping to drive hundreds of thousands of mom-and-pop competitors and their suppliers out of business.

No, it’s not Walmart. It was the Great Atlantic & Pacific Tea Co., an iconic and once ubiquitous grocery store chain. Its rapid rise — and subsequent decline — are chronicled in Marc Levinson’s well-researched history “The Great A&P and the Struggle for Small Business in America” (Hill & Wang, 2011).

The rise of a new retail model The company got its start in lower Manhattan in 1859 as a purveyor of tea and later coffee. It soon began adding dry goods to its inventory, transforming itself into a grocer, then replicated its formula in cities and towns across the country, making it the nation’s first grocery chain. Growing rapidly, it became in 1929 the first U.S. retailer of any kind to generate $1 billion in sales in a single year.

For a stunning four-decade stretch, A&P (as it is popularly known) would hold its distinction as the nation’s largest purveyor of goods. It started to founder only in the 1960s after the two brothers who guided it all those years died and their successors strayed from the company’s low-price formula.

The parallels between A&P in its heyday and Walmart, today’s leading retailer, are striking. For small-business owners, they also are a stark reminder that the struggle to compete against larger challengers is an old one.

Regulation and the decline of a giant But the differences are instructive, too. As Levinson illustrates, A&P competed at a time when many in government were extraordinarily sympathetic to the plight of its small-business competitors. In the 1930s, that sympathy led to a raft of federal, state and local laws aimed at leveling the playing field. They ranged from special “chain store” taxes on owners of multiple grocery outlets to rules requiring, for a brief time, that manufacturers and wholesalers give small grocers the same prices they gave A&P.

Under President Franklin Roosevelt, the U.S. Justice Department won a criminal case against A&P and its owners, George L. and John A. Hartford, for underpricing competitors. President Harry Truman tried, unsuccessfully, to bust the company into smaller pieces. Texas Rep. Wright Patman devoted his career to whipping up public sentiment against chain stores, likening their executives to Hitler, Stalin and Mussolini. (The majority of consumers didn’t buy his arguments.)

When government intervenes today in retail pricing, by contrast, it tends to side with consumers. Simply witness the slew of legislation — implemented since the 2008 credit crisis — that has aimed to moderate what banks can charge for debit and credit card services.

The emergence of a new consumer landscape “The Great A&P” doesn’t offer many practical lessons for small businesses seeking to take on today’s retailing giants. It is, however, a fascinating look at the way A&P and its chain-store peers, including Safeway and Kroger, were able to transform how Americans buy food and how much they spend on it.

In the 1920s, Levinson notes, the average urban family spent a third of its income on food, traipsing from dry-goods store to butcher shop to produce vendor in order to find what was needed to put together a meal. What that family got was often lacking in nutrition — without refrigeration, retailers found it difficult to keep milk, poultry and produce fresh and in stock.

As A&P built increasingly larger and more diverse stores, leveraged its buying power and took advantage of advancements in refrigeration and mass canning techniques, it made shopping faster, easier and cheaper. By 1951, the average American family was devoting only 21 percent of its income to groceries and beverages. A decade later, it was just 17 percent.

In the end, government intervention wasn’t able to slow the great A&P. Its fall was a result of its own missteps in the 1960s, when it failed to expand in any significant way into the fast-growing California market, was slow to start carrying toiletries like its competitors, and didn’t compete aggressively for long-term real-estate leases, leaving competitors with the best locations. Perhaps most important, it strayed from the Hartford brothers’ laser focus on low costs. As its prices rose and its stores became dowdy, consumers looked elsewhere.

The Great Atlantic & Pacific Tea Co. survives today despite a 2010 bankruptcy filing, which it expects to exit in 2012. However, with 336 stores in six states, it has a far smaller reach than the company that once had nearly 16,000 outlets across the U.S.

Big companies, like small business, also must change with the times.

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