The Magazine

The Big Store

The mythology of small business meets a retailing giant.

Apr 29, 2013, Vol. 18, No. 31 • By JAY WEISER
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Not long ago, New York City stopped a Walmart store from being built in its downtrodden East New York neighborhood, another defeat in the giant discounter/grocer’s six-year effort to enter the five boroughs. Small retailers and unions, in prevailing, embraced a century-old tradition of political suppression of retail competition. Notwithstanding the loud American romance with entrepreneurship, Marc Levinson’s history of the erstwhile supermarket giant A&P—the Walmart of its day—rewrites the story. Inefficient small businesses often entrenched themselves through regulation, with free market innovators and consumers eking out only partial victories.

Outside the A&P (ca. 1960)

Outside the A&P (ca. 1960)

AP

Excavating decades of lawsuit records, not to mention trade journals like Central Manufacturing District Magazine, Levinson has pieced together the history of this closely held, publicity-averse company. For almost a century, A&P, controlled by George H. Hartford, and then sons George L. and John, led serial revolutions resulting in the rise of what are now part of our everyday retail landscape: branded goods, prepackaging, self-service, volume buying, vertical integration, and, finally, supermarkets. Like Microsoft a century later, A&P was rarely the first mover, but its refinements prevailed. It could offer the lowest prices through innovations and economies of scale, and it freely cannibalized existing business lines to catch the next wave.

John Hartford was the company’s retail genius for over 60 years, but Levinson underestimates the “inside” finance/accounting brother George. An information revolution, no less than technological and manufacturing changes, was transforming retail distribution three-quarters of a century before large businesses began adopting mainframe computers in the 1950s. John deployed information in radical new ways: by reducing working capital needs through low prices and high volume, and, in that pre-spreadsheet era, analyzing consumer demand by region and store with elaborate tables. But George created the accounting systems for a retail empire that had reached 9,236 stores by 1923. (Similarly, Walmart’s technology-driven logistics revolution has been slighted in favor of more glamorous hardware and software firms like Apple.)

A&P was not unique. F. W. Woolworth created a giant international five-and-dime empire, while regional food chains like Safeway and Kroger and British chains like Sainsbury and Tesco were moving down the same path; but as late as 1939, A&P had more supermarkets with sales over $250,000 than all other American retailers combined.

Early 20th-century food retailing was fragmented and small-scale. Every neighborhood or town had grocers, greengrocers, butchers, bakers, and dairymen. Tiny retailers, supported by networks of small jobbers and regional wholesalers, eked out a living from tiny trade areas by working long hours serving by hand from behind counters. For some, this offered a promise of independence or, in bad times, survival. My grandfather, after losing a tailor’s job in the Depression, opened a candy store that the family operated from 6 a.m. until 2 a.m. seven days a week. The small retail niche became ever more tenuous as A&P squeezed out distribution costs and cut prices.

By the time of the Depression, as hardpressed consumers became even more price-conscious, small retailers found their political voice in an anti-chain-store movement—first in certain states, and then nationally, spearheaded by the populist Texas congressman Wright Patman. This dovetailed with the New Deal push to cartelize the economy by giving favored interest groups the power to limit competition to support their incomes. Small businesses, present in every legislative district, were ripe for sentimentalization and protective legislation. (Most of these companies were tiny, undercapitalized startups that rapidly went bust, often burning through New Deal-era subsidies such as Small Business Administration loans, but the small business job-creation myth still managed to persist into last year’s presidential campaign.)

Confiscatory state chain-store taxes penalized A&P for its low prices and prevented market-driven expansion. Rep. Patman’s signature achievement, the labyrinthine Robinson-Patman Act, legislated against “price discrimination” on the theory—repeatedly debunked by economists over the decades—that in the highly fragmented and competitive retail field, chains were selling below cost to drive small competitors out of business. By creating potential liability when chains sought volume discounts or ran sales, Robinson-Patman limited cost-saving innovations.