The Big Store
The mythology of small business meets a retailing giant.
Apr 29, 2013, Vol. 18, No. 31 • By JAY WEISER
(My grandmother found A&P’s cost advantage such that, rather than have her wholesaler deliver bulk sugar for her candy store’s homemade syrup, she walked a mile to the local A&P, paid retail, and dragged the 10-pound sugar sack back herself.)
The anti-chain assault wiped out A&P’s cost advantage and profits, and kept inefficient small retailers in business, thus raising consumer costs. Between 1929 and 1939, retailers’ gross margins (the markup between wholesale and retail prices) on foods such as produce widened by 10 percent. The assault also distorted the urban fabric of the country, with dire future effects. In Great Britain, without anti-chain-store legislation, national retailers offered groceries on shopping streets, keeping neighborhoods livable. In the United States, taxes forced A&P to close 5,950 small stores during 1937-40; they were replaced by fewer, large supermarkets, often in automobile-dependent suburbs. The new format—completely self-service, and offering a far wider line of items—reduced costs even further, driving down prices. This made urban neighborhoods ever less desirable: Their expensive small grocers, featuring limited, low-turnover inventories, created the “food deserts” now bemoaned by progressives in low-income neighborhoods like East New York.
As the tech industry and Walmart later found, firms in the government’s sights are inevitably drawn into regulatory rent-seeking and Washington’s pay-to-play culture, lest opponents have the field to themselves. In the wake of the anti-chain assault, privately held A&P began making political contributions and engaged Washington’s holy trinity of lawyers, lobbyists, and public relations firms.
The demands did not end there—as Levinson’s most explosive revelation, based on 1945 congressional hearings, shows. In 1939, while Rep. Patman pressed a national chain-store bill that would have devastated A&P, President Roosevelt let the Hartfords know that he wanted them to lend his ne’er-do-well son Elliott $200,000 (approximately $3.2 million in current dollars) to buy some Texas radio stations. Elliott and his uncle, Eleanor Roosevelt’s alcoholic brother Hall, met with John Hartford in the latter’s apartment. The Roosevelts got FDR on the phone, and the president assured Hartford that “it was a sound business proposition and a fine thing.” Hartford, who “did not want to do anything to incur the enmity of the President,” immediately agreed to the loan. When Elliott went into the Army Air Forces and the business got into trouble, the president arranged for Jesse Jones, head of the federal Reconstruction Finance Corporation, to meet with Hartford to settle the debt. In their December 1941 to March 1942 meetings—immediately after U.S. entry into World War II—Hartford, undoubtedly aware that Jones influenced access to credit and that administration rationing would control grocery supplies, agreed to write down Elliott’s loan (by 98 percent) to $4,000.
FDR was not one to stay bought, even when he was the salesman. Later in 1942, his Justice Department antitrust head, Thurman Arnold, filed a criminal monopoly suit against A&P due to its low prices and vertical integration. Arnold prevailed, despite A&P’s national market share of only 12 percent and the company’s longstanding policy of not pricing below cost. (As the subsequent founder of Washington’s Arnold & Porter law firm, Arnold made a lucrative career of defending corporations against similar claims.)
The antitrust suit didn’t stop A&P’s rapid postwar growth, though; poor corporate governance did. In 1951, the retail genius John Hartford died in the saddle at age 79, and his successors knew little of the postwar Western boom regions. Worse, company ownership was concentrated in the family’s foundation, and madcap nephew Huntington Hartford and other relatives demanded big dividends rather than reinvestment in the company. By the 1970s, when Walmart started its ascent, A&P was a shadow of itself. Today it hangs on as Manhattan’s semi-upscale Food Emporium chain, pricier than discounters but not foodie enough to compete with Whole Foods.