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From 1915 through 1975, The Great Atlantic & Pacific Tea Company (A&P) was the largest grocery retailer in the United States. Until 1965 A&P was the largest U.S. retailer of any kind. A&P was considered an American icon, that according to the Wall Street Journal, “was as well known as Mcdonalds or Google is today,” and was “the Walmart before Walmart.” At its Peak in the 1940s, A&P captured 10% of all grocery spent. Most people reading this probably have never heard of A&P. You may be asking, is it connected to AM PM somehow (the answer is no)? Today I will tell you the story of the fall of A U.S. corporate giant.
Founded in 1859 by George Gilman as “Gilman & Company,” within a few years, the firm opened a small chain of retail tea and coffee stores in New York City. That operation turned into a mail-order business. The firm grew to 70 stores by 1878. Gilman passed management to George Huntington Hartford, who turned A&P into the country’s first grocery chain. In 1900, A&P operated almost 200 stores.
In 1912, the first A&P Economy store opened. The store format relied on severe cost-cutting, standardization of layout, and the elimination of credit accounts and delivery. The economy stores were small and often located on secondary streets rather than a more expensive Main Street location. Some stores carried the bare minimum of produce items, and most operated with one or two employees.
The format was wildly successful, and the chain had grown from 585 stores in 1913 to more than 4500 stores in 1920. It grew to over 15000, stores all over the east coast and Midwest by 1930. In the early 1930s, the first California stores opened. 1n 1930, the company’s 16,000 stores reached $ 2.9 billion in sales. A&P was twice as massive as the next largest retailer Sears and four times as large as the next closest grocer Kroger.
For those of you who are fellow students of history, you know that the 1930s was the Great Depression era. The Hartford’s built the chain to weather such a perilous financial situation. A&P was built without borrowing, and their low price format resulted in even higher sales.
A&P’s success threatened thousand’s of mom and pop grocery stores who could not match A&P’s prices (Sounds familiar to modern-day Wal-Mart, huh). An antichain moment gained traction to the point that legislation that would have levied a federal tax on chain stores was introduced. Luckily for A&P, the bill never gained movement in Congress.
In the 1930s, the “supermarket” era began. A&P responded by opening and operating supermarkets. By 1939, A&P operated 1100 supermarkets while closing 1000’s of the economy stores. Between 1936 and 1940, A&P halved its number of stores to just over 6000, while also increasing its sales by more than half. In 1949 the store count was down to only 4500, but sales had skyrocketed. In 1950, A&P operated 4,000 supermarkets and 500 smaller stores. Sales reached $3.2 billion.
Time magazine put the Hartford brothers on the cover of its magazine on November 13, 1950. A&P was embroiled in a monopoly case with the U.S. government at the time. Time magazine wrote that “next to General Motors, A&P sold more goods than any other retailer in the world.” A&P would eventually win and avoid its company being broken up by the government.
In the 1950s, A&P’s decline began. The company failed to keep pace with competitors that opened large supermarkets with more modern features demanded by customers. By the 1970s, A&P stores were outdated, and its efforts to combat high operating costs lead to poor customer service. In 1981, A&P was down to 1,000 stores in total.
In 2002, A&P operated at a record loss because of new stores like Wal-Mart. After buying a rival chain that forced the company to become highly leveraged and the effects of the great recession, A&P started experiencing more financial difficulties and filed for Chapter 11 bankruptcy in 2010. By the time of the bankruptcy filing, A&P had declined from the nation’s largest grocery chain to the 28th largest with operations solely limited to the Northeast.
In 2015, A&P filed for a second Chapter 11 bankruptcy. All of its supermarkets were sold or closed by December 1, 2015.
Mistakes Were Made:
Three significant missteps led to the demise of A&P:
A&P was starved of Capital: Most of A&P’s profit was declared as dividends to satisfy the income needs of the trust and heirs. The lost of capital led A&P to fall behind competitors who invested in larger modern supermarkets. By 1970, A&P stores were considerably smaller and older than those of its competitors. I experienced a similar situation with a gym I coowned. A partner was taking substantial capital out of the gym and into his pocket. The money could have been reinvested back into the gym to make us more competitive with rivals. At last, the draining loss of capital led us to fall behind and eventually cease to operate like A&P.
A&P placed too much emphasis on private label products: A&P rise was fueled by it being able to use and stock its stores with private label brands. Private labels are brands that aren’t national but made specifically for one store (Like Costco’s Kirkland brand). A&P made a lot of these brands in house, which helped reduce cost and price. With the rise of television and advertising, people started demanding nationally known brands, which A&P carried very few, if any. The lack of brand name products caused customers to begin seeking other supermarkets.
A&P labor costs were higher than those of its competitors: Because A&P stopped growing, a rising percentage of its workers were making higher wages due to their seniority. A&P’s competitors weren’t dealing with this issue because they were rapidly expanding, thus having fewer workers with a higher rank. A&P tried to address this issue by operating its stores with fewer employees, resulting in long lines at checkouts and empty shelves. Two issues, no customer wants to deal with.
In summary, A&P was dealing with short-sighted thinking. A&P was also caught resting on its laurels. It was not only the top grocery store but the number one retailer in the U.S.A.; unfortunately, it was also in an evolving market that was rapidly changing. While A&P was living off of its accolades, it got left behind and was never able to catch up. That’s how you go from number one to no longer existing.
Originally published at https://mwmblog.com on October 8, 2019.