The Great Atlantic and Pacific Tea Company

The Great Atlantic & Pacific Tea Company, better known as A&P, was an American chain of grocery stores that operated from 1859 to 2015. From 1915 through 1975, A&P was the largest grocery retailer in the United States (and, until 1965, 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 McDonald's or Google is today".. At its peak in the 1940s, A&P captured 10% of total US grocery spending. Known for innovation, A&P improved consumer's nutritional habits by making available a vast assortment of food products at much lower costs. Until 1982, A&P also was a large food manufacturer.

A&P was founded in 1859 by George Gilman as "Gilman & Company", who opened a small chain of retail tea and coffee stores in New York City, and then expanded to a national mail order business. The firm grew to 70 stores by 1878; by 1900, it operated almost 200 stores. A&P grew dramatically by introducing the economy store concept in 1912, growing to 1,600 stores by 1915. After World War I, it added stores that offered meat and produce, while expanding manufacturing.

In 1930, A&P, by then the world's largest retailer, reached $2.9 billion in sales ($ billion today) with 16,000 stores. In 1936, it adopted the self-serve supermarket concept and opened 4,000 larger stores (while phasing out many of its smaller units) by 1950. After two bankruptcies, A&P finally closed the last of its doors in 2015.

History

1859–1878: Gilman era

The forerunner of A&P was founded in the 1850s as Gilman & Company by George Gilman (1826–1901) to continue his father's leather tanning business; in 1858 the firm's address was 98 Gold Street in Manhattan. Gilman's father died in 1859, leaving the son wealthy. That year, Gilman & Company entered the tea and coffee business from that storefront. One source speculates that Gilman decided to enter a more respectable business in light of his wealth. In May 1861, Gilman turned over the tanning business to his brother Winthrop; George moved his tea business to 129 Front Street. Initially, Gilman & Company was a wholesaler. In early 1863 the firm became a retailer, Great American Tea Company. Quickly, it opened five stores, moving its office and warehouse to 51 Vesey Street.

Gilman proved to be a master at promotion; the business quickly expanded by advertising low prices. The firm was able to offer low prices by acting as both the wholesaler and retailer. Gilman also built a nationwide mail order business. By 1866, the firm was valued at more than $1 million. In 1869, the transcontinental railroad was completed; Gilman created a parallel company, the Great Atlantic & Pacific Tea Company, to promote the then-new concept of prepackaged tea under the ''Thea-Nector'' name. The tea company continued to use the ''Great American'' name for mail-order purposes. In 1871, A&P introduced another concept when it offered premiums, such as lithographs, china, and glassware with the purchase of coffee and/or tea at its stores. These premiums are now collectibles.

1878–1951: Hartford era

Evolution of the grocery store

George Huntington Hartford joined Gilman & Company as a clerk perhaps in the late 1850s; Hartford later was promoted to bookkeeper, then cashier, in 1866. By 1871 Hartford was in a position of authority and was responsible for expanding A&P to Chicago after its great fire. A&P's first store outside New York City was opened just days after the disaster. The firm rapidly expanded; in 1875 A&P had stores in 16 cities. In 1878, Gilman left the active management of the firm to Hartford. By then, the firm operated 70 lavishly-equipped stores and a mail order business with combined annual sales of $1 million.

To raise revenue, Congress raised tariffs on tea and coffee. Profits on these products declined; around 1880 A&P started to sell sugar in its stores. The company continued aggressive growth and by 1884 operated stores as far west as Kansas City and as far south as Atlanta. The company also operated wagon routes to serve rural customers. About this time, two of Hartford's sons, George (1864–1957) and John (1872–1951), joined the firm. A&P lore holds that George convinced his father to expand the product line to include A&P-branded baking powder. Over the next decade, the company added other A&P-branded products, such as condensed milk, spices, and butter. As it expanded its offerings, the tea company was gradually creating the first grocery chain. By 1900, the firm had sales of $5 million from 198 stores as well as its mail order and wagon route operations. However, other grocery chains were expanding more rapidly and blanketing their respective areas while the tea company's stores were spread over a much larger area. A&P quickly found itself at a disadvantage.

In 1901, George Gilman died without a will, starting a legal battle among his numerous heirs. The senior Hartford stepped into the battle by asserting that, in 1878, Gilman gave him half of the company in an unwritten partnership agreement. Evidence provided to the court established that Hartford received half of A&P's profits starting in 1878 and that the company's leases were in his name. The heirs realized that without Hartford, the firm would quickly become unprofitable. Therefore, in 1902 they agreed to a settlement where A&P was to be incorporated, with $2.1 million in assets.

Under this agreement, the Gilman heirs received $1.25 million in preferred shares at 6% interest, while Hartford received $700,000 in common stock and the remainder of the preferred shares. This gave Hartford control of the voting stock. Over several years, Hartford was able to repurchase the preferred shares from the Gilman heirs. A&P opened an average of one store every three weeks. A nine-story headquarters and warehouse was built in Jersey City. By 1912, the corporation operated 400 stores and averaged a 22% gross margin, resulting in a 2% profit. A&P's peddlers were also operating 5,000 rural routes in distinctive red-and-black wagons.

Development of economy stores

Food prices were a political issue in the 1912 presidential election after a 35% increase in 10 years. To counter this trend, some chains experimented with a no-frills format. After long debate, the Hartfords agreed to John's proposal of experimenting with an economy store designed to operate at a 12% gross margin. Capitalized at only $3,000 including its initial inventory, the prototype economy store operated with only a manager, and without fancy fixtures. Within two months, weekly sales increased to $800 and the store achieved a 30% annual return on investment. A&P quickly expanded the concept; by 1915 the chain operated 1,600 stores.

A&P's tremendous growth created problems with suppliers. Cream of Wheat, the largest breakfast food manufacturer, demanded that all retailers adhere to the cereal's pricing per box. A&P purchased the product at wholesale, 11 cents per box (3 cents less), and decided that a 1-cent markup was appropriate for its economy store format. Cream of Wheat cut off supplies and A&P sued. U.S. District Court Judge Charles Hough ruled against A&P, saying that a manufacturer can establish retail prices. As a result, A&P and other large chains expanded manufacturing of private brands.

Hartford Sr. died in 1917; control of the company passed into a trust with his sons George, Edward, and John as trustees in complete control.

Adding stores that included grocery, meat, produce, and dairy

After World War I, A&P rapidly expanded; in 1925 it operated 13,961 stores. The newer combination stores included space for meats, produce, and dairy, as well as traditional grocery items. Sales reached $400 million and profit was $10 million. However, the Hartford brothers were concerned that gross margins had reached 22% to cover higher costs and that the chain veered from its low-cost discipline. In early 1926, the brothers discussed the situation with division management and launched a program to lower prices and improve cost controls. That year, sales increased 32%; A&P moved its headquarters to the new Graybar Building adjacent to Grand Central Terminal.

In 1927, A&P established a Canadian division; by 1929 it operated 200 stores in Ontario and Quebec. In 1930, the corporation's 16,000 stores reached $2.9 billion in sales, resulting in a 25% grocery-store share in its operating areas, and about 10% nationwide. No retail company had ever achieved these results. A&P was twice as large as the next largest retailer, Sears, and four times that of grocer Kroger. Unlike most of its competitors, A&P was in excellent position to weather the Great Depression. The Hartfords built their chain without borrowing; their low-price format resulted in even higher sales. From 1929 through 1932, A&P reported a record $110 million in after-tax profits with each Hartford child earning over $5 million yearly in dividends and equity.

A&P's success caused a backlash that threatened to destroy it. Thousands of mom-and-pop grocery stores could not match A&P's prices. While small operators had little political clout, they were supplied by thousands of wholesale distributors which had considerable political influence. Anti-chain store movements gained traction in the 1920s, but became stronger during the Depression. In 1935, Texas Congressman Wright Patman introduced legislation that would have levied a federal tax on chain stores. If adopted, this legislation likely would have ended A&P.

While this legislation did not move in Congress, in 1936 Patman sponsored the Robinson–Patman Act that outlawed charging different prices to similar customers; this law passed. Patman then reintroduced his first bill. A&P retained a lobbyist and dropped its opposition to unionizing activities of the politically powerful American Federation of Labor. George and John Hartford also took the unusual step of publishing an open letter pointing out that the legislation would increase food prices. The tide of public opinion then turned against the bill, which was defeated.

Converting to supermarkets

In 1930, the first supermarket opened in California. On the East Coast, Michael J. Cullen, a then-former A&P employee, opened his first King Kullen supermarket in Jamaica, Queens. Two years later, Big Bear opened in Elizabeth, New Jersey, and quickly equaled the sales of 100 A&Ps. In 1933, A&P's sales dropped 19%, to $820 million, because of the competition. After considerable debate, the Hartford brothers decided to open 100 supermarkets, the first of which was in Braddock, Pennsylvania. The new stores proved to be very successful; in 1938, the company operated 1,100 supermarkets. The chain continued to build supermarkets and slowly phase out smaller stores except in dense urban areas; in 1950, A&P operated 4,000 supermarkets and 500 smaller stores. Sales reached $3.2 billion with an after-tax profit of $32 million.

A&P's success attracted the attention of President Franklin D. Roosevelt's anti-trust chief, Thurman Arnold, who was urged by Congressman Patman to investigate A&P. In 1942, A&P and their senior executives—including the Hartford brothers—were criminally charged for restraint of trade in Dallas federal court. In 1944, prosecutors withdrew the complaint on grounds that the Dallas federal judge thought the case was weak.

The same day, charges were filed in Danville, Illinois, and were assigned to Federal Judge Walter Lindley. The prosecution complained that A&P had an unfair competitive advantage because their vertical integration including manufacturing; warehousing, and retailing allowed them to charge lower prices. Prosecutors also complained that A&P refused to buy from food retailers who sold only through brokers or refused to give A&P advertising allowances. The judges contended that if unchecked, A&P would become a monopoly. A&P said their grocery-store share was only about 15%, much less than the leaders in other industries. Judge Lindley agreed with the government, fining each defendant $10,000.

In 1949, the U.S. Court of Appeals upheld Lindley's decision; A&P decided not to appeal further. In September, the anti-trust division asked the court to order the spinoff of A&P's manufacturing operations and the breakup of A&P's retail operations into seven independent companies. Thousands of letters poured into the Justice Department supporting A&P; the Hartford brothers gave extensive interviews with ''Time'' magazine and appeared on the November 13, 1950, cover. ''Time'' wrote that, next to General Motors, A&P sold more goods than any other retailer in the world. John was quoted as saying, "I don't know any grocer who wants to stay small ... I don't see how any businessman can limit his growth and stay healthy." The case dragged on into the business-friendly Eisenhower administration. In late 1953, the government agreed to drop its demands to break up A&P if they shut down their produce brokerage that also supplied competitors.

In fighting the anti-trust suits, A&P also emphasized the considerable impact of their activities on the public welfare, which had been recognized as the legacy of George Hartford Sr. and his sons. The concepts pioneered and perfected by the Hartfords and their competitors enabled the public to enjoy healthier eating at lower cost. In 1950, the average American consumed 10 percent more food than in 1930, with poorer households enjoying an especially important improvement in the quality of the food they consumed. John Kenneth Galbraith supported this contention in his 1952 book, ''American Capitalism'', by citing A&P as an example of countervailing power. To support his thesis, he discussed a 1937 A&P study of the feasibility of opening a plant to manufacture corn flakes. The mere possibility of A&P producing corn flakes forced existing corn flake manufacturers to lower their prices by 10%.

A&P's decline began in the early 1950s, when they failed to keep pace with competitors that opened larger supermarkets with more modern features demanded by customers. By the 1970s, A&P stores were outdated, and efforts to combat high operating costs resulted in poor customer service. When these efforts failed to turn A&P around, the heirs of the Hartford family and the Hartford Foundation, which owned a majority of the stock, sold to the Tengelmann Group of Germany.

1951–1974: Post-Hartford era

In 1951, John Hartford died in the Chrysler Building after returning from a meeting of the automaker's board of directors. George remained as A&P's chairman and treasurer, appointing the corporation's longtime secretary Ralph Burger as its new president. While Burger started with A&P in 1910 as a clerk in Glens Falls, New York, he was a staffer who lacked John Hartford's strategic marketing skills. Under Burger, A&P continued to report record sales and operated with expenses of 12.6% of sales when the industry average was 15%.

Burger was also president of the John A. Hartford Foundation started by sons John and George in 1929, assuring Burger's control of A&P when George died in 1957. George's trust was dissolved; the stock began selling on the New York Stock Exchange (under the symbol GAP) at $59 per share. For the first time, A&P elected six outside directors onto its board. In late 1961, A&P stock peaked at $70.

The seeds for A&P's 35-year fall from the country's largest grocery to bankruptcy (and later liquidation) were planted in the 1950s:
*A&P was starved of capital. While A&P was publicly traded, control rested with Burger, who headed both the corporation and the Hartford Foundation. Most of A&P's profit was declared as dividends to satisfy the income needs of the trust and its heirs. A&P also remained opposed to debt financing; the only source of capital was the depreciation account. While competitors invested in larger, modern supermarkets, A&P was slow to update its retail capital plant. By 1970, A&P stores were considerably smaller and mostly older than those of its competitors.
*A&P placed too much emphasis on private label products. In 1951, the Supreme Court ruled that manufacturers could not establish minimum prices unless the retailer agreed to the arrangement. This decision launched a revolution in discount retailing fueled by the rapid increase in television advertising that raised demand for national brands. Contrary to this, A&P invested substantial amounts of its scarce capital to expand manufacturing, including $25 million to construct the world's largest food plant in Horseheads, New York. Because A&P stores were smaller, its shelves were dominated by private-label products, and customers found that national brands were often out of stock.
*A&P's labor costs were higher than those of most competitors. Because A&P stopped growing, a rising percentage of its workers were making higher wages due to their seniority. This was not a problem for most of A&P's competitors because they were rapidly expanding and had relatively fewer workers with high seniority. To offset higher labor costs, A&P tried to operate stores with fewer employees, resulting in long lines at checkouts and empty shelves.

Ralph Burger attempted to reverse downward tonnage figures by reintroducing trading stamps, creating A&P's Plaid Stamps. However, by late 1962, the initial sales gains evaporated and the six outside directors threatened to resign unless Burger retired. When Burger left in May 1963, the stock was trading in the $30s. Burger was replaced with a succession of presidents who were unable to stem the downward spiral. In 1971, the board turned to William J. Kane, who joined A&P in 1934 as a full-time store clerk. Kane believed that A&P could be turned around by focusing on basic store operations, including cleanliness, product availability, customer service, and courtesy.

When his program stalled, Kane implemented a strategy to substantially cut prices by converting A&P to a warehouse store concept that became known as W.E.O. Warehouse Economy Outlet (or Where Economy Originates). The problem was that most A&Ps were not large enough to properly implement the program; losses quickly mounted. In early 1973, the stock dropped to $17, and Charles Bluhdorn of Gulf+Western made a tender offer at $20 per share. Kane rejected the offer, although some stockholders thought that the offer was attractive considering A&P's continuing difficulties. A&P exited California and Washington state in 1971 and 1974, respectively, making Missouri its westernmost reach. In 1974, the corporation also left its long-time headquarters in the Graybar Building, moving to Montvale, New Jersey