A&P

~ the obituary ~

It started on 17 February 1859 as a tea shop on Vesey Street in New York, run by George Gilman with a young clerk named George Huntington Hartford. The trick was buying tea off the ships directly instead of through the auction houses, which let them undercut everyone and still make money. When the transcontinental railroad went through in 1869, Gilman gave the business the transcontinental name it kept for the next century and a half, the Great Atlantic and Pacific Tea Company, which was already a slight exaggeration at the time and never stopped being one.

The store count went up the way railway mileage went up. Hartford's sons ran it after 1917, one of them on operations and the other on the money, and back in 1912 the operations brother had proposed the thing that made the company enormous. The economy store was a one-man shop that offered neither delivery nor credit, running at a twelve percent gross margin where the trade expected twice that. The prototype returned thirty percent a year on its investment. The chain went from around 1,600 stores in 1915 to 15,709 by 1930, at which point A&P was selling $2.9 billion of groceries a year and was the largest retailer on the planet.

Then the supermarket arrived and A&P did not build it. King Kullen opened in Queens in 1930 and Big Bear in New Jersey in 1932, both of them enormous self-service boxes with parking, and both of them undercutting the small chain stores on price. A&P had 15,000 leases on small stores and every reason to defend them. The Hartford brothers argued about it internally for years before approving an experiment with a hundred supermarkets, the first in Braddock, Pennsylvania. By 1938 there were 1,100 of them and most of the old economy stores were shut.

It worked well enough to carry the company through the fifties. The problem was that A&P had been late once and stayed late forever. It went to the suburbs slowly and kept building stores smaller than its competitors were building. Then in 1972 it launched a price war under the Warehouse Economy Outlet banner, cutting margins across a fleet of shops that were physically too small for a warehouse strategy to work in. Losses followed immediately. Erivan Haub's Tengelmann Group of Germany bought in from 1979 and crossed 50 percent in February 1981, which bought another three decades of restructuring under German ownership.

The American grocery trade of my own experience is not this. The Turkish market got its chain era late and got it in a different shape, which makes the A&P story legible from a distance in a way most American retail is not. The idea the company was founded on, a narrow assortment sold on a thin margin with the volume doing the work, is the exact idea that BİM has been running in Turkey since 1995, with A101 and Şok behind it. Turkish shoppers did not get the 1930s version of that argument. They got the 1990s hard discount version, arriving fully formed, from operators who had watched what happened to everyone who tried to defend a wide assortment.

~ the case file ~

~ the economy store ~

The economy store deserves more credit than it gets, because it is where the modern retail cost structure was worked out. Hartford stripped the grocery down to what it had to be. One employee stood in a standardized shop with a standardized assortment, and the delivery boys and charge accounts that the trade considered mandatory were simply gone. The savings went into the shelf price and the shelf price brought the volume, which let the company buy straight from manufacturers and eventually manufacture for itself.

By the twenties A&P was baking its own bread and canning its own vegetables, on top of roasting its own coffee under the Eight O'Clock name, which is vertical integration two generations before the phrase became fashionable. Eight O'Clock Coffee outlived the retailer that invented it and is still sold today under other ownership, which is the only part of the operation that anyone under forty is likely to have bought.

~ the chain store tax ~

A company that large and that cheap attracted a political response. Through the thirties, state legislatures passed graduated taxes on chains designed to make a thousand-store operator uneconomic, and Representative Wright Patman introduced a federal version in 1938 that would have taxed A&P out of existence outright. It failed. The Robinson-Patman Act of 1936 did pass, and it restricted the volume discounts that were the whole basis of the chain's pricing advantage. The federal antitrust prosecution that followed ended with a conviction at Danville, Illinois, upheld on appeal in 1949, on the theory that buying better than everyone else and passing it on was itself unfair. The fines were trivial. The argument was not, and the modern reader will notice that the complaints filed against A&P in 1938 are close to word for word the complaints filed against large retailers now.

~ where the format went ~

A&P remained the largest grocer in the country until 1975 and the largest retailer of any kind until 1965, which means the decline everyone remembers was the second half of a very long story. Tengelmann's chief executive James Wood closed thousands of stores through the eighties and bought regional chains to replace them, so the company survived as a holding structure for banners like Waldbaum's and Food Emporium, which carried more local weight by then than A&P itself did. The last big swing was Pathmark in 2007, bought for $1.4 billion at the top of the credit cycle with borrowed money, and delivered into the recession that started a year later.

The first bankruptcy was filed on 12 December 2010 and the company came out of it privately held in 2012 with 320 stores. The second was filed on 19 July 2015, and this one was a liquidation dressed as a reorganization. Rivals bought the good leases at auction, with Albertsons taking 76 stores and Stop & Shop another 25. Everything that did not sell was closed by 25 November 2015. About 28,500 people lost their jobs, and the union pension funds took a hole they are still working through.

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