Bad News for A & P

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George Huntington Hartford and George Gilman, 19th century entrepreneurs, would flinch at this week’s news that the A & P grocery store chain was filing for bankruptcy. The two Georges created the iconic grocery chain in 1859 and built what we now know as the grocery supermarket. They developed the model for grocery stores that sell low-priced food across the U.S. Now, for the second time in ten years, the beleaguered company has less than 300 stores, down from the 16,000 it operated in 1929. The demise of A & P, the oldest supermarket chain, may be the beginning of the end of the big box, super-sized grocery chains.

 

Similar to the grocery industry, other economic institutions and industries — banks, taxi services, healthcare, and the hospitality industry — are experiencing “creative disruption.” And food distribution is ripe for repair. The local, personal, and transparent is colliding with accessibility, price, and quality. George Hartford and George Gilman, founders of The Great Atlantic and Pacific Tea Company, led the first wave of destruction by putting thousands of corner grocery stores out of business at the beginning of the 20th century, and now the effective equivalent of small and local distribution centers may be our future food distribution system.

 

Marc Levinson’s book, The Great A & P and the Struggle for Small Business in America (2011), tells the story of the rise of big grocery chains from the 1920s until the present day — and how A & P became the world’s largest grocery store chain. Levinson tells us how A & P innovated its way to success only to be come under attack for practices that benefited middle-class consumers by making low cost food accessible. A & P couldn’t find a way to re-create itself amidst pressures from low-priced competitors such as Wal-Mart and high-end stores such as Whole Foods.

 

By the 1950s the company began a long decline into bankruptcy, unable to resuscitate itself after the onslaught of regulations, attacks, competition, and the loss of its founding team. By building a new aggregated, or “combination store,” as the first supermarkets were called, Hartford and Gilman created often aggressive and innovative ways to bring down the cost of food. Buying directly from food producers instead of wholesales, A & P created some of the first discounted grocery stores. They vertically integrated some activities, such as baking their own bread. They contracted directly with farmers who grew crops specifically for A & P and developed recycling systems for packing materials. The consequence of the new A & P model was the demise of the mom-and-pop grocery store in the early 1920s.

 

These new approaches to food retailing benefited from the appearance of new technologies that directly improved access to food at lower costs. The first commercial refrigeration systems replaced huge blocks of ice and enabled A & P to hold more inventory. Shoppers could buy enough food for one week without returning for perishable meats and poultry on a daily basis. Open access to food products eliminated the need for a shopkeeper, lowering the store’s operating costs. And when cellophane was developed in France in 1909, the new transparent wrapping material made it possible for consumers to see the food they purchased, a development that increased consumer confidence in food safety.

 

A & P’s new model encountered feisty competitors and the ire of unions and wholesalers. They fought alongside politicians to push against the growth of the supermarket, joining politicians, journalists and industry associations that accused the brothers of “unfair completion.” The excesses of the Gilded Age and poverty left behind in the wake of the stock market crash in 1929 placed big business in the political crosshairs. Franklin Roosevelt, running on his Progressive ticket, set up regulations, oversight agencies, and rules that threatened the competitive advantages of A & P. Roosevelt called the company a “gigantic blood sucker.”

 

Accusations of “unfair competition” threaten today’s startups. Taxi cab drivers in both Massachusetts and California are among the many threatened by new economies. Taxi companies have united to sue Uber for “unfair competition.” Ironically, unions are cited by A & P as a significant reason for its bankruptcy filing. A & P officers say that union demands for benefit increases are key to the company’s inability to cut operating costs.

 

But the accusation of unfair competition raises questions about our current economic landscape. Companies have new competitors, often outside of their traditional industry. Wal-Mart competes with Amazon. And Wal-Mart may be competing with itself. Charles Fishman’s 2006 book, The Wal-Mart Effect (How an Out-of-Town Superstore Became A Global Superpower) suggests that Wal-Mart is so big that their practices are no longer unfairly competitive. Rather, the company is so big that it creates its own market forces. Other big supermarket chains, including Kroger and Costco, both cut their costs to compete with Wal-Mart to offer consumers lower prices.

 

The tension between Big Box grocery chains and small, independent food retailers continues today, fought with digital weapons and by new players, such as Amazon and Instacart. Signs of the disruption of the grocery industry are apparent across several sectors, from UPS to Google. The re-imagined grocery story is taking shape as a response to the newly food-aware customer who searches for healthy food from a transparent, hopefully human or human-like provider. And the landscape for food distribution may look very different in ten years, populated by Amazon, public food lockers, and encapsulated meals. Amazons’ “buy” button brings customers closer than ever before to a virtual warehouse. And the FAA released regulations for drone tests, the mini-aero service.

 

Hartford and Gilman’s legacy of supermarkets and low-priced food may continue to be with us but in a new incarnation, more as an aggregated virtual supermarket that utilizes high-tech, “last mile” delivery options. Let’s hope that our future food distribution system will continue to provide better food to more people at low prices. And maybe A & P will re-emerge, making George Hartford and George Gilman proud again.

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