Had they occupied the executive suite at a prominent company with millions of stockholders, or had they allowed themselves to be profiled in the press as captains of industry, the Hartfords’ personal lives could have brought embarrassment, and worse, to the Great Atlantic & Pacific Tea Company. Instead, when family affairs took an unorthodox turn, the company itself was entirely untouched by scandal. The Hartfords’ obsessive concern with privacy, in evidence from the company’s earliest days, paid off richly in the 1920s.
So far as is known, nothing untoward ever happened to George L. Hartford. Photographs show a stolid man, with a mustache and a head of thick gray hair, wearing a black suit, with the jacket fully buttoned over a vest, necktie, and white shirt. Now in his fifties, he drove the twelve miles from his Montclair home to the office in Jersey City six days a week and then drove back home in the evening. His personal life revolved around his wife, Josephine; his stepdaughter, Mabel; and Mabel’s husband, Sheldon Stewart, who ran a real-estate company in Newark. Sunday outings frequently included visits to his mother, four miles away in Orange, until her death in 1925. George occasionally dined with his company’s managers, but there is no record of him ever attending any society event in New York City. The notable events on his social calendar seem to have been the Montclair Junior League’s annual fund-raising show and, from 1926, the Montclair Horse Show, of which Sheldon Stewart was a director. Josephine was a long-standing parishioner of St. James Catholic Church in Newark, but George was not known as a churchgoer. He never held a passport; his travels seem to have taken him no farther than the New Jersey shore hotels where he spent his summer vacations, just as his father had. He was, as Fortune magazine later described him, an “implacably conservative” man.1
John’s situation was rather different. In 1915, he and his wife, Pauline, separated after twenty-two years of marriage. The proximate cause was a red-haired young woman named Frances Bolger, who had come to the Hartfords’ country home in Valhalla, north of New York City, to model gowns for Pauline. “He flirted with me over his wife’s shoulder,” Frances alleged later. Pauline embarked on round-the-world travels, riding a camel at the Great Pyramid and crossing the Pacific aboard the liner Wilhelmina to visit China and Japan before obtaining a divorce in 1920. John moved into a town house on West Fifty-fifth Street, but spent much of his time on the road, tending to the affairs of his burgeoning company, while continuing to raise prizewinning horses at Valhalla. Frances, who lived in the Hotel Berkley in New York, seems to have been an occasional diversion. Apparently, she wanted more. On June 28, 1923, the couple was secretly married in Danbury, Connecticut, not far from Valhalla. The marriage lasted all of six months. On December 27, John walked out. The story landed in the papers in July 1924, when Frances sued for alimony. Her lawsuit, filled with colorful detail, was met with silence from John. A divorce was quietly arranged, and the press soon lost interest.2
In September 1924, John applied for his first passport. He used it to visit Paris, where he and Pauline were remarried on April 4, 1925. Pauline apparently extracted certain commitments, for John resumed married life, at age fifty-three, with a newfound attention to leisure. Henceforth, the society pages would report his and Pauline’s transatlantic voyages and their winter visits to Palm Beach. He bought a boat and cruised in the Atlantic. During the horse show each November, the Hartfords threw an elaborate dinner, the guest list printed in the papers. And in 1926, he and Pauline began transforming the country house in Valhalla into an estate fit for a magnate. Sitting on 310 acres in Westchester County, Buena Vista Farms included stables, a golf course, a polo field, and a twenty-nine-room Tudor mansion with gold bathroom fixtures and a private screening room. The house was an easy commute from New York City. John and Pauline took an eight-room apartment at the Plaza Hotel as their main residence and used Buena Vista Farms as a summer home. After 1927, when Great Atlantic & Pacific moved its head office into the Graybar Building, adjacent to Grand Central Terminal, John could go directly from his twenty-second-floor office to the train and be at Buena Vista Farms in forty-five minutes.3
The unexpected death of John’s older brother Edward in June 1922 held yet more potential for commercial damage. Edward, his wife, Henrietta, and their two children, Josephine and Huntington, had moved from Park Avenue to an estate in Deal, a wealthy enclave on the New Jersey shore. According to family lore, Edward was a practicing Christian Scientist and refused to see a doctor when he fell ill, contributing to his death at age fifty-two. The family was evidently embarrassed by the circumstances. Although Edward was well-known as an inventor and manufacturer who had been prominent in New York society, the only notice of his death was a four-line announcement in The New York Times, stating that the funeral would be private.4
Under other circumstances, the two separations, two divorces, three marriages, and lavish new lifestyle of one of the nation’s wealthiest men and the shocking death of his independently wealthy brother would have furnished months of tabloid titillation. The Hartfords’ private affairs, however, drew surprisingly little public notice. And if they were aware of the Hartford family’s affairs at all, shoppers seem not to have connected them with the neighborhood store where they shopped every day. The trade of the Great Atlantic & Pacific seems not to have been affected in the least.
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Though it had several times the sales of any other grocery company, the Great Atlantic & Pacific Tea Company was in no sense a modern business. Its five thousand stores were tiny: just one of the vast supercenters that flourished at the end of the twentieth century had as much floor space as three hundred A&P Economy Stores. Where the average grocery store at the end of the twentieth century carried perhaps forty thousand different items, the average A&P, circa 1921, stocked only a few hundred. Some A&P stores allowed self-service, but usually the goods were kept out of customers’ reach, behind the counters, and store clerks retrieved each can of soup or bag of coffee as the shopper made her selections.
A&P stores rarely carried meat, fish, or milk, except in cans. “Of produce commodities they handle only butter, eggs, potatoes, and some eating apples in season,” one researcher found. Keeping fruits and vegetables in good condition as they passed through a complex distribution system was a problem no chain retailer had solved, but there was an entirely different reason to avoid them. The toughest task facing the executives of a retail chain was monitoring the work of store managers, who had ample opportunity to steal from the till, help themselves to the merchandise, or hurt the company’s reputation by neglecting the store. The sale of nonperishables was fairly easy to keep track of: if the store had received three cases of cigarettes, three cases should have been sold, and missing merchandise could be deducted from the manager’s pay. Perishables, however, could be rendered unsalable for any number of reasons, from delays in delivery to extremely hot weather to the store manager’s failure to care for the products. If a manager’s weekly report had indicated that fifty pounds of pears went unsold, there would have been no practical way for the company to determine the cause. Monitoring perishable products was such a daunting task in the early 1920s that most grocery chains, including A&P, avoided selling them.5
Its limitations notwithstanding, the Great Atlantic & Pacific possessed important advantages over its competitors in the grocery trade. Its wide footprint made A&P the only grocer that could use national magazine advertising effectively, an edge the Hartfords exploited in 1920 by mounting the first-ever national ad campaign by a grocer; it may well have been William G. Wrightson, vice president for advertising and husband of George and John’s niece, who came up with the idea of portraying A&P as “the little red school house of American retailing.” Volume discounts from food processors provided a significant advantage by allowing A&P to buy its goods more cheaply than other grocers, especially when suppliers were willing to circumvent wholesalers and sell directly to the retailer at wholesale prices. Most critical of all, by blanketing cities with stores—there were three hundred in Chicago alone—A&P gained powerful economies of scale. With geographic concentrations of stores, the company could run its own warehouses and delivery trucks, which in turn let it manage inventory efficiently. On average, grocery products took more than four months to get from factory to consumer in the early 1920s, and the financing charges and storage costs had to be built into retail prices. A&P, in contrast, turned its inventory once every five weeks. With comparatively few goods sitting in storage at any given time, it enjoyed much lower costs than independent grocers.6
The Hartfords moved to exploit these advantages with scientific precision. With ample profits to reinvest and no outside shareholders clamoring for higher dividends, the Hartfords had the resources to expand quickly. No surviving information documents the discussions between George and John in the early 1920s, but it would have been in character for John to push faster growth and George to question the payoff from new investments. In any event, teams of company real-estate experts scoured the country, drawing on A&P’s detailed statistical information to evaluate buildings, measure pedestrian traffic and neighborhood wealth, and estimate how much revenue a new location might bring in. Data in hand, A&P was in control when it came time to negotiate a lease. Construction workers swarmed in, readying the store within days. Over the three-year span between February 1922 and February 1925, the gold-on-red A&P logo went up on seven new storefronts a day, a pace limited only by the company’s ability to find store managers. “We went so fast that hobos hopping off the trains got hired as managers,” John Hartford joked later. By February 1925, the Great Atlantic & Pacific operated more than thirteen thousand stores from Maine to Texas.7
As leases expired, existing stores were relocated to larger premises. The six-hundred-square-foot Economy Store, state of the art before World War I, was an anachronism by the Roaring Twenties, and the new stores were twice that size or more. Here, too, scientific thinking came into play, with A&P’s designers using sales data and customer surveys to decide where to place the various departments and how to present the goods. The larger stores displayed products on counters, rather than behind them, so shoppers could serve themselves. Some stores had room for electric refrigerator cases, a new invention, to hold fresh milk and produce. Customers’ new expectations extended to trading stamps. With the Economy Store, John Hartford had convinced shoppers to forgo premiums in return for low prices, but in the 1920s they expected both. By the early 1920s, A&P shoppers in some locations could once again obtain coffee mills or sherbet glasses in return for stamps handed out with every purchase.8
Around 1920, the Hartfords decided that their fast-growing retail business would assure a profitable outlet for manufacturing. The evidence suggests that this, too, occurred at John’s urging. Vertical integration—the idea that a company should take charge of multiple facets of its business, one supplying the other—was all the rage in American industry. In 1917, the Ford Motor Company had begun building its vast River Rouge plant near Detroit, which was designed to take in iron ore, rubber, and other raw materials, turn them into mufflers, windshields, and fan belts, and combine the thousands of parts into a complete vehicle, all at a single site. John, impressed, consulted Henry Ford about applying the secrets of volume production to the food sector. The meatpacking industry was already trying to do this. The five big firms that dominated hog and cattle slaughtering had opened retail meat markets, allowing them to control the industry vertically from the fattening of animals for slaughter to the retail sale of pork chops, and one of the five, Armour & Company, had built a retail fruit and vegetable business. Federal antitrust action in 1920 forced the meat packers to exit their retail businesses, but it did nothing to hinder retailers from entering manufacturing. A&P was already vertically integrated in a modest way thanks to its Jersey City manufacturing complex, but it manufactured only a small part of the goods it sold. Reliance on outside suppliers must have seemed a disadvantage at a time when manufacturers were capturing a greater share of the food industry’s profits. As George and John debated this issue, they decided that the best way to fight the growing power of grocery manufacturers was to manufacture more themselves.9
The first step came in 1919, when the brothers turned A&P’s coffee business into the American Coffee Corporation, a wholly owned subsidiary. A&P, of course, had been selling coffee since the Civil War, and had imported coffee directly from Brazil since at least the 1890s. Its brands, however, were not the market leaders, and the name A&P was not associated with high-quality coffee. George Clews, the son of George and John’s sister Minnie, took charge of American Coffee. Again, scientific thinking was put to use. American Coffee set up a buying office in Santos, the main Brazilian coffee port, and established a network of agents in the growing regions; rather than accepting whatever Brazilian exporters chose to ship, it would select the beans with the characteristics its customers preferred. Roasting and grinding plants were built across the United States so A&P could move coffee to its stores quickly after grinding. The product was enveloped in an aura of quality carefully constructed by A&P marketers. Experts were said to blend the beans in precise fashion at Santos. Trained testers sampled the coffee on the docks and again before it left the roasting plants to maintain consistency. George L. Hartford, a man who never went out to lunch, established the new tradition of visiting the tasting department at 2:00 p.m. each day to make sure the coffee tasted just right. Several weak brands were dumped so A&P could put its marketing muscle behind Eight O’Clock Coffee, its bestselling coffee.10
In October 1922, A&P spent $275,000 to buy the White House Milk Company at West Bend, Wisconsin. At the time, grocery stores rarely sold fresh milk, which had a short shelf life due to the lack of refrigeration. Instead, A&P sold canned evaporated milk, which the consumer could use simply by adding water, and sweetened condensed milk, similar to evaporated milk but with sugar mixed in. By acquiring White House, which produced only 400,000 cases of evaporated milk per year, the Hartfords were entering head-to-head competition with established manufacturers of brand-name canned milk, such as Borden and Carnation. John Hartford visited West Bend in 1923 and must have liked what he saw. A&P rapidly added plants across Wisconsin to purchase milk from farmers, condense it, and can it. It was soon among the biggest milk producers in America.11
The story was repeated with bread. Once, when its stores had been concentrated around New York City, most stores had sold bread baked at the A&P headquarters complex in Jersey City. By 1923, though, A&P had stores in twenty-three states, most of which had to be supplied by local bakers under their own brand names. These industrial bakers usually wanted to charge all retailers the same price, a situation the Hartfords saw no reason to accept. A&P went on a buying binge, purchasing existing bakeries, installing the most modern equipment, and becoming the second-largest baker in the country, with costs far below those of other bakeries. The company’s mass of sales data allowed A&P’s bakeries to forecast demand with a high degree of accuracy, minimizing returns of stale bread and doughnuts. Bread was delivered to stores in the same trucks that delivered other foods rather than by commissioned salesmen, a system that saved a penny per one-pound loaf at a time when the average loaf sold for a nickel. With a cheap source of supply, the stores could use Grandma’s Bread and pound cakes as major customer draws.12
Another subsidiary, A&P Products Corporation, plunged into the salmon industry. Fresh fish were extremely difficult to transport and were rarely sold far from the docks where they were landed. Most of the catch was canned, and canned salmon had been a major grocery product since the turn of the century. The salmon-canning industry had boomed during World War I. When prices collapsed after the war, many canneries failed. A&P swooped in. It leased three canneries in southeastern Alaska in 1922 and added others. By 1926, A&P’s operation, renamed Nakat Packing Company, was challenging Libby, McNeill & Libby as the leader in the $46-million-a-year canned salmon trade.13
The Hartfords expanded their manufacturing business in the continental United States under a subsidiary that became known as Quaker Maid. Great Atlantic & Pacific was not entirely new to packaged foods, having opened a vegetable cannery around 1907, but Quaker Maid was on an entirely different scale. A&P-owned plants began churning out everything from peanut butter to gelatin. The company’s market-research department surveyed consumer preferences and massaged detailed sales data from individual stores so Quaker Maid could adjust its recipes to suit local or regional tastes. Quaker Maid was so large that A&P even owned a factory to print labels and another to manufacture cans, twenty-two million of them a year.14
Being a food processor vastly complicated the job of moving raw materials and finished products, and A&P created a huge logistical infrastructure. Leased refrigerator cars carried produce from growing areas to canneries and warehouses. Goods from outside suppliers were purchased by the boxcar, minimizing the purchase price and allowing the company to save about 15 percent on freight costs. As one of the country’s largest shippers, A&P had the muscle to bargain with the railroads, saving $60,000 a year by winning changes in the rates for moving coffee from ports to roasting plants to warehouses. Its in-house transportation division marshaled fleets of company-owned trucks and refrigerated boxcars to get food delivered on time.15
By all public evidence, A&P was an amazing growth story. Its stores, warehouses, and factories had been planted in thousands of communities across the eastern half of the United States. Its new manufacturing might would give it an ever-bigger cost advantage over neighborhood grocers. Its brand was famous, promoted on the A&P Radio Hour, one of the earliest national radio shows, by the music of Harry Horlick and the A&P Gypsies. Its sales figures, released annually since its first bond sale in 1916, astonished the experts. “1924 Sales Were Enormous,” The New York Times declared in 1925. The annual dividend on the common stock, which was announced each May, was raised to $3 in 1923, $4 in 1924, and $5 in 1925, seeming proof that the firm was in the best of health.16
The reality was otherwise. Although the numerous articles and books about the Great Atlantic & Pacific uniformly praise the Hartfords’ management skill, the push to grow so quickly in the early 1920s and to diversify into manufacturing, apparently driven by John’s eagerness to expand, was unwise. The Hartfords had always been parsimonious with their investment dollars, doing all they could to avoid buying fixed assets: by the company’s estimate, its average store involved an investment of only $1,120 in real estate and equipment, a fraction of the $2,740 invested in the average Kroger store and the $4,543 at American Stores. But manufacturing, as John Hartford frequently pointed out, involved a great deal of “capital tie-up.” He was forced to admit that the results of his push for vertical integration were disappointing. In 1924, A&P’s canneries and milk plants produced a 23.6 percent return on invested capital—but while two canning plants were extremely profitable, others barely made money or even ran in the red. The bakeries as a group earned only a 17 percent return, far below the company average, and several of them lost money. Manufacturing was no gold mine.17
Worse, running a complex manufacturing operation caused management to take its eye off the main business of selling groceries. Although A&P’s total sales rose 50 percent between 1920 and 1924, sales per store fell almost 50 percent. The physical volume of groceries handled in the average store declined for four consecutive years: A&P was not even keeping up with mom and pop. Among ten grocery chains, none approaching A&P’s size, A&P ranked dead last in sales per store. Selling expenses, 14 percent of sales in 1920, climbed to 18 percent of sales in 1924, forcing A&P to hike prices and retreat from discount pricing. While A&P was content with a profit of three cents on each dollar of sales, American Stores, a Philadelphia-based chain, was rumored to be earning twice as much. Those impressive dividend increases merely reflected the amounts George and John Hartford chose to pay themselves and the family trust, and were no indication of the company’s performance. By some measures, A&P was using more cash than it was generating.18 The Hartford brothers were in no danger of running out of money, but the trend lines were pointing in the wrong direction. By 1925, they could not ignore the fact that their company had grown too big and too unwieldy. It was time for a new strategy. (Pg.1775)
WE&P by: EZorrillaM
“The Great A&P and the Struggle for Small Business in America” by Marc Levinson.