The Great A&P and the Struggle for Small Business in America (39 page)

As with the government’s other antitrust complaints against A&P, the economic logic behind the civil suit was hazy. The suit asserted that A&P’s ownership of manufacturing and distribution, as well as retailing, made it “impervious to competition.” But the claim that A&P was exercising monopoly power rested on shaky ground. The company’s sales in 1948, $2.9 billion, amounted to 9.3 percent of that year’s sales at food stores and only 7.3 percent of consumer spending on food for at-home consumption, hardly enough to allow it to set food prices nationally. The suit made no claims regarding A&P’s pricing power in particular cities, in some of which it held 15–20 percent of the grocery market; the government’s economic analysis did not go into such detail.

A&P’s profits in 1948 came to 1.3 percent of sales—more than during the war years, to be sure, but far below the 2.1 percent average of the 1930s or the 2.7 percent average of the 1920s. Its diminished profits made clear that A&P was not behaving like a monopoly, controlling supply to drive up prices. Far from it: vertical integration and the replacement of smaller stores with supermarkets were holding costs and retail prices down. McGrath trotted out the familiar argument about cross subsidies, contending that shoppers at some A&P stores were being forced to pay extra-high prices to subsidize losses at other A&P stores. Why those supposed victims would willingly pay high prices rather than shopping around he did not explain. In a similar vein, Bergson contended that suppliers charged higher prices to other grocers to make up for “the losses they have sustained through doing business with A&P.” Why would suppliers have sold to A&P at a loss? How, unless the suppliers themselves held monopoly power, would they have been able to force other grocers to pay more because A&P paid less? The government’s files reveal no economic analysis of such questions.
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A&P’s reaction to the lawsuit was virulent. “The whole basis of this attack is the fact that we sold good food too cheap,” an anonymous A&P spokesman—presumably Carl Byoir—proclaimed the day the suit was filed. Byoir arranged for A&P to buy advertisements in every one of the country’s two thousand daily newspapers and in another five hundred weeklies to tell its side of the story. In response, McGrath and Bergson mounted national speaking tours. “If a businessman outsells his competitors because he has unreasonably restrained trade, he has fought unfairly,” McGrath asserted in Cincinnati. The government is “not going berserk in the china shop of American business,” Bergson told the American Retail Federation, shortly after issuing a statement condemning A&P’s “false and misleading advertising.” A&P countered with still more advertisements, spending $5 million, one-seventh of its after-tax profits for 1949, in the space of three months. Its most memorable entry featured a photograph of the Empire State Building with the caption: “It’s Far Too Big. It Ought to be Seven Buildings.”
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Independent grocers and wholesalers were told to ignore A&P’s advertising, lest their responses give A&P yet more opportunities to push its case, but the controversy mushroomed nonetheless. The National Federation of Independent Business launched a newspaper and radio campaign in support of the government’s case. “Americans have always fought oppressing!” the ads proclaimed. “In 1899, 1917, and 1941, Americans have fought and died to try and insure a fair deal for everybody. And often, the oppressors had big, powerful and loud propaganda organizations, but Americans have never been swayed by propaganda.” Patman made daily speeches castigating A&P, using his congressional mailing privilege to send out thousands of copies of each speech at government expense. The American Trucking Association condemned the suit on the ground that it would cause “severe curtailment” of its members’ business. Even the anti-chain Bureau of Education on Fair Trade, an arm of the National Association of Retail Druggists, took a shot at the antitrust division, claiming that it showed “colossal inconsistency” with respect to below-cost selling.
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Some twenty-nine hundred letters, overwhelmingly opposed to the lawsuit, poured in to the Justice Department in the fall of 1949. “The A&P was the best concern we ever sold to in all our business career,” wrote the former proprietor of the Richmond Pickling Company in Virginia, recounting how A&P’s chemists discovered that his company had left out the celery seed from three hundred cases of pickles and rightly forced it to correct its error. “Their desire for quality and their demand for honest business practices mark them as a company, not to be broken up or looked upon in disfavor, but, rather, to be admired and respected,” asserted a Maryland crab packer. Sensitive to the public relations implications, Bergson or his deputies responded to every letter. In congressional testimony, Bergson accused the company of receiving “discriminatory rebates” that would be disclosed as the civil suit proceeded. But A&P’s quick response had won public opinion to its side. A Gallup poll in November showed that two-thirds of voters questioned had heard about the A&P case—and that almost twice as many sided with the company as with the government.
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A&P filed its reply to the suit in April 1950. “By its very nature this industry is one in which monopoly is impossible,” its brief asserted. Another advertising campaign followed. Citing a letter in which Judge Lindley wrote, “I have not made a finding which could be the basis for a suit of dissolution,” full-page newspaper advertisements accused the government of wanting to put A&P out of business. Again, the company succeeded in drawing a large public response. The Justice Department’s archived records include four large cartons of letters concerning the civil case against A&P, many of them handwritten. “Dear Sir,” a Massachusetts woman wrote to Attorney General McGrath, “I am dropping you a line to see if you will try and help us housewives save our A.&P. stores. We surely could not make our money go so far in small stores and will cause hardship on large familys.” Concurred a Tennessee man in a handwritten letter to Harry Truman, “If it were not for big chains like the A&P my family could not eat as well as we do.” In Texas, A&P store clerks pleaded with Sam Rayburn to help save their jobs. The manager of the A&P in Paris, Texas, sought help from Patman, who responded: “I would like to see you own the store instead of two childless brothers in New York.”
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In September 1950, Herbert Bergson resigned his position as head of the antitrust division to pursue a better-paying career in private practice. His post was left vacant until January. With its chief antitrust enforcer gone and the political tides running in A&P’s favor, the Truman administration sat on its hands. No trial was scheduled.
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Meanwhile, the A&P public relations machine continued to operate in high gear. The Hartford brothers granted an unprecedented five-hour interview to
Time
, arguably the nation’s most influential magazine, with which Carl Byoir had close connections. John Hartford visited an A&P store with a researcher and a writer from
Time
, lamenting the high cost of radishes, and raked leaves with them at Buena Vista Farms. The result was a cover story humanizing the brothers and warning that the breakup of A&P would drive up the price of food. “I don’t know any grocer or anybody else who wants to stay small,” John Hartford told the magazine. “They all dream about building something bigger. The whole country’s growing—our cities, schools, labor unions, everything. I don’t see how any businessman can limit his growth and stay healthy.” In his annual year-end statement, John pointed out that Americans were eating more and better food than ever before. A few months later, John received even more gushing attention in
Coronet
magazine, which devoted a five-page article to the folksy philosophy of “the enlightened head—and heart—of the world’s largest grocery chain.” If it was going to press its case, the government would evidently need to show the public why it was persecuting two nice old men.
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Delay worked in A&P’s favor. In January 1951, an influential study group headed by the former dean of Harvard Law School suggested repealing the Robinson-Patman Act. Four months later, the U.S. Supreme Court dealt a devastating blow to state “fair trade” laws, holding that retailers could not be compelled to sell above minimum prices set by manufacturers unless they had signed contracts agreeing to do so. The decision opened the door to a new type of enterprise—discount retailing.
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THE FALL

On September 20, 1951, following a board meeting of the Chrysler Corporation, John A. Hartford collapsed with a heart attack in an elevator in the Chrysler Building in New York. He was not immediately identified, because he had left his wallet in his office, a block away. A physician declared him dead on the scene. His funeral, at Buena Vista Farms, drew four hundred mourners, so many that some had to listen through loudspeakers set up on his private golf course. With John’s death, A&P lost its most visible leader and the man most responsible for navigating the company through changing markets and political headwinds. Even after substantial gifts to the John A. Hartford Foundation during his lifetime, John’s assets were valued at $55.6 million—the equivalent of half a billion dollars in 2011. Almost everything, including the mansion, was left to the foundation, a charity he had set up in 1929 but had never taken an active role in running.
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John was seventy-nine years old at his death. He and George had made careful preparations for succession. They had named David T. Bofinger executive vice president in 1947, and had put him in charge of the grocery business in February 1949. Bofinger, sixty-three, had joined A&P as an office boy in 1899, and had run the vital purchasing operation for three decades. His post as president cast him in a public role for the first time. In December 1949, the Senate Agriculture Committee asked him to testify on the price of coffee, and threatened him with a subpoena when he requested a delay. Two weeks later, Bofinger died of a heart attack at a company banquet, leaving the succession plan in tatters.
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The brothers’ second choice was an executive unknown outside the company, Ralph W. Burger. Burger, then sixty, was also an A&P lifer. His father had worked for A&P at the turn of the century, and Ralph had joined in 1911, working as a part-time store clerk and then helping on a horse-drawn wagon. In 1912 he had moved to the Jersey City office as a bookkeeper, working directly with George L. and John Hartford, and had later become the corporate secretary. Since 1927, when headquarters moved to the Graybar Building, his office had been between George’s and John’s on the twenty-second floor, literally putting him in the middle of every major decision. He had never run a store or a factory, purchased an advertisement, or negotiated with a supplier. Like the Hartford brothers, he was childless. In the late 1940s, after Pauline Hartford’s death, Burger and his wife spent most weekends with John Hartford at Buena Vista Farms, frequently accompanying him to visit stores. As a longtime executive said of Burger in 1945, “The average person at headquarters looks upon him as an assistant to Mr. John Hartford.”
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John Hartford’s death left Burger in an entirely unaccustomed position. Long a backstairs operator, he was now head of the fourth-largest business enterprise in the United States, ranked by sales. George L. Hartford was still chairman of the board and came to the office daily, but at age eighty-six he wanted no management responsibilities. A&P was Ralph Burger’s to run, but he had to run it without John Hartford’s vision to aid him. Burger had another job as well. John Hartford’s will directed that he become president of the John A. Hartford Foundation. John had convinced Burger to take on the position, but Burger had refused the proposed $25,000 salary. Instead, the two had agreed on a fee of one carnation per day—often, a red carnation, of a strain developed and worn by John Hartford.

Burger’s priority was to end the quarter century of conflict between the government and A&P. The 1949 antitrust suit still threatened A&P’s breakup. Truman’s latest antitrust chief, H. Graham Morison, seemed sympathetic to the company, as he criticized state laws restricting price discounting and called for repeal of the Robinson-Patman Act. But scandals enveloped the Justice Department in the autumn of 1951, and Attorney General J. Howard McGrath’s resignation in April 1952 was followed by Morison’s departure at the end of June. Settlement of the lawsuit had to await the inauguration of Dwight Eisenhower in January 1953 as the first Republican president in thirty years. A deal was struck late that year: A&P would close down the Atlantic Commission Company, its controversial produce brokerage, but the government would abandon its other demands to break the company apart. For the first time since the 1920s, A&P could do business without Washington watching over its every move.
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The company Ralph Burger took over was a dominant force in American retailing. A&P’s balance sheet was extraordinarily solid, thanks to George Hartford’s aversion to debt. Its market share had rebounded from wartime lows: in 1951, A&P accounted for 12 percent of all sales at U.S. grocery stores. It operated in forty of the forty-eight states, making it the only grocer with a national footprint. Sears, Roebuck & Co. was the only retailer in the United States with even half its sales (
Table 4
). A&P was still, by a very wide margin, the largest retailer in the world. Although price controls and an excess-profits tax enacted in response to the Korean War decimated profits, they also meant that A&P faced few competitive threats to its position.
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When wartime controls ended in 1953, though, all bets were off. With steel for construction available once again, food chains raced to the suburbs with bigger, fancier stores, building more supermarkets in 1953 than in any year since 1940. Those new stores, on average, were twice the size of the stores built in the late 1940s, and frequently featured two amenities unknown a few years earlier—air-conditioning and regular evening hours. The cost of building a supermarket was three or four times what it had been in 1948, putting new construction beyond the reach of many independent grocers. In 1954, Congress changed federal tax law to provide generous tax benefits for owners of new retail buildings, further stimulating construction of suburban shopping centers with supermarkets. America’s new way of selling food attracted worldwide attention: when Britain’s Queen Elizabeth visited Washington, D.C., in October 1957, she requested her State Department hosts to arrange for her to visit a supermarket.
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