The organized support for the Robinson-Patman bill was led by the United States Wholesale Grocers’ Association, which drafted it, and the National Association of Retail Druggists, representing pharmacists who owned their own stores. The proposed ban on price discrimination and allowances was wildly popular with both groups. According to government studies, two-thirds of tobacco manufacturers, half of grocery manufacturers, and one-third of drug manufacturers gave special allowances to retail chains. Chains typically received larger allowances than the wholesalers serving independent merchants, and while the vast majority of allowances were less than 10 percent, a handful of chains received much larger allowances from certain manufacturers. The smaller merchants and wholesalers naturally found this situation unfair. But opinion among merchants was badly split, reflecting the diversity of ways in which business was done. Lumber wholesalers opposed the Robinson-Patman bill because it prohibited discounts for buying wood by the railcar load, long the practice in their industry. The National-American Wholesale Grocers’ Association, the group Patman had attacked in the spring of 1935, was opposed as well. The American Fruit and Vegetable Shippers Association asked for an exemption, as market prices changed “almost hourly,” potentially giving rise to endless claims of price discrimination as some buyers paid different prices than others. The National League of Wholesale Fresh Fruit and Vegetable Distributors, on the other hand, was strongly in favor of the bill. Allowing chains to expand, the league’s secretary told the House Judiciary Committee, was “generosity with the producer and shipper’s money … taking it right out of his pocket and giving it to the consumer,” making clear his view that the consumer had no right to save money.20
Robinson-Patman’s advocates presented the legislation as help for manufacturers victimized by “concentration of power in the buying field.” As H. B. Teegarden, the attorney for the United States Wholesale Grocers’ Association, explained helpfully, “The law must help the manufacturer to resist the unfair demands of the large buyer.” Many manufacturers did not see things that way. Monsanto Chemical Company, a maker of pesticides, deemed the legislation “unsound and impractical.” General Mills objected that some of its customers would inevitably pay different prices than others because of constant fluctations in flour prices, but the bill might deem these price changes discriminatory. Cigar company executives opposed the bill because they feared that if the big grocery chains could no longer receive discounts on large orders of cigars, they would manufacture their own. The same concern led most makers of kitchen matches to oppose the Robinson-Patman bill. As one match company executive explained, “The large companies are always fearful that the large Corporate Chains such as A&P, Kroger, Safeway and a couple of others will manufacture their own matches unless they are given a special concession.”21
Independent merchants, notably grocers, were the poster children of the anti-chain campaign. But while small food retailers, by far the most numerous group of merchants, overwhelmingly favored the legislation, their opinions did not much matter. Their national organization, the National Association of Retail Grocers, was hapless, and most of its state affiliates depended on contributions from wholesalers or food manufacturers. Even their friends, such as Carl Dipman, the editor of The Progressive Grocer, admitted that tens of thousands of grocers lacked basic business skills and were bound to fail, and “no amount of legislation can stop the carnage.” The fact that most grocery stores and butcher shops survived for only a few years meant that shop owners were rarely influential even at the local level: in Texarkana, the largest city in Wright Patman’s congressional district, 37 percent of the independent grocery stores that opened their doors between 1925 and 1935 failed during the first year. In the big northern and Midwestern cities, food retailing was dominated by immigrants who in many cases spoke little English and were not even citizens eligible to vote. The independent grocers would never have been able to bring the Robinson-Patman bill to final approval. It was the druggists and the food wholesalers, pillars of their communities running well-established businesses, who drove the train.22
Patman was unable to advance his bill in 1935, as Congress had far more momentous legislation on its agenda—bills granting workers the right to form unions and bargain collectively, regulating electric and gas utilities, and establishing a national pension and social insurance scheme, Social Security. Patman maneuvered for Roosevelt’s support to pass the price-discrimination bill in 1936. On November 16, 1935, he asked Marvin McIntyre, a White House aide, to arrange an appointment with the president just before Christmas. Two weeks later, he offered a more ambitious plan, proposing to bring wholesalers and independent retailers from each state to meet with Roosevelt on December 30 in Washington. If that were to happen, he promised, “the Republicans would quickly forget politics and follow the President.” McIntyre passed Patman’s request to the president with his own cover note: “I don’t think the movement sponsored by Patman would work very well.” Roosevelt steered clear, seeing Patman instead at his annual New Year’s Day reception, where the congressman told him about his chain-store investigation.23
The president understood he was on treacherous ground. Since 1933, his administration had made much of its commitment to the consumer, creating various consumer advisory councils and styling itself the first administration to give the consumer a voice. Now those consumer groups wanted to be heard. They strongly opposed the Robinson-Patman bill: what Patman called price discrimination they thought of as discount pricing, and they wanted more of it, not less. Six women’s organizations, including the national League of Women Voters and the federations of women’s clubs in Chicago and Cleveland, joined forces to object that the bill would reduce purchasing power. “This is clearly a WOMAN’S CAUSE,” they proclaimed. Patman would not allow such statements to go unanswered. “When all independent merchants can receive the same prices from manufacturers that the banker-controlled retailers receive, competition will be preserved and the consumer protected,” he thundered. Patman skillfully orchestrated grassroots support. Hundreds of petitions poured into Congress, signed by grocers and candy-store owners all over the country. Druggists sent Roosevelt handwritten letters referring to “the rumor that the administration is blocking the passage” of the bill.24
The administration was not blocking the Robinson-Patman bill. In fact, it was divided on the subject. The Federal Trade Commission, which had taken on responsibility for fighting monopoly, thought the legislation too weak and proposed that quantity discounts, which “as a rule work in favor of monopoly,” be put under FTC regulation. The Commerce Department took no stand, but its Business Advisory Council, which included prominent chain-store executives, proposed further study “to understand pricing behavior” before passing the bill. R. E. Wood, the president of Sears, Roebuck, and Edward Filene of Filene’s, the Boston department store, both wrote to the White House in opposition. When the National Conference of Independent Businessmen brought 1,500 people to Washington for the “March of the Little Men” in March 1936, a few retailers visited Roosevelt to ask his support for Robinson-Patman, but the president avoided taking a stance. The White House let it be known that “he is not personally interested in this legislation and it will have to pass under its own steam.”25
In the end, the Democratic leaders in both houses of Congress decided to accept an altered version of the Robinson-Patman bill. They understood full well the consumer benefits brought by chain retailers, and they also understood that price discrimination had an economic logic that could not be legislated away. But in 1936, a vote for Robinson-Patman had less to do with economics than with trying to hold together a society that was fraying badly after six years of the Depression. As Hatton Sumners, the chairman of the Judiciary Committee, wrote eloquently in a confidential letter to an old friend, if Congress failed to help the small businessman, “some man like Huey Long” might come along and demand that government take over big companies. Sumners added: “I believe I can read with some degre
e of accuracy the signs of the times. These things give to me the deepest concern.”26
With his usual parliamentary skill, Patman proposed that Robinson, the Senate majority leader, pass the legislation through his chamber first to press the House Rules Committee to put the bill on the House’s crowded calendar. The Senate added numerous amendments and sent it to the House. On May 28, the House passed its version of the ban on price discrimination with an overwhelming vote of 290–16. House leaders pointedly excluded Patman from the conference committee that reconciled the differences between House and Senate legislation. The Robinson-Patman Act was finally approved on June 6, and signed by President Roosevelt without objection.27
Economists have spent decades debating the economic effects of the Robinson-Patman Act. The financial effects, however, are beyond debate. The average publicly traded grocery company lost 58 percent of its stock market value between June 11, 1935, when the bill was introduced in the House of Representatives, and December 1937, even as the Dow Jones Industrial Average rose about 8 percent. The price collapse of supermarket stocks suggests that investors expected the law to have a severe impact on profitability. That expectation proved correct. Chain supermarkets were forced to raise prices, as they were no longer able to use advertising and brokerage allowances to lower the cost of groceries. As they could no longer obtain merchandise far more cheaply than independent stores, their price advantage declined, and their share of food sales plummeted. A&P was seriously affected as well. Prior to 1935, the company’s profits had never been less than 2 percent of sales. From 1935 onward, profits would never exceed 2 percent of sales. For independent retailers, especially those in the grocery trade, the Robinson-Patman Act was a lease on life.28
The Robinson-Patman Act served Patman’s political needs as well. His radio speeches against the chains made him a national figure. He undertook to install broadcasting equipment in the Capitol, and also ordered an expensive sound system for his campaign rallies. Back in Texarkana, his main political problem was a rumor that Merle had been seen coming out of the Safeway store with a big bundle of groceries, requiring Patman to declare that he never shopped at chain stores and had asked Mrs. Patman to avoid them as well. Patman campaigned vigorously against token opposition, holding dozens of rallies in the three weeks before the July primary election and lavishly praising the president who had kept him at a distance. Patman had an almost pathetic need for Roosevelt’s approval. “Dear Mr. President: I just want you to know that I still believe in you and your administration,” he wrote in October 1936, enclosing a $500 campaign contribution. “This information is given to you solely for the purpose of letting you know my faith and belief in your sincerity, honesty and ability.” In November, Patman coasted to victory in the Roosevelt landslide.29
Patman knew the cause of his success with the chain-store issue. “One certain concern had really caused the passage of this act, the A&P Tea Company,” he said later. Through the months of investigation into their business and their supposed influence peddling, the Hartfords refrained from attacking Patman or his bill. Congressional files and administration records reveal absolutely no effort by the country’s largest retail chain to influence the legislation save the testimony of C. W. Parr, which was provided at the request of Patman’s committee. Even in January 1936, when he spoke publicly about possibly selling off stores to their managers and turning A&P from a retailer into a wholesaler, John Hartford pointed only to the cost of chain-store taxes, saying nothing about the Robinson-Patman bill. But as he watched the political process in Washington lead to a law that undermined the very foundation of his family’s business, John Hartford reached a concluson that went entirely against his natural instincts: he and his brother could afford to stay silent no longer.30
15
THE FIXER
The demise of the National Industrial Recovery Act in May 1935 changed the political environment surrounding chain retailing. By ruling out codes of conduct as a means of restraining competition, the Supreme Court decision gave a decisive impetus to direct legislative attacks on big retailers. For George and John Hartford, though, the most important effect of the law’s invalidation had nothing to do with politics. With the National Recovery Administration’s codes of conduct dead and buried, A&P was free to undertake a major change in strategy.
In the early 1930s, when the supermarket concept first arrived in New York, the Hartfords had ignored it. Although their decision not to open supermarkets in 1931 and 1932 has been roundly criticized by later writers, it proved fortuitous. From May 1933, when Congress enacted the National Industrial Recovery Act, until May 1935, when the Supreme Court overturned it, the retail prices of most items on grocers’ shelves were effectively set by manufacturers. The NRA Food and Grocery Code made it hard for A&P to win wholesale price concessions from manufacturers and mandated at least a 6 percent markup over wholesale on all items at all grocery stores. Had A&P opened supermarkets, the stores could not have passed their lower operating costs through to customers in the form of lower prices. An investment in new supermarkets would have been difficult to recover, for under the codes large stores had no competitive advantage.1
The end of the NRA restored price competition in food retailing, and supermarkets made sense once again. As independently owned supermarkets cut into A&P’s market share, John A. Hartford was eager to start opening large stores. George L. Hartford, per usual, took a more conservative stance. “We had a conflict at headquarters whether we should adopt that type,” John testified later. “Some said it wouldn’t last—you can’t operate without selling under cost, and that we won’t do.”2
The decision to adopt a new type of store was far more complicated for a retailer the size of A&P than for independent operators. An independent could install a store in any suitable space, but the Hartfords needed to find a format they could replicate widely. Independents could position themselves as wild-eyed price-cutters—the image conveyed by such banners as Big Bear and Big Bull—whereas A&P, whose name was a household word, had to develop a format consistent with its established identity. Many independently owned supermarkets staged marketing stunts reminiscent of the Great Atlantic & Pacific in the era of George F. Gilman, with free prizes, product giveaways, and cooking demonstrations before hundreds of customers. One even hired a hypnotist to put a woman to sleep; while the subject slept in a store window, the hypnotist granted private interviews to shoppers. The day when A&P could promote itself so shamelessly was long past. In retailing, it was the establishment, not the upstart, and it had to position itself accordingly.3
Pressed by division and unit managers, who saw their sales leaking away to supermarket competitors, the brothers agreed to a trial. In 1935, A&P opened its first supermarket in Paducah, Kentucky. The goal was to hold expenses to 12 percent of sales, far below the company-wide average of 17.6 percent. At first, that goal seemed unattainable, but as the store lowered its prices, sales soared with little increase in operating costs, and the expense ratio began to fall. John Hartford liked what he saw, and he encouraged other experiments to raise volume by lowering prices. These trials showed that if they were located properly, supplied efficiently, and operated on a self-service basis rather than with clerks waiting on shoppers, supermarkets could be highly profitable. In some stores, expense rates fell to less than 11 percent, more than a third below the company-wide average.4
In March 1936, John spoke to the division presidents about developing more supermarkets. He was plainly worried about A&P’s competitive position. Unless the company moved faster to shed low-volume stores and build big stores, he said, it would face increasing difficulties. George Hartford said he was less pessimistic about A&P’s outlook but supported “conservative” development of supermarkets. A few more were opened, giving A&P twenty in all by the end of 1936. But it was clear the brothers were not of one mind. In October 1936, they disagreed openly at a division presidents’ meeting, with George insisting that “too much emphasis had been plac
ed on the procuring of a large volume” even as John complained that “we have not progressed nor adapted our business in pace with the changing times.” There was no getting around the financial facts: profits were down almost by half from their peak in 1930, and the pretax return on investment was only half John Hartford’s target of 25 percent. A&P’s thousands of older stores, the ones that did not even sell meat, were downright dowdy, and many of the combination stores with meat counters, innovative in the 1920s, had become obsolete and unattractive. In too many places A&P was no longer the low-cost grocer.5
As A&P’s profits collapsed in early 1937, George changed his mind. He agreed to slash markups in order to increase sales volume, always John Hartford’s preferred approach. John ordered a concerted effort to replace underperforming stores with supermarkets. But in a company the size of A&P, the boss’s order was not always heeded. John’s instruction went to the division presidents, who in turn told their unit managers to find sites for supermarkets. Some did; some did not. The Eastern Division, in the New York City area, promised to open sixty-four supermarkets in the first quarter of 1938, but only twenty were ready. In Olean, New York, part of the Central Division, the unit manager opened a supermarket in 1937 but refused to close the four traditional full-service stores, destroying profitability. “Do you realize that we have gone all this quarter with only two supermarkets being opened in the entire Division?” J. J. Byrnes, head of the New England Division, wrote to the head of his Providence unit in 1938. “I shall have to go in again and try to offer alibis, which I dislike very much doing, as to the reasons why we have not procured more supermarket locations.”6
Opening supermarkets posed a troublesome management problem, because it was difficult to introduce the lower-price format without destroying the profitability of the company’s older stores nearby. The Hartfords preferred price discrimination: when A&P opened a new supermarket, it would advertise its low supermarket prices while charging higher prices for the same products in conventional stores. This approach, of course, hurt the conventional stores’ sales, leaving profits in tatters and employees bewildered. It is no wonder that John Hartford’s enthusiasm for supermarkets was not widely shared.7
The Great A&P and the Struggle for Small Business in America Page 20