A&P’s prewar cost advantage came largely from its supply chain, which imported coffee by the shipload, commanded deep discounts by purchasing huge volumes of processed foods, and minimized inventory costs by moving goods quickly from farms and factories to its warehouses and then into its stores. Amid the general wartime mobilization, such logistical feats were no longer possible. The military had first claim on foodstuffs, buying up 13 percent of all U.S. food production in 1942 and annulling A&P’s ability to gain a cost advantage by buying in huge volumes. The need to move troops and military freight meant that civilian transport was restricted, making it hard for grocery chains to ship large quantities of goods. No longer could A&P learn of a canner’s surplus of peaches and agree on the spot to buy a dozen railcar loads at a deeply discounted price; neither the goods nor the railcars were to be had. “Markets and delivery routings are in such a chaotic state that there is no means of determining the exact source of the merchandise sold today and just how replacements will be routed,” A&P’s research director reported soon after Pearl Harbor.5
In practice, the price controls were a constant headache for chain retailers, which risked damage to their reputations if consumers thought they were flouting the law. In Palestine, Texas, A&P had to produce records to refute a customer’s complaint that it had raised the price of Grape-Nuts Flakes from thirteen cents to fifteen cents. It won permission to raise the price of pork and beans packed in glass jars, but not in tin cans. It was denied the right to claim a wholesale markup on bananas because its banana-handling operation was not separately incorporated as a wholesaler. A&P claimed to be losing 1.81 cents on every ten-cent loaf of Marvel bread it sold in Pennsylvania and New York, but the government forced it to cut the price rather than allowing a price increase. In the spring of 1942, A&P stores ran out of Dexo, a store-brand shortening manufactured for it by the Durkee Company. The government had imposed a price ceiling on cottonseed oil, a key ingredient, but none on the seed itself; shortening manufacturers that owned crushing mills could buy cottonseed on the open market and make all the oil they required, but shortening manufacturers without mills, such as Durkee, found no cottonseed oil for sale at all.6
In addition to the price controls on most products, gasoline, motor oil, and tires all were rationed to discourage civilian consumption of critical raw materials. Car owners responded by cutting back sharply on driving. Before the war, growing numbers of shoppers had gotten in the habit of motoring to one of the new supermarkets offering free parking. Under wartime conditions, gasoline was precious, and due to rationing and short supplies there was less money to be saved by using it to drive to the supermarket. Many shoppers returned to buying their groceries at the corner store.7
The result of all this was a disaster for the big grocery-store operators. Although A&P’s operating costs reached record lows—its cost of doing business came to less than 13 percent of sales in 1942, a drop of six percentage points since it began the conversion to supermarkets in 1937—profits were slim due to limited supplies of food and high wartime taxes. The other grocery chains also fared poorly. “The fact is that the chains have not been able to operate under the regulations on any kind of an economic basis,” The New York Times reported in 1945. Chains’ share of all grocery-store sales plummeted nine percentage points over the course of the war. The largest chains fared notably worse than the small ones, with the profit margins of the four biggest chain grocers trailing those of much smaller competitors throughout the war. A&P was hit badly, its sales falling 11 percent in 1943. The construction of new stores was suspended to conserve building materials and labor, giving the independent grocers a prolonged lease on life.8
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The end of the war in August 1945 did not bring immediate change: manufacturers needed time to shift from tanks and bombers to cars and home appliances, and demobilizing more than ten million soldiers, sailors, and airmen took two years. Price controls initially remained intact; in early 1946, the maximum wholesale price of lima beans still depended upon whether they were to be canned, frozen, or sold fresh at retail, and whether they had been grown in Idaho, Michigan, or Virginia. “If we lifted the lid today, there would be a substantial rise in cost of living,” Agriculture Secretary Clinton Anderson warned in February 1946. But amid an uproar over a scarcity of meat, controls were allowed to expire over the summer on all foods save rice, sugar, and sugar products. As the economy returned to normal in the second half of the year, with merchandise in ample supply and ration coupons no longer needed, the chain-store business exploded. In 1945, chains accounted for 31 percent of grocery sales. Just two years later, their share was 37 percent. A&P was at the top of its game. While consumer spending on food rose by half between 1945 and 1948, A&P’s sales doubled and its profits trebled. Earnings per share, which had ranged between $4.65 and $5.45 during the war years, reached $18.21 in 1947, permitting George L. Hartford to reinstate the cherished $7-per-share dividend.9
With building supplies available once more, the supermarket revolution that had begun before the war resumed in full force. In 1946, developers spent $801 million to build stores, restaurants, and garages—twenty times as much as in 1944. The number of supermarkets nationwide, around two thousand in 1941, hit fifty-six hundred in 1948. For the first time, the supermarket was a national phenomenon. And most notably, it was a suburban phenomenon. Before the war, grocers had built supermarkets mainly in fancier urban neighborhoods, using one structure perhaps fifty by seventy feet to replace several combination stores one-third that size. Now, though, farm fields blossomed into suburbs as housing construction boomed: of the 931,600 housing units started in 1948, 82 percent were single-family homes and 44 percent were in “rural, non-farm” areas, mainly on the outskirts of big cities. These developments provided room for food stores with large parking lots. The new stores were still far from the fifty-thousand-square-foot supermarkets that would become the norm by the 1990s; in 1947, a seventeen-thousand-square-foot store qualified as “huge.” Even so, as bigger stores opened and smaller ones closed, sales at the average A&P rose 139 percent between 1945 and 1948.10
The new stores had far more to offer than their prewar counterparts. Before the war, the average conventional grocery store stocked perhaps fifteen hundred items and offered clerk service, credit, and home delivery. The average prewar supermarket had about three thousand items in stock and had no credit or delivery but, like conventional stores, made heavy use of sales clerks, especially to sell meat and produce. In the late 1940s, new supermarkets typically carried four thousand or so items and featured self-service meat and produce sections. Only 22 percent of the nation’s grocery stores operated wholly on a self-service basis, but they accounted for 64 percent of grocery sales. This put the squeeze on independent grocers. If an independent store owner cut out clerk service, telephone orders, credit, and delivery, he would eliminate the important features distinguishing his store from chain supermarkets. Continuing to offer such amenities, on the other hand, would create an impossible cost disadvantage. Eliminating the clerks standing at attendance behind wooden counters was the only feasible choice.11
The new supermarkets devoted careful attention to aesthetics. Prewar grocery stores were utilitarian, often displaying merchandise in bushel baskets set out on wood floors. “If food stores were built primarily for men shoppers, they might be fairly simple, possibly even slightly mechanical, with not much attention paid to store atmosphere. But with women it is different,” The Progressive Grocer, the leading trade magazine, told its readers in 1946. Light colors, bright illumination, and attractive floor coverings were now essential, but owners were advised to pay close attention to their customers’ expectations; fancy shelving and decoration in a store serving price-conscious working-class customers might drive them away. Survey after survey showed that cleanliness was housewives’ top concern. This meant more than sweeping floors. In 1944, A&P joined with the Ohio Agricultural Experiment Station to test prepackaged produce at ten s
tores in Columbus: alongside loose produce, the stores stocked vegetables that had been trimmed in a warehouse, placed on a cardboard tray, wrapped in cellophane, sealed, and machine labeled. The produce sections looked neater, losses from damaged produce fell by half—and the company discovered that shoppers would pay a premium for prepackaged carrots with their tops cut off. After the war, A&P took the concept one step further, setting up produce packinghouses in California to do the trimming and packaging before the produce was shipped east.12
New items began to fill the shelves as industrial-scale food manufacturing took hold. In 1946, A&P began opening bakeshops in its stores. Initially, the shops sold unwrapped cakes and pies produced in A&P’s bakeries and took orders for custom products: using a color catalog, the shopper could order a birthday cake of a particular type, style, and icing and pick it up the following day. To cut costs further, much of the baked-goods line was soon put on a self-service basis, with cakes and pastries boxed at the bakery. A&P had long sold poultry feed for customers who kept chickens, and in 1947 it sponsored a contest to design the “chicken of tomorrow,” promising “a chicken with breast meat so thick you can carve it into steaks.” The larger A&P stores were getting freezer cabinets by 1946. Frozen vegetables and seafood, while still luxury items, gained popularity as freezer compartments became standard in household refrigerators, and manufactured meals in metal trays were introduced in the late 1940s. Frozen orange juice, previously known for its astringent taste, became a consumer staple after government scientists found a better way to make it—and after a juice manufacturer hired the singer Bing Crosby as a celebrity promoter. Production went from 7 million cans in 1945 to 600 million in 1951, making orange juice concentrate “perhaps the most dramatic single new product of the past 25 years,” in The Progressive Grocer’s judgment.13
By 1948, the supermarket format had captured one-quarter of all grocery sales. The chain-store wars no longer raged. Wright Patman, now chairman of the Select Committee on Small Business, struggled to keep the cause alive, entering scathing attacks on A&P in the Congressional Record and mailing them to supporters in massive quantities. He put forward anti-chain bills in every session of Congress. In 1945, 1947, and again in 1949, he proposed to amend the tax code to prohibit retail chains from subtracting losses at money-losing stores when determining their taxable income; the Truman administration was strongly opposed, and Patman could not even secure a committee hearing. Another Patman bill, to bar manufacturers from offering quantity discounts unless they publicized that similar terms were available to all customers, went nowhere. As late as 1949, four years after the Ways and Means Committee concluded its look at the subject, a Patman investigator was still trying to prove that John Hartford’s 1939 loan to Elliott Roosevelt was intended to allow A&P to use Elliott’s radio stations to push repeal of the Texas tax on chain stores. But now, with chain supermarkets all around them, even the congressman’s erstwhile supporters in rural eastern Texas rejected his crusade. “The A&P has done more to raise the living standard of the people of the U.S. than any other industrial business,” one constituent wrote to Patman by hand in 1949.14
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It was on February 24, 1949, that the U.S. Court of Appeals for the Seventh Circuit upheld Judge Lindley’s ruling convicting A&P, George and John Hartford, and other A&P executives of engaging criminally in restraint of trade. A&P chose not to appeal to the U.S. Supreme Court. The Department of Justice quickly moved to use the criminal conviction as the basis for a civil antitrust suit. On September 15, it asked a federal court in New York City to order the breakup of A&P.
The civil suit was the culmination of a quarter century of government attacks on the world’s largest retailer. The leadership of the Department of Justice had changed once more, and the civil suit was the first case brought by the new attorney general, J. Howard McGrath. McGrath, a Democratic senator from Rhode Island who had managed Harry Truman’s 1948 election campaign, had been named attorney general in August, and one of his first decisions was to press ahead with the case being developed by Herbert Bergson, the twelve-year Justice Department veteran who had taken charge of the antitrust division in 1948. The Truman administration signaled its support: on September 15, the day the civil suit was filed, Truman nominated Sherman Minton, author of the appeals court ruling upholding A&P’s criminal conviction, to the U.S. Supreme Court. The same day, he nominated Lindley to Minton’s seat on the U.S. court of appeals in Chicago—a nomination the laconic Lindley greeted with the words “Well, that’s something.”15
The criminal case had resulted in relatively small fines for the defendants, and had led to only one important change in the way A&P ran its business: in view of Lindley’s objection to the Atlantic Commission Company acting as both a wholesale buyer for A&P’s stores and a wholesale seller to other retailers, the produce brokerage now bought only for A&P. In its civil suit, the government sought far more sweeping changes. It asked the court to order each of A&P’s seven retail divisions to be spun off as an independent company. It wanted A&P’s food-processing plants reorganized into a stand-alone business, with “the complete and perpetual separation” of manufacturing from retailing. And it wanted many of A&P’s central functions, including the Atlantic Commission Company, the national egg and poultry department, and the national butter department, abolished altogether.
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.16
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 spa
ce 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.”17
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.18
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.19
The Great A&P and the Struggle for Small Business in America Page 29