Podcast: The Political Economy of Big Retail, Then and Now—The Story of the Great Atlantic & Pacific Tea Company, With Marc Levinson

June 28, 2021

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Long before Walmart and Amazon, there was A&P—The Great Atlantic & Pacific Tea Company—which started as a mail-order tea business in the Civil War era before displacing Sears, Roebuck & Co. in the 1920s to become the world’s largest retailer. Its pioneering innovations made the mom-and-pop grocery business more efficient and less expensive, and in so doing it pitted consumer and civil rights advocates against small-business groups. Rob and Jackie sat down with historian and economist Marc Levinson, author of The Great A&P and the Struggle for Small Business in America, to discuss the life and times of the company and how the debates around its growth resemble the antitrust debates we are having again today.

 

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Rob Atkinson: Welcome to Innovation Files. I’m Rob Atkinson, founder and president of the Information Technology and Innovation Foundation. We’re a DC-based think tank that works on technology policy.

Jackie Whisman: And I’m Jackie Whisman. I handle outreach at ITIF, which I’m proud to say is the world’s top-ranked think tank for science and technology policy.

Rob Atkinson: And this podcast is about the kinds of issues we cover at ITIF from the broad economics of innovation to specific policy and regulatory questions about new technologies. Today we’re talking about small business in America and the love-hate relationship that we seem to have with the consumer economy.

Jackie Whisman: And our guest is Marc Levinson, an independent historian, and economist. He spent many years as an economic journalist, including a stint as Finance and Economics Editor of The Economist in London. He later worked as an economist at a New York bank and served as a senior fellow at the Council on Foreign Relations. Marc’s seven books include The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger. It’s a prize-winning history of an innovation that made globalization possible. And Outside the Box, published last year, which discusses the rise and retreat from global supply chains, which is a topic that turns out to be quite timely.

Rob Atkinson: And today we’re going to be discussing another book of Marc’s. It’s actually one of my favorite history books of all time. It’s called The Great A&P and the Struggle for Small Business in America. I know some people who I won’t name on this call, and it’s not me and it’s not Marc, weren’t fully aware of what A&P was—The Atlantic & Pacific Tea Company from, Marc’s going to know the exact date, the 1870s, I think—and it was the Walmart of its day or the Sears of its day or the Amazon of its day. It was a sort of major retail innovator. And the book is called The Great A&P and the Struggle for Small Business in America. A fascinating book, not just about the company, but really the political economy of big retailing, and it explores the conflict that arose when a giant retailer, A&P turned the archaic mom-and-pop retail industry into a highly efficient system for distributing food at low cost.

Jackie Whisman: Well, thanks for being here, Marc. I’m going to kick things off with a quick history lesson for those like me, who weren’t familiar with the great A&P story until we met Marc Levinson. So, this is sort of an excerpt from your book review on Amazon, and I’ll just read it. It says, “From the modest beginnings as a tea shop in New York, the great Atlantic & Pacific Tea Company became the largest retailer in the world. It was a juggernaut, the first retailer to sell $1 billion in goods, the owner of nearly 16,000 stores and dozens of factories and warehouses. But its explosive growth made it a mortal threat to hundreds of thousands of mom-and-pop grocery stores.

Jackie Whisman: Main street fought back tooth and nail enlisting the state and federal governments to stop price discounting, tax chain stores, and require manufacturers to sell to mom-and-pop at the same prices granted to giant retailers. And in a remarkable court case, the federal government pressed criminal charges against the great A&P for selling food too cheaply, and they won.” This case was decided in 1950, but it sure sounds familiar. And we’re looking forward to talking to you about the book.

Marc Levinson: Well, thanks Jackie. A lot of these issues have certainly not gone away.

Rob Atkinson: So, Marc, I guess maybe the first question: tell the listeners why you decided this particular topic, this particular company as a history?

Marc Levinson: A couple of reasons, really. One is that there happened to be a wealth of information available. The US government, in particular, went after A&P for many years. And so, there were boxes and boxes and boxes of data available in the national archives that could be mined. The other is that I thought that the A&P story really did go to a basic contradiction that we face in the way that we think about the economy. On the one hand, Americans tend to like the idea that we’ve got a capitalist economy, that it’s market-driven, that we have a lot of innovation, new things coming out of that. On the other hand, Americans also like what’s familiar. They like their local merchants, they like what’s available in the neighborhood, they have friends who actually run these local enterprises and they see a lot of virtue in this. So, we want capitalism, but perhaps not too much capitalism and we’re kind of uncomfortable about the intersection there of, of capitalism and localism. And that’s what I wanted to go at in this book.

Rob Atkinson: So maybe you can just briefly explain, obviously, unless you’ve read the history of the economy, people aren’t always aware of it, but before a company like A&P in particular, most retail were single establishment companies owned by one person. Oftentimes there wasn’t even self-service, so you would go into a store... And we’ve seen all those old movies where somebody goes in and says, “Give me a bag of potatoes,” and then the grocer does it for them. A&P was a giant revolution. Can you just explain a little bit more of that?

Marc Levinson: Sure. I can give you a really quick history here. A&P got its start on the docks of the East River in Lower Manhattan as a small tea wholesaler right around the start of the Civil War, 1860, 1861, exactly when is kind of lost in time. And A&P itself over its lifetime selected several different years as it’s starting year. So we don’t really have the information about when it began. It grew as a mail order tea company. It was really the first big mail order merchant in that sense. It advertised in magazines that went out to people all over the country, and the idea was you could organize a buying club, get ten of your friends together, send in your orders together, and whoever organized this would get a free pound of tea. And so, it was novel in its way of merchandising, even then. Initially, it and all the other tea companies sold tea and coffee and spices.

And the reason for that is that there were not packaged goods yet. To become a grocery store, they really needed the development of two technologies that were the cardboard box and the tin can. And once these things came into widespread use in the 1880s, then you could have name brand merchandise. Then you could actually put a name on a product and sell it as distinct from just a generic product. And that led to the start of modern grocery retailing around 1900. These were typically very small stores. Go into a store... think of the ground floor of a row house, that might be the size of a store, maybe 20 feet across and 20 to 30 feet deep. And there would be a limited selection of merchandise that a customer would walk into the store and the storekeeper would reach for the items that the customer wanted. No self-service.

You had a few chains starting up in the early 1900. Many of the names that later became famous in retailing, Grand Union, Kroger. They go back to those days. In 1912, the family that controlled A&P, it was a family-owned business, had the idea that maybe they could try a simpler store with no advertising, no delivery, but lower prices. And they opened the first such store in Jersey City. It became an enormous hit and they decided that they had a format here that they could really expand on. And so between 1912 and 1920, they started rolling out store after store, not only in the New York area, but all over the east and the south. And by 1921, A&P, The Great Atlantic & Pacific Tea Company had displaced Sears, Roebuck as the largest retailer in the world. That was really just the beginning. During the 1920s, they developed a new concept, which was that they would sell meat and dairy products in a grocery store. Previously that hadn’t been done much in chain stores because it was hard to keep things cold and hard to control the waste.

Rob Atkinson: You went to a butcher to buy your meat.

Marc Levinson: That’s right. So, it became more of what we think of as a grocery store today, and then A&P began to integrate vertically, like it had its own macaroni factory, and it had its own chocolate plant. And it learned to use these operations to negotiate with suppliers. So, here’s a supplier, it wants to supply canned tomatoes at three cents a can... A&P had its own canning plant. A&P had pretty good idea of what it would cost to create a can of tomatoes and could use that as a bargaining chip with suppliers. So, it relied mostly on outside suppliers, but it did have a significant capacity of its own. It’s segmented the market like a modern retailer. It had its own house brands, high, medium, and low in terms of cost and was doing a lot of things that were not associated with traditional grocery retailing. And it just expanded on it.

By 1929, it had a billion dollars in sales, which no retailer had ever done before. Its growth got merchants upset. And this really goes back to the early 1900s when you had local merchants in town saying, “This is not fair to have a company that owns more than one store, it’s able to negotiate better prices with suppliers. That’s not right. It’s able to negotiate better prices with the newspaper for advertising. That’s not right.” And so, there was a movement to have what was known as fair trade. And the idea behind the fair trade in those days was that everybody ought to pay the same thing. Every merchant who bought a particular good from a wholesaler ought to pay the same price, no matter if the merchant bought one case or a thousand cases, the treatment ought to be the same.

And the idea was, well, if everybody’s costs are the same, then we can all compete fairly. And that grew very much during the teens and during the 1920s, there was a significant anti-chain store movement. And even among the business groups, there was an anti-chain movement. You had chambers of commerce criticizing what they referred to as “foreign companies”—foreign companies were companies that were based in New York or Chicago—and foreign companies are going to take all the good jobs out of our town and they’re going to take all the money out of our town. And so, shop local, don’t shop at these foreign companies. That’s the environment that A&P faced.

Rob Atkinson: I want to sort of jump into sort of how the political factors played out in that, but it’s really interesting that you mentioned this, it was really in a lot of ways, technological change that enabled this strictly tin cans, cardboard boxes, but also clearly the freight train. You had to be able to move things from factory to store and that enabled mass production. In the book that Michael and I wrote, Big Is Beautiful, for The MIT Press, there were a number of good scholarly historical studies that showed that the freight train enabled larger factories because you could’ve served larger markets. And so, it was this confluence of all these technologies that came about that somebody in this case, the head of A&P figured it out and said, “We’re going to try this new business model.”

Marc Levinson: Well, if you can envision a mom-and-pop store in the 1910s and 1920s, it might have had 500, 600 square feet of space, if that. It probably sold 1,000 different items and it probably dealt with a dozen different wholesalers. And so, the guy who handled canned fruits would come by one day and the guy who handled canned fish would come by the next day, and they’d be getting deliveries here and there in small lots. And it worked for these mom-and-pop merchants, but as you can imagine, it made for a very inefficient distribution system, a very expensive distribution system, because somebody was stopping by this store to deliver something every morning and somebody else was coming by to deliver something every afternoon, and not very much of it. So, a lot of money actually went into the distribution system.

The big criticism of A&P actually didn’t come from its competitors, the small merchants, it came from the wholesalers because as A&P grew, it made less and less use of wholesalers and organized its own distribution system. The mom-and-pop grocers by and large didn’t have much political clout. Most mom-and-pop grocers didn’t last for very long, it’s a tough business to be in. And a large number of them were not US citizens, they were immigrants. So, their views really didn’t count much politically, but the wholesalers and every town had its wholesalers, these were important businesspeople. What they felt mattered a whole lot politically. And they were very concerned about A&P displacing wholesalers.

Rob Atkinson: My parents grew up in Ontario, Canada, and one time on a visit, I went, and I was able to find the store that my grandfather actually, I guess it would be my grandfather, ran back in the 1910s, 1920s. And it was exactly, as you said, it’s still there as a little store, but it was just maybe 500 square feet out in the middle of these crossroads and they would sell exactly the kinds of things you did. And I’m sure he was probably upset with all this creative destruction as well. I think I read it in your book Marc, that one of the supporters, that A&P was a divisive company in a way, because some people loved it. Consumers generally loved it. Housewives, not to use a sexist term, but back then the housewives were the ones that were mostly buying at a grocery store. There was a nascent consumer movement that supported it. As I recall from your book, but I could be wrong, the NAACP was a big supporter because it was the first time that urban blacks could get reasonably priced food in their neighborhoods. Any on thoughts on that?

Marc Levinson: Particularly in the 1930s, yes, there was this conflict because, yes, consumers knew that they were getting better prices at the A&P. The brothers, John and George Hartford, who ran the company for decades and decades firmly believed that they needed to keep their prices low and make their profit on volume. That’s how they ran their business. And that was just something that many mom-and-pop merchants couldn’t compete with. And so while customers flocked to A&P, merchants felt that this was really unfair competition.

Rob Atkinson: So, I happened actually to do a relatively wonky tweet yesterday.

Jackie Whisman: I’m shocked, Rob.

Rob Atkinson: I know Jackie, I never do that. I’m sorry. I usually do it about Madonna or other cultural figures or somebody, whoever’s like that now. And the quote was from Senator Hugo Black in 1930. It was at the Senate before he went to the Supreme Court and he said, this was right around the time of the A&P, “A wild craze for efficiency in production, sale and distribution has swept over the land, increasing the number of unemployed and building up a caste system. That was one of the responses back then.

Marc Levinson: Yes, you had concerns that these foreign companies, the New York and Chicago companies, were taking all the good jobs away, the management jobs, so all that was going to be left in the small towns were managers of their grocery stores whose job it was to say, “Yes, sir, yes, sir,” to the guys often in New York and Chicago. So I think, again, this is very resonant today. As some communities have felt that their local businesses have disappeared, or their local economies have been hollowed out and they’re controlled by forces that are far away.

Rob Atkinson: Yeah, it’s always this tension. And that’s the same tension we see today, the tension between, if you will, consumer welfare, cheaper prices, more variety, that’s the other component too that A&P had what, 10 times more variety than say a typical store.

Marc Levinson: Well, A&P had more variety. It certainly had more stores as you mentioned earlier, it had about 16,000 stores by the late 1920s, and it specialized in keeping prices low. That’s what the Hartford brothers did compulsively. And obviously this bothered a lot of people. As, starting in the 1920s, there were attempts to rein the company in legally. There were chain store taxes that were imposed in a number of states and a number of cities, which were eventually upheld in a certain form by the US Supreme Court. These taxes were typically structured so that your first store was free and you’d pay a low tax on your second store and you’d pay more tax on your fifth store and more still on your tenth store. And by the time you got up to 100 stores in the state, you’re paying a great deal of tax.

Marc Levinson: So these taxes were paid more heavily by A&P than by any merchant other than A&P. They were really designed to hit companies that had a lot of stores and A&P was it. So this was basically an attempt either to force A&P to go away or to raise its prices. One thing it did was eventually drive A&P in the direction of establishing supermarkets. A&P didn’t invent the supermarket, but A&P figured out how to transform the supermarket into a profitable business. And one of the advantages of the supermarket is that one supermarket could replace three or four or five small stores. So A&P’s tax burden, which was based on the number of stores in the state would go down. So this was perhaps self-defeating from the point of view of the mom-and-pop merchants who really didn’t want this competition.

Jackie Whisman: I’m curious about kind of the political shift, because you mentioned earlier that a lot of the wholesalers were kind of the wealthier class. Were they also the political class? It seems like there had to have been a great deal of lobbying because it couldn’t have been the consumers, who were benefiting from the low prices that hated this.

Marc Levinson: Well, consumers were really not an organized group until the new deal, they were not really politically engaged as an entity, as a group. The wholesalers... imagine any county seat town had one or two grocery wholesalers, and they served the grocery stores in and around that area. And there were a lot of grocery stores. According to the census, there was basically one food retailer for every fifty households, give or take, in the 1920s. So there were a lot of little stores around. And so they needed a lot of wholesalers. And so, these people in their towns, they were important merchants. They had more than just a single store.

Rob Atkinson: So, I want to jump into the present, but before I do that, it’s striking just how much opposition there was back then. There’s a great quote that Michael Lind and I have in our book from Governor Huey Long, actually he was senator at the time where he said, “I’d rather have gangsters and criminals in Louisiana than chain stores.”

Marc Levinson: There was a big anti-chain store movement. One of the first talk radio hosts, this goes back into the mid ‘20s, was a guy named WK Henderson of Shreveport, Louisiana, who did a show on his station every night. This was a time when radio was really barely regulated. And he was interested in getting as much of an audience as he could. So, he specialized in trying to say something outlandish that would stimulate telegrams. And he found that inveighing against chain stores had a lot of appeal. A lot of people were interested in his critique of chain stores. And so he made a lot of money from that, but he also helped stimulate a chain store movement in towns all across the country.

Rob Atkinson: So. Marc, when you read your book, the message really that comes through is, as you said, people are of two minds. Some people are one mind, some people have the mind, some people are of two minds, they like the convenience and the price and the choice that comes with chain stores or whatever the new retail innovation is, whether it was Walmart or Amazon today. And yet some people and particularly interest groups also as well, who are hurt by this, obviously oppose it and try to organize it. And we all feel that. I have a local hardware store. I’m really glad it exists in my neighborhood, but I also shop at Home Depot just because sometimes it has better prices and better selection. I really love my hardware store. So, people are... It’s a hard choice, but ultimately it seems like the more efficient one usually wins

Marc Levinson: Well, the more efficient one may win, but the government has a hand on the scale. In the case of A&P, as you know, The New Deal came up with a program called The National Industrial Recovery Act. And the idea here was to try to stabilize prices because there was a belief that excessive competition was one of the forces that was leading to inadequate incomes and inadequate investment. And so, basically, firms in many industries were required to fix prices and to fix wages. Interestingly, The New Deal is often considered to be the the first really pro-consumer administration. But a lot of what it did in this area is actually pretty anti-consumer because it kept retailers from competing on price in the interest of stability. So, government has different objectives, the political forces run at cross current sometimes, and this can be often bad for consumers. Or circumstances can change and what seemed to be inappropriate policy at one point in time, may not be inappropriate policy a few years later because conditions are different.

Rob Atkinson: Oh, absolutely. So, what do you think we should learn or can learn from the A&P experience today where, 15 years ago, if we were having this conversation, it would all be about Walmart, and there were people at the time saying Walmart was inevitable, was going to be dominant... they didn’t predict Amazon. What do you think we should learn from that about where we are today with Amazon, certainly gaining market share and being so big?

Marc Levinson: The government’s case against the great A&P, which was eventually upheld in a court of appeals and sustained when the US Supreme Court declined to hear it, basically said that A&P was unfairly restraining trade in a way that caused it to be able to sell groceries too cheaply. That is a case that I think would have a pretty hard time being made today. In any event, the sorts of things that one would look at in an antitrust case today were not sought, those questions were not even asked in the A&P case. For example, if there were a supermarket merger today, there would be investigation into individual communities. Is there a talent in which the merging partners would control the entire supermarket industry? And if so, they might be required to sell one store in the course of their merger.

None of that went into the analysis of the A&P case. The A&P case was, “Well, this company is just too big. And so we ought to make it smaller. We ought to try to break it up.” At the end of the day, though, what happened was that A&P did itself in. Okay, this was a privately held company. It was very ingrown. The brothers that had run it after taking over from their father for decades—the same family controlled this company for about eighty years—they hadn’t figured out their own succession plan. There were no public shareholders to require them to do so.

So the company got stuck in its ways. It stopped doing new things. It stopped having new ideas. And when the country started changing a lot after World War II, A&P was not well positioned to make those changes, and it was left behind. The brothers died in the first half of the 1950s. And within very few years, A&P no longer had a reputation as a low-price retailer. It was no longer the discounter that everyone was concerned about. So, this competitive balance can change a lot and the competitive environment can change very quickly.

Rob Atkinson: That’s really interesting because if you remember, I don’t know, thirty, fourty years ago, people thought Kmart was really going to be the dominant low, discount retailer, and then they went out of business more or less. Walmart took over really, or took that market share, and then they relatively, Walmart’s continued to grow. So, it’s interesting how different technologies can change these dynamics. And then also how companies can kind of miss a window or miss an opportunity and then get stuck behind. It’s a lot more complicated, I think, than people think that once you gain advantage, you’ve got it forever.

Marc Levinson: I think that’s true. One thing that I would say is very different today than it was in A&P’s day, is the importance of control of information. Amazon and Walmart, and many other retailers know a great deal about who shops in their stores, about what those people look for, but didn’t buy on the website, what a small change in the price did to their sales. They’ve got an immense, immense amount of information. A&P had no idea who shopped in its stores. Okay. People walked in and made their purchases, but it did not have any of this informational capability. And there’s certainly some reason to think that control of information is a great competitive advantage. So, when we’re comparing the situations of Amazon or Walmart, or other big companies today, to A&P I think that’s one factor that needs to be kept in mind. That’s just a factor that was not in play back in A&P’s heyday.

Rob Atkinson: Sure. And particularly with algorithms that let companies use that to better target customers and find the right inventory and all of that. Although, certainly you have some smaller retailers who were able to, specialty retailers in particular, who are able to use that as well.

Marc Levinson: That’s right. But when A&P decided where to locate a store, and it had the most sophisticated operation to do that, it sent a team of people down to a street corner to stand there and count passersby. That’s the information it had. And it could go around the neighborhood and say, “Well, it looks like most of the people in this neighborhood have cars,” or, “Most of the houses in this neighborhood look dilapidated,” and it could draw conclusions from that. But that was pretty much the extent of its information. So, there’s really no comparison with what is possible today. And that does change the nature of competition.

Rob Atkinson: Absolutely. So Marc, we could go, at least I could go on for a long, long time because it is such a fascinating topic, but we have to wrap. But I would encourage all our listeners to pick up a copy of the book. It’s just such a... It’s a history book, but it’s really fascinating and you learn a lot about how our country evolved and what are the kinds of same issues that we’re facing today. So, Marc, thank you so much for being with us.

Jackie Whisman: Thank you.

Marc Levinson: Rob, Jackie, thanks to both of you. It’s been a lot of fun.

Jackie Whisman: And that is it for this week. If you liked it, please be sure to rate us and subscribe. Feel free to email, show ideas or questions to [email protected]. You can find the show notes and sign up for our weekly email newsletter on our website, itif.org, and follow us on Twitter, Facebook and LinkedIn at @ITIFdc.

Rob Atkinson: We have more episodes and great guests lined up. New episodes drop every other Monday, so we hope you’ll continue to tune in.

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Podcast: The Political Economy of Big Retail, Then and Now—The Story of the Great Atlantic & Pacific Tea Company, With Marc Levinson