Supermarket Trends

A retailer develops a new format for distributing and selling products that turns out to be wildly successful. Spreading like a juggernaut across the country, the company goes from being an insignificant regional chain to the world’s largest retailer in little more than a decade, leading frantic competitors to seek protection through government regulation.

Walmart in the 1990s? Could be, but I am specifically referring to the Great Atlantic & Pacific Tea Company (A&P) in the 1910s and 1920s. Founded by George Huntington Hartford, he left the company in trust to his five children when he died in 1918. Two of those children, George Ludlum and John Augustine Hartford, led the company through its growth years.

November 13, 1950 cover of Time. Note the gold chain around the photo representing A&P’s position as the largest chain store in the world. (Click for a larger image.)

George was the financial manager; John was the innovator who developed the “economy store” (a tiny cash-and-carry store run by only one clerk) in 1912, which multiplied into nearly 16,000 stores by 1930. When supermarkets became popular in the 1930s, John designed A&P’s first supermarket and over the next fifteen years built nearly 5,000 more, closing several economy stores for each supermarket opening.

“The Great Atlantic & Pacific Tea Co. sells one out of every seven cups of coffee in the U.S.,” gushed Time magazine in 1950. “Next to General Motors, the A & P sells more goods than any other company in the world.” For some 40 years, from about 1920 until about 1960, A&P was the world’s largest retailer.

Today A&P has fewer than 500 stores, mostly in New Jersey and nearby states. What happened? According to William Walsh, a long-time company employee and author of The Rise and Decline of the Great Atlantic & Pacific Tea Company, the Hartford brothers were excellent managers but made a serious error in planning their succession. They gave their shares of the company to a charitable foundation and made the company president the foundation’s trustee. After John and George died, the president gained the trust of one of their nieces, so effectively controlled the company. Lacking any of John’s sense of innovation, he basically ran the company into the ground.

A&P is an extreme example of a pattern that extends throughout the 150-year history of modern retailing. An entrepreneurs develops a new retail idea — catalog sales (Montgomery Wards, Sears), chain stores (A&P, J.C. Penney), self service (Piggly Wiggly), supercenters (Fred Meyer, Walmart). Sometimes the idea is ahead of its time (Frank Munsey’s 1896 Mohican Store), but when the time is ripe, the new format can spread rapidly.

No matter what the new idea, the entrepreneurs all have some things in common. Their number one goal is to please the customer. They use their new idea to reduce costs and pass the savings onto their customers. They cultivate a customer-first ethic among their employees.
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“A merchant who approaches business with the idea of serving the public well has nothing to fear from the competition,” said J.C. Penney. “Take care of the Customer, everything else will take care of itself,” said Fred Meyer (who always capitalized Customer). “There is only one boss: the customer,” said Sam Walton. “And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.”

While successful entrepreneurs focus on their customers, the managers who succeed those entrepreneurs sometimes forget. Focusing on the bottom line instead of customers, they raise prices, become bureaucratic, and fail to develop or adopt new retail techniques. Thus, they become vulnerable to the rise of a more entrepreneurial competitor.

From the time A&P opened its first store in about 1870, grocery stores have grown steadily larger: the smallest ones today would dwarf an A&P store in 1925. These larger stores carry increasing numbers of products. From 300 different products in 1912, typical stores grew to sell 700 different products in 1925, 6,000 in 1960, 14,000 in 1980, and more than 30,000 today.

The growing size and diversity of stores is a response to better transportation, namely autos and trucks. Stores that can serve more people will provide more products in response to the broader tastes of their customer base. Autos can bring more people into a store than sidewalks or streetcars. Rapid delivery of goods by truck can offer customers fresher produce and other perishables. So increasing mobility translates to increasing consumer choice.

Grocery stores have also continually reduced their costs by reducing their labor requirements — often by asking customers to do some of their work for them, such as selecting the goods, taking them home, and even bagging them. Similar cost-cutting innovations have been introduced in the wholesaling end of the food industry.

But the most interesting trend in the grocery industry has been the cycling between entrepreneurs and managers. Most of the industry’s major innovations have been made by entrepreneurs, not established companies. When After the owner/family/entrepreneur loses control, or loses interest, managers take over and the company tends to stagnate. Fortunately for consumers, a fresh crop of entrepreneurs is always available to reinvigorate the industry.

This is why government often does such a lousy job when it tries to do things that can be done by private industry. Government agencies may hire the very best managers. But managers are no substitute for entrepreneurs when businesses need to respond to changing technologies and changing consumer tastes.

This also means that fears of Walmart becoming some kind of permanent monopoly are misplaced. When A&P started losing ground, Safeway, Albertsons, and Krogers fought for the number one position. Safeway lost ground when its managers put it in hock to do a leveraged buyout and had to sell many of the stores to cover its debts. Albertsons fell apart when the founding family turned it over to a manager who did a terrible job and ended up selling the company for a fraction of its former value. Krogers acquired other chains such as Fred Meyer and reached the number one spot for about a year before being overtaken by Walmart.

Walmart may remain the nation’s number one retailer and grocer for another couple of decades or so. But it is sure to be overtaken by someone. Will it be Costco (which has fewer stores but whose stores earn more than twice the revenue of the average Walmart)? Trader Joe’s? Whole Foods? In all probability, it will be something entirely new.