Wall Street Journal: How a Grocer Bagged Profits
(A Book Review of "The Great A&P and the Struggle for Small Business in America.")
… The brothers' business philosophy was simple, writes Mr. Levinson: "If the company keeps its costs down and prices low, more shoppers would come through its doors, producing more profits than if it kept prices high." The more stores they could open, the greater the take.
But the Hartfords had a public-relations problem. Since the nation's earliest days, small family stores had served as community anchors. There were thousands across the country. Mom and pop knew every customer who came through their door; they extended credit to families down on their luck. If low-priced chains drove out such stores, what would happen to small-town America?
In fact, many mom-and-pop operations were inefficiently and incompetently run. A&P might be coldly corporate by comparison, but it offered consumers far more variety and fresher, better-quality goods at less cost to the family budget. But it didn't seem to matter: By 1912, chain retailing had become a political issue, Mr. Levinson says, one that would nag A&P for the next 50 years. The critics' persistent charge was that A&P's prices were too low. Because the chains were so much bigger, they could offer special deals to wholesalers. They could also build their own bakeries and canneries, options unavailable to the independents.
New Dealers and other politicians, like Texas Rep. Wright Patman, would spend their careers in Washington attempting to punish the chains for their "unfair" advantages by forcing them to close stores or taxing them out of town. "We, the American people, want no part of monopolistic dictatorship in . . . American business," Patman declared in a radio broadcast. "Think of Hitler. Think of Stalin. Think of Mussolini."
A&P, eventually offering thousands of items in close to 16,000 stores, had a different outlook. "In A&P's view," Mr. Levinson writes, "its aggressive efforts to cut purchasing costs, narrow its own margins, and reduce consumer prices in order to build business were exactly what a company was supposed to do in a competitive economy."
Nevertheless, by 1937 more than half the states had imposed chain-store taxes, many based on the number of stores owned. A&P responded by replacing small stores with large supermarkets, a shift that only made matters worse for mom and pop. Legislators persisted in trying to rescue consumers even when the public didn't want to be saved: A 1949 Gallup poll showed that twice as many people sided with A&P's position as with the government's. No business so popular could be easily reined in, and the chain continued to thrive. …
Just more evidence that history may not repeat itself, but it rhymes. Wal-Mart is just the latest in a long line of low-cost providers. I don't know much about the A&P story, but I do know that the primary business victim of Wal-Mart is not Mom & Pop shops. It is other chain discount stores. Small boutique stores tend to offer something (location? service?) for which customers are willing to pay a premium price. Wal-Mart can benefit some small businesses by bringing more traffic through the vicinity of the small stores.
As I've written before, economists show that Wal-Mart has benefited the poor in America probably more than any other factor in recent years by keeping the daily staples of life inexpensive. That improves people's standard of living. The poorer a particular area, the greater the enthusiasm for the giant discounters. But nostalgia and the myth of an egalitarian America with quaint stores and tight community still run deep. Never mind that many of these stores were poorly stocked and overpriced, thus reducing the living standards of people captive to them. With any economic issue, there are always trade-offs.
Leave a Reply