A History of Reinvention

JON SPRINGER

“I don't think there are any companies that have gone this long that have only experienced success,” said Christian Haub, executive chairman of A&P, as the retailer prepares to celebrate its 150th birthday next year.

“A company goes through ups and downs,” added Haub, in a recent conversation with SN. “The important thing is what you learn from the difficult periods and the things that didn't go so well, and how to recover. The lesson you can take when it comes to food retailing is that you have to reinvent yourself on a fairly regular basis.”

So while the Great Atlantic & Pacific Tea Company has long since ceased being the largest retailer in the United States, it recently regained a slot as the biggest food retailer in its region. The time for discount concepts like Plus, A-Mart and WEO have come and gone, but the future looks promising for Food Basics. The Futurestore is a thing of the past, but the fresh store is just coming into focus.

The story of A&P in many ways is the story of all developments in the U.S. supermarket industry. It introduced or brought to prominence the concepts of private label, self-service stores, premium offerings, fresh departments and discount formats. It pioneered store design and advertising strategies. Along the way it encountered struggles with nearly all the above concepts, but continually showed the spirit to fight its way back, often with bold and creative strokes.

Today the company — despite suffering an especially depressed stock price amid investor concern over debt — is on the upswing. It has completed the purchase and integration of a major rival, Pathmark Stores. And officials and analysts are bullish on a format-driven strategy capable of serving shoppers ranging from upscale foodies to families on fixed incomes. Its 445 stores in eight states and the District of Columbia figure to produce sales of about $10 billion this year.

“When you look at a company over a long period of time, what you realize is you can't stand still,” Haub said. “You have to see where the trends are in the marketplace, or you will fail.”

In the Beginning

In the late 1850s, while America was headed toward Civil War and Abraham Lincoln was running for president, two entrepreneurs originally from Maine, George Gilman and George Huntington Hartford, established a mail-order tea business. The partners bought tea cargos directly from ships coming to port and sold to consumers at a small markup. In 1859 the Great American Tea Company opened its first store on Vescey Street in Manhattan.

Hartford, the younger of the two men, demonstrated a flair for marketing. He adorned the company's early stores with crystal chandeliers, gas lamps, gilt-edged Chinese wall panels, tin ceilings and a cashier's station shaped like a Chinese pagoda. The chain had expanded to 11 stores by the time the Transcontinental Railroad was completed in 1869. In honor of the event, and because the railroads allowed opportunity for expansion, Hartford renamed the company the Great Atlantic & Pacific Tea Company.

Gilman retired in 1878, but Hartford would be joined in coming years by two of his sons: George Ludlum Hartford, who joined as a 15-year-old cashier in 1880; and John Augustine Hartford, who joined at age 16 in 1888. The brothers would stay with the company until their deaths in the 1950s, and their descendants would control A&P until 1979.

John Hartford (left) and George L. Hartford

According to Hartford family history, George Hartford was a quiet man primarily interested in finances, while his gregarious brother had a talent for merchandising and promotion. During the 1880s George helped launch A&P's manufacturing business by hiring a chemist to mix baking powder on-site. John, for his part, helped develop A&P into a national brand by engaging in various forms of advertising, which through the years would include collectible trading cards; sponsorship of an early radio program featuring the music of Harry Horlick and his orchestra, the A&P Gypsies; and the launch of its own magazine, Woman's Day, which was sold exclusively at A&P and reached a circulation peak of 3 million copies by the 1940s.

John Hartford was also responsible for the creation of the 1912 store that shifted the rapidly growing company into overdrive. The A&P Economy Store eschewed the “premium” offerings of china and glassware offered at other stores — along with their associated expenses — as well as delivery and store credit, to focus instead on groceries with the lowest possible price. This limited-assortment store would send A&P on a massive expansion that eventually led to a peak of 15,737 stores from coast to coast.

This number would ramp down as A&P quickly adapted to the trend of larger, self-service supermarkets first introduced in the 1930s. A&P in the meantime had developed a vertically integrated offering with buying, packing and distribution arms, and plants to manufacture its own products and bake its own breads. Its development of private labels — which included iconic labels like Eight O'Clock Coffee, Ann Page and Jane Parker — was boosted as the result of a 1913 dispute with the Cream of Wheat Co., which refused to sell to A&P because the retailer's Economy Store concept allowed it to sell product at a lower price than other stores could discount.

This formula carried A&P into the 1950s, when Ralph Burger, the former assistant to George and John Hartford, was named president. John Hartford died in 1951, and George Hartford died in 1957.

100-Year Troubles

A 14-part series published by SN in 1957 — as A&P approached its 100th anniversary — painted a fascinating picture of a company flush with success but uneasily approaching its second century.

The articles capture A&P as a provincial company determined to maintain that which had made it successful — small, urban stores selling company-branded food products at sharp prices — while nearly every signpost in the industry pointed to a rapidly changing model. A&P at the time was still the largest retailer in the world in terms of sales, but competitors like Safeway and Kroger were closing the gap. And while A&P was still a growing company, the supermarket field then was a fast-growing industry.

Competitors, like shoppers, were shedding urban roots and heading for wide-open spaces in the suburbs. A&P wasn't. Television was gaining an unprecedented influence in advertising, and eventually it would power branded consumer products to a convincing triumph over store brands, but A&P steadfastly stood behind its assortments. It resisted industry moves toward adding nonfood departments and trading stamp programs, and only reluctantly engaged in premium product offerings.

Burger was reverential to his predecessors' vision. In retrospect, it was a stance that ultimately was to the detriment of the company.

“When you look back at some of A&P's more difficult times, they came during periods when it missed the boat on what was happening,” Haub said. “For example, A&P was hugely successful with its private label — almost everything it sold it manufactured under its own label. It was completely vertically integrated, and that business model worked extremely well.

“But with the advent of national TV it became the era of national brands — Wonder Bread and Tide detergent. And it changed the demands of the consumer, who wanted the national brands they saw advertised on TV. But A&P wasn't set up for that,” Haub added. “A&P also missed the major move of the population from urban markets to the suburbs, when car ownership went though the roof and people wanted to have their own house. A&P had too many inner-city store locations.”

If the first 100 years of A&P was the story of A&P dominating the food retailing industry, the following 50 years often proved just the opposite. The company in this period would suffer the consequences of its inability to change with postwar America, and then nearly destroy itself with well-intentioned but botched forays back into discounting and subsequent store closures, leading to the end of the Hartford era by the late 1970s. A new ownership group would buy A&P's way back into the retailing mainstream in the 1980s, but several of those acquisitions would end in failure in the years to come.

A&P finally joined its rivals in the trading stamp business, although by the time A&P's Plaid Stamps program was up and running, the trend was already waning.

A similar fate awaited A&P's commitment to manufacturing what it sold. John Ehrgott, who replaced the retiring Burger in 1963, plowed ahead with construction of a $25 million, 1.5 million-square-foot food processing and manufacturing facility in Horseheads, N.Y. Hailed as the largest such facility in the world, it had the ability to produce hundreds of different items under A&P's brands. But that arrived too late as well. It would close in 1973.

“By the time they actually finished the Horseheads plant, business was going down so fast at A&P that the need for such a facility had disappeared,” James Wood, who served as A&P's CEO from 1980 to 1998, told SN in a 1994 article. He called the plant “a disaster” economically.

By the end of the 1960s, slowing sales prompted A&P to begin converting some stores to a low-cost discount format known as A-Mart. That name was later abandoned due to the potential of legal tangles with K-Mart, but the idea of discounting being an A&P savior was only beginning.

Its next iteration, beginning in 1972, was known as WEO for “Warehouse Economy Outlet” or, in a nod to the economy store innovation in the 1930s, “Where Economy Originates.” The move to discount was aggressive, heavily supported by advertising, and was rolled out in some form to nearly all of its stores. It was also costly, with gross profit margins sliding to about 12%, reports said.

Although the WEO project won sales in the short term and probably extended the lifetimes of many A&P stores, A&P eventually had to ratchet up prices again to stem its losses, losing customer faith along the way. With a losing streak now nearly a decade long, A&P in 1975 turned to its first outside CEO, Jonathan Scott, who came to the company from Albertsons.

Scott brought with him an army of consultants, notably the firm of Booz Allen & Hamilton, which recommended a massive store closure program that sent the company limping toward the 1980s.

New Era

Majority control of A&P had remained in the hands of Hartford family descendants and the Hartford Foundation, but by 1979 those entities were selling shares on the open market. A major buyer was the Germany-based Tengelmann Group, a family-run retailer whose history resembled that of A&P.

Like A&P, Tengelmann was founded as a coffee and tea specialty store in the late 19th century and had expanded to hundreds and later to thousands of stores under control of the Haub family. Tengelmann operated about 2,000 stores in Europe when it gained control of A&P in 1979. Its early involvement in A&P included such concepts as a short-lived discount format based on its German counterpart called Plus; and a radical store design, known as the Futurestore, which, among other things, featured interiors designed entirely in black and white to show off the colors of the products inside.

Tengelmann installed a new board of directors and in 1980 named Wood, previously CEO of rival Grand Union Co., as its new CEO. Wood in a previous SN article described inheriting an outfit “losing money at a very significant rate,” with weak market share in multiple markets, poorly maintained stores and facilities, high expenses stemming from mature labor contracts and an overemphasis on private labels.

One of Wood's earliest successes in dealing with those issues came in 1982 when A&P saved its Philadelphia division behind the SuperFresh store concept, which converted stores slated for closure to a new perishables-focused format that swapped union work restrictions for a bonus program based on store performance.

Wood ordered hundreds of older stores closed but bought even more. The buying spree began in 1981 with a purchase of 17 Stop & Shop stores in New Jersey, and continued through the early 1990s with the purchase of Kohl's stores in Milwaukee; Pantry Pride in Virginia; Dominion and Miracle Mart stores in Canada; Food Emporium/Shopwell stores in New York; Waldbaums on Long Island; Big Star stores in Atlanta; and Farmer Jack in Detroit.

Not all of the acquisitions would turn out to be good ones. Stores in the Midwest would be eventually be closed or sold piecemeal after several attempts to perk up business failed, including early experiments with a “formatting” strategy that converted certain stores to an upscale Food Emporium offering and others to a discount Food Basics strategy. A late 1980s investment in a British chain known as Isosceles resulted in a $150 million write-off. Divisions in the Southern states eventually faltered, too, with the New Orleans Save-A-Center stores being the last the company would operate south of Washington. That chain was sold in 2005.

Wood served as CEO through 1998, when he passed the torch to Christian Haub, scion of the controlling family. Haub arrived in the U.S. shortly after the Tengelmann investment and spent two years on Wall Street before serving an apprenticeship within the company. Haub embarked on a further paring of the store base and an overhaul of technology systems under the Great Renewal program. The company also began development of a format-driven strategy, with the introduction of fresh remodels at certain stores and the Food Basics banner, imported from its operation in Canada. But those concepts came together gradually.

A sharper focus on finances — necessary, given the chain's slow growth, high debt levels and relatively low sales volumes — resulted in centralization of its various banners in Montvale, N.J., and the eventual sale of its stores in Canada, which was the company's most productive and most profitable division.

That deal, completed in 2005, was the fuse that lit the current era. In the transition, A&P gained a new CEO, Eric Claus, who at the time was a rising star in the Canadian division. Haub took a role as executive chairman, with responsibility for long-range strategies and acquisitions, while Claus went to work on perfecting store formats.

This combination led to the acquisition of Pathmark in 2007 and its development as the high-volume “price impact” format in A&P's portfolio. Most recently, several stores under the SuperFresh banner in Philadelphia have been converted to the Pathmark brand.

“The strategy we've undertaken in the past few years is clearly based on the recognition that there is not any one supermarket for the consumer, but you rather have to develop different formats for different consumers, different ethnic groups and different markets,” said Haub. “That's what led to the invention and concept of our fresh stores, our discount Food Basics concept, and why we wanted to add Pathmark to our portfolio — because they were so strongly positioned in specific markets and appealed so well to the middle- and lower-income consumer.”

Haub, who considers himself a student of A&P's history, has taken to wearing a manager's lapel pin from the 1950s as part of his outfit every day. “I feel like it's been good luck for the company,” he said. He added that he takes pride in guiding a company with a long history and endeavors to uphold traditions, including its history as a good employer.

“Hopefully, the 30 years the Tengelmann Group has been involved with A&P will be viewed as an important new chapter in the history of the company,” Haub said when asked to assess his own role in its story. “In terms of saving the company in the late 1970s and early '80s, because it was really struggling then. My biggest achievement has been the acquisition of Pathmark, providing that next phase of the reinvention and innovation of the company. Hopefully, I can pass it on to the next generation and see it pass many more milestones.”