The Great Atlantic & Pacific Tea Company, Inc.

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The Great Atlantic & Pacific Tea Company, Inc.

2 Paragon Drive
Montvale, New Jersey 07645
U.S.A.
(201) 573–9700

Public Company
Incorporated: 1902
Employees: 92,000
Sales: $10.07 billion
Stock Index: New York

After a downward spiral that began more than 50 years ago, the Great Atlantic & Pacific Tea Company, better known as A&P, has so forcefully reestablished its foothold in the retail food market that industry analysts have described A&P’s current fourth place among competitors as “one of the great success stores in U.S. food retailing.” Once the undisputed leader in American supermarkets, A&P experienced management and legal difficulties beginning in the mid-1930s that nearly drove the company into bankruptcy. The company’s turnaround began in 1979, when controlling interest of A&P was bought by the West German Tengelmann Group, which brought in James Wood, a noted turnaround manager, as the new CEO. During Wood’s tenure, A&P has undergone a radical restructuring that has enabled the company to compete in a market in which both the competition and the consumer have changed drastically since A&P was founded in 1859.

In 1859, George Huntington Hartford and George Francis Gilman became partners. Using Gilman’s connections as an established grocer and son of a wealthy ship owner, Hartford purchased coffee and tea from clipper ships on the waterfront docks of New York City. By eliminating middlemen, Hartford and Gilman were able to sell their wares at “cargo prices.” The enterprise was so successful that in 1869 Hartford and Gilman opened a series of stores under the name Great American Tea Company. The first of these soon became a landmark on Vesey Street in New York City.

The company’s appeal to the 19th-century consumer was enhanced by the lavish storefronts and Chinese-inspired interiors which Gilman designed: inside the Chinese paneled walls, cockatoos greeted customers, who brought their purchases to a pagoda-shaped cash desk. Outside, the red-and-gold storefronts were illuminated by dozens of gas lights that formed a giant “T,” and on Saturdays customers were treated to the music of a live brass band.

Despite the company’s extravagant trappings, its success was largely due to its innovative strategy of offering savings and incentives to the consumer. A&P’s “club plan,” which encouraged the formation of clubs to make bulk mailorder sales for an additional one-third discount, was so successful that by 1886 hundreds of such clubs had been formed. Pioneering the concept of private labels and house brands, the Great American Tea Company introduced its own inexpensive tea and coffee blends, continuing to direct its efforts at the price-conscious consumer. Today, A&P’s “Eight O’Clock” blend remains a hallmark house brand.

In 1869 the company became the Great Atlantic and Pacific Tea Company, to commemorate the joining of the first transcontinental railroad and to separate its retail stores from its mail-order operations. A&P’s gradual national expansion began shortly thereafter. The company established a foothold in the Midwest in the aftermath of the Chicago Fire of 1871, when A&P sent staff and food to help the devastated city, and stayed to open stores in the Midwest.

Careful thought and planning were given to A&P’s expansion. New store openings were complemented by promotions and premiums. In the Midwest and the South, new stores gave away items such as crockery and lithographs in order to attract customers, and in other areas, garish “Teams of Eight” became legendary symbols of A&P. The brainchild of the flamboyant John Hartford, parades of teams of eight horses decorated with spangled harnesses and gold-plated bells drew red and gold vehicles through the towns; the person who best guessed the weight of the team was awarded $500 in gold.

In 1878, after Gilman’s retirement, Hartford gained full control of the business. His two sons, George and John, were each apprenticed at the age of 16. Years later, a writer in the Saturday Evening Post observed that “in discussing the two brothers, tea company employees seldom get beyond the differences between the two.” The older brother, who became known as Mr. George, earned a reputation as the “inside man” due to his concern for the books, and was considered to be the “conservative, bearish influence in the business.” The younger, flamboyant Mr. John was described as an “old-school actor-manager.” He was well-suited for his responsibility for promotions and premiums and generally ensured a “personal touch” in each of A&P’s stores, which, by the turn of the century numbered 200 and generated more than $850 million in annual sales. Mr. John was also responsible for A&P peddlers, who by 1910 were carrying A&P products along 5,000 separate routes into rural areas in easily-recognized red-and-black A&P wagons.

Responding to a dramatic rise in the cost of living in the first decade of the 20th century, when food prices increased by 35%, Mr. John devised the first cash-and-carry A&P Economy Store. Initially dismissed by both George Jr. and George Sr., economy stores obviated the problem of capital depletion posed by premiums, credit, and delivery. The cash-and-carry stores followed a simple formula—$3,000 was allotted for equipment, groceries, and working capital. Only one man was needed to run an economy store, and he was expected to adhere strictly to Mr. John’s “Manual For Managers of Economy Stores,” which outlined, in meticulous detail, how to run the stores. Among other things, Mr. John insisted that all the stores have the same goods at the same location; A&P legend has it that Mr. John could find the beans in any of his stores—blindfolded.

When George Hartford Sr. died in 1917, George Jr. became chairman of A&P, while John became president. By 1925, A&P had 14,000 economy stores, with sales of $440 million, marking one of the greatest retail expansions ever. At this point, the company’s national expansion was so far-reaching that A&P had to be divided into five geographical divisions to decentralize management.

During the 1920s, A&P continued to diversify, opening bakeries and pastry and candy shops. It also expanded its manufacturing facilities to produce its own Anne Page brand products, and set up a corporation to buy coffee directly from Colombia and Brazil. “Combination stores” added hitherto unheard-of meat counters to the grocery chain and, when lines at these counters became a problem, A&P devised a system to make prepackaged meats available to customers, who had never before been offered such a convenience. At the same time, A&P introduced food-testing laboratories to maintain quality standards in its manufactured products. When, in 1929, the stock market crashed, causing other retail companies to fold, merge, or sell out in the subsequent Depression, A&P was so firmly established and soundly managed that it was virtually unaffected. Responding to consumers’ needs, A&P began publishing literature with money-saving tips and recipes. The public’s reception of these publications prompted the company to begin publishing Woman’s Day magazine in 1937, at two cents per issue.

The 1930s marked the advent of supermarkets in the United States. The Hartfords found the supermarket idea distasteful and were slow to respond to the trend. But as A&P began to lose market share, they were swayed. In 1938, supermarkets made up 5% of A&P’s stores—and 23% of its business. By 1939, the total number of A&P stores had dropped to 9,100, of which 1,100 were supermarkets, and A&P’s sales had regained the level they were at in 1930. But by this point, the company’s size, though smaller than the 15,000 stores it had at its height in 1934, was a distinct liability. In 1936, the Robinson-Patman Act was passed, marking the beginning of the antitrust woes which shook A&P’s hegemony. Anti-chain-store legislation, passed at the instigation of small independent grocers who claimed chains practiced unfair competition, imposed severe taxes and regulations on A&P and other chains, limiting pricing and other competitive advantages afforded to them by virtue of their size and purchasing power. Restrictions were based simply on store numbers, hitting A&P particularly hard. The company sought to redeem its damaged public image by publicizing its sense of corporate responsibility to consumers, producers, and employees. The loss of a suit in 1949, however, imposed limitations on A&P’s purchasing practices that were more severe than any others in the industry. With this final blow, the company’s position as an esteemed industry leader disintegrated.

In 1950 Ralph Burger, who had started at A&P in 1911 as an $ll-a-week clerk, became president of the company. Much of A&P’s early success had been due to Mr. George and Mr. John’s scrupulous attention to the business, or, in Mr. John’s term, to “the art of basket watching.” As the Saturday Evening Post article on the Hartfords had concluded in 1931, “who will watch the baskets after the Hartfords are gone? Neither has any children and although the ten grandchildren get their due shares of income from the family trust, the direct line of shrewd vigilance will be broken.” Burger remained loyal to the Hartford brothers even after their deaths, John in 1951 and George in 1957. As president not only of A&P, but also of the Hartford Foundation, the charity to which the Hartfords had willed their A&P shares, Burger retained full control of A&P, running it, if not imaginatively, then at least reasonably successfully, until his death in 1969. At that point, despite its dusty image, A&P was still the grocery-industry leader, with sales of well over $5 billion a year—more than twice its closest competitor.

With the end of Burger’s tenure, and the Hartford heirs’ disinclination to enter business, A&P had no clear line of management succession. The “direct line of shrewd vigilance” was indeed broken, and management continued to change throughout the 1970s. The company’s direction foundered so much that A&P, once an innovative industry leader, was no longer able even to follow the lead of its competitors. Failing to capitalize on suburban development and to accommodate changing consumer tastes, A&P’s sales dropped and its reputation suffered serious injury. A&P’s once “resplendent emporiums” were now perceived as antiquated, inefficient, and run-down.

In 1973, as A&P reported $51 million in losses and Safeway took its place as the largest food retailer in the country, Jonathan L. Scott was hired from Albertson’s, marking the first time in history that A&P had looked outside its ranks for management. Scott’s attempt to revive A&P by closing stores and cutting labor costs only resulted in more dissatisfied customers, and more losses. Finally, in 1979, the Tengelmann Group, a major West German retailer, bought 52.5% of A&P’s stock.

The Tengelmann Group soon appointed James Wood, the former CEO of Grand Union, as chairman and CEO of A&P. Wood’s reputation as a turnaround manager underwent a trial by fire, but his radical restructuring of the company—the chain was eventually reduced to 1,000 stores—was eventually lauded by analysts as “an outstanding success.” By 1982, 600 stores had been closed, virtually all manufacturing facilities had been eliminated, management had won labor concessions in key markets, and the company had returned to profitability. With a formidable cash flow, Wood initiated an aggressive capital-spending program to rejuvenate the store base, develop new store formats, and make prudent acquisitions.

While some markets were abandoned, others were the focus of store recycling and expansion. High-growth areas (such as Phoenix, Arizona and southern California) were avoided in favor of markets in which A&P’s presence was firmly established amidst a stable and slow-growing population (such as Philadelphia, New York, and Detroit). Concentrating efforts in the most promising areas of its six major operating regions—the Northeast, the New York metropolitan area, the mid-Atlantic states, the South, the Midwest, and Ontario—the company had the flexibility to tailor store formats, product mixes, service, and pricing to local customer bases.

Initially, tens of millions of dollars were spent to remodel and expand 85% of A&P’s extant stores to give them a more up-to-date presentation, rid the company of its tarnished reputation, and add service departments to accommodate consumers’ changed tastes. Improved sales allowed the company to begin to undertake new-store construction by 1985: the “new” A&P strives for an upscale, service-orientated image and caters to one-stop shoppers. Two new store formats address different market niches: Futurestores stress A&P’s broad variety of quality products, and Sav-A-Centers take a strong promotional approach by offering warehouse prices.

Wood has also focused on growth through the purchase of regional chains, permitting A&P to establish itself as the top food retailer in certain regional markets without the risk and expense of building new facilities and establishing a market niche. With this strategy, A&P has firmly established itself as the fourth-largest U.S. grocery chain. Its 1986 Waldbaum and Shopwell/Food Emporium acquisitions combined to make A&P the market leader in the New York metropolitan area, where the company has its strongest presence, and its 1989 acquisition of Borman’s, a Detroit-area chain, resulted in a majority share of the Detroit market. When market share is low and targeted chains resist acquisition, A&P retreats, as is evidenced by the company’s diminishing presence in the South since its failure to acquire Delchamps, a chain based in Alabama.

Since its restructuring, operating income per store has more than doubled. Emphasizing high profit margin departments—full service delis, cheese shops, fresh seafood, and floral departments, for example—the company has departed radically from low-price generic product offerings. In 1988, Master Choice, a private-brand label of specialty chocolates, pastas, sauces, and herbal teas was introduced in order to compete with what industry experts consider the real competition: restaurants and fast-food chains.

In 1989 A&P made a bid for Gateway Corporation, the third-largest grocery chain in Britain. Gateway would have offered A&P a whole new arena for growth, one that is of considerable interest to Erivan Haub, Tengelmann’s owner, who must shore up his European retailing empire in preparation for the unification of the common market in 1992. Although the Gateway bid ultimately failed, it is clear that, under Wood, who in 1989 renewed his contact through 1995, A&P is back in the first rank of food retailers.

Principal Subsidiaries

ANP Properties Corp.; ANP Sales Corp.; APW Supermarkets Corp. (Waldbaum, Inc.); Great Atlantic & Pacific Tea Co., Ltd. (Canada); Great Atlantic & Pacific Tea Co. of Canada, Ltd.; D/B/A A&P and New Dominion (A&P Drug Mart Ltd.; A&P Properties Ltd.; Jane Parker Bakery Ltd.); Compass Foods Inc.; Family Center, Inc.; Futuresome Food Markets, Inc.; Great Atlantic & Pacific Tea Co., Inc. (N.J.); Great Atlantic & Pacific Tea Co. of Vermont, Inc.; Kohl’s Food Stores, Inc.; KwickSave, Inc.; Lo-Lo Discount Stores, Ind.; Richmond, Inc. D/B/A Pantry Pride & Sun, Inc.; St. Pancras Co. Limited; SAV-A-Centre, Inc.; Shopwell, Inc.; South Dakota Great Atlantic & Pacific Tea C., Inc.; Southern Development, Inc. of Delaware; Super Fresh Food Markets, Inc.; Super Fresh Food Markets of Maryland, Inc.; Super Fresh Food Markets of Virginia, Inc.’ Super Plus Food Warehouse, Inc.; Supermarket Distributor Service Corp.; Supermarket Distributor Service Corp.—Florence, Inc.; Supermarket Distributor Services, Inc.; Supermarket Systems, Inc.; Supersaver, Inc.; Transco Service—Milwaukee, Inc.; 2008 Broadway, Inc.