The Great Atlantic & Pacific Tea Company, also known as the Great American Tea Company, has a fascinating history, starting as a humble New York tea shop and growing to become the largest retailer in the world, followed by its precipitous decline into antiquated obscurity. The A&P revolutionized how people bought their groceries, from buying bulk goods to buying branded products. And it revolutionized how retailers operated, pioneering the practice of store branded products and paving the way for retailers to dictate low prices from manufacturers and sell in the volume necessary to remain profitable, creating the template for companies like Walmart to follow.
According to the exhaustive The Great A&P and the Struggle for Small Business in America, by Marc Levinson, the A&P was founded by George Francis Gilman in 1858. The firm was originally a leather business, called Gilman and Company, until 1860 when he entered the tea business and hired two brothers, George Huntington Hartford and John Soren Hartford, though John died in 1863.
George Gilman renamed the firm the Great American Tea Company around 1863 and started a massive advertising campaign, buying ads in newspapers, and listing his low prices, upending a tea market where prices had been negotiated ad hoc between wholesalers and retailers. This ad blitz was designed to show that the new company was as great as the name implied, and included a float in New York City’s Civil War Victory parade with ten white horses pulling a wagon with 36 tea store clerks. Gilman also introduced the buying club, which offered a 30% discount to customers who mail ordered in bulk with groups, providing cheaper and fresher tea delivered than local stores could offer. Besides the Great American Tea Company and The Great Atlantic & Pacific Tea Company, Gilman also operated the Consumers’ Importing Tea Company and the Centennial Tea Company, as Levin notes, Gilman “seemed to have believed that his firm could generate more sales by appearing in various guises.” (Levin pg 27).
In 1870, the Great Atlantic & Pacific Tea Company departed from selling bulk loose tea, as all other tea shops did, and launched a branded tea, called Thea-Nectar, which was sold pre-packaged, available exclusively at his stores. Levin explains “a brand-name tea was an extraordinary product to bring to market in 1870. Almost everything offered in grocery stores, from flour to pickles, was purchased by the shop keeper in bulk and sold from barrels or canisters, with the store clerk measuring out the quantity the customer desired. With his branded tea, George Gilman was once again on the leading edge of a revolution in marketing.” (Levin pg 28)
In 1871, Gilman introduced premiums with his products, first chromolithographs (mass produced color pictures) which then became common among many other stores, followed by coupons and trading cards that could be collected for china or glassware, that became a staple of food store marketing for a century. After the Great Chicago fire in October 1871, The Great A&P immediately sent staff and food supplies to Chicago, and opened a new store, the first outside New York. “A&P food was among the first shipments of relief supplies” to arrive in the devastated city, according to Avis Anderson’s A & P: The Story of the Great Atlantic & Pacific Tea Company. In 1878, Gilman passed management to George Hartford, and passed away in 1901.
George Hartford eventually turned A&P into the country’s first grocery chain. The grocery industry was transformed in the 1880s from a bulk business to a branded product business by two inventions, the cardboard box and the tin can. Mass produced cardboard boxes could be decorated with pictures and brand names, so that a shopper “instead of asking the grocer for a pound of soap powder, could now request a particular variety by name.” (Levin pg 41) Technology for making tin cans improved over the 19th century, drastically increasing the number of cans that could be made and filled, which made them economical for food packaging, and the first can labeling machine was invented in 1893. These two innovations provided grocers with a wide variety of branded merchandise to sell, at a time when customers were concerned about adulterated products and unsanitary barrels of bulk food. And it was a modern marvel for people to be able to enjoy canned peaches and tomatoes year-round. In the 1890s, The Great A&P was shifting from a tea company to a grocery chain, introducing branded products that were sold exclusively in its stores, including condensed milk, spices and flavorings. In 1900, it operated almost 200 stores.
According to Wikipedia, “A&P grew dramatically by introducing the economy store concept in 1912. An economy store was designed to operate at a 12% gross margin. Capitalized at only $3,000 including its initial inventory, the prototype economy store operated with only a manager, and without fancy fixtures. Within two months, weekly sales increased to $800 and the store achieved a 30% annual return on investment. A&P quickly expanded the concept; by 1915 the chain operated 1,600 stores. A&P’s tremendous growth created problems with suppliers. Cream of Wheat was the largest breakfast food manufacturer; it demanded that all retailers adhere to the cereal’s pricing per box. A&P purchased the product at wholesale, 11 cents per box (3 cents less), and decided that a 1-cent mark-up was appropriate for its economy store format. Cream of Wheat cut off supplies and A&P sued. U.S. District Court Judge Charles Hough ruled against A&P, saying that a manufacturer can establish retail prices. As a result, A&P and other large chains significantly expanded manufacturing private brands.”
According to Wikipedia, “Hartford Sr. died in 1917; control of the company passed to his sons George, Edward, and John. After World War I, it added stores that offered meat and produce, while expanding manufacturing; in 1925 it operated 13,961 stores. Sales reached $400 million and profit was $10 million. In 1927, A&P established a Canadian division; by 1929 it operated 200 stores in Ontario and Quebec. In 1930, now the world’s largest retailer, the corporation’s 16,000 stores reached $2.9 billion in sales, resulting in a 25% grocery-store share in its operating areas, and about 10% nationwide. No retail company had ever achieved these results. A&P was twice as large as the next largest retailer, Sears, and four times that of grocer Kroger. Unlike most of its competitors, A&P was in excellent position to weather the Great Depression. The Hartfords built their chain without borrowing; their low-price format resulted in even higher sales.”
The success of A&P attracted new competitors. According to Wikipedia, “In 1930, the first supermarket opened in California. On the East Coast, Michael J. Cullen, a then-former A&P employee, opened his first King Kullen supermarket in Jamaica, Queens. Two years later, Big Bear opened in Elizabeth, New Jersey, and quickly equaled the sales of 100 A&Ps. In 1933, A&P’s sales dropped 19%, to $820 million, because of the competition. In 1936, it adopted the self-serve supermarket concept and opened 4,000 larger stores (while phasing out many of its smaller units). The new stores proved to be very successful; in 1938, it operated 1,100 supermarkets.
According to Wikipedia, in the 1940s, A&P faced legal troubles when federal prosecutors charged that, “A&P had an unfair competitive advantage because its vertical integration including manufacturing, warehousing, and retailing allowed it to charge lower prices. Prosecutors also complained that A&P refused to buy from food retailers that insisted on selling through brokers or refused to give A&P advertising allowances. The judges contended that if unchecked, A&P would become a monopoly. A&P countered that its grocery-store share was only about 15%, significantly less than the leaders in other industries. Judge Lindley agreed with the government, fining each defendant $10,000. In fighting the anti-trust suits, A&P also emphasized the considerable impact of its activities on the public welfare. The concepts pioneered by A&P enabled the public to enjoy significantly healthier eating at lower cost. In 1950, the average American consumed 10 percent more food than in 1930, with poorer households enjoying an especially important improvement in the quality of the food they consumed. By 1950, A&P operated 4,000 supermarkets and 500 smaller stores. Sales reached $3.2 billion with an after-tax profit of $32 million.”
According to Wikipedia, “A&P’s decline began in the early 1950s when it failed to keep pace with competitors that opened larger supermarkets. By the 1970s, A&P stores were outdated; its efforts to combat high operating costs resulted in poor customer service. In 1975, it hired outside management, closing older stores and building modern ones. When these efforts failed to turn A&P around the firm was sold to the Tengelmann Group of Germany. In 1981, A&P launched its second store-closing program, reducing the corporation to less than 1,000 stores. In 1982, A&P acquired several chains that continued to be operated under their names, rather than being converted to A&P. While A&P regained profitability in the 1980s, in 2002 it operated at a record loss because of new competition, especially Walmart. A&P closed more stores. In 2007, A&P purchased Pathmark, one of its biggest rivals; A&P again became the largest supermarket operator in the New York City area. A&P experienced financial difficulties because of the Great Recession and filed for Chapter 11 protection in 2010. In 2012, A&P emerged from bankruptcy and briefly returned to modest profitability in 2013 and 2014. After declaring a loss in April 2015, it filed for its second bankruptcy. All of its supermarkets were sold or closed by December 1, 2015.”