The Rabbit Hole is written by Blas Moros. To support, sign up for the newsletter, become a patron, and/or join The Latticework. Original Design by Thilo Konzok.
- George and John Hartford were the men who made the Great Atlantic and Pacific Tea Company, later the Great A&P, into the behemoth it became but it was George Gilman who originally founded it. They became so powerful that they were charged with breaking the Sherman Antitrust Act as they had gained such scale and were able to lower the prices of their goods to the point that other, smaller and often independent owners couldn't complete.
- George was very conservative about how to run the business whereas John was more aggressive and open to new ideas. John traveled often, met with the stores and their competitors in order to bring in and act on new ideas.
- A&P was the first to successfully and adamantly aim to lower prices as much as possible and to make the profits by volume rather than trying to get the most profit per item.
- They were the first to reach $1 billion in sales in the 1920s and in the 1930s they were the first to shift from grocery stores to supermarkets.
- They were often the country's and sometimes the world's largest importer of many goods and their sales were twice that of the second leading retailer
- The size, scale and influence of the A&P was novel and they helped revolutionize food safety, supply chain management techniques and more. They drove many smaller scale grocers and retailers out of business but this also freed up vast amounts of labor to help the economy grow in other areas
- George Gilman's early retail stores were found to be very cheap but quality was low. As they grew, Gilman wanted to portray the image of a great, reliable and quality store to suppliers and customers in order to attract large merchants, espcecially tea, he spread rumors and fabricated shipping statements to appear they were larger than they really were
- Gilman, one never to miss a chance to market his company, sought to profit off the new coast to coast railroad. He thus began The Great Atlantic and Pacific Tea Company - it was more of a front however than a legitimate business venture as he was trying to fend off competitors and lure in customers and suppliers. This "front" was destined to become the world's largest retailer
- They went after the growing tea market and startled their competitors by starting their own private label brand name tea - TheaNectar. Shortly after the government passed patent protection laws and their tea was protected, becoming a household brand.
- Gilman was a genius marketer. He created beautiful pictures people wanted and this transformed into coupons and later into trading stamps, becoming a marketing staple for the entire industry. This drove customers into the store and to spend more than they otherwise would
- After the Great Chicago Fire, Gilman and Hartford sent a lot of food and support to the victims and also bought key land and set up their first store outside New York. When they opened, they had unmeetable demand. The success was so great that they decided to expand aggressively and 4 years later had 16 stores in many cities. They became the first retailer with that kind of broad, national presence and became widely known. Gilman was the marketer and innovator and George Hartford was the managerial genius - yin/yang power combo
- The Great A&P became a temple for coffee and tea and were exceedingly lavish in order to appeal to new customer's increasing focus on status
- The Great A&P was very successful but they have one big issue and that they were really reliant on coffee and tea and once prices on these commodities fell, their sales and profit did accordingly. George Hartford reacted in a sensible way and sought to broaden his product line. They started out with other commodities such as sugar but then moved to baking powder which was expensive at the time but made of cheap materials. They took the innovative step and created their first private label baking powder with the A&P brand. This soon became a national, powerhouse brand. The idea of a brand was new at the time and allowed consumers to know they're getting a consistent and quality product, although for a higher price and allowed retailers to segment the market and eventually reach economies of scale never before reached.
- Cardboard boxes, a mistake invention, and the tin can were inventions which allowed retail brands to proliferate. The A&P's shift from tea company to grocer was underway but two things were constant: lavish use of marketing and premiums
- They tapped into the power of women through their coupons. At the time, women had little authority over the family budget except for food and through the collection and use of coupons, they were able to buy items which otherwise their husbands would have resisted
- After Gilman died, ownership was split between Gilman's family and George Hartford. Hartford made his sons George and John officers. John was the most outgoing of the bunch, often traveling and visiting the stores and meeting suppliers, Edward was disinterested and George Jr was the conservative numbers man
- Good story working smarter not harder - In 1907 there was a run on the banks and the bank which held the store's money was rumored to be going out of business. John waited in line overnight but then decided to go to the front of the line, asked the man at the front how much he had with the bank, gave him more money than he was waiting for and took his spot in line. He got all the store's money out of the bank and the man at the front was happy too
- Edward, George senior's third son, never formally worked for the company but was secretary for some time. He was however very accomplished in his own right, inventing the shock absorber and jacks which became ubiquitous on nearly every car in the world
- John exposed himself to new ideas in the industry and helped his more conservative father and brother move forward. The Hartfords were not innovators but what they were great at taking great ideas and understanding how to make them profitable - grocery stores, economy stores, supermarkets, lower price to raise volume...
- The competitive advantage for wholesalers was credit, not price
- They took advantage of the situation after WWII to buy coffee roasters, canneries and other manufacturing facilities and started to become vertically integrated. They received such scale that they were one of the few to have the size to negotiate cheaper rates with the railroads and their suppliers (which later got them in trouble with Congress for potentially violating the Sherman Anti-Trust Act)
- As they grew, they were forced to decentralize and they pushed sales, purchasing and as many other responsibilities down the food chain as possible because those people had firsthand knowledge of the situation. This lead to better decisions and more buy-in from these people since they were getting the chance to grow, take responsibility and make their own decisions
- Because of their scale, they were able to get slightly lower prices for nearly all their goods and they eventually gained greater efficiency, influence and customer data than any other firm before them.
- The genius of A&P is that they sought to reduce the price and margin on every good in order to increase volume. They did this by reducing costs in never before thought of ways
- By the late 1920s, A&P had more stores than the rest of the top 5 largest chains combined
- In the mid 1930's, The Robinson-Patman Act sought to change legislation and break apart large scale retail chains because it hurt so many independent shop owners
- The Hartford's brilliant insight was that too high profits were a warning sign and bad for the long run prospects of the company. They thought that this was a bad indicator because this meant they were charging more than they had to and this would lead to decreased volume as shoppers would go to their stores less, leading to the same fixed cost being spread over fewer customers, forcing them to raise prices again and on in a vicious cycle
- One could argue that few organizations have done more to raise the quality of life for the average consumer than A&P. Their obsession with lowering prices and innovating everything from supply chain to pre packaged carrots opened up new products and frontiers for mid America
- Once John Hartford died they had a succession plan in place but Mr. Ballinger died as well soon after. So, Ralph Burger who was seen throughout the company more of as an assistant to John then as a leader, got thrown into the leadership position
- As shopping centers became more common throughout the US, A&P became too conservative without John and were unwilling to sign long-term leases or own real estate and soon got locked out of the most premier locations. Their conservatism brought disaster as their competitors were adding high margin desirable product lines, had big stores in good locations with fast growing populations while A&P was relying on the legacy of their past. Today's ship cannot sail with yesterday's wind
- The A&P went public and their secrecy and lack of detailed information made investors and Wall Street nervous. Their decline was incredible as they were unable to innovate and keep up with new trends and customer demands
- They were eventually bought by a German company called Tenglemann, not knowing how dire their situation eventually was. After two Chapter 11 bankruptcies, The Great A&P, who was once the largest and most dominant retail chain in the US and maybe the world, officially shut their doors in 2015
What I got out of it
- They laid the framework, game plan and precedent for many of today's largest firms such as Walmart and Amazon. Their two leaders, George and John Hartford, played off each other's skills of conservatism and innovation/risk taking to create a behemoth. However, once they were no longer in charge, conservatism and inability to adapt took hold and A&P's dominance was quickly eroded by faster moving, more innovative companies such as Walmart. Through their focus on lower prices and higher volumes, they were able to get more and more nutritious food to the average American, changed the country's shopping habits and helped innovate the nationwide store, brand, supply chain and everything else that goes with that
In the Latticework, we've distilled, curated, and interconnected the 750+book summaries from The Rabbit Hole. If you're looking to make the ideas from these books actionable in your day-to-day life and join a global tribe of lifelong learners, you'll love The Latticework. Join us today.