2 Paragon Drive
The Great Atlantic & Pacific Tea Company, Inc., founded in 1859, is a company that has rededicated itself to excellence and leadership within the retail food business. This involves long-range commitments to: our shareholders, by consistently increasing the value of their investments; our customers, by satisfying their food shopping needs more effectively than the competition; our employees, by providing improved opportunities for professional growth and achievement; our communities, by acting as good citizens and contributing important value to the neighborhoods we serve. We strive to accomplish these primary goals by adhering to a simple premise that remains as vital today as it was in 1859: Keep searching for better ways to serve the customer.
The Great Atlantic & Pacific Tea Company is the fourth-largest operator of grocery store chains in the United States. A&P operates 1,108 stores across the United States and in Ontario, Canada, under the names A&P, Waldbaum's, Food Emporium, Super Fresh, Farmer Jack, Kohl's, Dominion and Miracle Food Mart. The company also manufactures and distributes coffee, under the brand names Eight O' Clock, Bokar, and Royale.
In 1859, George Huntington Hartford and George Francis Gilman formed a partnership. Using Gilman's connections as an established grocer and the son of a wealthy ship owner, Hartford purchased coffee and tea from clipper ships on the waterfront docks of New York City. By eliminating brokers, 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 mail-order 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 & 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 percent, 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 five percent of A&P's stores--and 23 percent 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 first achieved in 1930. However, 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 $11-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 basketwatching." 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 10 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.
New Management, Renovations, and Acquisitions
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 percent 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, close to 40 percent of the company's stores had been shut down. Not only were 600 stores closed, but virtually all manufacturing facilities had been eliminated. Management had won labor concessions in key markets, and the company returned to profitability. Between 1986 and 1990, A&P's earnings grew an average of 27 percent annually. 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 percent 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 aimed for an upscale, service-oriented image and catered to one-stop shoppers. Two new store formats addressed different market niches: Futurestores stressed A&P's broad variety of quality products, and Sav-A-Centers took a strong promotional approach by offering warehouse prices.
Wood 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. 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 had its strongest presence, and its 1989 acquisition of Borman's, a Detroit-area chain, resulted in a majority share of the Detroit market.
After the company's restructuring under James Wood, operating income per store more than doubled. Emphasizing high profit margin departments--full service delis, cheese shops, fresh seafood, and floral departments, for example--the company 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 considered 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 was of considerable interest to Erivan Haub, Tengelmann's owner, who wished to shore up his European retailing empire in preparation for the unification of the common market in 1992. The Gateway bid ultimately failed. A&P also had trouble with another international venture, its $250 million acquisition of 70 Miracle Food Mart stores in Ontario in 1990. Ontario was soon hit by recession, as were A&P's other major markets in the United States, and sales fell in the Canadian stores by five percent the next year.
A&P's acquisitions had given the company top market share in many cities. Its 1989 acquisition of Farmer Jack in Detroit, and its earlier purchases of Kohl's in Milwaukee, and Waldbaum's in New York put it in the top spot in these major markets. But the company had trouble hanging on to its market share. Its stores averaged half the size of newly-built supermarkets, and many were old and run-down. Waldbaum's in New York was cited in 1991 as the worst of all area grocery chains for numerous problems with rodents and cockroaches. The company was slow to respond, and Waldbaum's sanitation record improved only slightly the next year. Earnings for the company dropped from $151 in 1990 to $71 million in 1991. Then sales for fiscal 1992 fell a shocking $1.1 billion, and the company was in the red, losing $189.5 million. By 1993, stores run by A&P had lost market share in six major markets. Faced with a poor economy and declining profits, the company cut back the amount it was spending on renovations.
A&P decided to focus its marketing efforts on a new store brand product line in 1993. Chairman Wood had sold or closed most of the company's store brand manufacturing plants in the 1980s, but A&P thought it was time to emphasize cost-cutting store brands again. The company consolidated nine different private labels into one--America's Choice--that would be found at all its different chains. 3,500 private label items were consolidated into 1,600 America's Choice items, which were promoted on television in major market areas.
A&P also remodeled more than 100 stores in 1993 and built 20 new ones. Analysts frequently noted that A&P could spend much more on remodeling, and on opening bigger stores. In 1994 A&P upped its capital spending 40 percent, to $340 million, and announced that it would concentrate on opening 50,000 to 60,000 square-foot stores, on par with its competitors'. But the company was still plagued with problems. Its Ontario chains, Miracle Food Mart and Ultra Mart, were closed by a strike for 14 weeks during 1993-94. A&P had attempted to lower its labor costs by cutting wages and relying on more part-time workers, setting off the strike. A&P finally settled with the unions, but the long strike had given Ontario customers plenty of time to build loyalty to competitive stores. A&P's Atlanta stores also faltered. The company bought up 40 stores in the Atlanta area in 1993 in order to fight back competitors who were opening new stores in the area. However, the Atlanta stores lost money and only began to show a profit in the fourth quarter of fiscal 1994.
In spite of its problems, A&P had plans in place for a smoother future. The company gained a new president in 1994, Christian Haub, the 29-year-old son of Erivan Haub, the principal owner of A&P's majority owner Tengelmann Group. This was the first time a member of the Haub family had direct involvement with managing A&P. Haub planned to improve the image of A&P stores by improving cleanliness, checkout service and other highly visible areas of customer service. More than this, the company opened 16 new stores in 1994-95, remodeled or expanded 55 more, and closed 87 stores. According to Haub, A&P planned to open 50 stores a year after 1996. The company put aside $1.5 billion for store development over the next five years. Problems with the Canadian stores seemed to be improving by 1996. The company had to write off charges related to an employee buy out program there in 1995, but the next year, A&P gained a $6.5 million tax-refund in Canada. This contributed to a happy fourth quarter of fiscal 1995, when profits more than quadrupled. Operating income was on the rise, and sales at stores open at least a year climbed modestly. The company was far from its heyday, when it had been the leading chain across the country, but a conservative goal expressed by Christian Haub of being the leading store in its key markets seemed not totally unfeasible.
Principal Subsidiaries: A&P Wine and Spirit, Inc.; ANP Properties I Corp.; ANP Sales Corp.; APW Supermarket Corp.; Big Star, Inc.; Great Atlantic & Pacific Tea Co., Ltd. (Canada); Great Atlantic & Pacific Tea Co. of Canada, Ltd.; d/b/a A&P and New Dominion; Borman's Inc. d/b/a Farmer Jack; Compass Foods Inc.; Family Center, Inc.; Futurestore Food Markets, Inc.; Great Atlantic & Pacific Tea Co. of Vermont; Kohl's Food Stores, Inc.; Kwik Save, Inc.; Lo-Lo Discount Stores, Inc.; Richmond, Inc.; St. Pancras Co. Limited (Bermuda); Shopwell, Inc.; Southern Development, Inc.; 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-Florence, Inc.; Supermarket Distribution Services, Inc.; Supermarket Systems, Inc.; Transco Service-Milwaukee, Inc.; Waldbaum, Inc.; W.S.L. Corporation; 2008 Broadway, Inc.
Principal Divisions: A&P Coffee Division.