A quick stroll through grocery-store history

Wednesday, June 28th, 2017

Gary Hoover takes us on a quick stroll through grocery-store history:

By 1912, America’s first great retail chain, the Great Atlantic and Pacific Tea Company (“The A&P”) had 480 stores spread across many states. The founder’s son John Augustine Hartford thought the highly successful company could do better if they lowered prices, but his father and conservative brother would not hear of it. Finally, he wore them down and they said, “Ok, you can open one of your cheap store ideas a few blocks from an A&P. But you cannot call it A&P and you can only have $3,000 with which to open the store.” They figured this would prove the stupidity of his “Economy Store” concept. Within months, the regular A&P around the corner had to close as customers loved the new concept. By 1927, only fifteen years later, A&P had opened 15,671 of these little stores, sometimes just a block apart in major urban centers. By 1929, the A&P had become one of America’s first companies to achieve $1 billion in annual revenue. The largest retailer in the land, these revenues were greater than those of #2 Sears, Roebuck and #3 FW Woolworth combined.

Despite this huge success, the A&P was not without competition. In 1929, Kroger of Cincinnati, Safeway of San Francisco, American Stores of Philadelphia, National Tea of Chicago, and First National of Boston operated an additional 14,188 stores. Grocery chains represented 4 of the 10 largest retail companies in America.

Then, on August 4, 1930, Michael J. Cullen opened his King Kullen store in Jamaica, Queens, New York, generally accepted as the first true supermarket. Cullen, a veteran of A&P and Kroger, had tried to convince the leaders of Kroger to try his new idea, described as “a new type of food store with a focus on low prices, cash sales, and without delivery service, in larger stores (at low rents) with ample parking.” These were to be “monstrous” stores, about forty feet wide and hundred and thirty to a hundred and sixty feet deep, located one to three blocks off the high rent district with plenty of parking space, to be operated as a semi-self-service store — twenty percent service and eighty percent self-service. Cullen suggested that this new type of store could achieve 10 times the volume and profits of the average Kroger or A&P. But his letter never even made it to the head of Kroger, as the chief’s lieutenants knew the idea was crazy.

But it wasn’t crazy. King Kullen and others around the nation added meat and produce to the standard mix of “dry groceries,” added parking, but most of all deep discounts. Others followed Cullen: two years later, Big Bear opened in New Jersey in the former Durant auto factory, its single store doing the revenue of 100 A&P’s.

Within a few years, the industry leaders woke up to the new concept. In 1937 A&P, ever ready to evolve under the same brilliant John Hartford, began closing its tiny stores and replacing them with the new “giant” supermarkets. In just thirteen years, by 1950 A&P had dropped from more than 14,000 stores to just over 4,000, but their revenues rose from $800 million to $3 billion. In 1955, 11 of the 25 largest American retailers were grocery store chains.

During the 1960s, the new concept of the discount store — general merchandise but no food — spread across America. Over time, many retailers attempted to integrate general merchandise with food: Walgreen’s and St. Louis’s Schnuck’s grocery chain, Skaggs/Albertson’s from the western US, Kmart and Detroit’s Allied Supermarkets, and others tried to make it work, with mixed success at best. Weekly “convenience goods” shopping for low margin groceries did not fit with the less frequent and more leisurely “shopping goods” trips for clothing, home furnishings, hardware, and other categories. The industry mentalities and restocking processes were radically different. A few regional firms made it work — Schwegmann’s in New Orleans, Meijer’s Thrifty Acres in Michigan, and Fred Meyer in Oregon. But none of the industry giants could figure it out.

Fast forward to 1987. Booming discount chain Walmart — still smaller than Sears or Kmart — opened an experimental store combining the general merchandise (non-food) that it knew well with groceries, a new category in an already fiercely competitive field. The store was called Hypermart USA, modeled on the “hypermarches” which were sweeping through Europe, led by France’s Carrefour. The store did not work and was soon closed.

Nevertheless, ever-experimenting Walmart opened its first “Supercenter” the next year (1988) in Washington, Missouri. This time it worked. For the next several years, the company gradually replaced most of its discount stores with the new food and general merchandise combination stores. As of January 31, 2017, there were 3,522 Walmart Supercenters in 49 of the 50 U.S. states, the District of Columbia, and Puerto Rico. Everywhere but Hawaii. Walmart is by far the largest food retailer in the world, with revenues almost twice those of runner-ups France’s Carrefour and Britain’s Tesco combined. Kroger remains the largest pure food chain in the US, and the only company to finish among America’s top ten retailers ever since 1929, a remarkable record in itself.

Yet another breakout of the 1970s and 1980s was the invention of the warehouse club with Sol Price’s Price Club in San Diego. Costco and Walmart’s Sam’s Club came along soon after. Costco later acquired the original Price Club organization. No retailer in American history has lived with such low profit margins as these stores, relying on membership fees for profitability (not unlike Amazon). Between 2000 and 2016, Amazon grew its North American revenue by $76 Billion, while Costco added $63 Billion.

Step ahead another 30 years to today. Convenience stores are getting a rising share of the food dollar, led by Sheetz, Wawa, 7-Eleven, and many smaller firms. Walgreen’s, in the 1970s a sleeping giant, and CVS, back then a small division of shoe giant Melville Corporation, are now adding more food on virtually every good street corner in America, often facing each other. Family Dollar, Dollar General, and DollarTree are adding stores and expanding in food. Aldi and Lidl are invading in spades. Those in the traditional supermarket industry in the “know” consider privately owned Publix, HEB, and Wegman’s as among the best in class — conclusions supported by surveys of customer loyalty and satisfaction.

According to Statista, in 2016 Walmart sold 17.3% of the food sold in America (excluding restaurants), followed by Kroger at 8.9%, Albertson’s/Safeway at 5.6%, Costco at 5.1%, Ahold Delhaize at 4.2%, Sam’s Club and Publix tied at 3.4%, HEB at 1.9%, Whole Foods and ShopRite at 1.7%, Target at 1.5%, Meijer at 1.4%, and Aldi at 1.3%. Further down the list were Trader Joe’s at 1.1%, and Wegman’s and Amazon tied at 0.8%. That is a LOT of upside for Amazon and the other tiny players, just as Whole Foods’ leaders realized 35 years ago.

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