What was life like for you in 1859? That’s a trick question, of course. (If you are able remember that particular era, I recommend that you contact the Guinness World Records folks immediately.)
But for one grocery retailer — The Great Atlantic & Pacific Tea Co. (A&P) — 1859 was a fine time to enter the grocery business. Although a few modern-day retailers (Brooks Brothers, Lord & Taylor and Macy’s) already had set up shop, the grocery industry was largely still a collection of small meat markets and mom-and-pop operations.
But the American population was more than ready to welcome A&P and its better-value proposition. And little did people understand that they were witnessing the beginnings of a super-retailer, one that would eventually create today’s modern supermarket — and still be going strong 150 years later.
Founded as a tea, coffee and spices mail order business by George Huntington Hartford and George Gilman, A&P initially was known as The Great American Tea Co. Its first store-warehouse operation opened at 31 Vesey St. in New York in 1859.
From that humble beginning, the company expanded through store-building and home-delivery operations, taking its modern-day name in 1869. The company launched the first private label product in the United States in 1880 (baking powder), beginning a long tradition of quality store brand product development.
A&P eventually became the largest grocery retailer in the United States, operating more than 15,000 stores by the 1930s. But the retailer fell on tough times during the late 1960s and 1970s. In 1979, the Hartford family and the John Hartford Foundation sold the majority of A&P shares to The Tengelmann Group of Germany.
Since the 1980s, the company has been on a roller-coaster ride of acquisitions, divestures and restructuring. As recently as 2006, some industry observers had doubts about the A&P game plan.
“A&P investors should mull whether this little fish has further to swim — or further to sink,” said Shannon Zimmerman, head of the “Motley Food Champion Funds” newsletter, in a Jan. 6, 2006, Fool.com article. “Personally, I’m leaning toward the latter.”
But A&P’s 2007 acquisition of Pathmark Stores Inc., combined with the company’s well-thought-out growth strategy, soon had investment types singing a different tune.
“The Great Atlantic & Pacific Tea Co., better known as SuperFresh and Pathmark grocery stores, is in the midst of a remodel and turnaround that seems to be working,” noted Victoria Erhart in a July 23, 2008, article on bloggingstocks.com. “Given the steep rise in food prices, forecast to worsen into the winter, A&P is well-positioned to attract value-driven grocery shoppers.”
Christian Haub, now executive chairman of Montvale, N.J.-based A&P’s board of directors (and formerly president and CEO), is a fifth-generation grocer with family ties to The Tengelmann group. He credits Eric Claus, A&P’s current CEO, and his leadership team for helping to engineer the turnaround strategy that is strengthening the company and ensuring many more years — perhaps even another 150 — of retail grocery success.
PL Buyer interviewed Haub to learn the secrets behind A&P’s incredible longevity and the company’s vision for the years to come. Read on for his take on the company’s past, present and future.
PL Buyer: A&P has realized many milestones and achievements during the past 150 years. Which of these would you term most significant?
Haub: There are obviously a lot of milestones and firsts that the company realized during its long history, starting with buying tea directly off the ships in New York Harbor and selling them at a significant discount directly to consumers. I think that’s become kind of a tradition of not only A&P, but also the whole grocery industry — how to bring better values to the customer either by having the lowest price on a particular product or to bring better quality or improved functionality to the consumer.
A&P was not only the first to sell dry goods to the consumer, but was also the first retailer to combine selling dry goods and fresh meat in their stores. In addition, A&P also was only the second company in the world to reach a billion dollars in revenues (in 1929).
Further, A&P was probably one of the first major companies, certainly in the retail business, to provide benefits such as healthcare and pensions to its associates. This was long before it was mandated by laws or before unions started to become a major factor in industries. And that created a very strong bond between the company and its employees that still lives on today. The company went beyond selling food to customers by taking care of its associates, as well as taking care of the commun-ities in which A&P operated.
If you think about it, A&P was not only in the retail business, but basically in the home-delivery business, too. The horse-drawn carriages went far out of the markets where A&P had stores, which was a great way of supplying food to people not living in more urban communities back then. It was also a great way for A&P to increase its market penetration and make consumers loyal to the A&P brand. (The last horse-drawn carriage was retired in 1924.)
PL Buyer: What types of A&P practices, programs and products wielded an influence on competitors and their stores?
Haub: A&P became by far the largest food retailer beginning in the 1920s and probably continuing through the 1950s. Many competitors felt threatened by the sheer size of A&P. The company was not only selling food to consumers in its retail stores, but also, in many cases, was vertically integrated by operating its own farms, fisheries, meat plants, bakeries and dairy plants. They felt if they couldn’t get a product cheaply enough from a supplier, they were just going to produce it themselves. Today, some companies such as Kroger and Safeway make a lot of their own products. That practice clearly was started by A&P.
A&P, I think, invented private label in terms of creating its own brands and selling them to the customer, starting with their baking soda, teas and coffees. A&P’s Jane Parker brand is still an icon in today’s market.
Going back to providing benefits for its associates, A&P set the pace that almost all other companies followed in the 1950s and 1960s.
PL Buyer: Talk about A&P’s “dark times” — what factors adversely impacted the company and how?
Haub: A&P missed a few trends and was not keeping pace with how American society was changing. Some of the difficulties it ran into, mostly in the early 1970s, were because it was so vertically integrated — making so many of its own products and selling so much private label in its stores.
A&P underestimated the impact new national brand advertising on television would have, and was also late in carrying those national brands and scaling back its own private label offerings in the stores. A lot of other retailers caught on to that trend before A&P.
Truly another societal change that A&P underestimated was the movement of the population from the urban centers into the new suburbs that developed in the 1970s. These suburbs required bigger and more modern supermarkets, and A&P had thousands of stores in more urban centers. They were great corner locations, but didn’t have enough parking and were too small to stock the growing array of national brand products.
For a number of years, A&P’s competitors opened stores in these suburbs. Pathmark is a great example of a retailer that identified this trend much earlier, and in the 1970s and 1980s, built big stores in the best locations in the suburbs of New Jersey and Long Island.
A&P was late in identifying and acting on this trend, and in some markets, it missed the opportunity completely. That’s why in the 1980s, A&P exited entire markets such as Buffalo, Pittsburgh and others.
PL Buyer: How did this challenging period help to transform the company into what it is today?
Haub: Basically, the company reinvented itself. We had to create a new concept, and that was done in the early-to-mid 1980s, where A&P developed a whole new store. It was actually called the Future Store. The concept replaced a lot of A&P’s smaller stores, and the company also built new stores in the suburban markets. That became very, very successful.
Through exiting the poorly performing markets and an acquisition course in the mid 1980s to early 1990s, buying companies such as Waldbaum’s in Long Island and the Food Emporium in New York, and developing the SuperFresh concept in the mid-Atlantic region, A&P was growing in a very, very positive way. The company kept transforming itself and building the modern stores it has today.
PL Buyer: And the growth mode really took off with the acquisition of Pathmark Stores Inc., right?
Haub: Yes. I would consider the Pathmark acquisition, which was the largest acquisition in the company’s history, as the most significant recent milestone. We went out and bought a company that was almost the same size as A&P, and it gave us a great opportunity to complete our format strategy. We have been pursuing a format strategy for the last several years, focusing not on one store model that can satisfy all the different consumers in the market today, but instead on different formats for different segments of consumers.
Pathmark, our Price-Impact format, is targeted to consumers that live either in very urban markets or suburban markets and are looking for the best value for their complete household shopping needs. That was something A&P really didn’t have, and Pathmark, because of its great locations and price reputation, was certainly ideal for us to add.
This format has a lot of growth potential, considering the current economic environment. So we are looking to renovate existing Pathmark stores, and in some markets such as Philadelphia, we’re converting existing A&P or SuperFresh banners to Pathmark because we think they will work better in that format. Results from the first 10 stores converted show great customer response and business growth.
We also developed a format — Food Basics, our discount format, which is really about everyday low prices and small-sized stores with a limited assortment. That format also has seen really tremendous growth in the last couple of years, and we are planning to grow these as well with new stores and some store conversions.
As for the A&P banner, we’ve been positioning that as our Fresh Concept. The format has a heavier emphasis on fresh foods, service departments and higher-quality products. And we’ve renovated around 100 stores in the last three years to that concept. We think that’s where A&P is best positioned — it has this great brand strength and wonderful history, but it’s all about good value with quality and service.
PL Buyer: Talk a little bit about A&P’s private label program and how it has evolved over the years.
Haub: Private label obviously played a tremendous role right from the get-go, and it was one of the backbone strategies of A&P for a very long time. Consumers identified not only with A&P, the store brand, but also even more with the private label brands A&P had developed.
But private label also became part of A&P’s struggles because the company did not understand the power of the modern media, which was driving national brands to gain the kind of reputation and importance in U.S. households that A&P brands had for a very long time. So then came a phase of de-emphasizing, driving back the importance of private label.
But now I think we’re at the threshold of a new era for private label. Private label quality has improved dramatically, and we’ve done a lot of work on our own brands as well. Fortuitously, with the acquisition of Pathmark, we determined that we needed to put the two private label programs together for both companies, and have a unified strategy going forward. So we had to decide which brands to keep, which labels to keep and which to reinvent.
We’re in the midst of rolling out, both within A&P and Pathmark, our whole new private label strategy. This strategy calls for our America’s Choice to continue to be our core label, but we’re also launching a new across-the-board price-entry label. This is the Pathmark brand called Smart Price. We also have a brand new premium private label called Hartford Reserve, as well as additional programs in the natural and organic private label arena, an Italian food line and a new line of health and beauty aids.
It’s a comprehensive strategy, and we’re looking to grow our own label business substantially. Consumers are looking for value alternatives to the higher-priced national brands, and I think the quality of the products, the ingredients and the packaging is going to come together to create what’s almost like an exclusive national brand that’s available only in our stores.
PL Buyer: How does the “new A&P” aim to be perceived by both its shoppers and its competitors?
Haub: We know we’re the oldest food retailing company in North America, but we want to be known for more than our traditions and our history. We also want to be known as an innovator that is bringing new concepts to the market and really understands its customers better than any of our competitors. Because of the role we have, particularly in the New York market, we think we are doing that.
But we also want to be viewed as an integral part of every community we serve. Our role is not just to be a provider of food and household needs, but to serve the community in relation to whatever needs it might have. I think that creates as much loyalty and a positive attitude toward the overall company as anything else. And we also want to provide good value on an everyday basis.
PL Buyer: What obstacles does A&P need to overcome in its continuing reinvention?
Haub: Of course, every customer looks at our company based on their experience in our stores and with our associates. We’re only as good as that experience. The good thing is we’ve put a lot of work into our existing stores — renovated them — and customers are seeing a different A&P than they saw three or five years ago.
But we still have to work with our associates in terms of daily interaction because a great experience with an employee can go a long way to build loyalty, and a poor one can go a long way to do the opposite. I think understanding that the people make the company is what has allowed A&P to be so successful over this very long time.
We’re going into our 150th year with a lot of momentum, with a lot of positive accomplishments. I’ve enjoyed this last few years more than any other time with A&P, and I’m excited to see where we’re going. PLB
