Marc Levinson’s “The Great A&P”: Book Review, Notes + Analysis

Poor Ash’s Almanack > Book Reviews > Business / Finance > Entrepreneurs

Overall Rating: ★★★★★★ (6/7) (standout for its category)

Per-Hour Learning Potential / Utility: ★★★★★★ (6/7)

Readability: ★★★★★★ (6/7)

Challenge Level: 2/5 (Low) | ~270 pages ex-notes (384 official)

Blurb/Description: Before there was Wal-Mart, there was The Great Atlantic & Pacific Tea Company – which despite being nearly unheard-of today, was, for a time, the largest retailer in the world.  This is its story.

Summary: while this book seems to get less airtime than author Marc Levinson’s shipping-container tome The Box, I think it’s actually the better of the two.  Levinson takes us through the company’s many incarnations, from gaining traction under founder George Gilman via publicity stunts that would put Salesforce to shame, to surviving (and thriving) through country-wide upheavals such as transcontinental rail, the automobile, refrigeration, and two World Wars.  

Highlights: Levinson provides a detailed and fascinating look at the Wild West that was American retailing back then, as well as A&P’s generally very thoughtful, very adaptive  approach, centered around the (surprisingly novel, at the time) concept of providing consumers with an unbeatable value proposition.  

Brownie points for being the first book to actually explain to me what trading stamps were (I’ve heard many things about Blue Chip Stamps, except I never really got what they did!)

Lowlights: the only unfortunate part of this book is that the ending is misemphasized: the last third seems to get bogged down in unnecessary detail concerning the various anti-chain-store movements and regulations, then very hurriedly (in no more than a few chapters) summarizes A&P’s dramatic fall after the death of John Hartford.  

More pages should have been spent on the latter than the former. I would recommend skimming through a lot of the antitrust stuff, which basically boils down to “politics sucks.”

Mental Model / ART Thinking Points:  saliencen-order impactszero-sum games, contrast bias,incentivestrait adaptivitylocal vs. global optimizationhyperbolic discountingdisaggregation

You should buy a copy of The Great A&P if: you like business histories and want to break out of the very well-covered 1970s – present period to get a detailed look at the rise, nearly continual evolution, and eventual fall of the first American retail giant, along with some useful historical context on the era.

Reading Tips: As noted, the antitrust stuff in the last third or so of the book is overly detailed, not interesting, and not useful (except for the punchline).  Feel free to skim heavily or skip.

Pairs Well With:

Made in America by Sam Walton (WMT review + notes) and The Everything Store by Brad Stone (TES review + notes).   

Who needs a movie marathon when you can spend a long weekend covering three generations of America’s dominant retailer?

See also my essay Ten Commandments From 1.5 Centuries Of American Retail Dominance (And Failure), summing up what I learned from reading about the history of a dozen-odd major American retailers. 

 

More Detailed Notes + Analysis (SPOILERS BELOW):

IMPORTANT: the below commentary DOES NOT SUBSTITUTE for READING THE BOOK.  Full stop. This commentary is NOT a comprehensive summary of the lessons of the book, or intended to be comprehensive.  It was primarily created for my own personal reference.

Much of the below will be utterly incomprehensible if you have not read the book, or if you do not have the book on hand to reference.  Even if it was comprehensive, you would be depriving yourself of the vast majority of the learning opportunity by only reading the “Cliff Notes.”  Do so at your own peril.

I provide these notes and analysis for five use cases.  First, they may help you decide which books you should put on your shelf, based on a quick review of some of the ideas discussed.  

Second, as I discuss in the memory mental model, time-delayed re-encoding strengthens memory, and notes can also serve as a “cue” to enhance recall.  However, taking notes is a time consuming process that many busy students and professionals opt out of, so hopefully these notes can serve as a starting point to which you can append your own thoughts, marginalia, insights, etc.

Third, perhaps most importantly of all, I contextualize authors’ points with points from other books that either serve to strengthen, or weaken, the arguments made.  I also point out how specific examples tie in to specific mental models, which you are encouraged to read, thereby enriching your understanding and accelerating your learning.  Combining two and three, I recommend that you read these notes while the book’s still fresh in your mind – after a few days, perhaps.

Fourth, they will hopefully serve as a “discovery mechanism” for further related reading.

Fifth and finally, they will hopefully serve as an index for you to return to at a future point in time, to identify sections of the book worth rereading to help you better address current challenges and opportunities in your life – or to reinterpret and reimagine elements of the book in a light you didn’t see previously because you weren’t familiar with all the other models or books discussed in the third use case.

The Great A&P started off with a “fake it ‘til you make it” strategy, literally – founder George Gilman, an enterprising sort who decided to move upmarket from the smelly business of hides to the refined business of coffee and tea, presented an image that was outright false rather than just embellished.

Examples include running advertisements claiming to have bought ridiculous percentages of the American tea supply, claiming to have proprietary product, claiming to exist and have existed (the company was just a front for another company), claiming their stores were so crowded that policemen had to control crowds… etc.   Saliencewith a side of bad ethics.

That said, Gilman’s A&P did come up with some unique innovations, like the first branded product and the first “trading stamp” (basically the 1800s equivalent of rewards points).  These trading stamps, interestingly, were valuable because they transferred purchasing power to women: while their husbands might not have let them buy fancy plates or similar items, they did the grocery shopping and thus controlled the food budget.  These served as a meaningful competitive advantage vs mom and pop stores, which couldn’t afford them.

By the time the Hartford family gained control, the business was already scaled, although it focused primarily on tea and coffee.  In response to falling coffee and tea prices, they started selling sugar, then baking power. Canning was an important enabling technology – it was invented a century prior but only recently became profitable. 

(See here Jonathan Waldman’s amazingly engaging Rust (Rust review + notes) for a great overview of the surprising technological difficulty of canning – as well as the bit in Richard Rhodes’ The Making of the Atomic Bomb (TMAB review + notes) where the best and brightest scientists of the era could figure out how to split the atom, but couldn’t figure out how to close a can without sealing it with a top of molten solder.)

By 1903, the company was already one of the biggest retailers, with $5MM in revenue and 198 stores.  However, a new strategy was needed, as they had some competition (they were the fifth largest at this time) – their marketing stunts could be copied, and their supply chain was optimized for coffee/tea vs. broad grocery distribution.  N-order impactszero sum games, and contrast bias: it’s a little difficult to keep outdoing marketing stunts…

John Hartford was really the driving force behind the company’s evolution; his brother George was more of the reclusive bean-counter.  He came up with the idea of an experimental lower-priced “economy store” with none of the premiums, fancy decorations, or whatnot of the traditional stores.  These did extremely well, and particularly as WWI got underway, low prices were a popular antidote to rising food prices.

In particular, small stores offered two things that A&P Economy Stores did not: delivery and credit, both of which drove up prices.  Credit in particular caused an adverse selection problem: good customers who didn’t really need credit preferred the lower, cash-only prices offered at A&P, while bad customers who needed credit remained at the mom and pops, increasing credit losses…

Anyway, while small stores were romanticized by populists (and The Andy Griffith Show), Levinson alleges that in truth, most small shops were typically not very profitable, serving a very small (often as few as 50) base of local households (often of a specific ethnicity) and they didn’t sell very good food, or at very good prices.

At the time, grocery chains typically avoided perishables because they were hard to track (managers could steal them), and the industry was really quite fragmented, with tons of intermediaries.  There were economies of scale to be had in distribution, advertising, and data (forecasting, store layout, etc).

A&P decided to try vertical integration – I immediately jumped to the Amazon conclusion – but it turns out I was wrong – this was financially imprudent for the most part, other than in a few areas like produce wholesaling and baking bread.  

In 1925, the company decided to reorganize to have more local/decentralized decisionmaking, a la (more than half a century later) Kip Tindell’s The Container Store (see Uncontainable – UCT review + notes.)

Again, I thought this would fix the problem, but I was wrong again – this actually made it worse.

One of the interesting anomalies about A&P vs. other retailers is that it insisted on very short-term leases – which turned out to be a godsend, because retail was evolving fast thanks to rapidly changing consumers and technology, such that yesterday’s hot new concept was today’s dowdy old store.   

This is a great example of  trait adaptivity and, in my view, is the most important takeaway from the book.  Even if you haven’t read Clayton Christensen’s The Innovator’s Dilemma (InD review + notes), this is sort of the direction you should be thinking.

Additionally, while the Hartfords gave employees the opportunity to own about a percent of the company (incentives), they controlled 99%, had limited/no debt (I think there was some preferred stock), and generally could do whatever they pleased, including turning the battleship on a dime if need be.

However, they did occasionally face some agency problems (local vs. global optimization) – local managers didn’t always buy into the company’s long-term strategy if it made them do worse in the short term!  (Hyperbolic discounting.)

The company decided to focus on ROI vs. margins – John believed any profit margin above 2% was, in fact, bad, as it meant the company was getting sloppy on cost control and not passing along enough value to the consumer.  (Not the most sophisticated way to look at it – see the disaggregation mental model for the Peter Thiel X | Y framework.)

They centralized purchasing, obtained volume discounts, provided steady orders to manufacturers who could then plan production, and as the transcontinental railroad enabled transportation of fresh produce, they decided to directly purchase that too.

At this point, chains were getting so successful that inefficient, overpriced, uncompetitive mom-and-pops were getting squeezed.  There began to be a lot of political pressure… but at this point much of it was profiteering off the anti-chain bandwagon rather than real political involvement.

Meanwhile, the development of cellophane, refrigeration, and automobiles incentivized bigger “supermarkets” that sold lots of stuff (meat, groceries, etc) vs. just small categories.

Under FDR, to fight unemployment, “codes” (set by not-exactly-government organizations) were rolled out… big chains like A&P had to follow these standards, but small mom and pops avoided compliance.  SCOTUS soon declared these as unconstitutional, but the political tide had turned: the Robinson-Patman Act outlawed “price discrimination,” severely curtailing the volume discounts which enabled A&P to undersell competitors.  

Meanwhile, many states also began to pass per-store “chain taxes” that, in some cases, ate up half the profitability of the stores; at the same time, supermarkets continued to emerge as a threat.

A&P finally decided to get political, fighting back when Patman proposed a tax equal to 50% of revenue (against 2-3% net margins – essentially, the “tax” was a thinly-disguised attempt to destroy chain stores).  

The company had an anti-union attitude, going so far as to shutter all of its stores in Cleveland when the Teamsters blocked deliveries, but then they finally partnered with the unions for political support. The chain tax was defeated in the late 1930s, although political scrutiny continued.

After John Hartford passed away, things went downhill quickly – not signing long-term leases became problematic, as A&P was shut out of prime locations; it was still the largest retailer by 1961, but the heyday was over, and it was eventually acquired by a German company.

First Read: spring 2017

Last Read: summer 2017

Number of Times Read: 2

Planning to Read Again?: yes

 

Review Date: summer 2017

Notes Date:  summer 2017