Pathmark and A&P
Around a quarter of a century ago, I started working for Supermarkets General Corporation in their Edison nonfoods offices. At that time, Pathmark – the name most people know – was the most profitable supermarket in the country, despite having a meager 132 stores in the chain. In sharp contrast to Pathmark’s success was the Great Atlantic and Pacific Tea Company, better known to customers as A&P.
A&P was a massive success story in its time, the equivalent of today’s Wal-Mart in its growth and ubiquity, albeit not in the latter’s apparently harsh employee relations or loathing of American products. A&P stores ended up everywhere, and the company ended up as the largest supermarket chain in the country, if you counted by the number of stores.
Then the company started to lose money. One of the corporate drones worked out that smaller stores were more likely to be unprofitable, something which the Supermarkets General people had figured out (the average Pathmark store, in 1982, doubled the industry average sales – roughly $250,000 per week compared with around $125,000 per week.) Pathmark had more advantages than that, of course, but nothing you’d expect number-crunchers to notice. Pathmark had a highly computerized inventory and sales tracking system; a pair of distribution centers, one for perishable items and one for nonperishables, together serving stores in a relatively small region; and, above all else, a focus on nonfoods items, because they generated a 30% average profit rather than groceries’ 3% average profit.
As a parallel, the financial industry, at the time Daimler took over Chrysler, saw Daimler’s much larger size, as an industrial conglomerate. They assumed Chrysler’s massive profits came from the most obvious part of its cars – their styling – and figured profits could be much, much higher if they could apply “Mercedes quality” to Chrysler Corporation vehicles. Analysts squealed with delight at the thought of “superior German engineering” being applied by Chrysler vehicles, not realizing that the reason Chrysler was such a success was not despite its engineering, but because of it; styling got the customer in for a test drive, but the feel and engineering of the cars were the spur to purchases.
A&P had many options. They could shut down all the unprofitable stores; they could withdraw from geographically dispersed regions, to slash shipping costs; they could warn managers of unprofitable stores that if they didn’t turn around they would be closed down, perhaps send skilled employees to help, and invite innovation and employee-led change.
They did none of those things. Instead, they closed the small stores, which statistically were less profitable. Had they tried the third option, they probably would have had far more success, far more quickly, and regained their earlier market leadership. In fairness, they did start changing their remaining stores, bulking them up into superstores, and gaining the higher margin sales that had helped power Pathmark to profit supremacy. Slowly, A&P did turn around, but the process could have been faster – and less painful – had they given the slow-performing stores a chance.
Supermarkets General, meanwhile, committed suicide. After watching Pantry Pride (a former competitor reduced to poverty in a mere three stores worth around $1 million) take over Revlon, the mighty cosmetics company, in a leveraged buyout, Supermarkets General swallowed a poison pill, so to speak – they acquired two companies (one was Purity Supreme – I don’t recall the other) to run up a massive debt, erasing their cash hoarde and expanding out of their geographical prison and specialization. Then the executives running the company, after swallowing the poison pill, took the company private in the kind of leveraged buyout they had bought Purity Supreme to avoid.
The result was somewhat tragic. The company had to sell Paul’s Trucking, their in-house transportation business, along with their photo labs; Rickel’s home stores, a smaller version of Home Depot; Steinbach’s department stores; and anything else they could. It was not unlike Chrysler’s 1970s meltdown. Pathmark ceased to get much capital for a long time, and remained roughly the same size, despite an attempt to be purchased by a foreign supermarket firm (which was oddly rejected by the same Department of Justice that felt Adobe and Macromedia did not compete), and a public offering that created Pathmark Stores, Inc. The company’s amazing winning streak ended, along with its history of innovation, with the buyout.
Rickel’s, incidentally, also had a somewhat tragic ending. In a move that could have been engineered by Home Depot (I’m pretty sure it wasn’t), Rickel’s and Channel merged, and very, very shortly thereafter both became history, ending any competition in the large home stores until Lowe’s entered the state.
Pathmark, on the other hand, continued its struggle and was finally purchased by, of all companies, The Great Atlantic & Pacific Tea Company. The irony is hard to beat.
Is there a moral? Perhaps… Wall Street is weird … and perhaps CEOs need to spend more time figuring out how to succeed by hitting the fundamentals of leadership and management, and less time trying to shortcut their way to profit. Then again, as long as they get the same massive bonuses for losing money as for making profits, and as long as the market rewards short-term band-aids and punishes long-term investment, we will probably continue to see the kind of insanity that destroyed Chrysler Corporation and Supermarkets General Corporation.
A & P down fall also had a dark tale. George Hartford, who was one of the sons of the original founders, was always active in thwarting union organization and activities. When the stock market fell in 1929, because of Hartford’s very cautious planning, A & P not only survived, it surpassed one BILLION dollars as it operated 15,377 stores. That meant leases no longer than a year, portable equipment ready to be trucked anywhere to open or close a location within hours, and absolute control of the corporation. Just as tightly as Henry Ford controlled his company. By 1907, A & P had pretty much moved to New Jersey, where it had HQed itself. They also had moved the Eight O’Clock Morning Coffee roasting operation there. (Which had been established in 1880 generating more income in certain years that all the stores combined) In 1922, some truck drivers began making union noises. They caused a shut down of a distribution warehouse and distribution station. It never reopened. Hartford simply shut it down, paid off the workers and left it at that. In 1934, in Cleveland, the Federation of Labor, along with Meat cutters, Bakers, and Retail workers began to picket A & P stores, demanding it be unionized with a closed shop. Cleveland had 300 A & P stores, and a large distribution warehouse. In Early November, Hartford flew to Cleveland. On a SATURDAY NIGHT, he fully paid off, in cash, all 2,200 employees, which no longer had jobs. On Sunday, as he took a train home, all 300 stores were shut, along with the warehouse. Like all early union efforts, over a period of time, A & P did have unions, however, none were closed shop. George Hartford died in 1957. He was active in management right up to his death. A slow decline did begin then. However, in the mid 1960s while A & P was trying to reorganize, and thus reprofitize, a certain union element in New Jersey began to try to exercise control of A & P through the unions. The A & P resisted the efforts. Without warning, several stores in the New York area were bombed. New York Investigators along with the FBI managed to trace the dynamite to a construction site in New Jersey, where all labor was under union control. A & P hired its own investigators, highly skilled, very thorough, quite professional, well organized, and very well armed. Outside the police constraints, they were able to put the plan at the door step of a New Jersey hood, and straw boss for a branch of the Gambino crime family. While it was never brought to charges, certain things happened to the members of the hood’s immediate crime organization. Some of those involved, while refusing to talk to cops, spilled everything to the A & P investigators. In a planned escalation of union activities, several “hit” teams were sent out with orders to target the A & P stores in a random, unpredictable manner. They were not aware that they had been compromised. On a late October night in 1971, a Monroe County Deputy Sheriff (Rochester NY) stopped a speeding Cadillac. He noted that the windows were very heavily tinted, which was highly unusual in that time. Cautiously, he approached the driver’s side. The window whirred down, and the Deputy asked for the driver’s license, vehicle registration, and insurance coverage card. The driver smirked, turned to the people in the back of the car, and repeated the Deputy’s request, which drew heavy laughter. The driver stuck his hand inside his jacket, and the Deputy fast drew his revolver, placing it against the driver’s temple. He stated, “all that better come out of there is your hand holding a driver’s license.” The smirk was gone. As well, the men THOUGHT that they had been caught. The driver began babbling about dynamite in the trunk. The Deputy radioed for back-up, which was already on the way, thanks to a dispatcher who had run the tag, that had come back as stolen. In the end, close to 30 people were arrested, along with the quartet of hoods near Rochester NY. They had rolled over on everybody. While no one really got to the true instigator of the A & P bombings, there were no more after the arrests. The union threat was not repeated, however, it had run over several years, covered a gamut of criminal activities, as well a pay offs for extortion, that ran into millions of dollars for “protection.”
That said, by 1980, A&P was completely unionized, as was the by-then more-profitable Pathmark – which as far as I know was union from the start.
Unfortunately, unions were clearly infiltrated by the mob in New Jersey and New York. At least one study put the blame for this on the employers in certain industries, who rather than having their own private armies or hiring the ruthless, violent Pinkerton’s group, would reach out to the crime families. Unions were then made an offer they couldn’t refuse by other crime families, the result of which was a great morass of corruption, extortion, and nobody winning.
DIdn’t know about A&P’s early history; seems awfully similar to Wal-Mart today, though not the Wal-Mart of Sam Walton, may he rest in peace and not know what his sleazy kinfolk have been doing.
Supermarkets General Corporation won the big bucks because they had a good plan and stuck to it; they didn’t need to more stores around, and they could pay good salaries (indeed, for the general store managers, they paid very good salaries). I will say that they were deliberately cheap in their building decor at the Edison headquarters, the idea being to convince buyers – through a drag, dirty, unmaintained lobby, and a building with NO identification – that the company didn’t have enough money to pay high prices for their goods!
But things were done by science … figures were studied, computers ran reports, and the position of items on the shelves was determined by sales, profits, and aesthetics…
PS> Hit Return (or Enter) twice to make a new paragraph!
Very thoughtful analysis from you both. Especially the idea of corporate suicide. At times I have feared Chrysler is in that phase. But it gives me a great deal of hope seeing the leaked photos of the new Patriot / Compass interior. See http://www.chryslerweblog.com/
If Chrysler can keep going in that direction, maybe the company can thrive again. They deserve credit for getting these changes out, 2 years into a product cycle.
I thought that another view of corporate suicide was necessary. It shows the extent to which forces converge upon a company, and the lengths it will go to survive. This too still goes on today, even with the scrutiny of major Federal Law Enforcement working in conjunction with State, County and Local officials. Rather than bombs and guns, these similar groups use brief cases, lawyers and money to arrive at the same goals. Rather than toss a bomb, just toss a law suit instead.
A & P not only survived, it rose again to profitable operations. Today it is a NY Stock Exchange member under the designation “GAP”. The company employs approximately 62,000 people through 447 stores. It operates in 8 states, which are New York, Connecticut, Massachusetts, New Jersey, Pennsylvania, Delaware, Virginia, Maryland, and in Washington D.C.
It still maintains its own brands of AMERICA’S CHOICE, MASTERS CHOICE, HEALTH BRAND, SAVINGS PLUS and PATHMARK. Further, it has its own banners of A & P, WALDBAUM’S, A & P SUPER FOODMART, THE FOOD EMPORIUM, SUPER FRESH, PATHMARK, and FOOD BASICS.
It will celebrate its 150th year of operation in 2009. The latest sales figures available show about 9.4 BILLION dollars (USA) in scope.
I really didn’t want to double space the first entry because it went out so long.
So too, has Chrysler survived, nearing the true end of its life in the mid 70s, again risking ruin under Iaccoca in the mid 80s, and did come to an end in 1998 as we knew it. The name has survived. CLLC is a totally different corporate entity. CERBERUS, the new majority owner, is however, a true money machine. They do know how to make money, good times or as current conditions show, bad times too. Speculation is abounding everywhere. Will it or won’t it? Only time will tell.
Agreed.
As for scrutiny,
A&P does survive, but it’s no longer nationwide. I wasn’t aware they’d taken over Waldbaum’s (once Pathmark’s fiercest competitor) and the others. I suspect a large part of their profitability does come from shrinking into a smaller geographical base; they had a full network of warehouses and that’s expensive.
Sales for supermarkets are very high; margins aren’t. Pathmark stores, again, typically ran $250,000 and up per week, per store. You can do the math with 132 stores. With 100 stores (for simplicity) that would be $25 million per week, 52 weeks per year = $1.25 billion – in 1982. (Add 1/3 for the stores I lopped off and you get around $1.6 billion in 1982 dollars).
It’s possible to survive and even flourish after near-death experiences, but that doesn’t mean they couldn’t have done better. GM was flourishing for a while in the 1990s but had they done as Chrysler did in the late 80s/early 90s, they would have dominated rather than getting short-term profits as their customers defected.
In the province of Quebec in Canada. We got a local supermarket chain who was successeful named Steinberg The quick decline of Steinberg happened when the founder Sam Steinberg chosed his daughters to be at the head of the company instead of his brother. http://en.wikipedia.org/wiki/Steinberg%27s Once it collapsed, his stores goes to Metro.Inc http://en.wikipedia.org/wiki/Metro_%28supermarket%2C_Canada%29 who converted it into Metro or SuperC supermarkets and Provigo http://en.wikipedia.org/wiki/Provigo and IGA.
We got some A&P grocery stores here as well. The one located in my hometown was converted into a Provigo (who’ll be acquired by Loblaw’s) and the surviving ones continued business in Ontario and operated some Dominion Supermarket as well in the Toronto area. A&P Canada was buyed by Metro http://en.wikipedia.org/wiki/A%26P_Canada
I do not know how the takeover of Pathmark by A&P is faring nationwide or even regionally, but based on my local experience of a Pathmark store in Garwood, NJ, I would not be surprised if it is NOT going well. Since the takeover, the store in Garwood was refurbished so as to “look” more modern, on a par with the A&P in Kenilworth. However, the disappearance of Pathmark brands, and their replacement by America’s Choice brands (which in many cases are NOT the same in taste or selection), has left a gap in product line which older, faithful Pathmark customers like me find deplorable. Moreover, the inventory problems (out-of-stock items, perishables sold too close to expiration dates, or “re-frozen” frozen foods–only discovered to be so after one gets them home) have been troubling.
My impression, based on the increasingly infrequent times I shop there, is that they have been losing customers. Perhaps others, like me, have decided to make a nearby ShopRite their primary store for grocery shopping. The Pathmark has lost its identity as a Pathmark store; if I wanted to shop at an A&P (which I don’t), I could easily go to the A&P nearby in Kenilworth. Bottom line: there is no longer any reason to shop at the nearby Pathmark (except its closer location, which means I treat it as a large convenience store rather than as a supermarket at which to do my weekly shopping–for that, I increasingly go to ShopRite.
Recently our local Pathmark has switched over to America’s Choice brands, replacing Pathmark brands. I find it deplorable. The quality of the America Choice brand compared to the Pathmark brand has been terrible. The taste of the products are of much less quality. After shopping at Pathmark for 20 years, I may have to find a new supermarket. I loved the Pathmark brands!! Why change what was good!
I agree on what was said about the Pathmark Brands. Right now my home is still filled with these brands. I bought them more than the National’s. The quality and taste of America’s choice is just not there. For them to say in their ad’s that they are the same is terrible. I recently wrote a long letter to A&P about this. Even though I know it will do no good. What’s done is done. I listened to a conference call a few months ago. The Pathmark brand is indeed dead. What little remains (which I will gladly buy) will all be America’s Choice (which I won’t buy). I think it’s just pure laziness. They just want to have a couple uniformed brands to distribute to all of their stores. Instead of worrying about making sure Pathmark only goes to Pathmark. Sure, they are keeping Smart price. But again, that isn’t loyal to the Pathmark name, so this brand will be in all of their stores as well. They said at the time of the merger that they wouldn’t “A&P ize” the stores. Well they did just that. Pathmark is nothing more than a cheaper format of A&P with a Pathmark sign on the outside. On the other hand I give credit to other supermarket companies who can run their different units separately with their own brands. in example Stop & Shop and Giant by Ahold. Acme and Shaws by Albertsons. ShopRite and PriceRite by Wakefern. Thank you again A&P for killing a great store and brand.