Category Archives: Consumer

The Great A&P Revisited

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When it was published back in 2011, many readers took my book The Great A&P and the Struggle for Small Business in America as an allegory about Walmart: the battle between a highly efficient, vertically integrated grocery chain and the mom-and-pop grocers it was driving out of business seemed to parallel the modern conflict between the giant discounter and the locally owned retailers who could not match up. But things change: now, as I publish a second edition of The Great A&P, Walmart has almost ceased to be regarded as a villain, and the merchant most widely blamed for destroying brick-and-mortar retailers is Amazon.

Walmart is, in many ways, similar to A&P. Its sheer size enables it to bargain low prices for merchandise, it runs a highly efficient logistics operation, and it aims to build local market share, especially in food retailing, to gain efficiencies in distribution and advertising. In recent years, it has even followed A&P’s lead by integrating vertically: Walmart now bottles milk in its own plant, contracts with ranchers to raise Angus beef cattle to Walmart’s standards, and last month opened its first beef processing plant .

Amazon, on the other hand, is quite unlike A&P. The brothers who controlled A&P, George L. and John A. Hartford, stubbornly insisted on earning a profit; Amazon founder Jeff Bezos was willing to tolerate losses for years in order to build the business. For all Bezos’s ambition and imagination, Amazon’s rapid rise owed much to the federal government: in 1992, the U.S. Supreme Court ruled unanimously that a state could not collect sales taxes on goods sold to its residents unless the seller had physical presence in the state, which gave Amazon a huge advantage. By the time the Supreme Court unanimously reversed itself in 2018, declaring that its 1992 decision “creates rather than resolves market distortions,” Amazon was well established and hundred of thousands of retail establishments had closed their doors. Amazon also benefits immensely from its ability to capture and use more customer data than its competitors, allowing it to control pricing and product selection in a way that A&P could not. In the twenty-first century, information technology creates economies of scale in ways that were impossible in the Hartfords’ day.

These differences point to the need for fresh thinking about competition. Those who argue that the only test of excessive market power is whether a firm can raise prices to consumers did not foresee that consumers might be asked to pay by surrendering personal information rather than dollars and cents, or that a seller can change prices instantaneously based on an individual consumer’s behavior, or that its trove of information about customers might give an established company an unsurmountable advantage over potential challengers. Unfortunately, the dusty volumes of court rulings about monopoly dating back to the 1890s provide only limited guidance for measuring market power in the digital age.

Of Sears and the Great A&P

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The death of a major retailer rarely comes as a surprise. You can usually see the signs years ahead: the half-empty shelves, the dreary displays, the dim lighting, the odd combinations of merchandise as store managers struggle to fill space on the floor. The impending demise of Sears is no different. While the courts may have to decide whether Eddie Lampert, its chairman, has looted the company, as some investors claim, the truth is that by the time he took Sears over, in 2004, even a merchandising genius couldn’t have turned the chain around. Lampert made a bad situation worse when he combined Sears with Kmart, but he would have been hard-pressed to make it better.

Lampert is a financial guy, and like most financial guys he keeps his eye on the balance sheet. When it comes to retailing, though, the balance sheet doesn’t reveal the whole story. It will tell you about cash on hand — a valuable piece of information, to be sure — and about leases and credit card receivables, but it doesn’t capture the worth of a retailer’s most valuable asset, its brand.

There was a time when the Sears brand connoted reliability: whether you shopped in the store or ordered from the catalog, you expected quality merchandise at a reasonable price. It started to lose that reputation in the 1980s, when management was seduced by the glamour of selling stocks and real estate and lost interest in toys and underwear. By the time Wal-Mart began its nationwide expansion, in the 1990s, Sears had already forfeited much of its standing. Middle-class shoppers still went there for Craftsman tools and Kenmore appliances, but the rest of the business began to die.

The recovery plan involved buying Land’s End, the mail-order clothing retailer, in 2002. Land’s End, slightly trendy but definitely not haute couture, offered a plausible way to infuse a bit of excitement into Sears’s fashion offering without driving away long-time customers. But Sears couldn’t figure out what to do with it. Should Land’s End live alongside store apparel departments? Should it be the Sears apparel business? Management couldn’t decide, squandering an opportunity to restore a bit of the company’s diminished luster. All this occurred before Eddie Lampert loaded the company up with debt and Amazon induced consumers to do much of their shopping online. By the time of those events, Sears was already yesterday’s store.

To someone who has studied the rise and fall of the Great A&P, this story is familiar. Like Sears, A&P terrified its competitors for decades. Its stores were everywhere, and its commitment to low prices and its uncanny feel for changing consumer tastes made it the world’s largest retailer for more than 40 years. But in the 1950s, under managers who preferred to collect fat profits rather than investing in the business, A&P lost its edge. Customers complained that the stores were dowdy, and store brands like Ann Page and Jane Parker lacked the allure of the brands advertised prominently on national television. A&P became the place where grandma shopped, its name in such disrepute that the company tried to disguise its ownership of chains like Waldbaum’s and Food Emporium. No business strategy had a prayer of bringing A&P back.

Whatever the bankruptcy courts decide to do with Sears, I expect that the company will follow A&P to that great retail graveyard in the sky. A place where no one wants to be seen shopping doesn’t have much of a future in retailing.

Amazon, Whole Foods, and The Great A&P

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A lot of people are concerned that if Amazon.com’s purchase of Whole Foods Market goes through, Amazon will be able to use its might and technological savvy to monopolize the grocery business. I’m not concerned about that myself, because I think the grocery business is pretty difficult to monopolize. Even the Great A&P, the subject of one of my books, never managed to amass enough power to force up the price of food; indeed, when a federal court found it guilty of violating antitrust law in 1946, the charge was that it was using its size to sell food too cheaply, not to raise prices unfairly.

So when the New York Times asked me to write about Amazon and Whole Foods in mid-June, I used my space to wonder why Amazon, which reports precious little profit from all the goods it sells, wants to go into the low-profit grocery business.  Perhaps, I suggested, Amazon should take a portion of the space in Whole Foods’ stores, most of which are in affluent neighborhoods, and turn it into an exciting retail concept that sells exclusive merchandise at a high mark-up. I was thinking of something similar to the Apple Store, which is a far more profitable retail venture than Amazon.com.

Amazon.com hasn’t yet offered me a consulting contract, so it apparently didn’t think much of my idea. Jeff Bezos seems to be a pretty smart guy, so if he thinks his company can make billions shaking up the stodgy grocery industry, perhaps he’s right.  But the list of others who have thought the same thing is very long indeed.

Time for a Timely Demise

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As a young journalist, I was taught never to refer to someone’s “untimely” death: those words carry the implication that someone else’s death might well be timely. But perhaps there are some deaths that truly are timely. One might be that of Sears Holdings, the company that owns Sears and Kmart.

A few days ago the company announced that there is “substantial doubt” that it can survive. That news surprised the many Americans who were unaware that Sears was still in existence. Anyone who has been in a Sears store in the last 10 or 15 years wasn’t surprised at all. Everything about the store, from the dim lighting to the hodgepodge of merchandise on display,   screamed “going out of business.” It was hard to tell who they thought they were selling to.

Sears has been struggling for decades. Its encyclopedic catalog, offering everything from undershirts to mechanic’s tools, was last published in 1993, and many commentators have observed that competitors such as Home Depot, Target, Costco, and Bed, Bath and Beyond have been nibbling away at pieces of its business since the 1980s. Amazon’s transformation from a mere bookseller to an on-line emporium left Sears in the dust. Eddie Lampert, the hedge fund genius who took over Kmart in 2003 and used it to take control of Sears two years later, has had more success disassembling the two retailers–often in ways that benefit his hedge fund–than making them attractive places to shop. When a retailer tells its shareholders that  “Affiliates of our Chairman and Chief Executive Officer, whose interests may be different than your interests, exert substantial influence over our Company,” it’s a good bet that the story won’t end well.

Why might Sears’ demise be timely? Like The Great Atlantic and Pacific, which I wrote a book about several years ago, Sears used to have some of the most powerful brands in the world. A&P’s brands–Ann Page, Jane Parker, Eight O’Clock Coffee, and the A&P brand itself–went from world-beating to down-at-the-heels over the decades as the stores declined; by the early years of this century, A&P ran many of its stores under other names and went to great lengths to hide their connection with A&P. Sears is now in a similar situation. While its Kenmore appliances were once a safe choice for middle-class homeowners, the brand has been tarnished by its association with a failing chain. Much the same is true of Die Hard car batteries. The Sears name itself is likely a negative when it comes to attracting shoppers, save for a handful who still remember the chain’s glory days. The longer Sears hangs on before giving up the ghost, the less its storied brands are likely to be worth.

 

Globalization in a Pickle

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This morning, a crisp and lovely morning in Washington, I hopped on my bicycle and pedaled over to a farmers’ market a mile from my home. My modest goal was to buy a quart of half-dills from Number One Brothers, who turn cucumbers into terrific pickles.

The stand was open for business, stocked with pickled beets, pickled kale, and cauliflower and carrots pickled with ginger. There was not a half-dill in sight. The woman in charge told me that the last cucumber pickles of the season were sold in mid-October. Number One Brothers won’t have any more until June.

As I pondered this annoyance on the way home, I realized that it’s yet more evidence of what the shipping container has wrought. I, like most people, have come to expect the food I want when I want it. I don’t see why the end of cucumber season in the mid-Atlantic states should give rise to a pickle shortage. Aren’t farmers somewhere in the world now harvesting fresh cucumbers that can be piled in a container, shipped my way, and dumped into brine?

The answer, of course, is yes. Pickles from some far-off place may not be quite as good as the Number One Brothers half-dills, but I don’t need to wait until June to get my pickle fix. Some pickle factory somewhere is making cucumber pickles right this minute, and the container brings those pickles to me at an extremely modest cost. While buying them at Costco may not be as virtuous as buying directly from the maker at a neighborhood market, Costco never runs out of pickles.

Strawberries in Winter

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In our globalized world, many people hold firmly to the belief that local is better. That conviction is particularly strong when it comes to food. In Washington, where I live, farmers markets are crowded with shoppers (including myself) who are prepared to pay outrageous prices for a basket of apples or a pound of cheese if it originated at a nearby farm. We convince ourselves that what we eat is fresher, purer, or more environmentally virtuous because it was grown or manufactured on a family farm close by.

I recently had the chance to participate in an unusual radio program, produced by the BBC, that takes a look at the booming international trade in food. Called The Food Chain, the program asks why long-distance shipments of food are growing so quickly. Part of the answer, it will not surprise you to hear, is that low transport costs and high reliability make it feasible to import goods that would not be traded if freight rates were higher, a story I tell in my book The Box. But an even more important cause of increased trade in food, I suspect, is changed consumer preferences. We expect to eat the foods of our choice when we want to eat them, and if that means importing strawberries from Mexico or Chile when local berries are out of season, so be it.
Those of a certain age can remember when life was otherwise. In the town where I grew up, in the U.S. Midwest, having fish for dinner meant popping a box of frozen fish sticks in the oven. Fresh fish was something our supermarket simply did not carry, because it had no means of bringing it in. Now, the town boasts several sushi bars. Thank modern logistics, including refrigerated containers and air freight, for providing diners with an option that previously did not exist.

One current line of attack on such variety in our food supply is that long-distance shipments of food are “unsustainable.” By this, the critics usually are taking aim at the large amounts of greenhouse gases supposedly produced while transporting food internationally. Part of my contribution to the BBC program was to point out that “local” is not at all the same as “sustainable.” International trade in food often involves huge economies of scale, which means food produced on another continent may be transported far more efficiently than food produced nearby. Moving 40-foot containers of fruit great distances in a large containership can result in much lower emissions per ton than carrying smaller quantities a hundred miles in a diesel truck.
The BBC has taken an unusually sophisticated look at the food trade. I hope you’ll have a chance to listen.

Making It Hard to Save

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Americans are famously unable to save money. The personal saving rate is a scant 5% of disposable income, and while two in three adults told Federal Reserve researchers last year they were “living comfortably” or “doing okay,” many of those same people apparently have no savings: 46% of respondents to the Fed survey said they did not have the cash to cover an emergency expense costing $400. Among people with household incomes below $40,000, only one in three said they could come up with $400 in cash.

Last month, I got an unexpected taste of why it’s so hard for people to save. My District of Columbia income tax return had an error. Rather than refunding my overpayment by check, the DC finance department sent me a Citibank debit card. I’d never used a prepaid card before, and the experience was educational. Moving the money from the card into my bank account, which is not at Citibank, turned out to be a major ordeal.

In theory, according to Citibank, it’s possible to set up a password on the Internet to transfer money from card to bank account. I followed those instructions, to no avail. The only way to get my money, it seemed, was to go to the bank.

But not to my bank, which wanted a fee to turn Citi’s debit card into cash. To avoid the fee, I had to take the card to a Citibank branch. I did so–to be told that the amount on the card exceeded Citibank’s daily cash withdrawal limit. I took what Citi would give me, cautiously walked the cash down the street to my bank, and deposited it. The following day, I repeated the process. All told, between my attempt to set up an Internet password and my five visits to bank branches, it took two hours of my time to gain access to money that was already mine. Had the two branches not been close together, the transactions would have taken far longer, and I would have had to stroll through Washington carrying uncomfortably large amounts of cash.

This is the situation facing the millions of American workers, mainly in low-wage jobs, who now get their pay on a debit card rather than having it deposited into a bank account. Yes, I understand that paying wages via debit card may be useful to people who don’t have bank accounts, and I imagine debit cards are cheaper for employers or they wouldn’t use them. But as my experience showed, when you receive your pay on a debit card, you may well have a difficult time saving money in the bank. Which could leave you in a tough spot the next time you need $400.

In Defense of Industrial Food

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The other night I watched Michael Pollan’s new documentary, In Defense of Food. I’m a great fan of Pollan’s 2006 book, The Omnivore’s Dilemma, which is gorgeously written and extremely thoughtful. The documentary, I regret to report, is neither. On the contrary, it’s a scattershot attack on what Pollan refers to as “industrial food,” with far too much romantic nonsense about what a natural diet ought to be and far too little serious discussion of the challenges of feeding a populous, highly urbanized world. It’s an opportunity missed.

As I show in my book The Great A&P, an industrial food distribution system was a signal accomplishment of the twentieth century. Before it came along, most people’s diets were calorie-rich, nutrition-light, and boring. In the summer, sure, there were lots of fresh vegetables and fruits. In the winter, there were cabbage and potatoes and potatoes and cabbage. Protein mainly came from smoked or cured meats or from fish caught in polluted rivers. Lard was widely used in cooking and baking. Fresh milk, when it was available, was often unsafe to drink. It’s not as if people ate healthy.

This isn’t ancient history. Growing up in the Midwest, I never ate fresh fish, because the food industrial complex hadn’t yet figured out how to deliver it a thousand miles from the ocean. Frozen foods were a staggering success in the 1950s mainly because they offered consumers unprecedented variety at any time of year. Today we may look down our noses at frozen orange juice as inferior to “fresh” juice, but when it arrived in grocery stores around 1950 average families could obtain essential vitamins in the middle of winter. That was an enormous change for the better.

It should also be said—and Pollan doesn’t say it—that food used to be staggeringly expensive. As late as the 1930s, urban families in the United States routinely spent a third or more of their incomes on food, with much of that money going to keep inefficient wholesalers and retailers in business. Chains like The Great A&P in the 1920s and 1930s and Wal-Mart and Aldi more recently have made food consumers much better off by squeezing costs out of the distribution system. Much of this saving is achieved from economies of scale in production and distribution. Pollan, judging by the film, doesn’t much like economies of scale; he’d rather have us buying from farmers who are selling green beans they just picked by hand this morning. Nothing wrong with fresh-picked green beans, but there’s a trade-off that Pollan refuses to recognize. You can see it in the fact that those farmers’ market green beans cost three times as much as the green beans at Costco.

Pollan’s documentary muddles a lot of things. It’s absolutely true, as he shows, that manufacturers of processed foods make misleading claims about their products. There is no doubt that some processed foods are unsafe and that many of them are unhealthy. I agree with his attack on what he calls “nutritionism,” the idea that adding a drop of one or another nutrient to a food product magically makes it better for us to eat. But the industrial food system has brought us a lot of benefits along with Big Gulps, Twinkies, and gluten-free burritos fortified with antioxidants. Pretending otherwise is just pop nutritionism.

The Times Cracks the Digital Code

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The New York Times has been congratulating itself for signing up the one-millionth paid subscriber to its digital edition, and well it should. In an age when information wants to be free, as Stewart Brand supposedly said, convincing a million people to pay for access to information over the Internet is a big deal.

The folks at the Gray Lady, predictably, attribute NYT.com’s large following to the high-quality journalism provided by its crack reporters around the world. In my view, the Times has succeeded in finding subscribers online for an entirely different reason. Its digital editors, if that’s the proper name for the folks who manage NYT.com, have figured out how to create a product that’s hard to steal.

Content theft is the bane of any information provider’s existence in the digital era. Articles, chapters, even entire books end up on the Internet without authorization, placed there by people who think they are providing a public service. A couple of years ago, I even came upon a French translation of one of my books on the Internet, the work of a university student who had translated it, without permission, because he thought that was a cool thing to do. Similarly, people think nothing of copying music or photos from the Internet without permission from those who wrote the songs, took the pictures, or acquired the rights from the creators. Many  content providers have tried to deal with rampant theft by putting their content behind pay walls, but in general this strategy has not succeeded. In the case of newspapers, many of them have trimmed their staffs to the point that their content just isn’t worth the money they charge, especially when potential subscribers know that any truly important news will appear all over cyberspace within minutes of its publication.

After years of treating its web product as a digital version of its print edition, the Times finally learned that the way to deal with content theft is to publish a multimedia product instead of an online newspaper. While much of the content on NYT.com is plain old news articles, a significant amount is infused with videos, audio clips, photo essays, or dynamic maps and charts. This non-written content is of extremely high quality and well worth seeing or hearing. But what matters from the commercial point of view is that the complete package of these diverse content types embedded in a written article can’t readily be cut and pasted into other websites. If you want to read, watch, and listen, and if you want to talk to others about that terrific video on NYT.com just like you talk about an article, you’ve got to subscribe.

So congrats to the Times on finding an approach that makes its product harder to steal while making digital subscribers feel like they are getting something valuable and unique for their money. If subscribers like the digital product enough that they are willing to pay serious money for it,  advertisers should like it, too.

End of the Road for an American Icon

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The July 20 bankruptcy filing by the Great Atlantic & Pacific Tea Company marks the end of the road for one of the icons of American business. The filing was in no sense a surprise: A&P has spent more than half a century driving itself out of business, shrinking over the years from a nationwide retailer to a small regional grocery chain. Few people, aside from its remaining employees, will grieve. Indeed, most people who think of A&P at all today remember it mainly as the dim and dowdy place where their Grandma used to shop.

But in its day, A&P transformed American retailing several times over. The company, then known as the Great American Tea Company, introduced mail-order shopping in the 1860s. In the 1890s, it developed the concept of handing out reward coupons with each purchase, an idea that soon had millions of housewives collecting trading stamps to exchange for lamps and crockery. Discount shopping as we know it today originated with A&P in 1912, despite the objections of Boston attorney Louis D. Brandeis, not yet on the Supreme Court, who thought consumers would be confused if a product did not sell at the same price everywhere. “The evil results of price-cutting are far-reaching,” Brandeis warned.

For more than four decades, from 1920 into the 1960s, A&P was the largest retailer in the world. It may also have been the most controversial. With stores in 3,800 towns, supplied by its own state-of-the-art bakeries and macaroni plants, dairies and salmon canneries, it squeezed costs out of the food distribution system and consistently undercut mom-and-pop grocers. A&P put fear into the hearts of small-town merchants. The earliest radio talk show hosts built their audiences by inveighing against it. State legislatures tried to tax it out of business. When that did not stop it from cutting prices, many states limited discounting by requiring minimum mark-ups on every single item in the store.

Washington got into the act, too. The literature lionizing Franklin Roosevelt as the first pro-consumer president ignores his support for a 1936 law intended to prohibit manufacturers from granting volume discounts, as well as the fact that his Justice Department sued A&P for selling food too cheaply—and won in court. As late as the 1950s, the federal government was still trying to break A&P into pieces, claiming that it was “impervious to competition.”

Washington needn’t have bothered. Competition carried the day. More aggressive grocers pushed A&P to the sidelines, but now they, too, are being pushed aside. The supermarket, a format A&P pioneered in the 1930s, is old hat. A host of innovators, from deep discounters to organic food chains to drug stores touting packaged foods to glitzy gourmet emporia, has the food retail industry in turmoil. If you shop for groceries, this is a wonderful development. If you’re trying to sell them, life won’t get any easier.