Death of a Tea Company

This week the Great Atlantic and Pacific Tea Company entered bankruptcy for the second time in its 157 year history. Many readers probably have never heard of the company and might think, as its name suggests, that it sold tea. Well it did and does sell tea, and a whole lot more. This is because the Great Atlantic and Pacific Tea Company is a grocery store chain and was until this month one of the largest chains in the country.

A&P (as it is commonly known) still has about 300 stores. If this seems few, consider that A&P operates more grocery stores than retail giant Target, which has been aggressively moving into the grocery business. But even with this kind of clout in the industry, A&P is a pale shadow of its former self. At its peak in 1970 the chain had 4500 locations, almost as many stores as today’s top two grocery chains in the US, and was at the end of a thirty year run as the dominant player in the grocery business.

I remember as a kid going to A&P stores with my mother. The stores oozed bank-like establishment solidity. Suburban stores sported a weather vane-topped cupola and steeply sloped hipped roof, like the main administration building of a college campus. They sold Plaid Stamps, a sort of pre-club card loyalty program much like S&H Green Stamps. You don’t know what S&H Green Stamps are? Sorry, I’ll have to make that another blog posting. Employees stocked bins with produce and shelves with package goods in A&P aprons while the stores virtually hummed with happy shopping customers. This was during the 1970s, and little did I know then that this seeming prosperity was a well tended fiction.

The seeds of A&P’s destruction had begun with the deaths of the two brothers who ran the company for much of its modern history, John and George Hartford. John Hartford died in 1951. When George Hartford died in 1957, the private trust that owned A&P was dissolved and the company went public. For the next twenty years the company rumbled forward by virtue of inertia, dispensing profits to shareholders. A company insider was in charge until 1963, and after that A&P was run by professional managers.

After 1963 the wheels started to slowly come off. Stores aged and little heed was paid to the competition. All available capital was paid out to support the corporate dividend. A succession of management teams attempted to tinker with company strategy in order to goose sales, all for naught. Finally, ten years later, A&P started the implementation of a long series of ill advised moves to re-engineer the company, eventually resulting in this week’s latest, and likely final, bankruptcy.

In my view the beginning of the end was when A&P hired a management consulting company in 1975 to give A&P some advice on what to do. If there is any leading indicator of management abdicating its responsibility to its stakeholders, it is in hiring inexperienced, but self-assured smart-alecks who will suggest paradigm-shifting things to do based on an impromptu case study of your organization. In this case the advice was to shrink the company by half, presumably to better position the capital-starved company to manage its affairs. This at a time that the competition were growing in size to take advantage of economies of scale in the notoriously small-margin grocery business.

A succession of incompetent managers tried to make the strategy work by shedding older stores and plugging holes in sales by acquiring regional chains.  The logo was changed in a “modernization” effort; eventually the corrosion in brand value was so bad that the name was changed on many of stores to include the term “fresh” or to do away with the A&P moniker entirely. Sales would bounce after a name change and store face-lift, but would slump again when customers realized nothing had really improved.

In the end I guess that is the real tragedy of this story. Not the fate of the twenty-eight thousand employees that are facing job disruption or loss. Not the disappearance of the neighborhood grocery store that millions of customers may have come to rely on for home staples. No, it is the fact that when you show up at bankruptcy court to plead your case, after a century and half of being in business, no one knows who you are.

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