The War on The A&P: When America Decided Cheap Groceries Were "Evil"

24:49We're going to make sure our profit is never more than 2.5 % of sales. Which is so, so small. But their idea is if you can sell three times as much by lowering your profit margin, you come out ahead in the end. And we see this today, especially all this dealing with the manufacturers and the low profit margin. We see this today in something like Walmart, which if you look at their net profit, makes 2%, 3 %-ish every quarter. But they have so much volume, they're making billions and billions of dollars. Yeah. Lower margin on higher revenue means more money if the revenue is higher enough. Yeah.

25:27And Walmart, I mean, you mentioned Walmart having a very low margin. They are also famous, famous, famous for pushing suppliers so hard to lower prices. Right. So the formula is a winner. It's a winner for Costco and for Walmart. And it was a huge winner for the A &P. They cut their prices between 1925 and 29 by about 10 percent. And that 10 percent discounted prices led sales to more than double. So the A &P is huge, right? They're the first retailer to hit a billion dollars in annual revenue. But they're not dominant. The grocery store business, again, then as now, is fragmented. Even in parts of the Northeast where they're big, their market share is like 20 percent, right?

26:08So they're not a monopolist. They don't have monopoly, though they do clearly have bargaining power with the wholesalers, right? But this growth, the fact that they're a billion-dollar company, the fact that they're a chain store competing with these charming mom-and-pop stores, this is creating an army of enemies. A big chunk of America is starting to turn on the A &P here. And some of the enemies are, like, just obviously self-interested, right? Like all the brokers and middlemen, all the people behind the, you know, the wholesalers and the mom and pop stores, they are obvious enemies of the A &P because the A &P is going right at them.

26:46But, of course, the more charming and in kind of a narrative way important enemy of the A &P is the mom and pop stores, right? And they are, in fact, compelling. You know, they're the places most people bought their groceries, and they are one kind of business that you can start by yourself. If you're poor, if you're an immigrant, if you're just an ordinary person, you want to make a go of it. So think about this, right? You're an immigrant. You've started a little grocery store. Maybe you live behind the store, right? Your kids maybe work stocking in the store, do their homework, you know, behind the counter.

27:23and every day you got to walk by the big A &P that are charging prices that you cannot, you literally cannot do it because you have no negotiating power. And I mean, that is something like you can picture and you can feel for that person. You can't just say, well, shut it all down. It's all going to be A &P in the future. There is something fundamentally compelling about small business, right? I actually have a theory of it, which is everybody loves small business because Democrats love the small, the underdogs. And Republicans love the business. It's business. Something for everybody, right? So in America, in the 1920s, the small business versus big business story divide is playing out really clearly with your, you know, friendly grocer across the street.

28:07And then the A &P, which is run by some faceless millionaire who lives in the Plaza Hotel in New York City. So there is this anti-chain store vibe swirling around. And this one, I'm going to call him an opportunist because he's such an opportunist, comes along and grabs this anti-chain store sentiment and just rides it. He's a very up-your-alley kind of guy, Robert. When I found this guy, I was like, oh, my God, Robert's going to love this guy. His name is William Kennan Henderson, lived outside of Shreveport, Louisiana. Grows up in a rich family. I think they have some kind of iron business. And he buys a local radio station and decides he likes being on the radio.

28:51I love it when the owner of the radio station is like, I'm going to take the show. Thanks. It is fun to be on the radio. His initials, William, Ken, and Henderson are WKH. So he names the station KWKH. Narcissist. Loves to be on the radio. Names the station after himself. Cranks it up to 10 ,000 watts. Which is huge. I mean, if you're an AM station at 10 ,000 watts, you could hear it probably at night over half the United States of America. Can you even do that today? Does that even still happen? Unclear. Let me check my AM radio. You do have an AM radio. I do have an AM radio. It's true. When was the last time you listened to AM radio?

29:28This morning. What did you listen to? I listened to Bloomberg surveillance in my shower, yes. So he cranks the station up to 10 ,000 watts and becomes like kind of low-key famous as Old Man Henderson, a.k.a. Dog-On Henderson, a.k.a. Hello World Henderson. Because he would always begin his show by saying, hello world. Here, let's hear something. Hello world. It's 8 o 'clock. This is Old Man Henderson talking to you. That gives you the feel for Old Man Henderson, yeah. But Old Man Henderson is like this proto-shock jock. He has this amazing thing going where listeners will write in to complain about the show, and then he insults them.

30:06It's this great bit that everybody seems to be in on. He would get ahead of steam. Like, he sounded a little slow there, but the anger would build, and he would, like, go at them. Yeah, yeah. So here, we have a letter and a response here. Read the letter from the listener that he read on the air. I'm a frequent listener in on radio station KWKH of Shreveport, Louisiana. and believe that the disgusting language and profane remarks by W.K. Henderson over the air from said station are sufficient reason for the Federal Radio Commission to invoke its own rules and regulations and revoke the license of such station.

30:40The moralists did not like old man Henderson. So, read the response. Why in hell don't you turn the little knobs of your radio set? Every radio set has little knobs on it. You made an ass out of yourself by sending me this telegram. That's a scary old Ben Henderson. I like that. Doggone it. I'm intimidated. So like every radio person who has to talk all day, William Cannon Henderson has a lot of airtime to fill. And one day in 1929, he has a friend of his come on the show. His friend runs a local bank there in Shreveport. And the banker is against these new chain stores like A &P. But anyway, guess why the banker didn't like chain stores?

31:26Because if you're a local banker, you are not lending money to A &P in New Jersey. You're lending money to tiny mom-and-pop businesses to start their own grocery stores. You make a living on the inefficiencies of little small businesses. Yes. And if the A &P puts them out of business, they can't pay back the money you loaned them. So the banker comes on the show and does this anti-chain store rant. And then after that, all this mail starts to flood into the studio from listeners who are like, yeah, I hate chain stores, too. They take all our money and they send it off to those evil bankers on Wall Street instead of, you know, keeping it in the community.

32:09And so Oman Anderson decides he has found his great cause, right? He has found this thing that he can ride the popular anger on. And so he starts attacking chain stores all the time on his show. Here's this one little clip that we found. The idea is to chain everything, confound it and plague it. Take it. You want a right to your senators. You want a right to your congressman. It's all wrong, doggone it. Write a letter. Robert, we've got more in the transcript. Give me more, Henderson. We can whip these chain stores. We can whip the whole cockeyed world when we are right. I'll be your leader. I'll whip hell out of them if you will support me, which is probably why they're writing in about his language.

32:50Whip the hell out of him? I mean, this was edgy. A little much. And then he starts calling for boycotts, boycotts of the A &P. We can drive them out in 30 days if you people will stay out of their stores. Dagnam it. And confound it. So we got Henderson whipping up the masses. But, you know, it's not just him, right? A real thing is happening here. We're getting into the 1930s now, which, of course, is the Great Depression. Play our Great Depression theme music. and that is making popular sentiment turn against, you know, these amazing efficiencies of modern business. When a third of people are out of work, you're not so psyched about efficient businesses.

33:34So even though the folks at A &P are getting up every morning and trying to figure out how to get cheaper groceries to people beset by the Depression. Yes, yes. People are like, I would rather punish the big people than buy cheaper groceries. They're starting anti-chain store newspapers. One is called Chained. Another is called the Chain Store Menace. And state legislatures are listening. They are actually passing laws that impose special taxes on chain stores, where, like, the more stores you have, the higher the tax. Louisiana, the home state of Old Man Henderson, passes a chain store tax that costs A &P over$8 million.

34:11And that's just for Louisiana in 1930s money. So Henderson is riding this wave, and he creates an organization to fight the chain stores. It's called The Merchant's Minutemen. Annual dues,$12. Brings in$373 ,000. And Robert, I don't want to shock you here. Yeah. But I'm sorry. The populist radio shock jock in Shreveport, Louisiana, bringing in money from poor listeners during the Depression. What are you going to tell me about this great guy? He's not entirely on the level. He's not everything maybe he claims to be. Turns out he used about$150 ,000 of the money from the ordinary people to pay off debts of his family ironworks business.

34:56Who can you trust in this world if not a shock jock? So this comes out. Henderson goes down, has to sell his station in 1933. But the anti-chain store movement is launched, and some other much more powerful anti-chain store crusaders are just getting going. Now, I should say that this is a classic thing in economics that we call diffuse benefits and concentrated costs, meaning in situations like this, everyone benefits from cheaper groceries, right? But a few people are paying big costs for this. Those small businesses, yes, but the middlemen that we talked about, the manufacturers in some cases, like they're the ones that are incentivized to call up senators and congressmen and say, we should do something about this.

35:42you know, the family in Brooklyn isn't going to call up and say, oh, I saved 37 cents last week. Yes. And that is, in fact, what happens. And crucially, these people who are being harmed by stores like the A &P get the ear of this congressman named Wright Patman. Grew up in a two-room log house in Texas, worked as a tenant farmer. And I do think he genuinely felt, you know, the plight of the small businessman up against the chain store. And in 1935, he introduced a bill to amend the Clayton Antitrust Act, one of the key pieces of, you know, competition law in America. And the language of his bill is incredible.

36:23This is a bill in Congress that's going to become a law. It's not a radio show. The headline of this section of the bill says, in all caps, the evil. Let me read this. Yeah, give it to us. The Goliath is the huge chain stores sapping the civic life of local communities with an absentee overlordship, draining off their earnings to his coffers and reducing their independent businessmen to employees or to idleness. His opponents are not only the independent competitors whom he seeks to eliminate, but the consuming public whom he hopes then to have at his mercy. That last part is a really crucial thing in this anti-chain store rhetoric, which is they're saying, sure, you have cheap prices now, but what happens when everybody goes out of business and A &P runs everything in your life?

37:14Then they'll jack up the prices and you will be at their mercy, as it says in the bill. Yes, yes. So, right, this is the fear. The fear is that the low prices are just temporary, right? They're just going to do that until there's nobody else left and then through the roof. But this is every battle against every big store or corporation in America for the next hundred years. We hear this exact same argument. But Wright-Pattman's bill passes, makes it illegal for manufacturers to give discounts to big purchasers like the A &P if doing so lessens competition, which ends up being hard to prove, but makes it harder.

37:55And it also makes it much harder for the A &P to get that advertising money from the manufacturers. So it is clearly going directly at these practices they have used to drive down their own costs. And it works. It has its intended effect. The A &P raises its prices because it basically has to. Congratulations, success. But the A &P is still cheaper than those stores, right? They are huge. They're more efficient. So even though the gap has narrowed, they're still cheaper. They're still successful. People still want to shop there because they like cheap groceries. And so in 1942, the government goes further.

38:35Federal prosecutors bring criminal charges against the company and its top executives, John and George Hartford, among others, for engaging in a combination and conspiracy unreasonably to restrain interstate commerce in food products and also a conspiracy to monopolize a substantial part of such products. criminal criminal these are criminal charges notice they're not saying they actually have a grocery store monopoly right nationally the a &p has less than uh 10 of the grocery store business there are towns where it's above 50 but there is no claim that the a &p is exploiting shoppers who have to shop at their store the government says the a &p has too much power over manufacturers right?

39:26And, you know, there are all these cases where A &P will get into a dispute with, like, Jell-O and being like, give us a better deal or we'll sell A &P brand gelatin. On the retail side, according to the government, the A &P runs some stores at a loss in order to drive smaller competitors out of business, right? That Wright-Pattman story. But the government doesn't make the claim that there are instances where the A &P drives a competitor out of business and then jacks up prices, right? Like, they don't say that is happening. They don't find evidence of it's happening. Here's what they do say.

40:00Here's what the prosecutor in the criminal trial says about those low prices. A &P sells food cheaply in its stores because it is a giant blood sucker, taking its toll from all levels of the food industry. You might even say it's a vampire squid sticking its blood funnel into... Anything that smells like money. I think it was. So the problem, according to the government, is the low prices, right? That is why these charges are being brought against A &P. The trial actually runs for a couple months. And on the last day of the trial, John Hartford himself, the CEO of the company, takes the stand.

40:37And we actually get a nice picture of him from the Chicago Tribune. He's 73 but looks younger, spare and well-tanned. He was wearing a gray suit, gray shirt, and a bow tie. Again with the bow tie. At one point, he summarized A &P's general policy by saying, we would rather sell 200 pounds of butter at one cent profit than 100 pounds at two cents profit. Selling cheap groceries is wrong. John Hartford does not want to be right. Turns out the judge thinks selling cheap groceries is wrong. In his ruling, he writes that U.S. antitrust law has no concern with prices but looks solely to competition.

41:16And so he finds John and George Hartford and a bunch of other executives guilty as charged. I don't want to come off as the conservative economics guy. But the goal of the government should be for everyone to become more efficient and sell things cheaper everywhere, not to stop that competition by making things more expensive. That is, in fact, still to come on our shelf.

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44:28Okay, we're back from the ads. The Hartfords have just been convicted. It's not like they have to go to jail, though. They're fined something like$10 ,000. They're rich. That's fine for them. But the government does keep coming at the A &P. They bring a civil suit, want to break the company up into seven pieces or something. So like the A &B, the A &C, the A &D. Very good. Judges love to talk about breaking up companies. As do federal antitrust prosecutors, right? The A &P ends up making a deal. They don't have to break up that way. They divest some wholesale produce distributor or something. And the fight against big business persists, right?

45:04It kind of moves on from the A &P in a way that's worth talking about because it is this central arc, really, in American business over the last 70 years. So the government keeps going to court to protect small businesses from big businesses in the name of competition. And judges keep finding in favor of small businesses. Big businesses keep losing. And eventually, in the 60s, this law professor comes along and looks at a bunch of these cases. And he says, this is ridiculous, right? And it really brings you to the core, right? Capitalism needs competition to work. But what is competition? What is the definition of competition?

45:49And why is competition good? Yeah, I mean, clearly we know monopolies are bad. Monopolies are a failure mode of market economies, right? One company that controls the entire market can charge anything they want. That is a failure. Rarely happens. Rarely happens. And it is a useful time for the government to intervene in a market and say, we need more competition here. So this law professor comes along in the 60s, and he looks at these cases where the government has been winning, has been intervening in the name of competition to, you know, protect small business. And he says, OK, let's think about how a market works, right?

46:25You got a bunch of companies and some company comes in and grows, maybe by selling stuff cheaper, say, and people love it. And they all go and start buying from that company. And as a result, it gets big. What is that? That is competition working. That is the way market competition is supposed to work. Somebody comes along and is more efficient, does a better job of giving people what they want, and gets bigger than everybody else. That's good. We should like that. And when the government is intervening to punish those companies, that is actually harming competition. It's the opposite of what they say they're doing.

47:00And he writes this book called The Antitrust Paradox. It becomes a famous book. And the guy who writes it becomes nerd famous. His name's Robert Bork. He'll later become kind of famous, famous for being nominated to the Supreme Court and then rejected for being too whatever ideological, let's say. But his book is super influential. His basic argument is if consumers are paying less, that's good. That is competition working. And the government should not intervene. If you have more choices and or lower prices, competition is working and the government shouldn't intervene. And he actually changes the way competition law is enforced.

47:40This anti-big business sentiment that was going at the A &P, it basically goes away within antitrust law for decades until, until, right, then there's a backlash to the backlash. Backlash, yes. that starts to rise up in the 21st century, largely in response to the growth of giant tech companies like Amazon. And there's this famous paper written about a decade ago now by actually a law student named Lena Kahn called Amazon's Antitrust Paradox that talked, among other things, about the way Amazon used store brands to gain what she argued was an unfair competition over other businesses selling on Amazon.

48:21And unlike A &P, they had the advantage also of data, you know, and this worldwide supply chain out there that A &P didn't have. So she was like basically saying that Amazon was A &P on steroids, really just twisting people's arms to get better deals. But also if they see a popular product, using that data to actually develop their own product and put it first in the list. And so this isn't just a law student writing a paper. This is a law student writing a paper that makes her famous and then gets appointed to run the Federal Trade Commission under the Biden administration. To bring antitrust cases.

49:00Yes, including one against Amazon. It's an amazing story. Yeah. And super interesting. The Trump administration is still pursuing that case against Amazon. Right. This wariness of big tech, this anti-big business sentiment, at least anti-some big business sentiment, persists. It's one of the few places where many Democrats and many Republicans agree. So this A &P fight, this chain store fight, this big business versus small business thing, it is extremely alive to this day. The interesting thing about this to me is this all centers on the fear of what's going to happen when the business becomes too big.

49:41And I understand the feeling that like they have all the power in the world, all the money in the world, if you're Amazon or A &P or Google or any of these companies, and you fear that. Having done business history, I keep seeing that that is the moment when you are most vulnerable as a company. When you are at the top, that is when the competitors all come after you. And if you look at business history, often those moments, the exact moments when the government's like, Microsoft, you're too big, we're going to have to break you up, is the moment that someone else is developing Google or Netscape or these Internet companies to take on Microsoft.

50:21I mean, it is the case that people like Lena Kahn, the people today who are, you know, think antitrust should take a harder look at big business, they think it shouldn't be just prices, right? They say, like, in the case of Amazon, Amazon favors Amazon products over other products, even when the other products are better, have better reviews. Right. So part of their critique is prices are too narrow of a lens to look at competition through. But I definitely agree with you that, like, you do keep seeing the giant business get beat by competitors when everybody's worried about it being giant. Oh, we should break up Instagram and Facebook.

51:01and you're like, then TikTok comes out of nowhere. Yeah, and I mean, it'll be interesting to see what happens now, right, with Google, which clearly does have a monopoly on search. Now that you have ChatGPT and Claude, right, you have large language models, that may be the first real threat to Google's search dominance. So take us back to A &P. They were not broken up by the government. They were fined and all of these things, but they were not shattered as a company. And yet, I don't see an A &P on my corner. They got out-competed in the markets. Yeah, so the Hartfords died in the 50s. Actually, John Hartford was in an elevator in the Chrysler building, I believe coming from a board meeting in 1951 when he dropped dead of a heart attack, which is like a cool way to go.

51:49Definitely on brand for him. And the decline began not long after that. You know, I don't know how crucial those two guys were, but clearly the country was changing. The A &P didn't keep up and other stores did, right? New grocery stores were moving out to the suburban strip malls where Americans were moving to. The A &P stayed largely in more urban settings. Other grocery stores realized that as Americans were getting richer, they would buy more stuff at the grocery store. You know, those weird aisles where there's like hats and like why is that in a grocery store? Seasonal products, Christmas decorations, sometimes higher margin.

52:23The A &P didn't really get into that. And so they got out-competed. And it is amazing. And I've come on this a number of times in the show, how long the downhill arc is for businesses, right? The A &P kept trying to buy other stores, kept trying to figure it out. But decade after decade, they shrunk until finally in 2015, the last A &P closed. closed. So I want to close the show today with just one note on the A &P's legacy, on the Hartford's legacy, and that is the store brand, right? And in particular, I want to talk for a moment about my favorite store brand. You know what it is. I've been to Costco with you.

53:06You love Kirkland products. I do, which I know it's like the most normie, middle-aged dad thing to love, but I love it. In my house right now, there's Kirkland peanut butter, Kirkland olive oil, Kirkland maple syrup. Do you wear Kirkland clothes? No, but I am sorry that I missed the Kirkland knockoff of the Lululemon pants that Lululemon actually sued Costco over. That made me want to buy the pants, but I didn't get there in time. And I want to say what a just economic juggernaut Kirkland is. Kirkland alone, not Costco, but just the store brand at Costco, Kirkland, has annual sales of something like$86 billion a year, which is more than the annual sales of Levi's, Hershey, Kellogg, and Coca-Cola combined.

53:57Boom. That is the legacy of A &P. Hello, world. It's old man Goldstein. Come right to us at businesshistory at pushkin.fm. Today's show was produced by Gabriel Hunter Chang. Our showrunner is Ryan Dilley. Our engineer is Sarah Bruguer. I'm Jacob Goldstein. I'm Robert Smith. Doggone it.

54:24Peace to the planet. Charlamagne Tha God here. And listen, we are back. The Black Effect Podcast Festival is back in Atlanta on April 25th at Pullman Yard. Yeah. And the full lineup is nuts. We got the Grits and Eggs podcast, Deontay Kyle and Big Ice Cup Cat. We got Club 520 with Jeff Teague and the gang. Don't call me white, girl. Mona will be there. Keep it positive, sweetie, with Crystal Renee. We got Reality with the King with Carlos King. And yes, Drink Champ will be in the building. Plus, you know, we're going to have a lot of guests. So you need to join us. And we got the Black Effect Marketplace, the picture podcast, and everything you expect from the Black Effect Podcast Festival.

55:02Tickets are on sale right now. Go get yours at blackeffect.com slash podcast festival. Don't play yourself, okay? Pull up.

55:13What if mind control is real? If you could control the behavior of anybody around you, what kind of life would you have? Can you hypnotically persuade someone to buy a car? When you look at your car, you're going to become overwhelmed with such good feelings. Can you hypnotize someone into sleeping with you? I gave her some suggestions to be sexually aroused. Can you get someone to join your cult? NLP was used on me to access my subconscious. Mind Games, a new podcast exploring NLP, a.k.a. neurolinguistic programming. Is it a self-help miracle, a shady hypnosis scam, or both? Listen to Mind Games on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts.

55:54Hi, I'm Alex Goldman. You may know me as the host of Reply All, but I'm done with that. I'm doing something else now. I've started a new podcast called Hyperfixed. On every episode of Hyperfixed, listeners write in with their problems and I try to solve them. Some massive and life-altering and some so minuscule it'll boggle your mind. No matter the problem, no matter the size, I'm here for you. That's Hyperfixed, the new podcast from Radiotopia. Find it wherever you listen to podcasts or at hyperfixedpod.com.