The Great A&P and the Struggle for Small Business in America (25 page)

More strange evidence turned up when Patman went after an entirely different organization, the Food and Grocery Chain Stores of America Inc. Its files, subpoenaed by the committee, revealed that its executive director, John A. Logan, was secretly paying $50 a week in cash to one John E. Barr, an employee of the National Anti–Chain Store League, an organization claiming to be on the opposite side of the chain-store issue. Barr thereupon vanished, to resurface only after Patman had his wife arrested for refusing to reveal his whereabouts. In what one publication described as a “queer irony,” Patman, the veterans’ hero, found himself compelling testimony from Logan, decorated for conspicuous bravery in the war, and Barr, formerly an official of the U.S. Veterans Bureau. Patman’s discovery of a plot to undermine the anti-chain movement, however, seemed laughable after Barr provided details about the National Anti–Chain Store League. The league, he testified, was yet another anti-chain scam, a for-profit business owned by a man who sold shares to various Washingtonians whose names appeared on a “sucker list” and then used part of the proceeds to entertain members of Congress. Patman had uncovered a scandal, but not the one he wanted to find.
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Nor was that the end of the oddities. Patman made much of a $1,500 payment from Logan’s retailer group to the National-American Wholesale Grocers’ Association, a wholesalers’ group, asserting that it was in some way improper. Logan shot back with allegations that Patman was deliberately aiding a different wholesaler organization, the United States Wholesale Grocers’ Association, which, unlike the National-American group, opposed chain grocery stores. Logan’s charge hit home, for Patman and the United States Wholesale Grocers, known for its vigorous criticism of the Great Atlantic & Pacific, had in fact become the best of friends.
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Within days of the Supreme Court decision in May 1935 voiding all NRA codes, the general counsel of the United States Wholesale Grocers, H. B. Teegarden, drew up a bill to prohibit price discrimination by manufacturers. The bill was meant to reestablish some of the anti-chain provisions in the NRA food and retail codes. Under Teegarden’s draft, a manufacturer could give a volume discount to a retailer only if the manufacturer could prove in each instance that filling the larger order meant lower manufacturing or shipping costs, a burden that would have been almost impossible to meet. By June, when Patman introduced the bill in the House and the Senate majority leader, Joseph Robinson, submitted it to the Senate, two other provisions had been added, both aimed at A&P. One required that a manufacturer giving any store an advertising allowance had to offer proportionate allowances to all stores; if a retailer buying $100,000 of a product received a $1,000 advertising allowance, a retailer buying one-tenth as much should receive one-tenth the allowance. The other new provision, making it illegal for a retailer to own a broker, sought to end A&P’s ownership of the Atlantic Commission Company, its produce-wholesaling subsidiary. The United States Wholesale Grocers lavishly praised Patman for his efforts to fight “the barons of Wall Street” and threw a dinner in his honor at the Mayflower hotel.
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Unfortunately for Patman, A&P proved to be an elusive target for his special investigating committee. The Hartford brothers had steered clear of the Food and Grocery Chain Stores of America, just as they had avoided the American Retail Federation. Even if Patman had identified any real wrongdoing at those organizations, he would not have been able to attach it to A&P. The inability to link the biggest and most controversial chain-store operator to allegations of illicit lobbying by chain stores undermined the original premise of the investigation. Nor was A&P linked to “the barons of Wall Street”; while investment bankers would happily have taken a stake in the company, as they had with Safeway, Kroger, and other competitors, the Hartfords had no use for Wall Street’s money.

Pushing the Robinson-Patman bill against price discrimination by manufacturers allowed Patman to change tack. Instead of focusing on chain stores’ wrongdoing, he used his broad subpoena power to probe chain stores’ buying practices in an effort to drum up opposition to price discrimination. Although A&P had avoided being caught up in the committee’s investigation of wrongdoing, the battle was shifting to a subject on which the company was highly vulnerable: size.

The special investigating committee’s star witness was C. W. Parr, a vice president for purchasing at A&P. Parr provided a detailed look inside the company that accounted for one of every seven dollars spent in U.S. grocery stores in 1935. A&P, he revealed, had forty-five to fifty warehouses serving its stores, which were organized into six geographic divisions. The company purchased through a dozen buying offices in major cities as well as the Atlantic Commission Company, which bought fresh fruits and vegetables from farmers or farm cooperatives. Each of the six divisions had its own purchasing director, but headquarters took responsibility for the arrangements that were Patman’s real interest—the 343 contracts in which suppliers agreed to furnish A&P with advertising allowances, payments in lieu of brokers’ fees, or quantity rebates above and beyond those appearing on invoices. In the previous year, Parr testified, these allowances had come to $6 million, representing a hefty chunk of the company’s $16.7 million after-tax profit.
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Parr insisted that A&P’s huge volume entitled it to discounts that grocery manufacturers’ smaller customers did not deserve. Its large orders provided manufacturers with order backlogs that reduced their risks, he said. And, he claimed, the manufacturers themselves derived benefit from the various discounts A&P received. The advertising allowances supported newspaper and radio advertising, window and counter displays, and advertising circulars, while in return for brokerage discounts A&P provided nationwide distribution and promotion of a manufacturer’s product. A&P expected to pay 5 percent or more below the standard wholesale price for all merchandise, and would usually not carry undiscounted products. Parr offered examples of A&P’s arrangements with suppliers. General Foods extended advertising and brokerage allowances coming to 5 percent on A&P’s purchases plus various quantity discounts, with the total reaching $450,000 per year. Standard Brands provided advertising allowances of $97,164 per year on Chase & Sanborn coffee and $38,000 on Royal gelatin, along with a $144,000 advertising allowance and a 10 percent quantity discount on yeast. The California Packing Corporation rebated 5 percent in return for a firm order for 2.5 million cases of Del Monte canned fruits and vegetables. Quantity discounts on Diamond matches left A&P paying 75.11 cents for 144 packs, versus the standard wholesale price of 82 cents.
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To Patman, Parr’s testimony was proof of naked market power. Other chains received rebates as well, but A&P seemed to get far more than its share; it had four times the sales of Kroger but took in nine times as much in advertising and brokerage allowances and quantity discounts. Patman grilled witnesses from the food manufacturers. Yes, a vice president of General Foods said, other grocers could obtain a twenty-five-cent-per-case quantity discount on Diamond salt, although no other grocer purchased the requisite 200,000 cases a year. Advertising discounts were available on yeast, said a vice president of Standard Brands, but A&P and Kroger were the only merchants to sell the 300,000 foil packages a month needed to qualify. Why, Patman demanded, could independent stores not receive such discounts if they advertised the yeast? The reason, he was told, was that Standard Brands sold its yeast to merchants for 2.5 cents a packet. Only a chain with many stores in a market would have the volume to justify advertisements for such an inexpensive product. And selling to A&P was cheaper than selling to independents, because Standard Brands could send all its invoices to the central office and receive a single payment, resulting in “tremendous” saving.
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The cold financial details revealed in days of such testimony presented a compelling yet simple story. Firm orders from a retailer with the size and national scale of the Great Atlantic & Pacific Tea Company enabled grocery manufacturers to lower their production costs and promote their products in ways that would otherwise have been impossible, and in return the chain expected a share of the manufacturers’ gains. But while business school professors saw such testimony as evidence of economic rationality, the anti-chain forces read it precisely the opposite way. A&P’s prices were “close to 10 percent” below his own, testified the grocer Harry Wadsworth of McKeesport, Pennsylvania, “and if I had their discounts and allowances, I could meet them easily.”

In any event, evidence about efficiency would never address the underlying concerns of Wright Patman and millions of others, who feared the demise of a society in which personal relationships were allimportant and hardworking men had the opportunity to rise through their own efforts. Where experts pointed to scientific management and consumer benefits, Patman saw “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 business men to employees or to idleness.” The disagreement concerned worldview far more than economics, and it could not be bridged with explanations about the cost of advertising yeast.
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Fighting the chain stores became Patman’s full-time crusade. It was appreciated back in Texas, where chain stores were an important political issue—and where many ardent supporters of President Roosevelt were heavily engaged in the same fight.

In November 1934, James Allred, a populist Democrat, had captured the governor’s office on a platform calling for a chain-store tax. Only thirty-five years old, Allred had served as the state’s attorney general, aggressively attacking monopolies and corporate interests. He asked the legislature to impose a graduated tax, depending upon the size of the chain, “to equalize unfair competition between the great foreign chain stores, with their tremendous capital, and the little home owned stores.” Handwritten letters of support from Depression-stricken merchants poured into the governor’s office. N. F. Howard, San Antonio: “Put the tax so high they must get out.” W. L. Neel, Neels Grocery, Wichita Falls: “Something must be done to protect the independent merchant.” Many small-town residents echoed the sentiments of L. D. Steffens, a traveling salesman, who sent Allred a copy of his plaint to President Roosevelt: “I will site you, sir, to my old home town of about 3300 population. Several years ago they had a wholesale grocery company there that worked about 8 men. There were four good sized General Stores that employed from 7 to 15 men per store. Today, three of these stores are gone and one remains with five people where they had about fifteen. The wholesale house closed and moved away … In these stores these employees were making a living, and the owners were, also, and everyone was happy.”
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When the legislature convened in Austin in September, Allred again pushed the chain-store issue. Citing the work of Patman’s special investigating committee, he asserted that the nefarious methods used by chain stores to defeat anti-chain legislation showed the need for action. The legislature opened hearings on September 30, 1935, with Patman, who had conveniently arranged for his special investigating committee to hold its own hearing in Austin, as the first witness. His comments hinted at corruption in the halls of the state capitol. Patman explained that fourteen general-merchandise chains had joined forces with Safeway to engage the Washington lobbyist Robert W. Lyons as their agent in Texas. Lyons, he implied, had suborned two former state senators to work on his behalf. Their tactic supposedly was not to oppose the bill but to amend the definition of “chain” so that independent stores in voluntary chains would be taxed the same way as A&P and Safeway and would therefore turn against the bill. His accusations caused an uproar as former senators came to defend themselves and legislators spoke on behalf of their former colleagues.
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It was more than dislike of monopoly that motivated Allred’s commitment to the cause. He was desperately searching for revenue to support a New Deal–style program of his own, including old-age pensions, better highways, and improved education. Texas, he complained, still had the tax system of a rural economy, when the state was increasingly populous and increasingly urban. A chain-store tax, along with taxes on liquor and a new system for collecting fees due the state, were among his ideas for raising revenue. His proposal hung in the balance until the last days of the legislative session, when the real wheeling and dealing began. When it was over, retailers operating in Texas faced a $1 annual tax on the first store and $25 on the third, rising to $750 per store for all stores beyond fifty owned by a single company. Although all stores were taxed, the highest rates applied only to the grocery chains, for only they operated dozens of stores in the state. For A&P, the tax would consume the bulk of the profits of its Texas stores.
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Patman’s special investigating committee hearings continued sporadically through 1935 as the Robinson-Patman antidiscrimination bill awaited action in the House Judiciary Committee. That committee was chaired by Patman’s fellow Texan Hatton Sumners. Sumners, eighteen years Patman’s senior, grew up poor in Tennessee before his family moved to Garland, Texas, where his formal education ended after one year of high school. After farming and working as a grocery-store clerk, Sumners moved to Dallas, taught himself the law, and passed the state bar exam in 1897. A self-made man who became a constitutional scholar, Sumners had more than a little sympathy with Patman’s desire to preserve opportunity for men of humble origins. On the other hand, he distrusted Patman’s constant quest for publicity, and he had opposed the veterans’ bonus bill. Sumners was one of the barons of the House, and his relations with his younger colleague seem to have been rather formal.
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