Wednesday, March 15, 2006

"Capturing the Retail Tea Market"

Part 2: From Mail-Order to Retail Giant

Improvements in global transportation, as well as the growth of the United States in population and geographic area during the late 19th century, provided many opportunities for enterprise. The completion of the Suez Canal in 1869 allowed steamships to deliver tea to the major markets of London, Boston, and New York in record time, and at lower cost. Short-haul local railroads were being joined into a network of railways that would connect all of the major cities, east and west.

George H. Hartford and George F. Gilman were uniquely poised to take advantage of the opportunities at hand. Their original concept was to capture a large share of the rapidly-growing tea market, first in New York and the neighboring states, and then on to the rest of the expanding United States. Their first venture, The Great American Tea Company, located on Vesey Street in New York, sold teas directly to the public, at prices far below their competition's. They imported teas from producers in China, rather than buying from distributors and wholesalers, and sold at margins that were thinner than the competition. With their New York retail operation a success, Gilman and Hartford began expanding to other cities.

Almost two decades before Richard Sears began selling watches and jewelry through his first mail-order catalog, Gilman and Hartford launched a nationwide mail-order tea operation from their warehouse in New York. Teas were sold at aggressive prices, guaranteed to be lower than those of local tea merchants. To offset any fears of substandard quality, Gilman and Hartford offered something quite unusual for the time, an unconditional money-back guarantee if the product was found to be unsatisfactory upon arrival. As an added bonus, they gave premiums to mail-order customers to encourage customer loyalty. Again, Gilman and Hartford found that competitive pricing and aggressive marketing were hugely successful.

As their mailing list grew, Gilman and Hartford adopted a novel marketing concept whereby customers were recruited as sales staff for the company. Existing mail-order customers were sent fliers, encouraging them to form tea-buying clubs, whereby large group orders from club members would receive discount pricing and special premiums that were of greater value than those shipped with smaller, individual purchases. As a result, local tea merchants noticed that their sales were shrinking.

Several tea merchants confronted Gilman and Hartford with claims that teas of The Great American Tea Company were inferior, often blended with spoiled teas and even used tea leaves. While these claims were without merit, Hartford had formulated an inexpensive tea called Thea Nectar, which was blended from leftover stocks and teas that arrived at dock with damaged chests. It was marketed as “a black tea with a green tea flavor” and had a rather neutral taste. Priced below other teas, the product sold well, and Gilman and Hartford continued to capture more of the tea market. They would not be stopped by critical protestations.

Several tea vendors chose to compete head-to-head with The Great American Tea Company and entered the mail-order market with aggressive pricing, similar club-plans, and generous premium programs. By the latter part of the 19th century, the concept had reached grand proportions. A circular from The Great London Tea Company, located on Washington Street in Boston, illustrates this well. The teas offered for sale in this small brochure require one and a half pages, while the list of premiums and testimonials from club members required six. Premiums begin with one-dollar purchases:
With every order for $1 worth of Tea we give a Plain Glass Syrup Cup, or a 7-in. Round Scalloped Nappie, or a Family Egg Beater, or a Majolica Creamer, or an English China Pickle Dish, or a Glass Covered Pickle Dish, or a large size Glass Covered Butter Dish, or a Spoon Holder, or a Creamer, or a Sugar Bowl.
Premiums for $1.50, $2.00, $2.50, $3.00, and $4.00 are progressively more generous, and:
With every order for $5 worth of Tea we give a Silver Plated Caster, or a very handsome Sauce Dish (silver plated standard), or a French China Fruit Dish, or a Silver Plated Butter Dish, or a very handsome Pair of Vases, or a pretty Toilet Set for the Bureau, or a pair of Silvered Glass Candlesticks, elegantly decorated, or a Silver Plated Sugar Bowl, or a Silver Plated Syrup Cup, or a very handsome Majolica Fruit Dish, or a Majolica Pitcher, or a Britannia Teapot, large copper bottom, or a large Washbowl and Pitcher, or one dozen 6-in. Tea Plates, or a Glass Flower Stand, decorated in gold and different colors.
The most generous premium:
With every order for $60 worth of Tea we give a Lady’s Elegant Gold Watch, solid Gold Hunting Cases, and a very fine watch in every respect.
To put this into perspective, $60 in 1881 is equivalent to $1,200 today! The allure was strong and, for many, the premium was more important than the product. Some testimonials in the brochure seemed to ignore the tea:

Taunton, Mass., May 22, 1880

Gentlemen: - My order for $60 arrived safely Saturday A.M.; [I] am perfectly satisfied with the premium. This makes the seventh order I have sent you, and shall soon send you another. Yours truly,

Mrs. Maria C. Lynch

Besides direct mail-order competition Gilman and Hartford noticed new retail operations opening in densely-populated urban locations, with names similar to The Great American Tea Company. Mail-order sales were dwindling in part from the confusion caused by these new stores, as well as from the likes of The Great London Tea Company.

The Great London Tea Company Was one of the many tea companies that tried to compete directly with the aggressive pricing and club-plan programs of The Great American Tea Company.

Gilman and Hartford decided to focus less on mail-order and grow their retail operation more aggressively. They did so as The Great Atlantic & Pacific Tea Company, rather than their original Great American Tea Company. In order to optimize the use of their store space, additional items were added to the shelves, including butter, sugar, baking powder and, of course, their famous Eight O’Clock Coffee. Each store was the same in size and layout. Customers who frequented the A&P in their neighborhood could easily find the same items in a remote A&P, located in the same area of the store, on the same shelf. To encourage customer loyalty, the company introduced A&P trading stamps, which could be exchanged for premiums, much like those given to tea-club buyers. It was a model that would prove successful for several decades.

Gilman and Hartford could open a store almost overnight. When Mrs. O’Leary’s cow destroyed much of Chicago in 1871, they sent a trainload of goods to the city and opened a new store before most local retailers could rebuild. Business was so brisk that they removed the back wall of the store to handle the traffic. By 1881, they had over 100 locations, reaching as far west as the Mississippi River. The pace picked up dramatically as they poured their profits back into the company. At the height of their growth, A&P opened an average of three stores per day!

The team of Gilman and Hartford worked well: Hartford ran the daily operations, and Gilman planned expansion and promoted the company. Their partnership was informal and never documented. This was fine until Gilman died in 1901, leaving no will. It took four years for Hartford and the extended Gilman family to reach an agreement whereby Hartford, with his two sons George Jr. and John, could purchase full control of the company from the Gilman family. It was a privately-held company until 1958, by which time both sons had died childless.

A&P enjoyed success throughout the first part of the 20th century. Their huge buying power gave them a tremendous advantage. Eager to sell to A&P, vendors offered special discounts and advertising allowances that smaller operations did not enjoy. Competitors cried foul. Congress became involved, and eventually forced vendors to charge A&P the same price for their stocks as the smaller competitors. It did not stop there. A bill was introduced that would have taxed interstate chain stores at rates that would have made such operations unprofitable.

By this time, A&P was already producing many of their own store-brand products. The loss of volume incentives by the major brands was further inducement to expand their private-label line.

As their private-label line increased, so did their competitive edge. Certain legislators considered this defiance and threatened to break up the company. A&P's legal fees mounted.

They weathered the Great Depression, survived Congressional probes into alleged predatory practices, and tried their best to face each new competitor head-on. According to Ukers, they were once the purveyor of one out of every six cups of tea consumed in the U.S. In 1933, the number of clerks employed by A&P exceeded 2.6 million, which was over 2% of the entire U.S. population! For a moment in history, nearly fifteen percent of the coffee consumed in the U.S. was sold by A&P, from over 17,500 stores!

But by the late 1960’s, it became obvious that the company had lost its edge. They were rapidly losing market share to a new generation of supermarket chains. By at least one account, mismanagement after the Hartford brothers died was chiefly to blame. Somehow, A&P lost track of their original identity and failed to provide the products and services that ensured customer loyalty. Along the way, they also lost track of their original goal of serving the U.S. tea market. Perhaps that was less important, as American tastes had changed and coffee became king. As A&P expansion began in the U.S., Thomas Lipton was slowly building a grocery store chain from his parents' neighborhood grocery store. His tea empire was just one facet of his operation. We'll continue our series next issue with a brief look at the Lipton story.


Walsh, William I. The Rise & Decline of The Great Atlantic & Pacific Tea Company. Ontario: Musson Book Company, 1986.

Hoyt, Edwin P. That Wonderful A&P. Ontario: Hawthorne Books, Inc., 1969.

1 comment:

buff said...

This is an awesome account of the early "tea" history of the Great Atlantic and Pacific Tea Company.
With its 150th approaching in 2009, this is a great commentary on a remarkable company.