The Contrast Between A&P and Kroger's Response to Market Changes

Key Insight

In the early 1950s, A&P was the world's largest retailing organization, often ranking second only to General Motors in annual sales, while Kroger was an unspectacular grocery chain less than half its size. However, from 1959 to 1973, both companies lagged the market, with Kroger slightly ahead. After 1973, their fortunes dramatically diverged: over the next twenty-five years, Kroger generated cumulative returns ten times the market and eighty times better than A&P. A&P's successful model from the first half of the twentieth century, relying on cheap, plentiful groceries in utilitarian stores, failed to adapt to the affluent second half, where Americans demanded 'Superstores' with more choices, services, and better quality.

A&P, despite being 111 years old and aware of market changes, clung to its past. Led by Ralph Burger, the company focused on preserving cash dividends and the 'past glory' of its founders, adhering to a 'what would Mr. Hartford do?' philosophy. A&P even experimented with 'The Golden Key', a modern superstore concept that customers liked, but executives closed it because they 'didn't like the answers' it provided. This led A&P into a cycle of lurching from one strategy to another, employing price-cutting policies that resulted in cost-cutting, leading to drabber stores, poorer service, and eventually 'dirty dirt,' driving customers away and further depressing margins.

Kroger, also an old company at 82 years, adopted a completely different pattern. By 1970, its executive team faced the 'inescapable conclusion' that the old-model grocery store, which comprised nearly 100 percent of its business, was going to become 'extinct'. Unlike A&P, Kroger confronted this 'brutal truth' and acted decisively. CEO Lyle Everingham stated that extensive research revealed 'supercombination stores were the way of the future' and that companies 'had to be number one or number two in each market, or you had to exit'. Kroger systematically eliminated, changed, or replaced every store and departed every region that did not fit the new realities, rebuilding its entire system to become the number one grocery chain in America by 1999.