Can Local Markets Become Global Chains? – 3

In the first three articles of the series I previously wrote under this title, I emphasized that, in order to properly understand the history of global supermarket retailing, it is necessary to delve into the history of retailing itself and to study the development of American food retailing and supermarket chains. In particular, in the previous two articles, I attempted to explain the periods and conditions that gave rise to today’s supermarket chains, illustrating them through various examples and historical developments. In this fourth article, which serves as a continuation of our discussion, I will endeavor to fulfill the promise I made earlier by presenting, in chronological historical order, the stories of various American entrepreneurs and institutions that pioneered many of the industry’s first innovations and contributed significantly to the evolution of modern supermarket retailing. I will aim to do so as clearly and simply as possible, while remaining faithful to their unique and authentic stories. As I have emphasized before, “when one person changes, everything changes.” For this reason, it is worthwhile to understand some important details about the individuals who have made a significant impact.

In the United States, there were neighborhood grocery stores, commonly known as “General Stores,” located on street corners in cities and throughout small towns. These stores sold staple food items such as bread, milk, and canned goods alongside a wide range of non-food products. With the establishment of the Great Atlantic & Pacific Tea Company (A&P) by George Gilman in 1859, the first grocery store chain was born. Naturally, other individuals with sufficient entrepreneurial ambition and financial resources followed A&P’s lead by acquiring existing stores or opening new ones of their own. However, the company founded by Gilman unquestionably remained the largest retail chain in the United States until 1975. Under the conditions of that era, operating a chain of grocery stores was particularly challenging, especially from a logistics standpoint. Keeping the shelves of these small grocery stores—typically limited in floor space and lacking adequate storage capacity—consistently stocked was no easy task. Independent, scattered single-store grocers, which made up the vast majority of the market, relied heavily on traveling salesmen and wholesalers who regularly visited them with horse-drawn wagons loaded with a wide variety of merchandise. One of these traveling salesmen, a young man named Aaron Montgomery Ward, noticed that grocery stores serving farmers in rural villages and small towns—where commercial competition was virtually nonexistent—were selling products at exceptionally high profit margins. There were two primary reasons for this. First, these grocers typically carried only limited inventories and, due to long-established business practices, negotiated prices individually with almost every customer. The second reason was that grocers routinely extended credit to their farmer customers, allowing them to purchase goods on deferred payment terms. (In other words, they sold merchandise on credit—a practice that may sound quite familiar.) In 1872, Aaron Montgomery Ward founded Montgomery Ward & Company and began selling products through a mail-order system. He compiled illustrated catalogs featuring drawings of the products he sourced, along with photographs of some items, and distributed them to potential customers. He sent his catalogs by mail to thousands of farmers and grocers; he collected their orders by mail and collected payment upon delivery. Unlike local rural merchants and grocers, Ward did not offer haggling or credit; instead, he successfully mailed his catalog—printed using the most modern methods—to customers free of charge and on a wide scale, allowing them to see pictures of consumer goods and imagine how they could be used. By 1883, the company’s catalog had grown to 240 pages and 10,000 products! Ward later took advantage of the U.S. Postal Service’s “Free Delivery” service for rural areas. He lobbied for a “package post system” to be launched in 1906 (with the aim of being able to send not only letters and catalogs for free, but also products at very affordable prices).

In 1886, a 23-year-old young man named Richard Warren Sears, who was working for one of the rapidly expanding railroad companies of the time, received a shipment of gold watches from a Chicago-based manufacturer at the station where he was assigned. However, the local buyer, a jeweler named Edward Stevenson, refused the delivery, stating that he had not placed the order. Seeing an opportunity in this situation, Sears contacted the manufacturer and purchased the watches at a favorable price. He then added his own profit margin and successfully sold the watches not only at his own station but also to colleagues working at other stations whom he knew. He thoroughly enjoyed this brief trading adventure of just a few weeks, as he had earned more money than his annual salary. After reaching an agreement with the manufacturer, he purchased more watches and, this time, developed an innovative approach by appointing the friends to whom he had previously sold watches as sales agents. Each of them began selling watches to train passengers at the stations where they worked. Within six months, Sears had accumulated a considerable fortune, and in 1887, together with his friend Alvah Curtis Roebuck, a watch repairman, he founded Sears, Roebuck and Co., a company that would leave a lasting mark on the history of American retailing. That same year, Sears and Roebuck moved the business to Chicago, where the company published Richard Sears’ first mail-order catalog featuring watches, diamonds, and jewelry. Over the years, by taking advantage of the U.S. Postal Service’s free shipping services to rural areas and small towns via the expanding railroad network, the company expanded beyond jewelry and entered the trade of almost every type of consumer product. In 1896, when Richard Warren Sears launched his first general merchandise catalog, Montgomery Ward & Company encountered its first major competitor in the mail-order business. In 1900, Ward’s total sales reached 8.7 million dollars, while Sears’ sales amounted to 10 million dollars, and the two companies competed for dominance throughout much of the 20th century. By 1904, Ward had grown to such an extent that he was sending “three million catalogs, each weighing 1.8 kilograms,” to customers. By 1916, Sears, Roebuck and Co. was mailing more than “50 million catalogs” annually. These catalogs featured detailed and accurate illustrations created directly from photographs of the products, along with comprehensive descriptions of every item offered for sale. (Richard Sears wrote most of these texts himself until he retired in 1908!) The early 20th century was the golden age of mail-order shopping, and Ward’s and its rival, Sears Roebuck, had together become an American tradition. (Over the years, this culture has evolved from printed catalogs to product demonstrations on TV shopping channels, followed by phone orders, and eventually to online commerce.)

Between the era initiated by Montgomery Ward in 1872 and Richard Warren Sears in 1887 through catalog-based retailing and mail-order sales, an important retail legend was established in 1883. Bernard Heinrich “Henry” Kroger was the frail fifth child in a family of ten children. At the age of just 13, following his father’s bankruptcy during the economic depression of 1873 in the United States, he was forced to find work on a remote farm. Henry was a frail child weighing only 40 kilograms; however, despite paying him very little, his ruthless employer forced him to perform tasks normally expected of a healthy adult. After some time, he contracted malaria, quit the job, and walked 60 kilometers over 18 hours to return to his distant home. During this solitary journey home, which he undertook as a young boy, the thoughts that passed through his mind would eventually change not only his own life but also the course of global supermarket history. After returning home, Kroger began to put the ideas that had developed in his mind into action. He initially worked as a traveling sales representative for the Great Northern and Pacific Tea Co., selling tea and groceries door to door. A few years later, he joined the Imperial Tea Co. The company was struggling financially, and its two partners assigned the young Kroger to manage the store. Kroger quickly turned the struggling business around and made the store profitable, generating 3,100 dollars in earnings for the company (equivalent to approximately 100,000 dollars in today’s value). Frustrated that his employers refused to increase his salary or offer him an ownership stake, he left the company and opened his own grocery store in 1883. Despite facing numerous challenges, natural disasters, and unsuccessful partnerships, he never gave up. As I continue writing about the “firsts that Kroger introduced to the industry,” I will try not to get tired; I kindly ask you, dear readers, to try not to get tired while reading them as well! Kroger was one of the first grocers to advertise in newspapers. Beginning in 1895, he launched extensive advertising campaigns in local newspapers and attributed much of his success to this strategy. Kroger’s innovative advertisements featured detailed price lists organized by product categories and consistently emphasized the message of “money-saving prices.” By 1897, Kroger’s advertisements had begun appearing regularly in many newspapers across Cincinnati, and in some cases had expanded into full-page advertisements. This is an unprecedented marketing approach at the time. In 1901, after opening a larger store, he added an in-house bakery and began selling bread at cost. By attracting large numbers of customers with inexpensive bread, he successfully increased customer traffic and implemented cross-selling within the store. This was the first implementation of a diversification strategy in food retailing! While continuously increasing the number of stores, Kroger also made it a regular practice to introduce new initiatives and innovations. For example, he pioneered the “first product price labeling system,” personally taking the time to label each individual item himself. The employees who observed his discipline and attention to detail continued this practice as well. Kroger worked with all of his suppliers on a cash-payment basis; this was one of the key reasons he was able to offer products to consumers at more competitive prices than his rivals. He was also the first in the retail industry to introduce a customer loyalty program and reward-points system. Customers who collected receipts documenting their purchases from selected categories, such as tea and coffee, could redeem them for a variety of non-food items of their choice “at no cost”. In 1902, Kroger established a factory to produce his own jams, food preservatives, and extracts. In other words, Kroger was also one of the pioneers of private-label production. His own Kroger-branded products enabled the company to gain market share from national food brands. At certain periods, the sales share of store-brand products exceeded 25%. Kroger was also the first retailer in the United States to introduce the sale of fresh meat inside grocery stores. In 1904, he acquired the meat-processing company Shapell, Nagel & Co. Through this acquisition, he gained 11 new stores as well as meat-cutting, refrigeration, and processing facilities. Like many other grocers and the A&P chain, Kroger also provided “home delivery” services to its customers. In 1905, Kroger introduced a system that allowed customers to call their nearest store and place orders by telephone. Shortly afterward, he took this service one step further; advertisements from those years featured the following statement: “If you provide us with your telephone number, we will be pleased to call you every morning and take your order.” This system represented an extraordinarily modern service approach for the conditions of that era. Kroger provided home delivery using dozens of horse-drawn wagons and more than two hundred horses. However, in 1908, when Ford Motor Company revolutionized manufacturing by introducing the assembly line and began marketing the Model T to middle-class consumers, the number of automobiles on the roads started to increase noticeably. In 1912, he purchased a fleet of 75 automobiles and sold all of his horses and horse-drawn wagons. By doing so, Kroger once again achieved an industry first of historical significance by becoming the first retailer to use automobiles for delivery services. In addition, in 1921, Kroger established America’s first in-store quality control laboratory and became the first retailer to introduce scientific consumer research practices.

While the “chain grocery” business that began with A&P in 1859 was expanding in the United States, mail-order retailing was also developing through Montgomery Ward & Company, founded in 1872, followed by Sears, Roebuck and Co., established in 1887. With Kroger entering the scene in 1883, retail chains and mail-order businesses further stimulated the already highly receptive American market, creating even greater demand and opportunity within the retail sector. So, what was happening in Europe during the same period, where commerce had traditionally been conducted for centuries through marketplaces and individual merchants? In our next article, by exploring the grocery retailers that emerged and gained prominence in Europe, followed by the retail companies established in the United States between 1920 and 1960, along with their founders and the key figures who shaped history, we will be able to fully understand the “food retail ecosystem of today’s world.”