Introducing The Genesis. I write about why people did stuff
First up: The genesis of an international small business alliance
Hi friends,
I've been thinking about the value I want to provide to you reading this newsletter. I want to publish along a theme so you know what to expect every Tuesday, and cover a topic you might find interesting because it touches your life in some way. Early readers will know that I originally wrote a couple personal opinion pieces- I figured the interest for those wasn't going to go beyond the few people I forcibly asked feedback from.
This was the thought on my mind as I wandered the streets of Vancouver looking for a place to get coffee last Friday. My regular Starbucks had been shuttered through COVID-19 so I meandered up the street. The next store open was a BodyEnergyClub, which I briefly entertained because I figured I wanted some fruit and fibre to ensure I didn't die of malnutrition. I saw that I would have to pay $10 for a fruit smoothie, spotted an IGA the next block down, and set my sights on the IGA instead.
Are you familiar with IGA? If not, don't worry- You've likely set food in a grocery establishment indistinguishable to it. It's universally accepted that the hierarchy of grocery stores is tiered to the effect of this chart:
There isn't really any standout feature of IGA. You can enter an IGA assured that you'll be able to find whatever you're looking for, there is obvious thought put into the store's visual experience, and the fruit doesn't look like it's about to fall apart.
I'm easily distracted. Although I came for coffee, I saw a club sandwich and I paid for it. Then I promptly got lost in my thoughts. I wondered how IGA became a chain store. I wondered which massive conglomerate and private family IGA belonged to. I wondered-
"Hi miss. I truly apologize. It's taking forever to heat your sandwich. I'm actually going to refund you." The man who sold me the sandwich was waving to tether me back to reality.
"What?" I checked the time. I didn't realize I'd been waiting 10 minutes. "Oh, it's totally fine."
"No, you've got places to be. I own the place so I am able to give you your money back."
On any other occasion, I wouldn't have questioned him. But since I was thinking about how I'd visited an IGA across the entire country, I was surprised to hear it wasn't all centrally owned. "Are all of these IGA stores owned individually?"
"Yup."
I told him to keep the money.
The Kroger Company is a grocery chain conglomerate boasting the world's 5th highest revenue for a retailer in 2019. It has 2,800 stores. By contrast, IGA boasts 6,000 stores worldwide and doesn't even qualify for this list. That's because it wasn't founded as a retailer; It is a near century-old collective founded in the spirit of enabling small independent grocers to survive competition from the rise of chain supermarkets. I was so delighted to find this David and Goliath story hidden in the origins of a mundane grocery store that I was inspired to theme my newsletter around the backstories of storied institutions. It's my hope that reading this newsletter regularly allows you to learn a little bit about everything.
With that being said, let's dive into the story of world's largest independent supermarket network. In this piece, I will cover the following:
The grocery landscape 100 years ago
How and why IGA came to be
IGA makes money moves
The future of food distribution
The year is 1913.
In a year the world will be going to war, but you're blissfully unaware. Well- To use the term blissful to describe your psyche is disingenuous, because in fact, you are worried by the rise of a grocery operation that has opened an astounding 585 stores within just 12 months of opening their first joint in Jersey City, NJ. The grocery chain is called the A&P Economy Store, and it's the grocery expansion of The Great Atlantic and Pacific Tea Company which started out just selling teas and coffee via catalogue. The prices at the A&P Economy Store undercut yours by a noticeable margin.
Any competitors who can undercut you are an immediate threat because consumers are incredibly price sensitive during this time due to rising food prices. In fact, 1913 is the first year the Consumer Price Index data becomes available as inflation is a hot political topic. The National Housewives League advises those at home to start raising livestock to afford staples in the New York Times. The average American family is already spending about a third of their income on groceries (By contrast, an average family in 2018 spent 7.3% of their income on groceries). All in all, the price of food will increase about 72.7% from now until 1929, with most of the increase happening within this decade.
Your name is Henry Merkle and you own and operate a produce market in Poughkeepsie, NY. Your shops are about 600 square feet large, shelves stocked primarily with non perishables. There is no one stop shop for all a household's required foodstuffs- The stores on the street you operate is lined with a butcher, a fishmonger, a dairy shop, etcetera. Like all shops, yours is full service and customers line up at the counter to ask for quantities of items to be picked from the shelves by you.
Customers also call in to place orders for delivery, which you have hired a young hand to fulfill serveral times a day. You plan to expand your operations to include another store nearby by slightly increasing your prices to hire someone to run the service counter, but you're stopped dead in your tracks by the A&P Economy Store.
You examine why the A&P Economy Store is able to offer eyewateringly low prices and you're relieved to find a disgrace. For one, they only offer a few items that sell out fast where you have much more variety. They don't advertise, they don't deliver, and they're open for fewer hours a day, as it's all operated by a single person. "Just they wait," you think, "My customers would never choose this experience just to pay slightly lower prices. They won't be around for long."
The A&P Economy Store continues to open an average of 10 stores a week for the next 8 years until they are officially the largest retailer by number of stores in the world. A&P management leverages their scale to verticalize operations by purchasing manufacturing plants so they don't have to pay wholesalers in the middle, further driving their prices down. In the 5 short years between 1920 and 1925, A&P triples its number of stores from 4,544 to 14,034. Arguably, chain grocers during the period of time from 1912 to 1930 introduce the most innovation in the next century of food retail due to unpalatably high food costs, including uniform branding, mass merchandising, one-stop supermarkets with parking lots, and self-serve shopping.
You're in despair. There is no way that your business will survive if A&P is able to keep driving its prices down and further establish itself as a trusted brand. You're witnessing the death of small local grocers as you know it.
The eagle and the shield
Without prosperous and expanding small businesses, our country would undergo such a violent adjustment that an entirely new concept of living would come into being. We must all work together to protect and maintain the millions of small businesses that dot America.
— J Frank Grimes, founder of the Independent Grocers Alliance
It's the spring of 1926. Your accountant J Frank Grimes of W.W. Thompson & Co in Chicago does the books for hundreds of small grocers like you and is concerned by the sheer volume of small businesses shuttering their stores in the face of chain grocers mopping up market share. J Frank Grimes believes small operations like yours are a cornerstone of the American economy (and mostly his business). Beyond that, he sees the intangible value that independent community grocers provide when they are not dictated down to the last detail by a franchise head office. J Frank Grimes highlights the 3 main issues challenges facing independent grocers:
Inability to lower prices without mass purchasing from wholesalers and distributors
No mass marketing power to build a trusted brand name
In turn, limited ability to adopt the latest technology in grocery retail
He devises a plan to solve these problems he calls the "Independent Grocers Alliance", calls on one of his wholesalers to gather interested accounts at the Poughkeepsie YMCA, and boards a train from Chicago to Poughkeepsie with little else. On the train, one of his colleagues, a PR specialist by the name of Gene Flack, sketches an eagle on a shield with the newly minted IGA acronym to become the first logo of the collective. One can only imagine this scene:
You, Henry Merkle, are one of the folks called to hear this pitch with a number of your peers from the area. Here's the jist of the proposal you hear:
Independent grocers contribute to their communities in a way that chains do not
Local grocers are cornerstones of social activity and community support. Where centrally owned chains and franchises apply blanket changes to their stores many miles away from where their stores are operating, independent grocers were often raised in the areas they operate and should be trusted with the freedom to respond and support their communities in their own unique fashion.
Independent grocers should band together to purchase from wholesalers in bulk
Where indepedent retailers are failing is the ability to undercut chains during a crucial period of inflation. This is because independents are not large enough to order from their wholesalers or even manufacturers in large enough quantities to receive discounted bulk prices. If independent retailers pooled their orders, they would be able to achieve the same economies of scale as the chain operations.
Independent grocers should promote as a single brand to establish recognition
In every city you travel to across America, you will see a local grocer with a family name you've never seen before alongside chain brand names you are familiar with. With the chains, you can come to expect a certain standard of service from that brand. You have no such expectation for local grocers.
To achieve the above, independent grocers should form an alliance.
An alliance will not follow a chain or franchise model. Chains, such as A&P, are centrally owned by a corporate body, and perhaps managed by a local hire. Franchises are owned by independents, but are usually contractually bound to offer a percentage of their revenues, to use a fixed list of distributors, and sell a set list of products. By contrast, this alliance model wants to preserve as much of the persona and role of the local community grocer as possible. It will differ from franchises in the following ways:
There will be partner wholesalers that will order en masse on behalf of and deliver to participating IGAs, but grocers will not be forced to order from them. In fact, IGA stores are encouraged to stock and sell local goods as a means to differentiate.
IGA store owners will not pay the IGA organization a percentage of their revenue.
The IGA organization will make money by 1) charging wholesalers to become preferred partners based on how much business IGA's retailers give them 2) for store branding, and 3) for merchandising. IGA grocers will pay those wholesalers a flat monthly fee to help adopt the brand, and flat yearly fee to the IGA organization.
The IGA organization will use the funds to develop training material, nationwide brand campaigns, and store standards to ensure that all IGA retailers maintain a trustworthy brand image.
The argument made by Grimes to create an alliance, adopt a new brand, and the price seem pretty reasonable to you. However, the strength of an alliance like this comes from the quality of its members and the sheer number of retailers and wholesalers joining. As if on cue, an acquaintance of yours by the name of George Sutcliff pipes up.
"Mr. Grimes, I'm interested in your plan. But before considering membership in the IGA, I'd like to see an IGA store and get a better idea of how the idea works. Where can I see one?"
J Frank Grimes laughs. "My friend, there is no IGA store. IGA comes into existence in this room--tonight. If you would care to sign an application, you will be the first retail member in the country."
69 retailers sign to join this alliance that night, yourself included. Come on, 69? That's probably when you knew this thing was destined for greatness.
Off to the races
It's present day, and hindsight is 20/20. You know roughly what's happened in this time: A&P is no longer in business, having declared bankruptcy twice. So many new players and models have entered the chat, such as Sam's Club and Costco (warehouse shopping), Walmart (supercentre shopping), and high end niche stores (Whole Foods). Despite all this, IGA stores are still alive and kicking. From my perspective, where the IGA brand excelled over the years was in their ability to promote as a national chain brand but still provide product offerings as if they were a local chain. Why was highlighting their local nature important? In a 2019 interview with current IGA CEO John Ross, he claims that "consumers in America are two-thirds more likely to say that a national chain has food that’s unhealthy for you versus a local chain". I buy it- I have a blind preference for stores that market themselves as suppliers of local produce. Here are some of my favourite IGA marketing stories.
IGA Home Town Hour
In 1930, IGA sponsors a national radio show that is broadcast 6 days a week. It's actually not the first time a grocery brand has done this, with A&P launching America's first national radio program in 1924. However, the subject matter of the IGA broadcast are mysteries featuring people from small towns as a nod to IGA's local roots (Which sounds like early inspiration for This American Life, which was broadcast to 2.2 million listeners weekly in 2019). By contrast, the A&P Radio Hour aired a musical series with gypsy folk music called the A&P Gypsies. People love hearing stories about themselves.
IGA Merchandising
IGA chooses macaroni products of all things to test slapping a private label on, new promotional material, and systems to move these products through stores. In 1955, they name actress Sophia Loren as queen of National Macaroni Week and watch IGA macaroni fly off the shelves in the hands of thirsty boys. IGA branded teas get a shoutout from Japanese Emperor Hirohito in 1930, who says he likes it. I can't help but read these and laugh at how far promotional tactics have come. This is like Vladimir Putin saying he tried and liked Kirkland Signature oats and having Jennifer Aniston sell almonds for you.
IGA Community Contests
IGA grocers are also left up to their own devices to promote as well, which introduces creative contests that are artefacts of a pre-internet age. Paul's IGA in Sheboygan, Wisconsin asked its customers to guess how many kernels of corn a live rooster he kept around would eat between 7 and 8:30AM. In a local IGA contest to collect Cambell's soup can labels for a chance to win a free trip to New York City, 13 year old Paul Anka wins and launches a successful music career in the Big Apple. These are early gamification tactics that clearly paved the way for store loyalty programs.
It's clear that IGAs had a strong community presence as independents and as part of this national brand. If you're not yet tired of these stories, check out this great article recounting the highlights in IGA's organization for 60 years, told decade by decade.
One century down, another one to go
The countless innovations in food distribution in the last century were introduced with the singular goal of increasing market share. Three notable advancements that have shaped consumer expectations and behaviour include:
Foods engineered to be more addictive, to the detriment of nutritional benefit.
In 1999, Michael Mudd, a VP at Kraft, steps into a conference room where the executives at top food companies are gathered. He asks his colleagues to examine the role their processed foods are having on the national obesity epidemic, and to hold themselves accountable to preventing the problem from getting worse. The response from the room is resoundingly: "We need to ensure that our products taste good, because our accountability is also to our shareholders. And there's no way we could start down-formulating the usage of salt, sugar, fat if the end result is going to be something that people do not want to eat." By the way- This book by Michael Moss detailing how food companies unravelled the workings of our brain to make concoctions we couldn't resist is one of my favourite books of all time. I couldn't recommend it enough. 20 years later, the obesity epidemic looms as threatening as ever. Individuals are convinced that they eat processed foods because they have no self control, which I truly believe heightens the occurance of eating disorders.
Diversification and personalization in product lines.
My staple meal is a good old peanut butter and banana sandwich, but even this has become a complicated endeavour to assemble. Walk into a grocery store to buy peanut butter, and you'll face a entire wall of nut butter spread options. All natural or processed? Crunchy or smooth? Peanut, almond, sunflower seed, macadamia nut? (I'm currently crunchy almond butter gang). Spend an hour deciding, and then make your way over to the bread section to begin this process all over again. I know this diversification of product line is supposed to generate a permutation of product that resonates with me so deeply that I'm induced to buy one brand over the other, but many times I just leave because I'm so torn that any selecting option would've caused regret. At some point, this detracts from sales and produces more food waste.
Globalization and economies of scale giving us food cheaper than it should be.
How much would I need to pay you to make the effort of growing an avocado worth it? To make a croissant entirely from scratch down to its ingredients? I would imagine it would be in the hundreds of dollars. But the fact that I can have an avocado sown, grown, shipped, and stocked for me for under a dollar is such a feat. That's positive and all, but the negative externalities of pollution and global warming simply aren't priced in enough. Let me show you a menu from my nearby sushi joint:
How is it possible that a salmon roll is only 40 cents more than a cucumber roll? That an avocado roll is the same price as a California roll with crabmeat in it? My capitalist self is going to order the option with fish every time and ignore the environmental toll it causes. It feels as if I'm extracting the best value by paying so little incremental cost for something that took so many more resources to produce.
Among others, these advancements have introduced huge new societal problems that face food retailers in the next century. Abundance of cheap processed foods drive obesity and malnutrition, while shipping lychees halfway across the world and mass producing meat contribute massively to greenhouse gases. I was even struck living in both San Francisco and New York how much of a luxury home kitchens were- With growing populations in urban areas it won't surprise me if more units are built without them, negating the need for groceries themselves. It's clear that current food manufacturing and supply systems are not sustainable or suitable for modern living arrangements.
Changes are being explored across entire food systems from farm to table, but for the sake of this post let's focus on last mile distribution. IGA has served many independent grocers for just under a hundred years to withstand competition and adopt innovations, but with these new problems at play, how might they prepare their independent retailers for the next century? I found this quote by a director of store engineering at IGA, W.H. Longenbaker, from 1964. He was known as a visionary, writing:
Who's to say if the retail food store might not well become the neighborhood community kitchen of tomorrow? Aren't the fast-developing delicatessen departments in our big food stores a step in that direction? Perhaps the retail store may provide a kitchen setting from which it will dispense through electronic vending devices packaged products for immediate consumption, no further cooking required. Sales will be tabulated by a credit card, with the charges recorded at a local bank to be debited against the customer's account.
This quote demonstrates an understanding of 2 trends that companies today are making a reality, which shows incredible foresight:
Every company will be a financial institution: Today, fintechs are building infrastructure to enable any institution to offer financial services. In an impressive note, I found that Harry's IGA in Topeka, Kansas, has actually offered banking services starting in 1975.
Creating pre-prepared meals/meal kits for home delivery/grab and go purchase.
However, this won't be enough to solve the existential problems of changing climate, overpopulation, and malnutrition. With that, I'd like to introduce you to a segment called "Elaine predicts" where I, someone who has no prior experience working in whatever subject matter I'm writing about, provides my thoughts on what the future needs to look like.
Elaine predicts
Here's what I came up with using the Eliminate-Reduce-Raise-Create Framework (developed by the management gurus who gave us the Blue Ocean business strategy) to highlight what changes we'll probably see in food retail going forward.
This grid paints the picture of a retailer that stocks shelves in a limited fashion and offers specifically portioned meal kits or prepared meals that are built from individual dietary needs or preferences. In order to make this a reality, retail space will need to be transformed into a warehouse for personalized food orders, following the model introduced by Amazon warehouses. Store employees will fulfill online orders and prepare cooked recipes. Grocery spaces of the future won't be designed for browsing. To maintain its community hub role, they will likely offer casual seating for patrons to enjoy prepared food if they come to pick up their personalized orders, perhaps dispensed to them through a vending system as Longenbaker predicted. For customers looking to make a batch of late night muffins who are missing a cup of sugar, online orders for specific quantities and instant delivery will become more viable and economical than making a trip to the store to purchase a full bag of sugar.
Coming from a girl who considers grocery shopping her daily cardio, I’d be sad to see these changes implemented. But then again, I’m only ever eating PB and banana sandwiches and know firsthand that I don’t have the mental capacity to plan meals. For our current culture of work and living, this feels like the appropriate direction for food retail.
With that, I’m off to the grocery store to hunt for dinner.
If you made it this far- Thank you from the bottom of my heart. I hope you liked this writeup of the beginnings of something completely random. Please leave me feedback or suggestions of what you might like to see covered in future posts.
It's the beginning of an exciting journey and you can truly say you've here since the beginning. See you next Tuesday!