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 UNIVERSITY OF PENNSYLVANIA 
 
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 COMPETITION AN^ COMBINATION 
 
 IN THE wholesale; GROCERY TRADE 
 
 IN PHILADELPHIA 
 
 ....\ 
 
 WILLIAM LEWIS ABBOTT 
 
 A THESIS 
 
 PRESENTED TO THE FACULTY OF THE GRADUATE SCHOOL IN 
 
 PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR 
 
 THE DEGREE OF DOCTOR OF PHILOSOPHY 
 
 GEORGE BANTA PUBLISHING COMPAXN 
 MENASHA, WISCONSIN 
 1020 r<^ 
 
 
EXCHANGE 
 
Digitized by the Internet Archive 
 
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 IVIicrosoft Corporation 
 
 http://www.archive.org/details/competitioncombiOOabborich 
 
UNIVERSITY OF PENNSYLVANIA 
 
 COMPETITION AND COMBINATION 
 
 IN THE WHOLESALE GROCERY TRADE 
 
 IN PHILADELPHIA 
 
 BY 
 
 WILLIAM LEWIS ABBOTT 
 
 A THESIS 
 
 PRESENTED TO THE FACULTY OF THE GRADUATE SCHOOL IN 
 
 PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR 
 
 THE DEGREE OF DOCTOR OF PHILOSOPHY 
 
 GEORGE BANTA PUBLISHING COMPANY 
 
 MENASHA, WISCONSIN 
 
 1920 
 

 •?r^*?!H*<*?fSS 
 
CONTENTS 
 
 Chapter Page 
 
 I The Place of the Wholesaler in the Distribution of 
 
 Groceries i 
 
 II Developments Threatening the Position of the 
 
 Wholesaler 12 
 
 III Efforts of the Wholesalers to Meet the Competition 
 
 of the Co-operative Associations 24 
 
 Sec. I. Early Efforts 
 
 Sec. 2. The Wholesale Grocers' Sales Company 
 
 Sec. 3. The Community Stores Company 
 
 IV Selling Plans of the Co-operative Associations 51 
 
 V Comparative Advantages of Wholesalers and Co- 
 operative Associations 61 
 
 VI Efficiency of the Co-operative Associations 74 
 
 / 
 
 452191 
 
CHAPTER I 
 
 THE PLACE OF THE WHOLESALER IN THE 
 DISTRIBUTION OF GROCERIES 
 
 One of the results of the rapidly increasing food prices of 
 the past years has been to attract particular attention, both 
 from the general public and from students of political economy, 
 to the system of marketing food products.^ The questions 
 have been raised whether the system is as efficient as it might 
 be, whether part of the high prices may justly be charged to 
 wastefulness or inefficiency in the system and whether it may 
 not be improved in some ways with a resulting reduction in 
 the expenses of marketing, and therefore in prices to consumers. 
 
 Two of the points of attack in this criticism have been the 
 wholesaling and retailing processes. These two are the most 
 expensive links in the chain of agencies connecting the manu- 
 facturer or grower of food products with the consumer. The 
 average cost of doing business of wholesale grocers in the 
 eastern section of the country seems to be about 8.5 per cent 
 of gross sales. Figures gathered by the Harvard Bureau of 
 Business Research show that the common cost of doing business 
 for 108 wholesale grocers throughout the United States is 
 9.5 per cent. 2 At the Tri-State Wholesale Grocers* Conven- 
 tion held in Philadelphia March thirteenth, 191 8, a report by 
 a committee on "The License System in Its Relation to the 
 Cost of Doing Business" stated that reports from wholesale 
 grocers in eastern Pennsylvania, New Jersey and Delaware 
 showed an average cost of 8.6 per cent.^ Classifying the 
 reporting firms according to sections of the territory, it was 
 found that the highest figures for a sectional group were 
 
 ^ According to the figures of the United States Bureau of Labor Statistics, the prices of the 
 principal articles of food in the United States were 84 per cent higher in September, 1919, than 
 in 1913. U. S. Bureau of Labor Statistics: Monthly Labor Review, November 1919, p. 132. 
 
 ^ Bureau of Business Research, Harvard University, Bulletin No. 9. Operating Expenses 
 in the Wholesale Grocery Business, p. 5, 
 
 ' American Grocer, March 20, 191 8, p. 9. 
 
2 Competition and Combination in the Wholesale Grocery Trade 
 
 10.06 per cent for those in the Lehigh Valley district, and the 
 lowest 8.19 per cent for those in Philadelphia and Camden. 
 Of the two sets of figures, probably those of the Harvard 
 Bureau are based upon the most accurate study. They are 
 compiled from the statements of wholesale grocers who have 
 adopted a uniform system of accounting prepared by the 
 Bureau in co-operation with the National Wholesale Grocers' 
 Association. Figures received from fifty-one grocers were not 
 used because their reports could not be adjusted to the account- 
 ing system.'^ Even with the system of uniform accounting, 
 there appear to be possibilities of different methods of reckon- 
 ing the various items, such as net sales, gross margin, etc. 
 If we accept 8.5 per cent of net sales as the common cost of 
 doing business, the wholesaler must then add 9.29 per cent 
 to the prices at which he purchases, simply to cover expenses. 
 That is, a margin of 8.5 per cent of the sales is equal to an 
 increase of 9.29 per cent on the purchase price. If the grocer 
 sells ?ioo,ooo.oo worth of goods in a year, his expenses, 8.5 per 
 cent of that, have been $8,500.00. If the goods cost him 
 J91, 500.00 he has just made expenses. He has marked up the 
 goods, however, by 9.29 per cent of the price which he paid 
 ($8,500.00 increase on a base of $91,500.00). Similarly, if we 
 take the figures of the Harvard Bureau, 9.5 per cent of sales 
 as cost of doing business, the wholesaler must mark up his 
 goods, on the average by 10.5 per cent of the purchase price 
 which he pays to equal the 9.5 per cent of the sales price 
 on which he figures cost of doing business. This means that 
 to make a profit, he must add about 12 per cent to the price. 
 The figures of the Bureau of Business Research of Harvard 
 University show that the wholesalers are selling at an increase 
 of from 7.7 per cent to 17.2 per cent of the prices which they 
 charge with a mode of about 12 per cent.^ This is equal to 
 an increase of 13.64 per cent of the prices at which the whole- 
 saler buys. It seems safe to say, then, that the wholesale 
 
 * Op. cit., p. 3. 
 
 ^ Bulletin No. 9, p. 5. 
 
Competition and Combination in the Wholesale Grocery Trade 3 
 
 grocer, on the average, increases the prices of the goods which 
 he handles by from 12 to 14 per cent. 
 
 The costs of the retail grocer, and the increase in price 
 attributable to him are even higher. It is generally reckoned 
 that the cost of doing business of the independent retail grocery 
 store is 18 per cent of sales.® The Harvard Bureau of Business 
 Research gives the common figure of expenses at 16.5 per cent 
 of sales and the gross profit 21 per cent of sales.^ Here again, 
 if the margin between purchases and sales is 21 per cent of the 
 latter, it is 26.58 per cent of the former. The retailer then 
 must add 25 or 26 per cent to the prices which he pays the 
 wholesaler. 
 
 These figures mean that, out of the prices paid by the 
 purchaser at the grocery store, 28.5 per cent, on the average, 
 goes to the retailer and wholesaler; or, putting it the other 
 way, that these two agencies increase the prices of the goods 
 passing thru their hands by 40 per cent. 
 
 It is with the part of the wholesaler that this paper is par- 
 ticularly concerned. Against him, a number of charges have 
 been lodged. It has been alleged that he is an unnecessary 
 and superfluous link in the chain connecting the manufacturer 
 with the consumer; that he performs his function inefliciently; 
 that he adds to prices without performing any commensurate 
 service. Particularly at the immediate present there appears 
 to be a very general feeling that the wholesaler habitually 
 indulges in "speculation" and "profiteering" in food-stuffs. 
 The newspapers print cartoons representing gentlemen in high 
 silk hats, afflicted with an extreme rotundity, supposedly as 
 a result of swollen profits. These are labeled "Middleman" 
 or with some similar designation. The slogan "Eliminate 
 the middleman" is frequently quoted as a solution of the high 
 cost of food, at least in part. 
 
 In the course of mercantile development, several plans for 
 the elimination of the wholesaler, or the curtailment of his 
 
 ^ Grocers' Review, September 1917, p. 494. 
 
 E. M. Patterson, The Cost of Distributing Groceries, in The Annals of the American 
 Academy of Political and Social Science, November 1913, p. 75. 
 
 ' Bureau of Business Research, Harvard University, Bulletin No. 5. Expenses in Operat- 
 ing Retail Grocery Stores, p. 7. 
 
4 Competition and Combination in the Wholesale Grocery Trade 
 
 functions, have been suggested. Some of these have been 
 tested in actual practice. Municipal marketing projects have 
 been carried on in various cities, ranging from the simple 
 device of permitting farmers and hucksters to line up along 
 the sidewalk in some street, to the erection of municipal cold 
 storage plants, warehouses, and market-houses. The Post 
 Office has urged a more extensive use of the parcel post in the 
 marketing of food products. Plans of co-operative marketing 
 have been tried. 
 
 These last have been of two main types — consumers* 
 co-operation and retailers' co-operation. In the former, a 
 number of consumers have formed an association for the 
 purchasing of the goods desired. In a typical form of such an 
 association, each member subscribes a part of the capital, this 
 is invested in a stock of goods, these are sold, and from the 
 proceeds, after deducting expenses, interest is paid on the 
 capital. The remaining profits are then divided among the 
 purchasers, in proportion to the amount of goods purchased. 
 
 In the second form, the co-operators are retailers. In several 
 lines of merchandising, the retailers in certain cities have 
 organized and carried on with much success co-operative whole- 
 sale houses. In the typical form of such an organization, a 
 group of retailers, such as druggists or grocers, incorporate 
 themselves as a wholesale company. The stock will be sub- 
 scribed by the retailers, with two important provisions: first, 
 that no stock shall be held by any person not connected with 
 a retail store in the trade concerned; and, second, that each 
 member, and not each share of stock shall have one vote. 
 Such co-operative wholesale associations usually sell at prices 
 somewhat lower than the regular wholesalers, but with a 
 curtailment of the services furnished by the latter. In 
 addition, the stockholders, at the end of stated periods, receive, 
 if their venture has been successful, dividends on their own 
 wholesale business. There are a number of such associations 
 now carrying on wholesale businesses in the drug trade, and in 
 the grocery trade. ^ The writer has been informed that there 
 
 * The organization and methods of the co-operative buying associations of retail druggists 
 are described in an article by L. D. H. Weld, Co-operative Buying by Retail Druggists, in 
 The Druggists' Circular, vol. Ixi, pp. 119-123 (March 191 7). 
 
Competition and Combination in the Wholesale Grocery Trade 5 
 
 are some in the tobacco trade, also, but has not made a personal 
 inquiry in regard to them. 
 
 Retailers* co-operation in the grocery trade has had an 
 especially large development in Philadelphia. There are in 
 that city two strong associations of retail grocers, each conduct- 
 ing a co-operative wholesale business running into millions of 
 dollars a year, with two of the largest grocery warehouses in 
 the city. In view of the present agitation in regard to the 
 system of food distribution, and the value of the middleman, 
 this development is of particular interest. The co-operative 
 associations of retailers are nothing less than substitutes for 
 the wholesaler. Instead of depending upon the established 
 wholesalers, the retailers are combining their purchases into 
 wholesale quantities, conducting their own wholesale distribu- 
 tions, and taking to themselves the profits of both the whole- 
 sale and retail processes. 
 
 When the development is viewed in this light, there are a 
 number of interesting questions which suggest themselves. 
 It is the object of this paper to make a study of the develop- 
 ment of these co-operative buying associations in Philadelphia 
 and the attempts of the independent wholesalers to meet the 
 situation created by the wide scope of their activities, and to 
 discuss some of these questions. There are two to which 
 particular attention will be paid. First, the^ffect^pon the 
 efficiency of the system of marketing groceriesT""''^o the co- 
 operative associations represent more efficient and economical 
 methods of distribution than the older type of independent 
 wholesalers? Second, the effect upon the status of the inde- 
 pendent wholesaler: Does the development of the associations 
 represent a tendency toward the elimination of the wholesaler 
 from the grocery business? 
 
 In order to discuss these questions adequately, it is neces- 
 sary to have a somewhat detailed knowledge of the present 
 system of marketing groceries, and the situation created by the 
 development of the co-operative associations. This means 
 that we must have a knowledge of the^history and functions 
 of the wholesale grocer; that we must consider his situation in 
 
6 Competition and Combination in the Wholesale Grocery Trade 
 
 Philadelphia at the present time; and that we must examine 
 his efforts to meet that situation. 
 
 In connection with the first of these, the historical develop- 
 ment and functions of the wholesale grocer, it should be noted 
 that most retail grocery stores handle several distinct lines of 
 goods. Of course, they handle groceries. But this term itself 
 includes a number of different types of goods. They are 
 generally regarded as falling into two principal groups. The 
 first group includes package, bottled and canned goods, and 
 similar articles. These goods have passed thru a process of 
 manufacturing and are received by the retailer in the packages 
 which are delivered to the purchaser. The second group 
 includes the staple articles, such as sugar, coffee, tea, flour, 
 cereals in bulk, and similar goods. These goods have, like 
 the preceding, passed thru a manufacturing or refining process, 
 but they are received by the retailer in bulk, not in packages, 
 bottles or cans ready to be delivered to the consumer. There 
 are several obvious, but, from the standpoint of marketing 
 and selling, rather important differences in these two classes of 
 goods. The package good goes into the consumer's home 
 bearing the manufacturer's label. It has behind it, to this 
 degree, his guarantee, and his reputation depends upon the 
 satisfaction which it gives. The good which is sold in bulk 
 usually goes into the home with no mark showing the manu- 
 facturer. Frequently, the consumer does not know who the 
 manufacturer is. If satisfied, he cannot be sure of getting 
 the same manufacturer's product next time. If dissatisfied, 
 he cannot be certain that he may not receive the same product, 
 even tho he goes to another store. The reputation of the 
 maker is not nearly so closely linked, in the mind of the pur- 
 chaser, with the output, as it is in the case of the goods which 
 come into the home plainly labeled. 
 
 Another difference lies in the fact that the bulk goods are 
 weighed and wrapped in the retail store, while the package 
 goods are simply taken down from the retailer's shelves and 
 handed to the purchaser. 
 
 The tendency at the present time is for more and more of 
 the staples to be put up in packages, bearing the maker's, 
 
Competition and Combination in the Wholesale Grocery Trade 7 
 
 refiner's, packer's or importer's name, thus becoming package 
 goods. Thus, where a few years ago, sugar, tea, coffee, 
 biscuits, and numerous other articles were sold largely in 
 bulk, and weighed out from bins by the retail grocer, now a 
 large proportion of them is put up in packages by the respec- 
 tive manufacturers, and sold under their brands. During the 
 war, a number of sugar manufacturers published advertisements 
 urging the public to buy sugar put up in packages as a more 
 economical method of selling than the older method of the 
 retailer weighing it out and putting it up in paper bags. A 
 few years ago. The National Biscuit Company published 
 advertisements urging the greater cleanliness and healthfulness 
 of purchasing biscuits in packages, rather than in bulk. 
 
 Many grocers do not confine themselves to the handling of 
 those goods which we have included under the term groceries. 
 They also handle farm products, such as perishable fruits and 
 vegetables; imported fruits; dairy products; meats; candies; 
 cigars; and so forth. None of these terms can, of course, be 
 regarded as strictly and scientifically classificatory. Even the 
 word "groceries" itself, as used by those engaged in the business, 
 seems to be an elastic and indefinite term. Cheese, for instance, 
 may be regarded as a dairy product, or as a grocery. This 
 paper, however, is particularly concerned, with the marketing 
 of groceries, including under that term the two classes of goods 
 described above: — food products put up in packages of some 
 kind, and non-perishable staples. 
 
 In the past, the distribution of these goods has usually been 
 carried on from the manufacturer, thru the wholesaler to the 
 retailer. Frequently, one hears one of these agencies referred 
 to as the "jobber." Again, there is a lack of definiteness in 
 the popular usage, with the result that there is much con- 
 fusion in the use of the two terms' "jobber" and "wholesaler." 
 Originally, there seems to have been a distinction between the 
 two. The wholesaler brought the goods into a city, having 
 them shipped to him from the manufacturers in large quantities. 
 The jobber purchased in quantity from the wholesaler, but of 
 course, in smaller quantities than the wholesale shipments 
 
8 Competition and Combination in the Wholesale Grocery Trade 
 
 from the manufacturers, and resold in small quantities to the 
 retailers. At the present time, both of these functions are 
 filled by one firm, which brings the goods in in large quantities, 
 and resells them to the retailers. The result is that the two 
 terms are used in the trade practically interchangeably. 
 
 In the handling of some lines of goods, brokers have inter- 
 vened between the manufacturer and wholesaler, as in the 
 handling of canned foods, dried fruits, coffee, spices, and other 
 commodities. The broker developed because these lines were 
 manufactured or imported by numbers of small houses, distant 
 from the market and without the financial resources to employ 
 a large selling force of their own. The canning of fruits, for 
 instance, has been carried on by a number of small, independ- 
 ent enterprisers. The independent canner, at a distance from 
 the large urban markets, would have experienced much 
 difficulty in negotiating the sale of his goods with the various 
 wholesalers. He stood a much better chance of disposing of 
 his output to the best advantage if he hired a broker, in the 
 center of trade, and in close touch with the wholesaler, to 
 sell his goods for him. Similarly, the wholesaler found it 
 more convenient to deal with the brokers than to negotiate 
 with a number of canners, at a distance. The importers of 
 cofl^ee, and other producers in lines where the broker developed, 
 were in much the same situation. 
 
 In the distribution of groceries the wholesaler fulfills seven 
 distinct functions. First and most important is the function 
 already mentioned of receiving shipments in large quantities 
 from the manufacturers. This is practically universally 
 regarded by authorities on marketing as a necessary and 
 economical feature of the system. As compared with the 
 alternative method of the manufacturer shipping directly to 
 retailers in small quantities, it has many advantages. It means 
 a saving in railroad freights. It saves much time and labor 
 in the handling of shipments. It saves time and labor in 
 packing, for every small package does not have to be packed 
 separately to stand a long freight journey. For the same 
 
Competition and Combination in the Wholesale Grocery Trade 9 
 
 reason, it means a saving in packing materials, and in the wast- 
 age of goods in transit. 
 
 The second function of the wholesale grocer is to provide 
 within the community, by storing these quantity shipments, 
 a reservoir of food supplies, from which the various articles may 
 flow out as needed. While the expense of storage is a cost 
 that, to some extent, offsets the various advantages of the 
 intervention of the wholesaler, this again is an economical 
 function. To bring into a large city every day just the 
 quantity of grocery products which would be purchased by 
 consumers that day would involve a tremendous number of 
 small and expensive shipments and haulings. 
 
 In the third place, the wholesaler must be ready to furnish 
 to the retail stores the goods required, at the times needed. 
 This means that he must make to the retail stores deliveries of 
 small quantities of goods, at short notice. It also involves 
 close personal touch with the retailers. When the retailer has 
 a sudden call for something which is not in stock, or is low, he 
 telephones to the wholesaler and expects to have the goods 
 delivered immediately. When in doubt as to what brand of 
 goods, or how much, to buy, he frequently relies upon the 
 advice of the wholesale salesman. If the retailer were pur- 
 chasing directly from the manufacturer, he could not have 
 his orders quickly filled. He would have to order far in 
 advance, and wait a long time for the arrival of his goods. 
 
 A fourth function which the wholesale grocer fulfills, in a 
 large majority of cases, is the financing of the retail stores. 
 It is he who furnishes the credit upon which the retailer oper- 
 ates. The typical retail grocer is not a man who is familiar 
 with modern methods of finance. Those who are familiar 
 with him agree in stating that many of the retailers in a large 
 city are utterly ignorant of banking facilities and practice. 
 Many of them do not even have bank accounts. Many do 
 not keep any kind of books. During the war, the requirements 
 of the government as to price margins and taxes made it 
 practically necessary for the retailer to keep some kind of 
 records of his business transactions. Various agencies, such 
 
lo Competition and Combination in the Wholesale Grocery Trade 
 
 as the government, the associations of retail grocers, and of 
 wholesale grocers, and food administrators, spent much effort 
 in instructing small retailers how to keep such records, and 
 attempting to convince them of the necessity of keeping books. 
 This ignorance, coupled with the fact that the retailer usually 
 sells on credit to his customers, means that he depends largely 
 upon the wholesaler's extension of credit to him for the financ- 
 ing of his business. It is said that the average retailer owes 
 the wholesaler to an amount equal to half his net worth. ^ 
 
 The fifth function of the wholesale grocer is that of regulat- 
 ing the flow of commodities to the local market, so that it is 
 supplied according to its needs. This involves, on the part of 
 the wholesaler, a knowledge of local conditions, a knowledge 
 of outside conditions, and ability to forecast demand and 
 supply. He must be familiar with his local market, know the 
 kinds of goods which it will demand at various seasons, the 
 tastes of different sections, the character and qualities of 
 goods which it favors. To supply it, he must keep in touch 
 with the outside sources, know where the desired goods can be 
 secured at the best terms, what season is the most favorable 
 for the purchase of various products, and keep in mind a 
 thousand facts in regard to prices, prospects, and conditions 
 of supply. From these facts, he must be able to foretell with 
 some degree of accuracy the future conditions of demand and 
 supply of the various goods he handles, not only in his own 
 local community, but also in the whole outside market. One of 
 the things for which the small retailer depends upon the 
 salesman of the wholesalers is advice as to favorable times to 
 lay in supplies, probable future course of prices, and the 
 wholesaler who can give this information with a high degree 
 of accuracy has an additional hold upon his retail customers. 
 
 In the sixth place, the wholesale grocer must furnish the 
 business machinery to account for the large quantities of goods. 
 Efficiency and sound economy require that the food supplies 
 which he handles in such large quantities should be subjected 
 to the more careful handling and pricing involved in an ade- 
 quate system of accounting. 
 
 ^ American Grocer, Sept. 4, 191 8, p, 6. Corroborated by local wholesalers. 
 
Competition and Combination in the Wholesale Grocery Trade 1 1 
 
 Finally, the wholesale grocer serves the manufacturer in 
 two important ways, by promoting the sales of his goods, and 
 by introducing to the market new products. It is, in many 
 cases, his salesmen who bring new goods to the attention of 
 retailers, and secure the order which make them available 
 for the consuming public. ^^ 
 
 All of these are essential functions in our present economic 
 organization. They must be performed by some agency; 
 perhaps not by the wholesale grocer, but certainly by someone. 
 The wholesale grocer may be, in fact, has been eliminated, to 
 some degree, in certain lines, but the functions enumerated 
 above are, in such cases, filled by some other agency. Manu- 
 facturers may attempt to sell directly to retailers. If so, they 
 must establish local warehouses in centers of distribution, or 
 face the cost of much packing in small quantities and high 
 freight rates. One of the charges brought against the packers 
 in the present agitation is that they are supplanting the whole- 
 sale grocers, and selHng not only meat products, but also other 
 foods to the retailers. They, however, distribute their goods 
 thru their own local warehouses. ^^ 
 
 Retailers might pay cash directly to manufacturers, but 
 this would simply mean that the burden of financing retail 
 stores was no longer shared by the wholesaler, but was borne 
 by the retailer himself, or by banking connections. Chain 
 store systems may operate their own warehouses, but they 
 must still, to some degree, regulate the flow of commodities 
 to the community, and forecast the market conditions. Whole- 
 sale firms may, as we shall see, dispense with salesmen, but 
 then some other device is used for the promotion of the sales 
 of goods and the introduction of new goods. The question, 
 then, when we find the activity of the wholesaler curtailed in 
 some line is. What agency is carrying on the services which 
 the wholesale grocer usually gives, and is this agency doing the 
 wholesaler's work more or less efficiently than the wholesaler 
 himself.f^ 
 
 ^° Based in part upon L. D. H. Weld: The Marketing of Farm Products, pp. 61-62. 
 ^^ Report of Federal Trade Commission on the Meat Packing Industry, Summary and 
 Part I, pp. 41-42. 
 
CHAPTER II 
 
 DEVELOPMENTS THREATENING THE POSITION 
 OF THE WHOLESALER 
 
 In Philadelphia at the present time, there are taking place 
 in the marketing of groceries a number of developments which \ 
 result in other agencies such as those mentioned in the previous ■ 
 chapter performing some of the functions of the wholesaler. 
 These developments, of course, mean a curtailment of the 
 business passing thru the hands of the wholesalers. One of 
 these is the growth of the chain store systems. These systems, 
 operating a number of small retail stores in one community, 
 buy in large quantities from the manufacturers, and operate 
 their own wholesale warehouses. In 191 7, there were five 
 such systems operating in Philadelphia, The Acme Tea 
 Company, Childs Grocery Company, Bell and Company, the 
 George M. Dunlap Company, and Robinson and Crawford. 
 In that year, these five companies were merged into one 
 system, the American Stores Company. This combined 
 company has a capital of $20,000,000. It operates about 
 six hundred stores in Philadelphia, and about an equal number 
 outside the city. It does a business of about $60,000,000 a 
 year, none of which goes thru the hands of the wholesalers. 
 
 A few months after this merger was announced, another 
 chain system entered the city. The Atlantic and Pacific Tea 
 Company. 
 
 A second factor making inroads upon the wholesalers' 
 business is the practice of some manufacturers of selling \ 
 directly to retailers who can give large orders. A few have ! 
 tried the plan of selling to all retailers directly, but a larger 
 number, apparently, are following the policy of selling to 
 retailers who can take large quantities. The representatives 
 of large downtown retail grocery stores have stated that they 
 buy many things, including, among others, breakfast foods, 
 
Competition and Combination in the Wholesale Grocery Trade 13 
 
 canned goods, and fancy goods, directly from the manufactur- 
 ers. 
 
 Allied to this practice is the custom of some manufacturers 
 of giving the reduced quantity prices to all who buy in quantity, 
 whether or not they are legitimate wholesalers. The large 
 retailers and wholesalers agree in stating that certain manu- 
 facturers sell directly to large hotels, chain restaurant companies, 
 steamship lines, and other large purchasers, at the same terms 
 as they give to wholesalers. 
 
 A fourth way in which trade is being diverted from the 
 wholesale grocer is thru the operation of certain mail order 
 and premium firms. These either carry on a mail order 
 business in certain staples, particularly tea and coffee, or 
 distribute large quantities of these articles as premiums for 
 coupons given with some other article, or reward for sales by 
 persons not regularly employed as salesmen. The Jewell Tea 
 Company represents the first type. It carries on a considerable 
 business in the sale of tea and coffee by mail. The Larkin 
 Soap Company gives tea and coffee away as premiums, repre- 
 senting the second type. In an address before the National 
 Coffee Roasters' Association Convention, at Atlantic City, on 
 November 15, 191 6, Mr. Paul M. Haserodt, of Cleveland,^ 
 Ohio, stated that the average retail grocer is only selling forty ] 
 to fifty per cent of his customers their coffee. The other 
 half is being supplied by mail order houses, soap clubs, and 
 premium companies.^ This estimate is considered rather high 
 by those familiar with Philadelphia conditions, but the latter 
 agree that this trade is curtailed by the agencies described. 
 
 A fifth agency which was developing into a competitor of 
 the wholesale grocer was the big meat packer. The Report 
 of the Federal Trade Commission on the meat packing industry 
 revealed the fact that the packing interests were operating a 
 wholesale grocery business. It stated "Their branch houses 
 are not only stations for the distribution of meat and poultry, 
 but take on the character of wholesale grocery stores, dealers 
 
 ^ Grocers' Review, January 1917, p. 723. 
 
14 Competition and Combination in the Wholesale Grocery Trade 
 
 in various kinds of produce, and jobbers to special lines of 
 trade. "2 "Recently, the big packers began dealing in various 
 staple groceries and vegetables, such as rice, sugar, potatoes, 
 beans, and coffee, and increased their sales at such a rate that 
 in certain lines they have become dominant factors."^ The 
 wholesale grocers charged that the packers had an unfair 
 advantage over them in the handling of food products from 
 the standpoint of transportation. They had their private 
 cars, which were moved by the railroads as express or "red balF' 
 freight, while the wholesale grocer was getting his shipments 
 in regular freight, with its delays. Furthermore, the packers 
 were able to combine shipments of various commodities and 
 thus save in freight actually paid.' 
 
 In December, 1919, it was announced that, as a result of an 
 investigation of these charges by a federal grand jury, the 
 packers had entered into an agreement with the Department 
 of Justice to withdraw from those lines of business not directly 
 connected with the packing industry or animal products. 
 Since that time, the packers have sold out certain of their 
 "sideline" interests, and the formation of new corporations to 
 take over certain of their other lines have been announced, as 
 for example the formation of the Armour Leather Company. 
 It remains to be seen how effective these new arrangements 
 will be in removing the trade in other food products from the 
 control of the packing interests, and stopping the competition 
 of which the wholesale grocers have been complaining. 
 
 Finally in this hst of developments which are threatening'^ 
 the position of the wholesale grocer, we have the co-operative I 
 associations of retailers already mentioned. The two out- \ 
 standing examples of such associations in Philadelphia 
 are the Girard Grocery Company and the Frankford Grocery 
 Company. These are wholesale grocery houses organized, 
 owned and controlled by associations of retail grocers. A 
 brief sketch of the history of these two companies will illustrate 
 
 « Report of the Federal Tr^de Commission on the Meat-Packing Industry, Summary 
 and Part I, p. 90. 
 3 Ibid. p. 36. 
 *Ibid. pp. 40-41. • 
 
Competition and Combination in the Wholesale Grocery Trade 1 5 
 
 their methods and throw light on the problem which they 
 present to the wholesaler. 
 
 The Girard Grocery Company was incorporated as a co- 
 operative wholesale grocery firm in January, 1908, by members 
 of the Retail Grocers' Association of Philadelphia. It was the 
 outgrowth of a previous struggle between the retailers, and the 
 wholesalers and manufacturers. In 1 892, some of the members 
 of the Retail Grocers' Association organized a Buyers' Exchange 
 for co-operative purchasing. In 1899, this Exchange was 
 purchased by the association, and its advantages extended to 
 all members. It was capitalized in 1903. It purchased in| 
 large quantities directly from the manufacturers, giving its| 
 members the advantages of the wholesalers' profit and expenses^ 
 which were thus saved. By this time, the retailers were feel- 
 ing keenly the competition of the chain store systems, and felt 
 that the one salvation of the independent retailer was this 
 organization which enabled him to secure his supplies at 
 somewhat lower prices. The success of the Exchange aroused 
 the hostility of the regular wholesalers. They appealed to 
 the manufacturers to refuse to sell directly to it at wholesale 
 prices, alleging that it was not a legitimate wholesale organiza- 
 tion. Some manufacturers did adopt such a policy, and in 
 return, the association pledged its members to "place no 
 orders for specialties or new goods unless the same be billed 
 thru the Retail Grocers' Association." The solution of the 
 difficulty, from the standpoint of the retailers, was found in 
 the sale of the Buyers' Exchange to the separately incorporated 
 Girard Grocery Company. As this was a distinct organization 
 regularly incorporated to do a wholesale grocery business, 
 the manufacturers now had no pretext for refusing to sell to it.^ 
 
 The Girard Grocery Company, while organized as a whole- 
 sale grocery house, has, since its inception, followed a policy 
 which distinctly differentiates it from the independent whole- 
 saler. The stock of the company is sold only to members of 
 the Retail Grocers' Association. Not all members are stock- 
 
 * E. M. Patterson: Co-operation Among Retail Grocers in Philadelphia, in the American 
 Economic Review, Vol. V, No. 2 (June, 1915), pp. 289-290. 
 
1 6 Competition and Combination in the Wholesale Grocery Trade 
 
 holders, but all stockholders are members. It will sell to any 
 purchaser, but it has never given extended credit. Its rule 
 has always been that all purchases must be paid for on the 
 following Monday. No person, member or otherwise, can 
 buy anything until his bills for the preceding week have been 
 settled in full. It employs no salesmen. It will make no free 
 deliveries of goods. The purchaser must come for them with 
 his own team or truck, or pay a charge of one per cent for 
 delivery. In the original plan, every member of the Retail 
 Grocers* Association was required to subscribe to two shares 
 of stock in the Girard Grocery Company, at one hundred dol- 
 lars a share. Under this arrangement, every member of the 
 association was a stockholder. In 191 5, an energetic campaign 
 was carried on to increase the membership of the association. 
 With this end in view, the requirement for the purchase of 
 stock was revoked. Retail grocers were admitted to member- 
 ship and to the privileges of the Girard Grocery Company 
 without putting in any capital. On approved credit, a mem- 
 ber who had no capital in the company could have the regular 
 terms of payment on the following Monday for his purchases 
 of the preceding week. In October,' 191 7, because of war 
 conditions, the association stopped taking in new members. 
 In June, 191 8, new members were again admitted. At present, 
 the credit arrangements are again more strict. No purchaser 
 can receive credit even until the Monday following his 
 purchases, unless he has stock in the company, or m.oney in 
 the savings fund. The savings fund pays six per cent interest 
 per annum, and the money can be withdrawn at two weeks* 
 notice. New members are now required to deposit a sum of 
 money in the fund. It has proved, according to the officers 
 of the association, much less objectionable to prospective 
 members to put their money in a savings fund from which it 
 can be drawn on two weeks' notice than to subscribe to the 
 stock of a corporation. The officers of the company state 
 that no distinction is made in any way in regard to prices, 
 discounts, or terms of credit between the customers who own 
 stock and those who do not. Both have the benefit of the low 
 
Competition and Combination in the Wholesale Grocery Trade 17 
 
 prices at which the company sells. The only additional 
 advantage which stockholders receive is the payment of 
 dividends upon their stock. In 191 5, when the membership 
 campaign was inaugurated, the association had four hundred 
 and fifty-three members out of about 6000 retail grocery stores 
 in the city. When it stopped taking in new members in 1917, 
 it had 1758. During the war, its membership fell to 15 10. 
 On June 30, 191 8, it resumed the admission of new members, 
 and in the year following, gained one hundred and eleven 
 members so that on June 30, 191 9, its total membership was 
 1 62 1. Its membership is not confined to grocers in Philadelphia 
 for it includes many in the suburbs around the city, and some 
 from outlying points, but the officers estimate that these do 
 not amount to more than one hundred and fifty. 
 
 From 1 910 to 191 5, inclusive, the Girard Grocery Company 
 paid dividends on its stock at the rate of five per cent per year. 
 In 1916, it paid eight per cent; in 1917, 1918, and 1919, ten 
 per cent each year. In addition, in 1916 and again in 1918, 
 it paid a hundred per cent dividend in new stock. Thus, 
 since 1909, it has paid a total dividend of 270 per cent.** 
 
 The balance sheet and income account for the year ending 
 June 30, 1 91 9, are appended to this chapter. 
 
 The Frankford Grocery Company is a similar organization, 
 with a similar history. In 1893, The Frankford Grocers* 
 Exchange was organized, with twelve members, for co-operative 
 buying from the manufacturers. In 1898, this buying ex- 
 change merged with the Frankford Grocers* Association, a 
 trade organization of retail grocer^. In 1902, the Association 
 was incorporated, and in 1908, it promoted and formed, as a 
 separate corporation, the Frankford Grocery Company. On 
 broad lines, the policy of the Frankford Grocery Company is 
 similar to that of the Girard, altho differing in detail. Like 
 the Girard, it requires that all purchases shall be paid for on 
 the following Monday, and no one who has not paid can receive 
 any further credit. It further protects itself by requiring that 
 before a member can be allowed even this limited credit, he 
 
 ^ Grocers' Review, August 1919, pp. 388-394. 
 
1 8 Competition and Combination in the Wholesale Grocery Trade 
 
 must invest in the company's stock, or have a sum on deposit 
 in one of two funds maintained by the company, the three per 
 cent vacation fund, or the five per cent savings fund. The 
 former is for sums of less than fifty dollars, the latter for 
 larger sums. Withdrawal from either is upon two weeks' notice. 
 A purchaser can receive credit only to the total amount of 
 money he has invested in stock and on deposit. 
 
 The Frankford Grocery Company now makes free deliveries, 
 but it gives purchasers who haul their own goods from its 
 warehouse a discount of one per cent on their orders. Further- 
 more, it has a regular schedule of deliveries in various sections. 
 Each section receives one delivery a week, on the scheduled 
 day. These are only pavement deliveries. The drivers for 
 the company are instructed not to put goods in the cellars or 
 stores of purchasers. Members are expected to restrict their 
 orders to one a week, ordering at one time all they will need 
 during the week. A charge of twenty-five cents is made for 
 each extra order, and the company will not deliver it. 
 
 The stock of the Frankford Grocery Company pays eight 
 per cent dividends per year. As with the Girard, not all 
 members of the Frankford Grocers' Association are stock- 
 holders in the company, but all stockholders are members of 
 the association. The association has about eight hundred 
 members. The secretary estimates that ninety per cent of 
 these are within the limits of the city. Thus these two co- 
 operative associations, with their wholesale companies, have 
 about 1100 of the retail grocers of the city as members. These 
 2200 seem to include the most successful and progressive retail 
 grocers in the city. The large down-town fancy grocery 
 stores are members of the Retail Grocers' Association and 
 customers of the Girard Grocery Company. 
 
 During the year ending June 30, 191 9, the sales of the Girard 
 Grocery Company amounted to $6,053,417.65;^ and during 
 the fiscal year ending August 31, 191 9, those of the Frank- 
 ford Grocery Company amounted to $3,627,509.36 so that 
 the two companies together did a business of well over nine 
 
 • Grocers* Review, August 1919, p. 388. 
 
Competition and Combination in the Wholesale Grocery Trade 19 
 
 and a half million dollars. They occupy two of the largest 
 grocery warehouses in the city, each a thoroly modern, con- 
 crete building, with direct railroad connection. 
 
 Of the five developments which are eating into the position 
 of the wholesale grocers in the Philadelphia district, the whole- 
 salers themselves seem to be most exercised over the growth 
 of the chain stores and these co-operative associations. They, 
 as a rule, will not admit that their business has been injured. 
 They state that no wholesalers have retired from the field, or 
 been forced to give up the business. They allege that their 
 businesses are growing rapidly. Yet there is considerable 
 evidence that they have felt the pressure of the competition 
 of the chain stores and associations, and have modified their 
 own methods of doing business, in some cases, as a result of 
 that competition. 
 
20 Competition and Combination in the Wholesale Grocery Trade 
 
 - APPENDIX TO CHAPTER II 
 
 balance sheet and income account of the girard grocery company, 
 year ending june 30, 1919^ 
 
 Receipts 
 
 Capital account , ^325,700.00 
 
 Capital account installment 48,486.30 
 
 374,186.30 
 Loans 
 
 Girard Groc. Co. No. 2, account |i 11,660.00 
 
 Girard Groc. Co. No. 3, account 27,300.00 
 
 138,960.00 
 
 Bank loans 1,155,000.00 
 
 Bank loans, brokers 1 50,000.00 
 
 1,305,000.00 
 
 Fixtures 36.50 
 
 Liberty Bonds 53,650.00 
 
 Thrift Stamps 2,106.93 
 
 Paid in surplus 99,350.00 
 
 Equitable Warehousing Co. dividend 882.90 
 
 Bourse dividend 4.50 
 
 Interest on Liberty Bonds 1,632.37 
 
 Collateral 425.00 
 
 1,976,234.50 
 
 Merchandise 5,865,820.43 
 
 Expense, Girard Groc. Co 7,241.82 
 
 Expense, Retail Grocers* Assn 25,944.76 
 
 7,889,242.37 
 ' Grocers' Review, August 1919, pp. 389-400. 
 
Competition and Combination in the Wholesale Grocery Trade i\ 
 
 Disbursements 
 
 Capital 168,600.00 
 
 Capital, installment 23,276.61 
 
 191,876.61 
 Loans 
 
 Retail Groc. Assn 19,550.00 
 
 Girard Groc. Co. No. i, account 10,915.00 
 
 Girard Groc. Co. No. 2, account 53j35o-oo 
 
 Girard Groc. Co. No. 3, account 1,800.00 
 
 Trade notes 47,400.00 
 
 Bank loans 1,172,500.00 
 
 Bank loans 1 50,000.00 
 
 1,455,515.00 
 
 Surplus, Cash dividend 16,650.00 
 
 Income and war excess profit tax No. i, account 51,322.68 
 Income and war excess profit tax No. 2, account 26,588.73 
 
 Federal Capital stock tax 215.50 
 
 Penn. State tax 1,251.60 
 
 Penn. State tax 3^ of 1% increased capital 998.34 
 
 Mercantile 2,883.10 
 
 83,259.95 
 
 Fixtures S-H^l-l'l 
 
 Liberty Bonds Girard Groc. Co 71,500.00 
 
 Liberty Bonds Girard Groc. Co 53,650.00 
 
 Thrift Stamps 2,106.93 
 
 Equitable Warehousing Co 20.00 
 
 Collateral 1*617.93 
 
 134,662.59 
 
 Merchandise 5,710,026.51 
 
 Expense, Girard Groc. Co 221,876.90 
 
 Expense, Retail Grocers' Assn 16,045.34 
 
 17,829,912.90 
 Balance 59,329.47 
 
 ^7,889,242.37 
 
22 Competition and Combination in the Wholesale Grocery Trade 
 
 Itemized Assets 
 Balance $59,329.47 
 
 Fixtures $11,260.25 
 
 Liberty Bonds 81,500.00 
 
 Equitable Warehousing Co 7,982.00 
 
 Ground rent 1,500.00 
 
 Bourse stock i .00 
 
 Collateral 1,192.93 
 
 1103,436.18 
 Accounts Receivable 
 
 Ledger i 72,326.66 
 
 Ledger 2 46,482.07 
 
 Ledger 3 39^3^1-S^ 
 
 Ledger 4 37,373-4i 
 
 Liberty Bonds, amount due by 
 
 members 16,718.00 
 
 Thrift Stamps 627.69 
 
 Grocers* Review 990.72 
 
 Less Libby error. 5,191.42 
 
 Less Collateral 250.00 
 
 Less suspense 30.10 
 
 213,886.13 
 317,322.31 
 
 5,471-52 
 
 311,850.70 
 Merchandise 1,009,095.96 
 
 $1,380,276.22 
 
Competition and Combination in the Wholesale Grocery Trade 23 
 
 Itemized Liabilities 
 
 Capital 1490,100.00 
 
 Installment capital 101,599.64 1591,699.64 
 
 Retail Grocers Assn $81,584.00 
 
 Girard Groc. Co. No. i account. . . . 26,232.00 
 Girard Groc. Co. No. 2 account. . . . 99,585.00 
 Girard Groc. Co. No. 3 account. . . . 27,300.00 234,701.00 
 
 Corn Exchange Bank 75,000.00 
 
 Union National Bank 75,000.00 150,000.00 
 
 384,701.00 
 Accounts payable 
 
 Cash book, page 243 $129,217.11 
 
 Ledger. 5i>9i5-79 
 
 Penn. Fire Ins. Co 57-67 
 
 Retailers' Mutual Fire i39-^9 
 
 New York Plate Glass 2.92 
 
 $181,332.78 
 Mutual Defense i39«oo 
 
 Surplus 8,273.08 
 
 Surplus paid in 99,350.00 
 
 Reserve 9,976.00 
 
 117,599.08 
 Profit 104,794.72 
 
 $1,380,276.22 
 
CHAPTER III 
 
 EFFORTS OF THE WHOLESALERS TO MEET THE 
 
 COMPETITION OF THE CO-OPERATIVE 
 
 ASSOCIATIONS 
 
 I. Early Efforts 
 
 The efforts of the wholesalers to meet the situation have 
 taken three main lines. The earliest of these has already 
 been mentioned. It was the attempt to persuade the manu- 
 facturers not to sell at wholesale rates to any but legitimate 
 wholesalers. This, as has been stated, met with some 
 success in the days of the buying exchanges, before the Girard 
 Grocery Company was organized. Several companies, among 
 them the Natural Food Company, The Toasted Corn Flake 
 Company, Proctor and Gamble, and the Diamond Match 
 Company, refused to sell to the exchanges.^ Since the organi- 
 zation of the Girard Company, a few manufacturers have 
 refused at times to sell to it. For some time, the Corn Prod- 
 ucts Company refused, but in April 191 8, it was announced 
 "By the gracious permission of the Corn Products Company, 
 we are again able to list Karo."^ The movements to be noted 
 under the other methods which the wholesalers have tried have 
 occasionally involved a refusal on the part of a manufacturer 
 to sell to the associations, or an agreement to give the whole- 
 salers lower prices than the associations. As a whole, however, 
 the attempts of the wholesalers to prevent the Girard and 
 Frankford companies from securing products at lowest prices 
 have not been successful. Where they have succeeded, they 
 have applied to new goods, for which a demand was just 
 developing, usually in competition with older and well estab- 
 lished lines. 
 
 ^ E. M. Patterson: Co-operation among Retail Grocers in Philadelphia, in the American 
 Economic Review, Supplement, Vol. V, Number 2 (June 191 5), p. 290. 
 ^ Grocers' Review, April 1918, p. 131. 
 
Competition and Combination in the Wholesale Grocery Trade 25 
 
 2. The Wholesale Grocers' Sales Company 
 
 The second policy which the wholesalers have adopted in 
 their attempts to meet the pressure of the competition of the 
 chain stores and associations is the formation of the Wholesale 
 Grocers' Sales Company. This is a corporation formed by the 
 wholesale grocers of Philadelphia to combine their purchases 
 from the manufacturers. It was organized i^ November 1916, 
 after the successful campaign of the Girard Grocery Company 
 had resulted in a large increase of membership. Its officers 
 state that it was not a direct result of that growth in the co- 
 operative movement among the retailers, altho one admitted 
 'Terhaps that did waken us up a Httle." However, the date 
 of its development appears to be significant. Apparently, 
 whether as a result of the campaign of the Girard, or not, the 
 wholesalers were feeling a pressure which urged them to adopt 
 new methods for carrying on their business. It is also evident 
 that, in many lines, the purchases of the individual wholesalers 
 were not large enough to secure for them the most favorable 
 terms from the manufacturers and for freight shipments. 
 
 There are in Philadelphia in the neighborhood of seventy 
 firms carrying on a wholesale grocery business. This includes 
 all doing any type of such business. Many of these are com- 
 paratively small firms, others are retail grocers, with a whole- 
 sale department. The Wholesale Grocers' Sales Company is 
 composed of twenty-four of the larger wholesale houses. It 
 does not, however, include all, even of the firms carrying on 
 large-sized businesses, in the city. It is a corporation capital- 
 ized at |2o,ooo, of which j^ 16,000 is paid up. All of the stock 
 is held by the twenty-four wholesale grocer members. 
 
 Its chief object is to serve as a buying agency, thru which 
 the wholesalers combine their purchases to secure carload lots. 
 The corporation has no warehouse, and does not handle the 
 goods itself. It handles the orders and accounts and payments 
 for the goods, but upon the arrival of a carload ordered by it, 
 it notifies the individual members. These haul the goods to 
 their own warehouses. The members are charged just what 
 
26 Competition and Combination in the Wholesale Grocery Trade 
 
 the Sales Company pays for the goods, plus one per cent to 
 cover the costs of handling the goods. Its policy is to require 
 its members to pay within ten days from the receipt of a ship- 
 ment, while it itself has thirty days in which to pay the manu- 
 facturers. The company, as such, is not operated for profit, 
 and pays no dividends. The members receive their dividends or 
 profits in the form of the reduced prices and freight savings 
 on their goods. 
 
 The savings from this plan are two-fold. In the first place, 
 many manufacturers have lower rates on carload lots than on 
 on smaller quantities. Thus, thru combining their purchases 
 into such lots, the wholesalers are able to secure small quanti- 
 ties of goods at the most favorable prices for large shipments. 
 In the second place, the freights on such shipments are smaller 
 than they would be on the same quantity of goods sent as 
 twenty-four separate shipments. From both of these stand- 
 points, the plan of the Sales Company seems to represent a 
 sound and economical method of purchasing. The members 
 estimate that they save, on the average, about five per cent 
 on their purchases made thru the company. 
 
 It will be noticed that this plan represents a new tendency 
 to separate the wholesaling and jobbing processes along the 
 lines described earlier. The Wholesale Grocers' Sales Com- 
 pany takes the place of the old type of wholesaler, bringing the 
 goods in from outside, while the wholesale grocers as individuals 
 become simply jobbers in the original sense, selling to the 
 retail trade. 
 
 Further, it is an adoption by the wholesalers of very much 
 the same device which the retailers are using so successfully 
 in The Girard and Frankford Companies. In both plans, a 
 number of merchants are combining their purchases in a co- 
 operative corporation owned by them and their associates, for 
 the purpose of securing goods at the lowest possible prices. 
 Both plans require prompt payment from purchasers. Both 
 reduce the services which they perform to the minimum, and 
 carry on their business with the utmost possible simplicity of 
 organization. 
 
Competition and Combination in the Wholesale Grocery Trade i-j 
 
 On the other hand, there are certain differences in the plans 
 of the retailers and those of the wholesalers. Perhaps the most 
 fundamental is the fact that the Girard and Frankford Com- 
 panies seek to anticipate the needs of the retailers, and to 
 supply the trade with goods as they are required: while the 
 Wholesale Grocers' Sales Company makes no effort to do this. 
 It only orders goods which are already disposed of to its 
 individual members. Each week, the members hold a meet- 
 ing, and at these meetings, their needs are discussed. Before 
 a shipment of goods is ordered, it is known that it will all be 
 taken immediately upon arrival by the various members, and 
 the share which each will take is decided. The purchases of 
 the co-operative association are made in advance of sales to 
 retailers or orders from them. The Girard and Frankford 
 are independent businesses, buying and selling for their own 
 accounts, while the Wholesale Grocers' Sales Company is 
 little more than a purchasing agent for a group of grocers, 
 executing their orders for them. In this it resembles the buy- 
 ing exchanges which were the forerunners of the Girard and 
 Frankford. As a result, we have the different method of 
 handling the goods, the Girard and Frankford having their 
 own warehouses, in which shipments are stored and drawn 
 upon as needed, while the Sales Company has no warehouse 
 and sends its shipments directly to the warehouses of members. 
 
 The cause for these differences lies in the differing character 
 and size of the membership of the two types of organizations. 
 The Sales Company consists of a small group of men, closely 
 co-operating. The Girard and Frankford Companies include 
 large groups of widely scattered members. Where it is per- 
 fectly possible for representatives of twenty-four grocery 
 firms to come together and work out combination orders, and 
 the percentages which they will take, it would be an impos- 
 sibility for seven hundred or more to do so. This was the plan 
 actually followed by the retailers' exchanges in the days when 
 they had but few members. As they grew, it became necessary 
 to have a central warehouse, and to buy goods in anticipation 
 of the wants of the members. 
 
28 Competition and Combination in the Wholesale Grocery Trade 
 
 From this difference springs another, the varying poHcy in 
 regard to dividends. Being organized as regular corporations, 
 buying and selHng, the co-operative companies naturally pay 
 dividends to the stockholders. With the small membership, 
 the method of purchasing which insures the advantages of the 
 company to all in equal measure, and the fact that all who 
 deal with it are stockholders, the Sales Company has no neces- 
 sity for the payment of dividends. Its advantages are equit- 
 ably divided thru the lower prices which it secures. 
 
 Ostensibly, this is all that the Wholesale Grocers' Sales 
 Company is — an organization for the combining of orders 
 into large quantities to secure favorable terms. As a matter 
 of fact, it seems to amount to something somewhat more signifi- 
 cant than this. The members co-operate, not only in the 
 purchasing of supplies, but also in other ways. At their 
 weekly meetings, various other problems which they are facing 
 are discussed. Among these problems, the prices to be charged 
 figure. One of the officers of the company stated, "We discuss 
 prices, as far as we legally can. Of course, we cannot make 
 binding agreements fixing prices, but one man will say what 
 he thinks is a fair price to charge for a certain article, and the 
 others will say what they think about it, so we will know pretty 
 well how we feel about it, and what the various grocers are 
 going to do." 
 
 Another way in which the members of the Sales Company 
 co-operated was in selling campaigns on certain special articles. 
 These were used to introduce to the Philadelphia market new 
 goods, which had not been sold to any extent there before. 
 The twenty-four wholesalers had, in the Philadelphia district, 
 254 salesmen. The plan of the selling campaigns was to have 
 each one of these salesmen make a particular effort to sell the 
 given commodity to the retailers, during a given period. Thru 
 the concentrated efforts of the salesmen of the co-operating 
 wholesalers, large quantities of the article would be sold. 
 These large quantities would be purchased thru the Wholesale 
 Grocers* Sales Company. The wholesalers maintain that the 
 results of such united campaigns were remarkably successful, 
 
Competition and Combination in the Wholesale Grocery Trade 29 
 
 in many cases. A newspaper account of one of them states, 
 that in the promotion of the sales of "a certain trade-marked 
 cereal," "Two years ago the manufacturer, on his own efforts, 
 sold five cars. Last year, dealing thru the association, the 
 sales were twenty-four cars. Since September first, twenty- 
 five more cars have been taken, and in addition, there are 
 fifteen more on order. Buying in such quantities has meant 
 a startling saving in freight charges, as well as a discount for 
 promotion work, which is costing the association practically 
 nothing, by the way."^ The association here referred to is the 
 Wholesale Grocers' Sales Company. 
 
 In August, 1 91 7, another plan was tried. This was to 
 give certain retailers who were accustomed to purchase a good 
 proportion of their supplies from the members of the Sales 
 Company, specially low prices on certain staple lines of goods. 
 The retailers were then to sell these goods to the public at 
 special or "cut" prices. Here again the grocers composing the 
 Sales Company were working together. At their conferences, 
 they would decide on what articles to give special prices dur- 
 ing a given time, and all would co-operate in selling to the re- 
 tailers at the agreed low price during that time. The object 
 of this, of course, was to enable the retailers to meet the bar- 
 gains offered by the chain stores, by themselves offering cut- 
 price specials. Very likely, it was also hoped that it would 
 enable the grocers buying from the wholesalers to offer bar- 
 gains which the Girard and Frankford could not enable the 
 retailers to give. The result of this might be expected to be to 
 weaken the allegiance of the retailers to those two organiza- 
 tions, and win from them favor for the wholesalers. 
 
 3. The Community Stores Company 
 
 Out of these last two activities of the Wholesale Grocers* 
 Sales Company grew the third of the policies which the whole- 
 salers have tried in their attempts to meet the competition 
 of the chain stores and retailers' associations. This was the 
 
 'The Philadelphia Public Ledger, Oct. 11, 1917, p. 15. "Grocers Unite to Beat Chain 
 Store Methods." 
 
30 Competition and Combination in the Wholesale Grocery Trade 
 
 Community Stores Company. It will be noticed that the two 
 plans of the Wholesale Grocers* Sales Company described 
 above had no provision for any wide appeal to the public, 
 calling attention to the stores at which the advertised or the 
 specially priced goods could be obtained. The salesmen of 
 the wholesalers might persuade the retailers to purchase "a 
 certain trade-marked cereal'* and that cereal would, at the 
 same time be advertised in the Philadelphia papers, but the 
 public who read and responded to the advertising might 
 inquire for it at chain stores, or grocery stores not carrying it. 
 The advertising did not link the new product up with the 
 retail stores which were handling it. In the same way, the 
 cut-price specials could not be very effectively advertised. 
 To fill this gap in the plan, apparently, the Community Stores 
 Company was organized. 
 
 The Community Stores Company was a corporation formed 
 by the Wholesale Grocers' Sales Company. It was capitalized 
 at $5000, and the stock was all subscribed by the twenty-four 
 members of the Sales Company. As stockholders, they 
 elected the officers, and six directors of the company. The 
 "Community Stores," however, were retail stores. A retailer 
 became a member by the payment of a fee of ten dollars per 
 year. His membership gave him no voice in the management 
 of the company, or in the election of officers or directors. In 
 return for his fee, the retailer received a large yellow decalco- 
 mania sign, which he displayed upon his window, saying 
 "Community Store We Serve You Save" and he was 
 entitled to the special prices on certain lines of goods which 
 the wholesalers gave in accordance with the plan already 
 described, or to the handling of the advertised brands. 
 
 The Community Stores Company was organized in the fall 
 of 1 917. At the time, it secured considerable publicity in the 
 newspapers, and many promises and predictions as to its 
 achievements were made. It was announced that it would 
 secure the greatest co-operation of effort without in any way 
 interfering with the independence of co-operating stores and 
 firms. It was to "bring to bear the economies of the chain 
 
Competition and Combination in the Wholesale Grocery Trade 31 
 
 Store system coupled with the incentive to real service which 
 exists where the store is under the management of the owner 
 rather than a salaried superintendent; in that its aim is to 
 present to the consumer every advantage in price without the 
 disadvantage of non-delivery and no telephone service." It 
 was to promote the interests of the consumer by giving him 
 lower prices. It was to promote that of the retailer by increas- 
 ing his turnover, by drawing customers to his stores thru the 
 cut-price specials, and by linking up his store with a vigorous 
 advertising campaign in the papers. It was to promote the 
 interests of the manufacturers by giving them the united 
 efforts of the two hundred and fifty-four salesmen, visiting the 
 retailers of the city each week, for the promotion of the sales 
 of their products. It was to benefit the wholesalers by increas- 
 ing their sales volume and buying power. It was to assist the 
 Food Administration by having the salesmen act as messengers, 
 carrying the messages of the Administration to the retailers 
 each week by direct personal contact. It was prophesied 
 that it would result "in a country-wide revolution in distribut- 
 ing methods."^ 
 
 Both the Girard Grocery Company and the Frankford 
 Grocery Company were invited to join the movement, but 
 refused. 
 
 The methods which the Community Stores Company used 
 to accomplish these aims were substantially the two described 
 in connection with the Sales Company — giving low prices on 
 certain specials, and carrying on special selling drives on 
 certain new brands. But now these were widely advertised 
 in the newspapers, with the statement in prominent lettering 
 **These goods can be purchased at Community Stores." These 
 advertisements sought to establish the Community Store as 
 a trade-mark in the minds of the public. The services given 
 by Community Stores were emphasized at a time when the 
 chain stores were abolishing free deliveries and having the 
 telephones removed from their stores. The public was urged 
 to patronize stores showing the Community sign. The specials, 
 
 * The Philadelphia Public Ledger, op. cit. 
 
32 Competition and Combination in the Wholesale Grocery Trade 
 
 on which cut prices were given, were widely announced. 
 The cost of this advertising, it is stated by those connected 
 with the Community Stores Company, was borne by the 
 wholesalers, and by the manufacturers of the advertised 
 commodities. The ten dollars dues collected from the retail 
 members did not come anywhere near meeting the expenses. 
 
 Each week, one or more specials at cut prices would be 
 advertised. The wholesalers sold these goods to the retailers 
 at cost, or in some cases, at an actual loss. The retailers were 
 then expected to sell them to the public at the price which they 
 paid. Meanwhile, the special reductions were advertised, with 
 the slogan, "Can be purchased at Community Stores." The 
 special price would hold good for one week only, and the 
 attempt was made to see that the retailers only received enough 
 to meet their demands for that one week. Some of the articles 
 offered at special prices under this plan were Babbit's Soap, 
 sold by the Community Stores for frve cents a cake, when the 
 regular price was seven cents; Lux, sold for ten cents, regular 
 price, twelve; Campbell's soups, sold at three for twenty-five 
 cents, regular price twelve cents a can; Snow Boy, sold at two 
 for nine cents, regular price, six cents a package; Gulden's Mus- 
 tard, sold at twelve cents, regular price, fifteen. In some cases, 
 because of the large quantities purchased, the manufacturers 
 allowed the Sales Company special rates on these goods. In 
 others, they were actually sold at a loss to the wholesalers. 
 It is stated that such was the case with the Campbell's soups 
 special. The wholesalers paid $1.05 a dozen cans for it, sold 
 it to the retailers for Ji.oo, while the retailer sold it at the same 
 price. 
 
 Of course, these prices, even when they did not involve an 
 actual reduction, as in this case, were handled without cover- 
 ing their share of the overhead expenses. The wholesalers 
 maintain that no effort was consciously made to make up this 
 loss — that they relied upon the increased volume of their sales 
 along other lines to make it up. Some of the retailers who were 
 members of the Community Stores do not agree with this. 
 They feel that the wholesalers tried to cover their losses by 
 
Competition and Combination in the Wholesale Grocery Trade i,2> 
 
 putting up the price of other goods. The wholesalers also 
 officially stated that a retailer would not be expected to purchase 
 other goods from them because he joined the Community 
 Stores, and took their specials. One of the statements issued 
 during the publicity campaign by the officers of the Community 
 Stores Company says, "The retail dealer maintains complete 
 independence. He is not obliged in any way to purchase his 
 other goods from the wholesalers who are members of the 
 Community Stores. In fact, their constant advice to the 
 retailer is, Buy where you can get the best and cheapest."^ 
 The writer has been informed by some of the retailers that 
 they felt that the attitude of the wholesale salesmen was that 
 if you took the specials offered by the Community Stores 
 Company, you were under an obligation in fair dealing to pur- 
 chase other goods from the wholesalers who were backing it. 
 The second line of activity of the Community Stores Com- 
 pany, that of concerted efforts to sell certain brands of goods, 
 was worked out in co-operation with the manufacturers of such 
 goods. The wholesalers would point out to a manufacturer 
 considering the exploitation of the Philadelphia field that the 
 conditions there were highly complicated. It might be 
 admitted that the Girard and Frankford Companies and the 
 chain stores controlled a good sized section of the trade. But 
 it would be pointed out that these agencies, and especially, the 
 Girard and Frankford, have no salesmen, and therefore, could 
 not push his goods very effectively. If he sought to distribute 
 his goods thru them, he would in all probability have to 
 employ a force of salesmen of his own to introduce his goods to 
 the retail trade. On the other hand, the regular wholesalers 
 have a complete force of salesmen, who will push the goods of 
 manufacturers who distribute thru them. To that extent 
 they do more service for the manufacturer than do the Girard 
 and Frankford. Therefore, the wholesalers would argue, 
 they should be given the sole handling of the goods, or receive 
 lower discounts than the co-operative associations. If this 
 
 ^The Philadelphia Public Ledger, Mar. ii, 1918, p. 11, Independent Grocers Boost Their 
 Business. 
 
34 Competition and Combination in the Wholesale Grocery Trade 
 
 appeal convinced the manufacturer, he entered into a special 
 arrangement with the Wholesale Grocers' Sales Company. 
 These agreements usually seem to have had two important 
 provisions. The Sales Company was made the sole selling 
 agent for the product in the Philadelphia territory, and was 
 given a special discount. In return, the wholesalers comprising 
 the Sales Company were to take carload or train load lots of 
 the goods, and carry on a concerted campaign thru their 
 salesmen to sell the goods to the retailers. A feature of this 
 campaign would be advertising of the product on the Com- 
 munity Store pages in the daily press. This advertising was 
 usually paid for by the manufacturer. The retailers, on their 
 part, were expected to display the currently advertised goods 
 prominently on their shelves and counters and in their windows, 
 and to make special efforts to sell them to their customers. 
 
 The objects which the wholesalers hoped to promote thru 
 this plan appear to have been four in number. They expected 
 to attract customers to the Community Stores thru their 
 advertising campaign, special prices, and new lines. This 
 would increase the volume of sales passing thru the hands of 
 the wholesalers. It would bring the retailers into closer 
 dependence upon them. At the same time, it would secure 
 fbr the wholesaler the support of manufacturers. In these 
 ways, it would strengthen them in their struggle with the chain 
 stores and co-operative associations. 
 
 The wholesalers claim for this plan phenomenal increases in 
 the sales of certain goods. For instance, they state that in 
 five years, 450 cases of Holland Rusks were sold in the city, 
 an average of 90 a year. In nine months under the Community 
 Stores arrangement, 5000 cases were sold. One of the goods 
 which was introduced to the Philadelphia market in this way 
 was Miss Princine Baking Powder. Seven carloads were 
 taken by the Wholesale Grocers' Sales Company at one time, 
 and disposed of to retailers thru the Community Stores 
 Company. When asked if the increases in sales in such 
 commodities as these were accompanied by falling off of the 
 sales of other competing lines, as for instance in other lines of 
 
Competition and Combination in the Wholesale Grocery Trade 2S 
 
 baking powder, the officers of the Sales Company replied, 
 "Well, I suppose in some cases, they probably were, but in 
 others, like Holland Rusks, they were not. On the other hand, 
 the chain stores and other stores which did not carry Miss 
 Princine were met by constant demands for it." 
 
 There are two significant facts to be noted in regard to this 
 plan. In the first place, it was applied only to special goods' 
 which were not widely known, and were being introduced. Inj 
 the second place, it was based, in its appeal to the manufacturers 
 for the special rates or sole agency, upon the fact that the 
 Girard and Frankford Companies have no regular salesmen. 
 This, from the standpoint of the introduction of new goods, is 
 admittedly a weakness in the co-operative associations. To 
 meet this weakness in some measure, both the Girard and 
 Frankford have a small force of special salesmen. In the case 
 of the Frankford, the number is four. Upon the payment of 
 twenty-five dollars a week per man, a manufacturer can have 
 the services of these salesmen to introduce his goods to the 
 members of the company. Each salesman handles four 
 articles at a time, making a hundred dollars a week received 
 by the company for the services of each man. Thru this 
 arrangement, the manufacturer secures the services of expert 
 salesmen, thoroly acquainted with the local retailers, coming 
 to the latter as the representatives of their own association and 
 therefore well received by them, and at a comparatively low 
 cost. At the same time, he is paying extra for services which 
 the wholesalers give him free. 
 
 The wholesalers argue that time after time, they take up a 
 new article, push it vigorously thru their salesmen, establish 
 a market for it; then, when a good steady demand for it has 
 been created thru their efforts, the co-operative associations 
 begin to handle it, and sell it at lower prices than can the regu- 
 lar wholesalers, with their higher expenses. The wholesalers 
 have done all the work, and then the Girard and Frankford 
 get the profitable end of the trade. 
 
 In addition to these activities, the wholesalers planned to 
 have the Community Stores Company carry on certain 
 
26 Competition and Combination in the Wholesale Grocery Trade 
 
 advisory and educational activities for the benefit of the 
 retailers. It was to give them suggestions as to store manage- 
 ment and system, establish a collection agency, and furnish 
 information in regard to trade conditions, the rulings of the 
 Food Administration, and so forth. It does not appear to 
 have actually developed this phase of the plan to any extent. 
 
 The Community Stores plan as described above was in 
 operation for about a year. On December 29, 191 8, the news- 
 papers announced that the Community Stores Company had 
 gone out of existence. With the close of the year, it wound up 
 its affairs, gave up its offices, and ceased its activities. Of 
 course, the individual retail grocers who had formed the 
 "membership" were still in existence, still doing business as 
 usual. The Wholesale Grocers' Sales Company likewise still 
 continues its activities. But the Community Stores as a 
 brand on the windows of the retailers has no longer any signifi- 
 cance, and the advertising campaigns are no longer carried on. 
 The revolution in distributing methods promised at the time of 
 formation had not occurred. Even with due allowance for the 
 vivid coloring of its prospects by publicity managers, it had 
 not accomplished, apparently, what its promoters had expected 
 of it. It had enlisted 1600 of the retail grocers of the city as 
 members, including many who were members of the Philadel- 
 phia or Frankford Associations, and, presumably, bought 
 much of their material from the Girard or Frankford. It had 
 phenomenally increased the sales of various articles. What, 
 then, were the causes for its demise? 
 
 An inquiry conducted among the officers and wholesale 
 members of the company, the officers of the Girard and Frank- 
 ford, and a comparatively small number of the retailers con- 
 nected with the movement, has elicited a number of opinions 
 as to the cause of its abandonment. It will be noticed that we 
 do not say "failure.** The officers of the company, who are 
 also the officers of the Sales Company, say that it was not a 
 failure. In a certain sense, they argue, it was very successful. 
 In another phase they are willing to admit it did not succeed. 
 That lack of success they attribute to five difficulties which 
 
Competition and Combination in the Wholesale Grocery Trade 37 
 
 the plan encountered. In the first place, they state that much 
 difficulty was found in making up the cut-price specials, 
 because of the varied nature of the trade in the city. The 
 Community Stores were located in all parts of the city, in 
 neighborhoods of very different characters. Some were in 
 exclusive residential districts. Others were in middle class 
 districts, or in districts where they catered to lower income 
 groups. Some were in the various foreign districts — Jewish, 
 Polish, Italian, Negro, and those of other nationalities. The 
 wants, needs, and tastes of these groups differ very greatly. 
 Thus, a special that would make a strong appeal to the cus- 
 tomers in one section of the city would make no appeal what- 
 ever to those of some other neighborhoods. Retailers in one 
 part of the city would find their trade much increased by a low 
 priced article, while those elsewhere would find the same article, 
 even at the low price, a drug on the market. As much of the 
 effectiveness of the plan depended upon the advertising, 
 which in the nature of the case, had to be the same thruout 
 the city at one time, this was a serious handicap. They could 
 not very well afford to run each week a list of several cut-price 
 articles, which would meet the tastes of each group of the 
 population. Running and advertising only one, in many cases, 
 made a very limited appeal. 
 
 In the second place, the officers of the company state that 
 much difficulty was experienced in securing sufficient quantities 
 of goods, both for the specially priced articles, and for the 
 brands which were being definitely pushed. This was due to 
 transportation conditions. At times, they say, it was almost 
 impossible to get goods in sufficient quantities to make up 
 the specials for the next weeks. They were reduced to the 
 device of finding commodities of which the members of the 
 Sales Company already had large supplies on hand in their 
 warehouses, and from these making up specials. This, of 
 course, meant that they had to bear all the burden of the low 
 price themselves, or else could not offer very substantial 
 reductions, for they had depended upon saving in transporta- 
 
38 Competition and Combination in the Wholesale Grocery Trade 
 
 tion charges on large shipments, and low prices on quantity 
 from the manufacturers to assist them in giving low prices. 
 
 A third reason assigned by the wholesalers for the lack of 
 success of the plan is the opposition of the Girard and Frank- 
 ford, and the officers of the associations. As has been stated, 
 these two corporations were invited to join the Community 
 Stores plan, but refused. The officers of the Sales Company 
 state that the Girard and Frankford seemed to feel that the 
 object of the movement was to discredit these co-operative 
 companies. The wholesalers stoutly aver that they had not 
 the least idea of any such intention. They state that the 
 officers of the associations tried to prevent their members from 
 joining the Community Stores, and that in order to do this they 
 told the retailers that the real purpose of the plan was to break 
 up the associations and put the Girard and Frankford out of 
 business. Then, when the wholesalers had the city to them- 
 selves again, they would put up prices on the retailers. Perhaps 
 the officers of the two associations were not putting it just 
 this way, but the fact that they were hostile to the Community 
 Stores plan is amply shown by the articles published in their 
 official magazine, the "Grocers' Review." In March, 191 8, in 
 the section devoted to the Frankford Grocers' Association, 
 there appeared the following editorial statement: 
 
 One of the latest associations to make its bow to the retail grocer is 
 the Community Stores Company. As we understand it, this company 
 is formed, owned, and controlled by the Wholesale Grocers' Sales Com- 
 pany and their objects are as follows: To control for themselves, the 
 wholesalers, the output of as many advertised brands as possible, so 
 that the chain stores and jobbers not affiliated with them cannot secure 
 or sell these articles at a price lower than themselves, thereby obtaining 
 for themselves whatever profits they may decide upon. They proposte 
 to arrange for the retail grocer affiliated with them, a special from time 
 to time, which the grocers will advertise and sell at manufacturer's cost, 
 the jobbers to furnish these articles to the retailers without profit to 
 themselves. 
 
 They also propose to furnish the grocer with store signs, a collection 
 department, advice on system, etc. In return for this service, we under- 
 stand that they expect the retail grocer to pay the sum of 1 10.00 per 
 year for membership, to publish their specials, to push the goods exclu- 
 sively controlled by them, and as a natural outcome, give a certain 
 proportion, if not all of their business to the wholesale grocers connected 
 
Competition and Combination in the Wholesale Grocery Trade 39 
 
 with the Wholesale Grocers* Sales Company. Now where is the re- 
 tailer to be materially benefited who is now a member of the Frankford 
 Grocers' Association or the Retail Grocers' Association of Philadelphia? 
 
 Divided effort is not the basic principle of co-operation. If the 
 various organizations, who are bidding for the retail grocers' business, 
 succeed in getting a proportion of it, in a short time the same conditions 
 will prevail that existed before there were any buying organizations. 
 This is easy to understand, as for instance every dollar's worth of busi- 
 ness taken from the Frankford Grocery Company reduces our buying 
 power, therefore as the Frankford Grocery Company, the Girard 
 Grocery Company, The Standard Grocery Company, the Richmond 
 Grocery Company and the Community Stores Company, etc. have 
 overhead expense, the more the business is divided up the more the 
 percentage of overhead and the retail grocer pays the bill. 
 
 Economy and efficiency are the "Watch Dogs" which protect busi- 
 ness, and we cannot see how these "Watch Dogs" can be utilized for 
 your protection if you divide your business with every new project 
 that comes along even though it is dressed up in its "Sunday go-to- 
 meeting" and is pretty to look at. We strongly advise the retail 
 grocers to study the question very thoroughly before they divide up 
 their business under supposedly beneficial co-operative lines.^ 
 
 A month later, they again express themselves as follows: 
 
 It has been a question as to whether our members would be helped 
 by joining the Community Stores Co. It is an admitted fact by all 
 connected with the grocery business, that we sell our members cheaper 
 than service jobbers and if our members transfer a portion of their busi- 
 ness to the Community Stores jobber and pay the price in addition to 
 the $10.00 membership fee, it is a question whether or not the adver- 
 tising cost will not be out of all proportion to the advertising value. 
 We believe the Community Stores Company have a good advertising 
 plan, but here is the question: 
 
 If a grocer uses the Community Store signs, advertising specials, 
 etc., and buys from the Frankford Grocery Company — is he a piker? 
 
 or 
 
 If he joins the Community Stores Company and uses their adver- 
 tising specials, etc. isn't he in duty bound to give the Community Stores 
 Company jobber his business? To our mind the answer is obvious. 
 
 What is your answer? 
 Show us a consistent middle ground.^ 
 
 In the same issue is another less direct, but still obvious, 
 thrust at the Community Stores Company, in an article 
 headed "Is 100% Co-operation Worth While." 
 
 * Grocers' Review, March 191 8, p. 46. "What is an Association." 
 ' Grocers' Review, April 1918, p. 114. "What is the Answer." 
 
40 Competition and Combination in the Wholesale Grocery Trade 
 
 We do not believe that any co-operative organization is founded on 
 real co-operative principles unless the co-operators, themselves are in on 
 the ground floor, putting up the finances where finances are needed, 
 selecting for themselves the man or men that they wish for their execu- 
 tives and defining for these executives the policy by which the organiza- 
 tion shall be run. . . . The question before your association that is 
 being thoroughly discussed before defining our policy is "Will it pay the 
 members of our association to be ioo% association members or will it 
 weaken the eff^ectiveness of our association, individually and collec- 
 tively, for our members to join other so-called co-operative associations, 
 which are known to have interests antagonistic to the principles for 
 which we stand." I cannot see but one answer to this question and 
 that is, "If your association is worth belonging to, it is worth your 
 individual loyalty."^ 
 
 This hostility did not prevent many of the members of the 
 Frankford or Philadelphia associations from joining the 
 Community Stores, and displaying its sign. It probably 
 tended, however, to dampen their interest and enthusiasm in 
 the plan, and may have deterred many others from joining it 
 at all. 
 
 A fourth reason assigned by the officers of the Wholesale 
 Grocers' Sales Company for the giving up of the plan is that 
 many of the wholesalers and also a good number of retailers 
 already had more business than they could well handle under 
 war conditions. Their working forces were depleted, they 
 had to pay high wages, in competition with war industries, 
 for incompetent labor, and so they were not particularly 
 interested in a scheme which meant more goods for them to 
 handle. 
 
 To a neutral observer, this reason seems somewhat dubious. 
 The drafting of men into the army and the displacement of 
 labor were well under way when the movement was launched 
 in the early months of 191 8. If the wholesale grocers were so 
 prosperous at the end of 191 8, it would seem that they must 
 have been doing a fair amount of business at the beginning. At 
 the beginning of the year, they were enthusiastically pushing a 
 plan for increasing their businesses. During the summer, 
 they were proudly telling of the great increase in the sales of 
 
 Ibid. p. 115. 
 
Competition and Combination in the Wholesale Grocery Trade 41 
 
 certain products brought about by the operation of the plan. 
 By the end of the year, they were explaining that they were 
 not particularly interested in the plan because they already 
 had more business than they could handle. It does not seem 
 likely that conditions changed as rapidly and completely as 
 this would indicate. Furthermore, it seems that if the plan 
 had been operating very successfully, the wholesalers, even tho 
 they had at the time very heavy trade, would look forv/ard to 
 the time when they might not be so prosperous, and would 
 desire to keep it alive to help them at such a time. It is, to 
 say the least, unusual for business men to fail to be interested 
 in a plan because it means an increase in their business. 
 
 A fifth reason given by one of the officers of the Community 
 Stores Company is the failure of the wholesalers to co-operate 
 effectively. Each wholesaler had, of course, his own force of 
 salesmen. These salesmen were in active competition, visited 
 in many cases the same retailers, trying to sell them the 
 same goods. There was no attempt to district the city, appar- 
 ently, and give one wholesaler certain exclusive territory in 
 which he was to present the idea to the retailers, and handle 
 the specials for them. The result was that in some cases, it 
 was found retailers would stock up on the specially priced 
 articles when they were offered by the wholesalers. They 
 would buy lots of the special from two or more wholesalers, 
 and then, after the week of special prices as advertised was 
 over, sell the article at the regular price for some time to come, 
 putting the big profit, which had of course, come out of the 
 wholesalers* pockets, into their own. There appears also to 
 have been difficulty in getting the various members to agree as 
 to what should be offered as specials at times. 
 
 Discussion of the plan with the officers of the Girard and 
 Frankford Companies, and some of the retailers who were in 
 the Community Stores, elicits other explanations of why the 
 idea was given up. Here the charge is frequently heard that, 
 to repay themselves for the losses incurred in connection with 
 the specials, they put up the prices on other goods. This, of 
 course, is a charge to which the price-cutter always lays him- 
 
42 Competition and Combination in the Wholesale Grocery Trade 
 
 self open, and one very difficult to prove positively. Whether 
 or not the wholesalers as a group did this, or certain among 
 them, if the retailers had a general impression that such was 
 the policy or custom of the wholesalers, it would prejudice them 
 against the plan. Such an impression does seem to have been 
 current among them, and it seems to have been fostered by 
 the associations. 
 
 The same idea, in a somewhat different form is expressed 
 by those who say that if the retailer took the Community 
 Stores specials and advertised brands, he was expected to 
 give to the wholesalers a large share of his other trade, at terms 
 not so advantageous as those offered by the Girard or Frank- 
 ford. This, as we have seen, the wholesalers specifically deny. 
 Again, whether it were true or not, if any large number of the 
 retailers affiliated with the two associations thought that it 
 was true, it would react to the injury of the movement. 
 
 Some of these explanations appear to be perfectly valid. 
 Others, as has been noted, seem doubtful. Those which are 
 valid, which represent factors really contributing to the failure 
 of the plan, appear to rest upon certain fundamental weak- 
 nesses in the scheme as it was operated. Thus, the admitted 
 difficulty in making out specials which would be universal 
 in their appeal suggests a more general and basic defect in the 
 whole plan — weakness of appeal to the general public. The 
 opposition of the Frankford and Philadelphia associations of 
 retailers, again, is not in itself a sufficient explanation of the 
 lack of success. Of the some 5300 grocery stores in Philadel- 
 phia not connected with the chain systems, only 22c o belong 
 to the two associations. This leaves the wholesalers a free 
 field in at least 3000 cases. Yet the Community Stores 
 Company only claims a membership of 1600, and many of 
 these were members of the associations.* The plan was 
 apparently weak in its appeal both to the association members 
 and to the grocers not affiliated with the associations. The 
 failure of the wholesalers themselves to co-operate effectively 
 
 •Newspaper acxounts claimed for the Community Stores from aioo to 2500 members. 
 The above is the number given the writer by the secretary. 
 
Competition and Combination in the Wholesale Grocery Trade 43 
 
 in carrying on the movement brings up the further question, 
 why did they thus fail. In short, the plan was weak in its 
 appeal to all three factors essential to its success — the con- 
 suming public, the retailers, and the wholesalers. 
 
 Its appeal to the public rested upon three main methods. 
 It sought to draw them to Community Stores by offering 
 temporary bargains in certain standard goods; it sought to 
 force the public to patronize Community Stores as the only 
 places where certain widely advertised but unfamiliar goods 
 could be purchased; and it tried to establish in the mmds of the 
 public that the Community Store sign stood for certain stand- 
 ards of quality and service. 
 
 The first of these, as we have seen, met the difficulty that the 
 tastes of different sections of the population are so diverse. 
 It had other weaknesses. A price-cutting policy may be 
 successful if it is carried on continuously, and applied to a large 
 number of articles. But simply to have special prices on one 
 or two articles each week is not a very strong drawing card, 
 particularly when it comes into competition with stores which 
 have built up a reputation for low prices on all lines, and which 
 are constantly advertising large numbers of bargains. This 
 was just the situation which the Community Stores plan was 
 facing in the chain store competition. The one great appeal 
 of the chain stores is low prices. They have the reputation of 
 being much lower in their prices on all lines than the independ- 
 ent grocers, and of offering numerous cut-price goods. In the 
 face of this, occasional bargains at other stores were not a 
 great inducement to trade there permanently. Had the 
 Community Stores been able to offer reductions on a number of 
 goods for a considerable time, they would have stood a better 
 chance of making an effective appeal to the public on the 
 ground of prices. 
 
 In regard to the advertised specialties, which were controlled 
 by the Community Stores, the wholesalers, in their publicity 
 campaign alleged that they were selling them at lower prices 
 because of the savings which they were making in handling 
 and purchasing them in large quantities. The public had no 
 
44 Competition and Combination in the Wholesale Grocery Trade 
 
 means of testing this claim, since the articles were on sale only 
 at the Community Stores. Here again, on this second point, 
 the appeal to the public was not very strong. The selling of 
 new and unknown articles, even tho they are introduced by a 
 vigorous advertising campaign, is not a very effective way of 
 drawing custom to a store. Of course, it has probably at- 
 tracted a certain number, but the experience of the retailers in 
 general seems to be that it did not promote trade to any 
 appreciable degree. 
 
 The attempt to establish a connection in the minds of 
 purchasers between the Community Stores sign, and the 
 quality and service of the stores displaying it was not more 
 promising. There were, as we have seen, 1600 stores displaying 
 that sign. Certainly, there must have been wide differences 
 in the standards of these stores as to quality or service. The 
 wholesalers had no way of compelling these stores to maintain 
 any uniform standards. If they had made the attempt, it 
 might have met with the difficulty which the specials met, 
 the divergent tastes of the different sections of the city. They 
 might, and occasionally did, give suggestions for the improve- 
 ment of stores, but they had no real control over the stores, 
 and do not appear to have tried seriously to exercise any. The 
 individual proprietors continued to carry on business as they 
 had been accustomed to, with their own methods. So that 
 practically the sign was no real guarantee of quality or service. 
 Some of the best and cleanest and most sanitar-y stores in the 
 city and suburbs bore the Community sign in the window. So 
 also did some which even the casual visitor could see fell far 
 short in cleanHness and neatness. If some of the Community 
 Stores gave very complete service, so did many stores not allied 
 with the plan. If some of the stores with best reputations for 
 quality of goods handled were in the movement, many with 
 just as good reputations were not. Thus no one of the three 
 bases of the appeal to the public was strongly effective. 
 
 Its appeal to the retailers rested upon two foundations, a 
 promise of increased, trade, and the offer of lower prices on 
 certain goods. The former rested in turn upon the efficacy 
 
Competition and Combination in the Wholesale Grocery Trade 45 
 
 of the appeal to the public. If this failed, the interest of the 
 retailer would not be held very long. To get an absolutely 
 fair and accurate estimate of the serviceableness of the move- 
 ment to the retailers, it would be necessary to interview a 
 large proportion, if not all, of the 1600 members of the Commu- 
 nity Stores. The writer has not done this. He has inter- 
 viewed a limited number of them, in scattered parts of the city. 
 The unanimous opinion of those whom he has asked about 
 the Community Stores plan is that they could not see that 
 they reaped any benefit from it. Those in well-to-do districts, 
 or serving well-to-do trade, say that the specially priced 
 goods made little if any appeal to their customers. Grocers of 
 this type do not seem to be worried about chain store competi- 
 tion. They say that their customers want quality in their 
 goods, and service. The people who are interested in bargains 
 go to the chain stores. To grocers serving trade like this, cut- 
 price specials are not of much assistance in drawing trade. 
 
 Grocers serving less well-to-do trade, who in some cases 
 confess to feeling the chain stores competition, agree in their 
 verdict with the above statements. They say that the specials 
 in many cases did not make any appeal. One, in commenting 
 on the charge that some of the retailers stocked up on the 
 specials when the wholesalers were giving the low prices, and 
 later sold them at regular prices, said that this practice was 
 the result of the fact that many grocers took large quantities 
 of the specials at first, expecting to have a big demand for 
 them during the week of the sale, but had most of them left 
 on their hands. Of course, they sold this at the regular price. 
 Occasionally, there would be a big demand for one of the 
 specials, but it did not bring permanent increase in trade. 
 Some seemed to feel that they actually lost thru handling the 
 cut-price goods as they were not even making their expenses. 
 As to the advertised new articles, there was a difference of 
 opinion. Some retailers report a very brisk trade in some of 
 them. Others say they have little call for them. 
 
 In offering low prices on certain goods, the wholesalers were 
 attempting to compete with the two association companies, 
 
46 Competition and Combination in the Wholesale Grocery Trade 
 
 which have very generally the reputation of giving lower 
 prices than the regular jobbers. Again it was a case where 
 low prices on a few articles came into contact with a policy 
 of universal low prices. Of course, the retailer believed that 
 it was to his advantage to patronize the association, where he 
 believed prices were generally low, than to go to the whole- 
 salers for a few special rates. As we have seen, many did both. 
 Coupled with this, was the fact, already mentioned, that many 
 retailers believed that the wholesalers put up their prices on 
 other lines to make up for their losses on the specials. Thus, 
 on these two fundamental grounds, the appeal of the plan to 
 the retailers was weak. 
 
 The opposition of the Girard and Frankford and the sus- 
 picions engendered by them would of course not counteract in 
 any way this weakness. 
 
 Mention has been made of plans to give the retailers assis- 
 tance such as a collection agency, advice on store management 
 and system, and so forth. Apparently, these were not devel- 
 oped. During the first few weeks, according to the statement 
 of one of the officers, a booklet was published and sent to the 
 retailer members of the Community Stores. This however 
 was soon discontinued. The retailers interviewed agreed in 
 stating that there was no attempt to do anything of the sort in 
 their cases. They received no advice, no offers of service of 
 any kind, from the Community Stores. On the other hand, 
 the officers of the company state that it was part of the policy 
 of the plan to give the retailers^advice, and that they frequently 
 did such things as fixing up window displays of the specials, 
 getting men to clean up their stores, arrange them more 
 attractively, etc. The agency thru which these activities were 
 supposed to be carried on was simply the salesmen of the 
 wholesalers, so it is quite possible that the retailers received 
 what the wholesalers regarded as Community Store Service 
 without knowing they were receiving it. Practically it seems 
 that all the service meant was a somewhat more critical 
 interest in the retailer's store and methods on the part of the 
 wholesale salesmen. 
 
Competition and Combination in the Wholesale Grocery Trade 47 
 
 Another weakness in the plan, from the standpoint of the 
 retailers, was that they had no share in the management or the 
 formation of the policy of the company. It was controlled 
 absolutely by the wholesale members. On the other hand the 
 Girard and Frankford are the retailers' own companies. They 
 put in the capital and own the stock. They elect the officers, 
 determine the policy which those officers are to carry out at 
 their weekly meetings, and they receive the dividends. It is 
 only natural that they should have much more interest in an 
 organization of this latter type than in one which was designed, 
 founded, and operated, professedly for their benefit, it is true, 
 but nevertheless solely and exclusively by the wholesalers. 
 That the latter recognized that this was a weakness is evidenced 
 by the fact that toward the close of the experiment, they were 
 considering a plan for giving the retailers representation on the 
 board of directors of the Community Stores Company. This 
 plan was to divide the territory up into districts, and have 
 the retail members in each district elect a member of the board. 
 Probably six districts might have been made, giving the re- 
 tailers the same number of representatives that the wholesalers 
 had, excluding the officers, who were members of the board. 
 Thus, the majority would still have been wholesalers, and they 
 would have remained in control of the movement. The 
 retail members might have been little more than advisory 
 members under this arrangement. It would have brought 
 the movement in closer touch with the retailers, and would 
 probably have been of much assistance to them in making 
 up the specials. The retailers from the various districts 
 would have been more intimate with the idiosyncrasies of 
 public taste in their respective districts than the wholesalers 
 or their salesmen could be expected to be. 
 
 The appeal of the plan to the wholesalers also had two 
 phases. There was apparently the hope for increased trade, 
 possibly at the expense of the Girard and Frankford and the 
 chain stores. Then there was the desire for better and closer 
 relations with the retailers, to wean them in some degree from 
 their allegiance to their own companies, not only in matters 
 
48 Competition and Combination in the Wholesale Grocery Trade 
 
 of the purchasing of goods, but also in their good-will. The 
 ability of the plan to accomplish these two things rested upon 
 its abihty to command the patronage of the public, and the 
 support of the retailers. When it failed to accomplish this, 
 it failed to appeal longer to the wholesalers. 
 
 We have already seen the other disadvantages which it had, 
 from the standpoint of the wholesalers — the fact that they 
 actually lost money on many of the specials; the fact that, 
 even when they did not actually resell at a net loss, they were 
 handling large quantities of goods without making their over- 
 head expenses, at a time when labor was dear and expenses 
 high; that they had great difficulty in making up attractive 
 specials; that they did not co-operate effectively; and that the 
 plan developed at a time when they, according to their state- 
 ments, were not feeling the pressure of competition upon the 
 volume of their businesses especially keenly. Had the plan, 
 in return for these disadvantages and costs, actually brought 
 about a large growth in profitable trade, they would no doubt 
 have considered it well worth while. The evidence points to 
 the conclusion that it did not result in such an increase, and 
 this conclusion is corroborated by the fact that it was dis- 
 continued. 
 
 The wholesalers, as we have seen, refuse to admit that the 
 plan was a complete failure. They maintain that it to some 
 degree at least accomplished one of its objects, that of increas- 
 ing the good-will of the retailers toward the wholesalers. 
 While they admit that many of the retailers took little interest 
 in the plan and did not co-operate in trying to push the sales 
 of the specially advertised articles, they state that there were 
 thruout the city a large number of retailers, particularly the 
 more enterprising and energetic ones, who co-operated very 
 enthusiastically, pushed the specially advertised goods, made 
 good use of the cut-price specials, and increased their business 
 very materially thru the plan. It is claimed that in one 
 instance, a grocer doubled his business as a result of it. The 
 wholesalers further state that they believe that, as a result of 
 the movement, the retailers have a more cordial feeling toward 
 
Competition and Combination in the Wholesale Grocery Trade 49 
 
 the wholesalers. They realize that the wholesalers are interested 
 in their welfare and wish to help them. The writer's inter- 
 views with retailers do not furnish much evidence of this, but 
 it must be remembered that they brought him into contact 
 with an extremely small number of the retailers of the city. 
 
 The wholesalers argue that the plan would have succeeded 
 in normal times, or in a city where there were fewer wholesalers, 
 and the task of getting complete co-ordination of their efforts 
 was therefore not so difficult. 
 
 Altho the Community Stores as a brand and as an adver- 
 tising trade mark is no longer used, the activities of the whole- 
 salers are still being continued along the same two lines 
 described, tho on a more limited and less systematic plan. The 
 wholesalers connected with the Wholesale Grocers* Sales 
 Company still hold their weekly meetings. They still control 
 the Philadelphia market for certain specialties. There has, 
 according to one of the officers of the Sales Company, been some 
 attempt to give cut-price specials for various districts. In this 
 way, they are trying to overcome the difficulty of the varying 
 tastes of different parts of the city. The pushing of these 
 specials is, however, left to the individual grocers. 
 
 One of the best ways of measuring the effectiveness of the 
 Community Stores plan is unavailable. This is an investiga- 
 tion of the actual amounts of the goods advertised under it 
 which were handled by the wholesalers. No accounting was 
 kept by the Sales Company, or by the twenty-four wholesalers 
 of the goods handled by them under the Community Store 
 arrangements as separate from all goods which they were 
 handling at the time. It is apparently impossible, in any case, 
 for a wholesaler to tell exactly how many dollars worth of 
 goods he sold to retailers under the plan. Probably they 
 could get a fair idea by going thru their sales records, but 
 those interviewed profess never to have done this. 
 
 It will be noticed that the Community Stores plan was a 
 selling plan, and that it took advantage, in its appeal to the 
 manufacturers, of the fact that the Girard and Frankford have 
 no regular salesmen. This fact enables the two co-operative 
 
50 Competition and Combination in the Wholesale Grocery Trade 
 
 companies to make considerable saving in their overhead 
 expenses, but it also represents a weakness, particularly from 
 the standpoint of a manufacturer introducing his products 
 into the Philadelphia field. It will be remembered that the 
 sixth function of the wholesaler, in the analysis in the first 
 section, was to serve the manufacturer by promoting the sales 
 of his goods, and introducing new articles to the trade, and 
 thus to the public. There are various possible alternatives 
 to this method. The manufacturer may introduce his goods 
 thru his own salesmen, or he may introduce and push them 
 thru a strong campaign of advertising, or he may adopt some 
 method of rewarding retailers who are particularly active in 
 selling his goods, by prizes, premiums, or other device. No 
 matter which one of these methods he takes, the cost of the 
 selling campaign will form part of the cost of bringing the 
 article to the consumer. Thus, the chief concern to the 
 manufacturer, will be to determine which method is the most 
 effective; that is which secures the largest volume of sales 
 with the greatest net profit to himself. If a number of manu- 
 facturers are convinced that some of the newer alternative 
 methods are more effective than the old one of passing on 
 their products to wholesalers, the latter will, to that extent, 
 be eliminated from the marketing system. It will be a case of 
 survival of the most efficient. 
 
CHAPTER IV 
 
 SELLING PLANS OF THE CO-OPERATIVE 
 ASSOCIATIONS 
 
 It is interesting to note that in connection with the Girard 
 and Frankford Grocery Companies, with their lack of sales- 
 men, a number of substitute selling plans have been adopted. 
 The special salesmen of the two co-operative firms have been 
 mentioned. The Retail Merchants' Association of Pennsyl- 
 vania, with which both the Philadelphia Retail Grocers' 
 Association and the Frankford Grocers* Association are affili- 
 ated, has put into operation the so-called "Pennsylvania 
 Plan." This is really in the nature of a private enterprise, 
 organized and carried on largely thru the efforts of a firm known 
 as the C. M. Wessels Company. Thru the efforts of this 
 company, the manufacturers of certain products, and the 
 retail grocers' associations thruout the state have been brought 
 into the plan. A manufacturer, upon joining the "Plan," 
 pays a certain sum of money to the Wessels Company. This 
 money received from the manufacturers is used for the pro- 
 motion and assistance of the various organizations of retail 
 merchants thruout the state, aUied with the Retail Merchants' 
 Association of Pennsylvania. The salary and expenses of the 
 state secretary are paid from these funds, enabling him to 
 travel extensively thru the state, organizing the local associa- 
 tions, and at times giving them assistance in campaigns for 
 membership. A contribution to the traveling expenses of 
 delegations to the state convention is made. In addition, the 
 manufacturers associated with the plan seem to make spe- 
 cial donations, at times, to the state association for specified 
 purposes. 
 
 In return, the grocers who are members of the local associa- 
 tions affiliated with the state association are expected to make 
 every possible effort to sell the products of the manufacturers 
 
52 Competition and Combination in the Wholesale Grocery Trade 
 
 supporting the plan, to the exclusion of competing lines. They 
 are instructed to display the goods prominently in their stores, 
 to ask customers to try the goods, to sell that particular article 
 whenever a customer asks for a product without specifying the 
 particular brand. Thus, while the Hershey Chocolate Com- 
 pany is a contributor to the plan, every retail grocer in the 
 state association is expected to make particularly strong 
 efforts to sell that company's cocoas and chocolates to the 
 exclusion of other brands. If a customer asks for "Cocoa," 
 she will be given Hershey's. If she comes to the store to buy 
 other goods, it will be suggested that she try Hershey's Cocoa. 
 If she asks for some other brand, she may be asked if she has 
 ever tried Hershey's. In the discussions of the plan at con- 
 ventions and elsewhere, it is stated that if the retail grocer 
 makes such special efforts to sell an article, he can frequently 
 sell it to one out of every three persons who come into his 
 store. To encourage the retailers to make these special 
 efforts, prizes amounting to $2500 are given annually, at the 
 state convention, to the local associations having made the 
 largest amounts of sales of the products in the plan in the 
 preceding year, in proportion to the membership. This money 
 is contributed by the Wessels Company from the funds paid to 
 it by the manufacturers. The local association with the 
 largest record of sales by its members, in proportion to their 
 number, receives the first prize of three hundred dollars. The 
 second prize is two hundred, and there are some eighteen or 
 twenty lower prizes of one hundred dollars and fifty dollars 
 each, so that the "Pennsylvania Plan money," as it is popularly 
 referred to at the conventions, is fairly widely distributed 
 among the associations. 
 
 This plan of course simply means that certain manufacturers 
 secure an advantage over their competitors by patronizing the 
 local and state associations of retailers. Instead of giving 
 discounts to the wholesalers who are members of the Whole- 
 sale Grocers' Sales Company, or following some other plan of 
 access to the Philadelphia market, they are spending part of 
 their advertising and selling appropriations to assist the 
 
Competition and Combination in the Wholesale Grocery Trade ^^ 
 
 retailers, expecting in return the retailers to give them special 
 service and favors. It is a substitute for the activity of the 
 wholesaler in pushing goods. 
 
 There are usually eight or nine firms associated with the 
 Pennsylvania Plan. They vary considerably from year to year. 
 At the present time (August, 191 9) the manufacturing members 
 are Joseph Tetley Co., Inc., Rumford Baking Powder, Her- 
 shey Chocolate Company, Diamond Match Company, Dia- 
 mond Crystal Salt Company, Fels & Company, Pillsbury 
 Flour Mills Company, Franklin Sugar Refining Company. 
 Some of the firms which were in the Plan at one time, but 
 dropped out, are Wm. Wrigley, Jr. & Co., the Corn Products 
 Refining Company (makers of Karo), the National Starch 
 Company (Kingsford's Corn Starch), Borden's Condensed 
 Milk Company, Loose-Wiles Biscuit Company, H. O. Wilbur 
 & Sons, Inc., Pacific Coast Borax Company, Thomas J. Lipton, 
 Inc., and the Frankhn Baker Company (grated cocoanut). 
 The natural inference is that these manufacturers did not feel 
 that the results of their membership were sufficiently profit- 
 able to justify their continuance in it. On the other hand, a 
 number of firms have continued in it for two or three years, 
 among them the Franklin Sugar Refining Company, the Dia- 
 mond Match Company, and Fels and Company. At the con- 
 vention in August, 1 917, the representative of H. O. Wilbur 
 & Sons stated, "Usually movements of this kind do not interest 
 the local people sufficiently to justify the manufacturer in 
 supporting them. This plan has not been profitable to us; we 
 could not figure any returns that would justify the continuance 
 of it, but we hope it will ultimately prove profitable."^ Appar- 
 ently these hopes were not fulfilled, for the firm is no longer 
 listed as a member of the plan. At the same time, the repre- 
 sentatives of other companies gave more favorable reports. 
 Mr. Johnson of the Franklin Baker Company, selling Baker's 
 Grated Cocoanut, stated, "We have increased our sales 
 double in six months this year over all of last year in the state 
 of Pennsylvania. "2 The representative of the Loose-Wiles 
 
 ^ Grocers' Review, September 191 7, p. 504. 
 ^ Ibid. p. 506. 
 
54 Competition and Combination in the Wholesale Grocery Trade 
 
 Biscuit Company said that his company had had an increase 
 in their sales in Pennsylvania of 255 per cent over any previous 
 year, and "we feel that the Pennsylvania Plan has helped to 
 attain this result/'^ Yet both of these firms have since with- 
 drawn from the plan. Mr. Wessels himself, the promoter of 
 the plan, said, "A few manufacturers are dissatisfied, but they 
 themselves are largely at fault."^ 
 
 It will be noticed that the plan offers no direct reward to 
 the individual retailer for increasing his sales of the products, 
 except the resulting increase in his own profits. Yet in many 
 cases it is doubtful whether his profit is any more if he sells, 
 say, a sugar or cocoa which is in the plan than one which is 
 not. The inducement offered to the retailer is the possibility 
 of his local association receiving a prize, and the support which 
 is given to the state and local associations. To a neutral 
 observer, it seems as if, in the case of many retailers, this 
 inducement to special effort would be rather weak. For a 
 grocer enthusiastically interested in the local association, and 
 keenly alive to its advantages, it would be a real incentive. 
 But to those who take little or no interest in the associations, 
 and do not realize their benefits, it would amount to but little. 
 
 A plan somewhat similar to the Pennsylvania Plan, worked 
 out locally by the Retail Grocers* Association of Philadelphia, 
 in co-operation with the Philadelphia "Inquirer," a daily 
 newspaper, and certain manufacturers, is the so-called "Trian- 
 gle Plan." Each week, the "Inquirer" devotes a page to the 
 advertisements of special goods, handled by the Girard Gro- 
 cery Company, being paid for the advertisements by the 
 manufacturers of the respective products. On this page, the 
 triangular initial emblem of the association is prominently 
 reproduced, with the slogan "Deal at Triangle Stores." To 
 encourage the members to make special efforts to sell the goods 
 advertised, several methods have been tried. These have all 
 depended in some form upon the payment of prize money 
 donated for the purpose by the "Inquirer." For some time, 
 
 ' Ibid. p. 507. 
 * Ibid. p. 504. 
 
Competition and Combination in the Wholesale Grocery Trade ^^ 
 
 this money, to the amount of five hundred dollars a month, 
 was distributed in the form of dividends on so-called "Triangle 
 points." These points were awarded by the Girard Grocery 
 Company for three things: the purchases from them of goods 
 advertised on the 'Triangle page"; window displays of these 
 goods; and regularity in attendance at the meetings of the 
 association. For instance, under one scale adopted, window 
 displays were judged upon their effectiveness, with two thou- 
 sand points as the maximum award for such displays; coupons 
 for fifty points were given to the retailers with the purchase of 
 each dollar's worth of merchandise advertised on the "Triangle 
 page"; twenty-five points were awarded for each meeting 
 attended, and an additional twenty-five points were given for 
 attendance at every meeting during a month. ^ The dividends 
 varied according to the number of grocers who scored and the 
 total scores made. Since there was only a definite sum of 
 money available each month, the larger the scores made, the 
 smaller were the dividends paid on the points. Those paid 
 for a few months will give some idea of their worth, and 
 fluctuations. In November, 191 6, a dollar per thousand points 
 was paid on them;^ in February, 1917, eighty-five cents per 
 thousand;^ in May, sixty-five cents per thousand;^ in June, 
 a dollar per thousand.^ In November, 191 7, the plan was 
 changed. Instead of paying cash dividends to all who made 
 points, it was announced that gold watches would be awarded 
 to the members securing the highest number of points. Two 
 were to be given away each week at the meeting of the asso- 
 ciations.^" Later, it was announced that the accumulation 
 of 30,000 points would entitle a member to a gold watch.^^ 
 In January, 191 8, the Grocers' Review states, "Our Tnquirer' 
 Triangle plan now carries awards for watches earned only 
 through window displays. "^^ Shortly after this, the plan was 
 
 ^ Grocers* Review, November 191 7, p. 630. 
 
 ^ Ibid. January 191 7, p. 769. 
 
 ^ Ibid. April 1917, p. 90. 
 
 ' Ibid. July 1917, p. 282. 
 
 ' Ibid. August 1 91 7, p. 345. 
 
 ^° Ibid. November 191 7, p. 630. 
 
 ^^ Ibid. December 191 7, p. 678. 
 
 *' Ibid. January 191 8, p. 760. 
 
56 Competition and Combina tion in the Wholesale Grocery Trade 
 
 suspended for the duration of the war. Since the close of the 
 war, it has been revived, and is now being conducted under a 
 plan similar to that first described above. Cash dividends are 
 paid on ^'Triangle points," and these are paid now only for 
 purchases of advertised goods from the Girard Company. 
 
 The similarity of this, not only to the Pennsylvania Plan, 
 but also to the Community Stores, will immediately be noticed. 
 In fact, since this was in existence before the latter, it seems 
 quite possible that it may have suggested the advertising idea 
 of the Community Stores to the wholesalers. There was the 
 same attempt to carry on a general advertising campaign of 
 certain products, and link it up with stores displaying a 
 certain brand, where it could be purchased. In the Com- 
 munity Stores plan, the inducement to the retailer to push 
 the sales of the advertised goods aside from the profits to be 
 made in handling them, was simply his general interest in the 
 movement. This, as we have seen, was not likely to be very 
 great. In the Triangle plan, the incentive is supplied more 
 directly, thru the payment of actual cash bonuses on the sales 
 made, or the hope of securing a prize of some sort. In the 
 Pennsylvania Plan, the incentive is the rewards to the local and 
 state associations. Of the three, that of the Triangle plan 
 seems to be the most direct in its appeal to the retailer. Yet 
 even it does not appear to be a complete success. We find 
 the association constantly urging its members to support the 
 manufacturers who are advertising on the Triangle page, and 
 urging them to redeem the coupons given with their purchases 
 of these goods. A typical appeal, which is frequently sub- 
 stantially repeated, may be quoted: "Don't overlook those 
 coupons attached to invoices. They are money in your 
 pocket. "^3 Apparently, some grocers regarded the dividends 
 ^as so small as not to be worth claiming. Again, they are told, 
 "We believe that all our members should give loyal support 
 to the advertisers in our Triangle page, because these concerns 
 have continued to support us and stand by us in many cases, 
 for the last four years."^^ 
 
 ^^Ibid. January 1917, p. 769. 
 ^*Ibid. June 1917, p. 230. 
 
Competition and Combination in the Wholesale Grocery Trade 57 
 
 The Triangle plan appears to have exactly the same objects 
 from the standpoint of the association, as the Community 
 Stores had from that of the wholesaler. It is designed to 
 build up in the mind of the consuming public a good-will for 
 the association and a reputation for its trademark; to attract 
 customers to the stores of the members; to increase the volume 
 of sales passing thru the association; and to secure for the 
 association the support of the manufacturers. 
 
 Unlike the Community Stores plan, the Triangle plan does 
 not have any cut-price feature. Neither does it secure for 
 the Girard Grocery Company the sole agency in the city for the 
 products advertised. Nor does it apply so strictly to new or 
 little known articles as did the Community Store plan. Among 
 the manufacturers who have advertised in this Triangle plan 
 are J. S. Ivins Sons (local manufacturers of cakes and biscuits), 
 Hecker, Jones, Jewell Milling Company, Franklin Sugar 
 Refining Company, Chalmers Gelatine Corporation, Armour 
 & Company, Ryson Baking Powder Company, Joseph Tetley 
 Company, Inc., Freihofer Bakery, Libby, McNeil, & Libby, 
 and the' Buffalo Specialty Company. 
 
 Another plan based upon exactly the same idea of making 
 it to the interest of the retail grocer to sell certain brands of 
 goods to the exclusion of competing ones, is the" Co-operators." 
 This, like the Pennsylvania Plan is a private enterprise of the 
 C. M. Wessels Company. It is developed along the same line, 
 but in a more limited way. In it, Mr. Wessels has brought 
 together about eighty-five of the retail grocery stores of the 
 city, and various co-operating manufacturers. The retail 
 membership is designedly limited to one hundred stores in 
 widely scattered sections of the city, so that they do not com- 
 pete in any way for trade. Thus they can freely enter into 
 the fullest co-operation, exchanging experiences and plans 
 which have increased sales, without any fear that they are 
 revealing these things to competitors. 
 
 The manufacturing members pay to the Wessels Company 
 two hundred and fifty dollars a month. In return, the retail 
 members are to make every effort to sell the goods of the 
 
58 Competition and Combination in the Wholesale Grocery Trade 
 
 supporting manufacturers. The unique feature of this plan 
 is the variety of ways in which it is made worth the while of 
 the retailer to put his best efforts into selling the goods of the 
 manufacturers affiliated with the scheme. The Wessels 
 Company furnishes to the retailers a corps of window dressers, 
 who go from store to store arranging window displays. It 
 furnishes signs, placards, price tags, and does other similar 
 printing for its members. It gives to each retail member a 
 weekly advertising newspaper. The Philadelphia law forbids 
 the placing of bills, circulars, notices, or advertisements in 
 streets, vestibules, yards and porches. Newspapers do not 
 fall within the provisions of this bill, and it is commonly evaded 
 by distributing four page circulars, with three pages devoted 
 to items, stories, and articles of a supposedly news character, 
 and the fourth to advertising. "The Co-operator" is such a 
 "Newspaper." A large number of copies of the first pages 
 are printed, and each retailer supplies his own advertising copy 
 for the fourth page. He is required to take at least five 
 hundred copies a week, and may be allowed more. The 
 Wessels Company maintains for the "Co-operators" a service 
 department, giving suggestions for the more efficient conduct 
 of business, forwarding of important information, such as 
 ruUngs of the Food Administration or market "tips" by tele- 
 phone or mail, assisting in the hauling of broken motor trucks, 
 and aiding the members in other ways. It gives salesmanship 
 courses to the clerks of the "Co-operators," and prizes for the 
 clerks increasing their sales the greatest amount each month. 
 It maintains a club and clubroom for the members and their 
 clerks. The "Co-operators" meet once every two weeks. At 
 these meetings, they discuss their common problems, meet 
 the representatives of the manufacturers allied with the plan, 
 receive suggestions and instructions for the sale of these 
 particular goods and for the general conduct of their business.^*^ 
 This plan involves, unlike the Triangle and Community 
 Stores plan, no attempt to control the channels of wholesale 
 
 ^* Detailed accounts of the plan may be found in the Grocers' Review, September 1918, 
 pp. 536-540, and in booklets published by the C. M. Wessels Company, 917 Chestnut St., 
 Philadelphia. 
 
Competition and Combination in the Wholesale Grocery Trade 59 
 
 distribution. All of the "Co-operators" are members of the 
 Girard or Frankford Grocery Companies, and purchase their 
 supplies thru those two companies. Like the other three plans 
 described, it means that the manufacturer is adopting some 
 agency other than wholesaler's salesmen for the promotion of 
 his goods. Instead of relying upon the regular wholesaler to 
 push his goods, he is offering special inducements to the re- 
 tailers to push them. 
 
 The manufacturer, then, considering the exploitation of the 
 Philadelphia market, had a number of channels of approach 
 open to him. He might follow the beaten trail and depend 
 upon the wholesalers to introduce and push his goods thru 
 their salesmen, with some advertising support from him. He 
 might make a special arrangement with the wholesalers, take 
 advantage of the Community Stores plan, giving the Whole- 
 sale Grocers' Sales Company special discounts for their services 
 in promoting his wares, receiving in return the assistance of the 
 wholesale salesmen in vigorously pushing them, and theoreti- 
 cally, a similar service from the retailers affiliated with the 
 movement. Or he might support the "Pennsylvania Plan," 
 paying the Wessels Company, and receiving in return, pre- 
 sumably, the support of the members of the Retail Merchants' 
 Association of Pennsylvania thruout the state. Or he might 
 make a similar arrangement with the "Co-operators/' receiving 
 preferential treatment by a limited number of retailers in the 
 city alone. Or, he might support the "Triangle plan," paying 
 his money to the "Inquirer" for advertising space, receiving in 
 return the special efforts of the members of the Retail Grocers' 
 Association of Philadelphia in selling his goods, with the 
 prospect of receiving prizes or dividends from the "Inquirer." 
 Or he might use the special salesmen of the Girard or Frankford. 
 Or, finally, he might send his own salesmen to visit the retailers, 
 selling to them directly or thru any wholesalers, including the 
 Girard and Frankford. In each case, as we have said, there are 
 selling expenses and these will form part of the cost of pro- 
 duction of the good, using production in the economic sense 
 of the entire process necessary to bring a good to the final 
 
6o Competition and Combination in the Wholesale Grocery Trade 
 
 consumer. Presumably the experience of the various manu- 
 facturers will in time show which of these plans are the most 
 efficient. The effectiveness of any one plan will doubtless 
 differ greatly with different commodities. That which is, in 
 a large number, if not all cases, expensive and inefficient, will 
 be given up. Those which combine economy and efficient 
 sales promotion, in a large number of cases will continue. 
 
 The most vulnerable point in these plans seems to be that 
 pointed out by the representative of the H. O. Wilbur & 
 Sons Company, quoted above, failure to interest sufficiently 
 the retailer. The rewards offered to him for special efforts 
 are frequently too remote, or too small to arouse any real 
 enthusiasm or effort. Coupled with this, we have the fact 
 that the average retail grocer is not a person of great intelli- 
 gence or skill. An enterprising, intelligent grocer can without 
 doubt do a great deal in guiding the choices of his patrons, 
 and in selling them articles which they did not intend to 
 purchase upon entering the store. On the other hand many 
 retail grocers have not much ability in this direction. They 
 are limited to giving what is desired, frequently not even 
 suggesting substitutes or additional purchases. All who are 
 familiar with retail grocers as a class agree in stating that 
 there are many among them who are of this type, who lack the 
 skill and tact and judgment necessary to make a real salesman. 
 
 One of the weaknesses of the Community Stores plan was 
 just this — its failure to arouse any strong interest in the re- 
 tailers. Apparently, it is to be counted as one of the plans, 
 at least, which by actual test, was proved less efficient than 
 some of the others. Of all, it made perhaps the weakest appeal 
 to the retailer. Of the various competing plans, the Triangle 
 plan and the "Co-operators" would seem to be the strongest in 
 this respect. The former pays dividends directly to the re- 
 tailer. The latter gives him a large number of valuable ser- 
 vices. The Pennsylvania Plan is less direct in its appeal to 
 the individual. 
 
CHAPTER V 
 
 COMPARATIVE ADVANTAGES OF WHOLESALERS 
 AND CO-OPERATIVE ASSOCIATIONS 
 
 In the struggle between the regular wholesalers and the 
 co-operative associations, each side has certain advantages. 
 First among the advantages of the wholesalers is that they 
 give credit, while the Frankford and Girard do not, to any 
 extent. Many of the retailers, particularly those doing busi- 
 ness on a credit basis with their customers, have to receive 
 credit from their wholesaler to some extent, at least. The 
 result is that some deal with the wholesalers exclusively, 
 while others purchase some of their goods from the associations 
 and the remainder from the wholesalers. A very large pro- 
 portion of the members of the two associations are in this 
 position. They buy from the Girard or Frankford, perhaps 
 to the extent to which they can make cash purchases, and then 
 on credit from the regular wholesalers. The question natur- 
 ally arises, why do they not make use of some other means 
 of raising their capital, such as borrowing from banks. Those 
 familiar with the habits of the retail grocer agree in stating 
 that practically never does he try to borrow from a bank. 
 This of course does not apply to the firms carrying on large 
 retail businesses in the center of the city, or the more pro- 
 gressive and prosperous neighborhood stores, but to the typical 
 neighborhood store, with a small stock, and the proprietor and 
 his family carrying on the trade, and serving the customers. 
 There are two fundamental reasons why men of this type 
 do not borrow from banks. In the first place, they are ignor- 
 ant of banking methods and facilities. As has been remarked 
 in another connection, rhany of them do not even have bank 
 accounts. In the second place, even though they were desirous 
 of borrowing from a banking institution, in many cases they 
 could not give sufficient security. They do not own their 
 
62 Competition and Combination in the Wholesale Grocery Trade 
 
 Stores. The equipment may be purchased on the installment 
 plan. Their own capital is represented by accounts receivable, 
 and the stock of goods to be sold. 
 
 In connection with the recent campaign carried on by bank- 
 ing interests for the extension of the use of trade acceptance, 
 efforts were made to persuade wholesale grocers to adopt it in 
 their relations with the retailers. For those unfamiliar with 
 the term, it may be explained that a trade acceptance is a 
 draft drawn upon the purchaser of goods by the seller, and 
 accepted by the former. Its distinguishing feature is that its 
 use is limited to obligations arising out of the sale of goods. 
 Under the present system, the wholesale grocer who sells 
 goods on credit to retailers has no evidence of their indebted- 
 ness to him except his book accounts. He may secure his own 
 capital by giving his promissory notes, receiving credit from the 
 manufacturers, or borrowing on security from the banks. As 
 opposed to this method, the banking interest supporting the 
 trade acceptance argues that it would have many advantages 
 from the standpoint of the wholesale grocer. He would have 
 the signature of his retail customer to a negotiable instrument 
 as evidence of the debt. The acceptance would be readily 
 discounted by any bank, for as two-name commercial paper, it 
 is specially favored by the Federal Reserve System. Thus 
 merchandising transactions would practically, from the stand- 
 point of retailer and wholesaler, finance themselves. The 
 wholesaler would have his money promptly in hand, and would 
 thus be able to pay manufacturers promptly, taking advantage 
 of all cash discounts. In many cases, it is argued, the gain 
 he would have from these discounts for cash would more than 
 offset the loss suffered thru discounting the trade acceptance. 
 The retailer would have to meet the payment of the acceptance 
 when it becomes due, instead of, as is now frequently the case, 
 carrying an account for long periods, and making occasional 
 part payments. The collection of debts would be removed 
 from the list of duties of the wholesaler's salesmen, for they 
 would be collected by the banks as the acceptances fell due. 
 
Competition and Combination in the Wholesale Grocery Trade Gi^ 
 
 The wholesale grocers themselves do not regard the pro- 
 posal to use the trade acceptance in their business with favor. 
 Various state associations of wholesale grocers and the National 
 Wholesale Grocers' Association have appointed committees 
 to look into the question of the use of the trade acceptance in 
 the business, and the reports of these committees have been 
 against its adoption. The state and national conventions 
 have adopted resolutions stating that while they recognize the 
 value of the trade acceptance in many lines of business, they 
 do not believe that its adoption in the grocery business would 
 be desirable.^ They argue that there are two important 
 reasons why this is true. In the first place, the sums for which 
 credit are given are too small. The report of the committee 
 on trade acceptance, at the convention of the National Whole- 
 sale Grocers' Association in June, 191 8, stated that the average 
 grocery bill due from the retailer is for about forty dollars only. 
 Enthusiastic advocates of the acceptance method believe 
 that it is hardly worth while to draw acceptances for less than 
 one hundred dollars, so that they do not seem practical, if the 
 acceptances are to be drawn for single bills. To draw accept- 
 ances against occasional large bills, and carry small ones as 
 open book accounts would result in confusion.^ 
 
 The second reason why the wholesale grocers oppose the 
 adoption of the acceptance is the fact that the present tendency 
 in their business is to shorten the period for which credit is 
 allowed, with the result that in many parts of the country 
 terms have been reduced to thirty days. The statement of 
 wholesale grocers in Philadelphia show that the period of 
 credit there.is even shorter. For three representative firms, 
 the average period is fourteen or fifteen days. A fourth, 
 doing what it styles "a high class fancy business," collects its 
 bills on the average, in twenty-eight days. Thirty days is 
 a short term for a trade acceptance, and it does not seem 
 practical to draw them for shorter terms. Those who are 
 
 * American Grocer, Mar. 20, 191 8, pp. 4, and 14; June 19, 191 8, p. 26. 
 
 ' American Grocer, June 19, 191 8, p. 26. Report of the Committee on the Trade Accept- 
 
64 Competition and Combination in the Wholesale Grocery Trade 
 
 giving thirty days are frequently paid in shorter periods, and 
 hope to reduce the term. The adoption of the trade acceptance 
 would check both of these tendencies toward the reduction 
 of credit. Those who are being paid in shorter periods are 
 opposed to any movement which would mean a lengthening 
 of the term. 
 
 A less important argument advanced by the wholesalers 
 against the trade acceptance is that it encourages businesses 
 operated on insufficient capital. A man may increase his 
 business almost indefinitely by accepting for goods purchased, 
 risking his creditors* capital instead of his own. This objection 
 seems to lack the weight of the previous ones. Since the 
 wholesalers drawing upon the retailer would thereby become 
 his sureties, liable in his place if he were unable to pay, they 
 would have just as much incentive to see that the retailer were 
 not taking goods for which he was unable to pay as they do 
 now. Further, it is difficult to see how the acceptance method 
 would encourage the operation of business on insufficient 
 capital any more than does the financing of retail stores by 
 wholesalers. Under the latter method a retailer may and 
 frequently does, carry his accounts much beyond the stipulated 
 terms. The wholesaler will keep him in business by granting 
 him extensions, and accepting part payments on account. With 
 the acceptance method, he would have to pay up promptly or 
 face disaster. The retailer who failed to meet his acceptance 
 would not remain long in business. The other two objections 
 appear to have considerable weight. It seems then that the 
 methods suggested as alternatives to the financing of retail 
 stores by the wholesalers are not at present practical so that as 
 long as the retailers give credit to their customers, and must 
 borrow capital, they will do so by buying on credit from the 
 wholesalers. 
 
 Another objection from the standpoint of the wholesaler 
 has been suggested — that mentioned above, that the whole- 
 saler retains a contingent Hability under the acceptance, being 
 liable as drawer until the retailer pays. However, in practice, 
 
Competition and Combination in the Wholesale Grocery Trade 65 
 
 this is little different from the present system. If the retailer 
 is unable to pay his account, the wholesaler is the loser. 
 
 A second advantage enjoyed by the wholesaler over the 
 Girard and Frankford is the better service of the former. As 
 has been stated, the co-operative companies restrict their 
 deliveries to one a week per customer. The Girard charges 
 one per cent of an order for delivering it. The Frankford 
 gives free deliveries, but allows a discount of one per cent to 
 purchasers who regularly haul their own orders. It charges 
 twenty-five cents for each extra order above the one a week. 
 In addition, it has stringently enforced rules as to the days 
 on which orders must be in, and when they will be delivered 
 in the various sections. Further, the deliveries ma^le^y the 
 Frankford are only pavement deliveries, while theMvholesaler 
 will put the goods in the retailer's cellar or store. Many of the 
 retail stores are run by women. In others, the proprietor 
 may leave his wife in charge. Under such circumstances, it 
 is something of a disadvantage to have to move bulky packages 
 from the pavement. The regular wholesalers will deliver as 
 many orders as a man may want in a week. If a suburban 
 grocer telephones, wants goods in a hurry, and there is no 
 delivery scheduled in his section for a few days, the wholesaler 
 will send the shipment to him by express, altho it may cost 
 more than his profit on the order. 
 
 In other ways, the service given by the wholesaler is more 
 convenient. The Frankford, for instance, makes a small charge 
 for breaking a case, that is for selling a man less than a case of 
 goods. 
 
 The wholesalers do not seem to have any advantage in the 
 variety and completeness of their stocks. Most of the retailers 
 interviewed state that the Girard or Frankford carry almost 
 anything they want, except private brands of canned goods, 
 preserves, and other commodities. In these lines, many of 
 the large wholesale houses have their private brands with 
 their own labels. The American Stores Company and the 
 two associations also have private brands. For instance, the 
 Frankford advertises "Unity Butter," the Girard "Triangle 
 
66 Competition and Combination in the Wholesale Grocery Trade 
 
 Coffee." These private brands can of course be obtained only 
 from the wholesaler whose name appears on the labels. If a 
 retailer is met by a considerable demand among his patrons 
 for a certain brand of canned goods, or coffee, or other article, 
 he will have to go to the wholesaler who handles it to obtain it. 
 
 A third tactical advantage of the regular wholesalers is 
 their salesmen. These not only promote the sales of goods, 
 and help greatly in the introduction of new goods to the trade, 
 but they also establish a personal connection between the 
 wholesale house and the retailers. The wholesale salesman 
 not only sells the retailer goods, but also gives him suggestions 
 and advice as to the conduct of his business, the trend of the 
 market, the prospects of increasing or falling prices. During 
 the war, the Food Administration depended to a large extent 
 upon the wholesale salesmen to keep the retailers informed as 
 to the regulations, to explain the various rulings and calcula- 
 tions involved in figuring margins, and other points to them. 
 Many retailers depend to a great extent upon the advice 
 thus received. They stock up with an article when the sales- 
 men tell them that the price is likely to increase, or hold off 
 when he advises them that it is likely to go down. It is thus 
 possible for a wholesale salesman to exercise considerable 
 influence over his retail customers. 
 
 In contrast with these advantages of the old type whole- 
 saler, there is another series of factors which work to the 
 advantage of the co-operative associations. In the first place, 
 they have extremely low costs of doing business, due in part 
 to the curtailment of service, and in part, apparently, to the 
 superior organization. In place of the eight to ten per cent 
 of total sales which is the cost of doing business, on the average, 
 for the wholesale grocer, the Girard Company, according to 
 its annual reports, has a cost of little over three per cent. For 
 the fiscal year ending June 30, 191 8, it was 3.32 per cent; 
 for that of June 30, 191 9, 3.42 per cent.' The Frankford 
 Grocery Company states that its cost of doing business runs 
 about 3.5 per cent per year. It is interesting to inquire where 
 
 ' Grocers* Review, August 191 9, p. 388. 
 
Competition and Combination in the Wholesale Grocery Trade 67 
 
 the Girard and Frankford make this saving. According to 
 
 the Bulletin of the Harvard Bureau of Business Research, the 
 
 common operating expenses in the wholesale grocery business, 
 
 listed according to items, are as follows: 
 
 Item Percentage of Net Sales 
 
 Total salesforce expense 1.3 
 
 Advertising 0.07 
 
 Other selling expenses 0.06 
 
 Total selling expenses 2.5 
 
 Salaries and wages of receiving, warehouse and shipping force 1.15 
 
 Packing cases and wrappings 0.04 
 
 Outward freight, Express, Parcel Postage, and Cartage 0.4 
 
 Total receiving, handling and shipping expense 1.6 
 
 Salaries of buying force 0.35 
 
 Other buying expenses 0.03 
 
 Total buying expense 0.4 
 
 Executive salaries 0.5 
 
 Office salaries 0.7 
 
 Postage and office supplies 0.23 
 
 Telephone and telegraph 0.05 
 
 Credit and collection expense 0.06 
 
 Other management expense o.i 
 
 Total general management and office expense 1.6 
 
 Total interest 1.55 
 
 Rent 0.4 
 
 Heat, light and power 0.05 
 
 Taxes 0.2 
 
 Insurance (except on buildings) o.i i 
 
 Repairs of equipment 0.05 
 
 Depreciation of equipment 0.1 
 
 Total fixed charges and upkeep expense 2.5 
 
 Miscellaneous expense 0.1 1 
 
 Losses from bad debts 0.3* 
 
 Of these items, the Girard and Frankford, as a result of their 
 method of doing business, do not have the salesforce expense 
 (2.3%), and losses from bad debts (0.3%) are practically 
 nothing. These, however, amount to only 2.6 per cent, while 
 the figures of the two companies are about 6 per cent less than 
 those given as common by the Bureau. The co-operative 
 companies probably also make considerable reductions in their 
 expenses under advertising (0.07%) and other selling expense 
 
 * Bureau of Business Research, Harvard University, Bulletin No. 9, p. 5. 
 
68 Competition and Combination in the Wholesale Grocery Trade 
 
 (0.06%). They actually do very little advertising. The 
 associations advertise considerably, but the money comes out 
 of the association funds, presumably, not out of the grocery 
 business. The Girard would practically eliminate the out- 
 ward freight (0.4%) and, with the Frankford, it would be 
 materially reduced. As a result, the expenditure for packing 
 cases and wrappings (0.04%) would also be reduced. The 
 associations state that their executive salaries (0.5%) are much 
 lower than those of private firms, and this is probably another 
 source of saving. The secretaries of the associations, who are 
 the managers of the grocery businesses, maintain that their 
 salaries are not so high as those of men in corresponding posi- 
 tions in private firms. The members of a firm usually pay 
 themselves substantial salaries, and expect a profit in addition. 
 A related charge is that brought against the private firms by the 
 co-operative managers that the former have unnecessarily 
 large office forces. The heads of the firm can take a month's 
 vacation, and the business will run along as usual. It is not 
 so easy to dispense with the manager of a co-operative house. 
 He must be on the ground, or in constant touch with the 
 business for it to run smoothly. On the other hand, the 
 wholesalers argue that they frequently carry on their business 
 on small or no profits. In a bad year, they will draw little or 
 nothing out of the business, not even crediting themselves 
 with salaries. Probably such a condition does not occur for 
 many years in succession, however. In many cases, it has 
 been something of a personal sacrifice for a manager to remain 
 with a co-operative association. The simplicity of organiza- 
 tion incident to the lack of extended credit probably means a 
 saving in office salaries (0.7%), also, and perhaps in postage 
 and supplies (0.23%). Credit and collection expenses are 
 doubtless lower than for the usual wholesaler (0.6%), and 
 there may be a slight reduction in other management expenses 
 
 (0.1%). 
 
 There does not seem to be any reason why the other items 
 included in the above list should be lower for the co-operative 
 houses than for private wholesalers, yet, if they figure their 
 
Competition and Combination in the Wholesale Grocery Trade 69 
 
 expenses upon the same basis, such must be the case. The 
 total of the items mentioned above, in which it seems fairly 
 certain that they must make some saving amounts to only 2.16 
 per cent, while added to the elimination of salesforce expense 
 and losses from bad debts, the total is but 4.76, while the 
 total difference in favor of the associations is 6.5. The Bulletin 
 gives the low and high as well as the common figures for each 
 of the items in the above list. Taking the lowest figures for all 
 items, except salesforce, advertising, packing, outward express, 
 and credit and collection and losses from bad debts, the sum 
 is 2.72 per cent of total sales. Thus, assuming that the 
 methods of figuring the costs are substantially similar, a fact 
 upon which the Frankford and Girard are unwilling to throw 
 any light, the figures show that, after the elimination of 
 salesforce expense and losses from bad debts, other expenses are 
 reduced to the minimum of the most efficiently managed private 
 firms. 
 
 A second advantage of the co-operative associations is rapid 
 turnover of capital. The Harvard figures give the turnovers 
 for regular wholesalers as varying from 2.8 times per year to 
 1 1.6 times, with the common figure about 5.7 times. For the 
 year ending June 30, 191 8, the Girard Grocery Company 
 claims a turnover of 16 times during the year. For the 
 following year, it claims a turnover of 14.^ The Frankford 
 Grocery Company states that its turnover is about twelve. 
 This, it will be noted, is just about that of the highest private 
 firms. The Girard's figures are much higher, and can be 
 explained upon the basis of its larger sales. Handling the 
 large quantities of goods which it does, it is in a position to 
 turn over its capital very rapidly. 
 
 The low cost of doing business would enable the Girard and 
 Frankford companies to either pay very high dividends, or to 
 sell at much lower prices than do the regular wholesalers. 
 There is no doubt that they do the former. They maintain 
 that they do the latter. The representatives of the associa- 
 tions claim that their prices to the retail grocer are from five 
 
 ^ Grocers' Review, August 1919, p. 388. 
 
70 Competition and Combination in the Wholesale Grocery Trade 
 
 to fifteen per cent lower than those of the wholesalers, with 
 ten per cent as being perhaps the average difference. An 
 examination of price lists would seem to be an easy method of 
 checking up this statement, but as a matter of fact presents 
 many difficulties. Many of the items on a price list of a pri- 
 vate wholesaler and that of one of the associations are dis- 
 similar. Even when prices are given on the same article, the 
 quotations may be for purchases at different times and different 
 prices. Discounts may be given for larger purchases by 
 retailers. A comparison of price lists, to be thoroly valid, 
 should be carried on over a considerable period of time. A 
 careful examination of price lists, however, seems to bear out 
 the contention of the associations that they do sell numbers of 
 articles at prices lower than those of the wholesalers. The 
 evidence of those connected with the grocery business appears 
 to have value on this point, for they are familiar with price 
 ranges over several years. All the retailers with whom the 
 writer has discussed the question agree that the prices of the 
 Girard or Frankford are lower as a general rule. They say 
 that occasionally a wholesaler will make a lucky purchase, 
 and offer certain articles more cheaply than the associations, 
 but that these cases are exceptional. Even grocers not con- 
 nected with the associations, and not purchasing from the co- 
 operative houses admit that their flat prices as quoted are 
 lower. When asked why they did not deal there, they usually 
 said, "The wholesalers do more for you. They'll deliver the 
 goods when you want them, send salesmen around after your 
 orders, and help you over tight places. They're anxious to 
 please you." Finally, nearly all of the wholesalers interviewed 
 admitted that the two co-operative associations sell, as a rule, 
 more cheaply than do they themselves, if flat prices are taken 
 as the basis of comparison. But they present another view 
 of the case. They argue that the difference is about five 
 per cent. Remembering that the Girard and Frankford allow 
 very short credit, the wholesaler says that their prices should 
 be compared to his after the deduction of a discount for cash 
 of one or two per cent. Then there would be added to the 
 
Competition and Combination in the Wholesale Grocery Trade 71 
 
 prices of the Girard, one per cent for hauling. Add the charge 
 for breaking cases, the twenty-five cent charge for extra orders 
 during the week, and the annual dues of the association, and 
 there is not much difference. If there were, the wholesalers 
 argue, they would soon have to go out of business. This 
 argument has a certain strength, but it seems to underestimate 
 the savings offered by the associations on many articles. It 
 seems then that we must include lower prices as one of the 
 advantages which the co-operative associations have in the 
 struggle with the wholesalers. 
 
 A fourth advantage, closely allied to this, is the fact that 
 these two wholesale houses belong to the retail grocers them- 
 selves. As a result they command the interest and loyalty 
 and sentimental support of the grocers to an extent to which 
 a regular wholesaler never could. Not only that, but they are 
 distinctly profitable. The dividend record of the two firms 
 has been given, showing that they are highly desirable invest- 
 ments for the retail grocer. 
 
 On the other hand, the co-operative associations because of 
 their organization are subject to certain weaknesses. Many 
 retailers who admit that their prices are lower, say that they 
 prefer to deal with wholesalers, because of the better service. 
 Very likely, the requirements of the Girard and Frankford of 
 prompt payment is a feature which bars many, and which 
 they would be least hkely to mention. In some cases, however, 
 the writer has found grocers who dislike the associations be- 
 cause of the rigidness with which they enforce their rules, 
 and what they term their "independence." As one retailer 
 expressed it *'They act as if they didn't care whether you gave 
 them your trade or not. They think they're doing you a favor 
 when they let you deal there. The wholesalers are always 
 anxious to get your orders." 
 
 As in many co-operative enterprises, the success, particularly 
 in the early stages, seems to depend very largely upon the 
 ability of the small group who are back of the movement, and 
 giving it their support, and upon their earnestness and enthu- 
 siasm. Frequently, it reduces itself to dependence upon one 
 
72 Competition and Combination in the Wholesale Grocery Trade 
 
 individual. The Frankford' Grocery Company, in particular, 
 seems to have been built up by the present manager. He 
 was the moving spirit in the old original buying exchange, and 
 he has worked with the grocers of Frankford for twenty-six 
 years, preaching co-operation and organization, refusing offers 
 to go elsewhere at higher salaries. 
 
 In this connection, it is interesting to note that several 
 attempts have been made to organize other co-operative whole- 
 sale grocery companies in the city. As far as the writer 
 knows, all have ended in failure. The Richmond Grocery 
 Company was started as a co-operative company of Polish 
 grocers. There were, according to the manager, thirty mem- 
 bers. They subscribed the capital, amounting to |6ooo, and 
 were to share the profits. It was in operation for a couple of 
 years, and then broke up. The venture does not seem to have 
 yielded the expected profits. The manager said the trouble 
 was that the capital was too small, and urged the members 
 to put in more funds. This they refused to do, and withdrew. 
 The former manager is carrying on the business as a private 
 enterprise. 
 
 Another attempt at the formation of a co-operative whole- 
 sale grocery company was the Standard Grocery Company. 
 It was organized as such, and had, according to the statement 
 of the former manager, two hundred and twenty-five members 
 at the time of its largest development. It aimed to operate 
 on much the same plan as the Girard. The capital was divided 
 into twenty-five dollar shares, and subscribed by the retailers. 
 Purchasers were to pay their bills weekly. This company 
 operated as a co-operative enterprise for about a year, and then 
 met the fate of the Richmond Company. The trouble, 
 apparently, in this case, was inability of the retailers to pay 
 their bills as required. They were all small grocers, and had 
 much difficulty in raising the capital to put into the company, 
 and meet their debts on time. Like the Richmond, it has 
 continued business as a private company. 
 
 These two examples show that it is not inherently an easy 
 task to organize a successful co-operative grocery business. 
 
Competition and Combination in the Wholesale Grocery Trade 73 
 
 In fact, in Philadelphia at least, in this, as in every other 
 business, the failures outnumber the successes. The requisites 
 for success are a number of enthusiastic retailers, and an 
 organizer who combines business ability with power of leader- 
 ship and willingness to serve at a sacrifice. 
 
 The Girard and Frankford Companies have found these 
 essentials in their early days, and are now dominating factors 
 in the distributing system of Philadelphia. 
 
CHAPTER VI 
 
 EFFICIENCY OF THE CO-OPERATIVE ASSOCIATIONS 
 
 Two questions have been suggested in regard to the develop- 
 ment of the Girard and Frankford Companies. The first 
 of these was: What is the effect of this development upon 
 the efficiency of the system of distributing groceries? Of the 
 functions of the wholesale grocer, the co-operative associations ' 
 can perform four at least as well, and in some cases better, 
 than the regular wholesaler. The latter applies to the receiv- 
 y ing of quantity shipments from the manufacturers. The co- 
 operative associations, because of their large size, can do this 
 better than the single independent wholesaler. They can 
 take larger shipments, with the resulting saving. The forma- 
 tion of the Wholesale Grocers' Sales Company is evidence 
 that the wholesalers in Philadelphia, as individuals, did not 
 command sufficient business to be able to fulfill this function 
 in the most economical manner. 
 ^ / The associations can store the shipments just as efficiently 
 CIS the wholesalers. 
 (^/ The success with which they can regulate the flow of goods 
 '"■■^' to the local markets depends largely upon the ability of the 
 managers. If they secure efficient managers, thoroly familiar 
 with the local conditions and with the grocery trade outside 
 as a whole, there is no reason why they cannot do this as well 
 as the regular wholesaler. The one feature of their methods 1 
 which might in any way be a handicap is the fact that they do \ 
 not indulge in speculative transactions. Thus it is that the \ 
 regular wholesalers occasionally are able to undersell them, v 
 Their prices and dividend records show pretty clearly that 
 this is not much of a handicap. Reckoned upon sales, the 
 profit of the Girard is not so high as those of regular whole- 
 salers. According to the figures of the Harvard Bureau the 
 
Competition and Combination in the Wholesale Grocery Trade 75 
 
 common net profit is 2.4% of sales. ^ From the statement on 
 page 23 preceding, it will be seen that for the year ending 
 June 30, 1919, the profit of the Girard was J 104,794.72. This 
 is only 1.73% of the total sales of $6,053,41 7.65. The rapid 
 turnover of the Girard brought the dividend earned on capital, 
 however, up to 21%. With a manager of ability, the co- 
 operative companies ought to be able to perform the function 
 of regulating the flow of goods more efficiently than the 
 regular wholesalers. Xh^y have a closer touch with a larger 
 number of retailers than have the latter individually. 
 
 Finally, the co-operative company is just as capable of 
 accounting for the goods handled as is a private firm. 
 
 These companies, however, fail to perform two of the 
 functions of the wholesaler. \/They do not finance retail stores 
 and they do little to promote the sales of goods, and introduce 
 new articles. 
 
 Nor do they perform as efficiently as the regular wholesaler 
 the function of furnishing the retail stores with the goods 
 needed, at the time they are required. 
 
 The fact, however, that the co-operative associations fail to 
 perform certain of the functions usually performed by the 
 wholesale grocer does not necessarily of itself condemn them. 
 It simply brings up the further question. Who is performing 
 these functions in the large number of cases of retailers dealing 
 with the associations, and are they being performed more or less 
 efficiently ? The consideration of this question may show that 
 because they have eliminated certain features of the whole- 
 saler's activity, they are more economical instruments of 
 distribution. 
 
 Probably the majority of the grocers who are members of 
 the two associations also buy considerable quantities of goods 
 from the regular wholesalers. While they pay promptly for 
 the goods purchased from the former, they get credit, for a 
 short period at least, for the latter. The influence of the ^ 
 associations, then, is to restrict the retail grocery business 
 to those who have some responsibility and capital, and to 
 
 * Bureau of Business Research, Harvard University, Bulletin No. 9, p. 5. 
 
76 Competition and Combination in the Wholesale Grocery Trade 
 
 encourage prompt payment of bills. It cannot be said that 
 it has accomplished either of these, because the grocer who 
 has small capital can still secure credit from the wholesalers. 
 Recently, however, they have also tightened up their credit 
 requirements. The fact that for at least three of the Phila- 
 delphia wholesale firms, the period of credit averages about 
 two weeks has been mentioned. This appears to have been a 
 development of the last two or three years, and to be largely a 
 result of the greater harmony of interests brought about 
 by the Wholesale Grocers' Sales Company. The same pressure 
 which has forced the wholesalers to combine their purchases 
 to secure the most favorable terms has led them to co-operate 
 in making their credit extensions more strict, and requiring 
 the retailers to be more prompt in payments. That pressure 
 has largely come from the influence of the co-operative asso- 
 ciations. The wholesalers have, to a certain degree, been 
 forced to approach their methods. 
 
 In this connection, it should be recalled that the retailing 
 process is the most expensive in the whole course of agencies 
 which bring goods to the consumer from the manufacturer. 
 One of the reasons suggested for this, both by many connected 
 with the business, and by outside students, is that there are i 
 I^Lnyretail stores. ^ There is much evidence that this | 
 can be substantiated ' ltl"the case of grocery stores in the city 
 of Philadelphia, at least. Along the streets devoted to small 
 retail stores in the residence neighborhoods, such as Frankford 
 Avenue, Germantown Avenue and Ridge Avenue, there will 
 frequently be two or three grocery stores to a block. In 
 many places, two of the corners of intersecting streets will 
 be occupied by grocery stores. In 1910, there was in the city 
 one retail grocery store to every 59 families, or 295 people, not 
 including delicatessen and other stores selling groceries as a 
 "side line.** It was estimated that the trade from 59 famiUes 
 
 *See for example, Seager, Principles of Economics, p. 498; Grocers' Review, September, 
 1917, p. 494. The last, an address by Carl H. Fast states that in England the cost of doing 
 business in retail chain stores is 10%, while in the United States, it is 20%, and says "Credit 
 has been extended in the United States beyond all wise limitations in the wild scramble for 
 business." The opposite view is taken by L. D. H. Weld in The Marketing of Farm Products, 
 P- 437- 
 
Competition and Combination in the Wholesale Grocery Trade 77 
 
 was sufficient to allow a grocer an income of $640 or less above 
 expenses.^ A neighborhood does not require three or four 
 stores within one block to serve it, yet the average city block 
 contains more than fifty-nine houses. This duplication of 
 capital and effort results in inefficiency, high prices, and low 
 rewards for the retailers. Furthermore, it is extremely easy 
 to enter the retail grocery business. Those familiar with the 
 situation in Philadelphia state that within the past few months, 
 a large number of newcomers have entered the business in 
 that city. Many have succeeded in saving a small sum as a 
 result of war prosperity, and are investing it in a grocery store. 
 It is estimated that with three to five hundred dollars, and 
 credit, a person can open a store. Here again, the influence of 
 the co-operative associations would be to render it less eas 
 to O-perLnew stores, and to decrease the number of stores, mru 
 their more stringent credit requirements. 
 
 The failure, then, of these associations to give credit for 
 extended terms, is not a cause for condemning them on the 
 charge of inefficiency, but rather an introduction of mo re 
 efficient and economical business methods. Its net tendency 
 is to restrict the business to those who can finance their own 
 stores, instead of depending upon the wholesalers. This 
 means that the retail grocery business would be restricted 
 to those who have some capital and responsibility. This 
 would tend to decrease the number of stores, and reduce the 
 costs of distribution. This tendency has not operated very 
 strongly because of the continuation of the old methods of 
 the wholesalers, but insofar as they have modified their methods 
 to meet the competition of the Girard and Frankford in the 
 matter of credit, the influence of those two companies has been 
 a thoroly healthy one. 
 
 The second function which the Associations fail to perform* 
 is that of promoting the sales of goods, and introducing new \ 
 goods. The lack of salesmen is at the same time one of their I 
 weaknesses and their greatest single source of saving. The 1 
 
 » E. M. Patterson, Co-operation Among Retail Grocers in Philadelphia, in American 
 Economic Review, Supplement, Vol. V, No. 2, pp. 280-281 (June, 1915). 
 
yS Competition and Combination in the Wholesale Grocery Trade 
 
 figures of the Harvard Bureau, quoted above, show that total 
 salesforce expense is the largest single item in the list, amount- 
 ing to nearly one-fourth of the total expenses. For some 
 firms it runs as high as four per cent of net saks.^ The expe- 1 
 rience of the co-operative associations shows that for^^xtaip \ 
 lines of goods, the services of the salesmen are not necessary, I 
 from the standpoint of the community at least. Socially, the { 
 most important function of the salesman is an educational one. 
 He introduces new articles to the retail trade, informs them 
 as to market conditions, advises and suggests to them in regard 
 to business methods and opportunities, and promotes the sales 
 of various goods thru convincing the retailers of their merit. 
 Theoretically, the retailer is then supposed to convince his 
 customers of the merits of the articles, old or new, and thus 
 educate them to economical consumption. 
 
 This theory seems to break down completely with regard 
 to at least two general lines of goods — staple articles and 
 nationally advertised goods. The consumer does not need 
 the educational eflforts of the retail grocer to persuade him 
 to use sugar, flour, or the various nationally advertised articles, 
 such as the products of the National Biscuit Company. These 
 goods can be marketed in large quantities without the assis- 
 tance of the wholesale grocer's salesmen. 
 
 From the standpoint of the wholesaler, the services of his 
 salesmen are important for three reasons. They are expected 
 to increase the sales of the goods like these, for which there is 
 a considerable demand without active selling efforts. They 
 are necessary for the introduction of new articles. Much of 
 their usefulness comes from the fact that the wholesale grocery 
 business is competitive, and the salesmen are necessary to win 
 and hold trade from competitors. One retailer will be visited 
 by the representatives of a number of wholesalers, each trying 
 to persuade him to take the same or similar lines of goods. Just 
 as the duplication of effort and equipment in numerous retail 
 stores means reduced efficiency and high costs of distribution 
 so the duplication of effort of competing salesmen of the whole 
 
 * Bureau of Business Research, Harvard University, Bulletin No. 9, p. 5. 
 
 
Competition and Combination in the Wholesale Grocery Trade 79 
 
 salers leads to the same results. The resulting high cost of 
 distribution will tend to cause a higher price scale to the con- 
 sumer. According to accepted economic theory, the price of 
 a supply of goods is fixed at the point where the marginal or 
 last unit will be sold. As supply is increased, demand remain- 
 ing the same, the price at which the marginal unit will be 
 disposed of will be lower. Thus, the price of the entire supply 
 will be lowered. This price cannot remain, for long periods, 
 below the cost of production, including the marketing process, 
 of those marginal units. In the wholesale grocery business, the 
 marginal units would be those contributed by the least efficient 
 firms. Products will not be marketed for long at prices too low 
 to cover these expenses. If such marginal firms are not making 
 expenses, they will go out of business. The supply of goods 
 will be slightly decreased, with a corresponding increase in 
 price, or else the goods will be handled thru more efficient 
 firms with lower costs. In the latter case, an increased 
 supply and a lower price is made possible. 
 
 In the past, many goods handled by the wholesalers have 
 not been increased in price by a margin sufficient to cover the 
 cost of handling them. The twelve to fourteen per cent 
 increase mentioned at the beginning of the paper is simply an 
 average. Many goods are handled with a much smaller 
 increase. Sugar is frequently handled by wholesalers with 
 an increase of but four per cent. Other staple lines have 
 similar low margins. These are made up by large increases 
 on other goods, especially special lines and fancy articles. Some 
 lines of certain canned goods may be handled by wholesalers 
 with a gross profit of fifty per cent of sale price — an increase 
 of one hundred per cent of purchase price. Under the regula- 
 tion of the Food Administration during the war, these high 
 margins were, in the cases of regulated commodities, cut down, 
 while on some of the staple lines, such as sugar, margins of 
 profit larger than had been customarily made by many whole- 
 salers were allowed, on the theory that these should bear their 
 cost of handling. The wholesalers now seem to be trying 
 to maintain these larger margins on staples. In the trade 
 
8o Competition and Combination in the Wholesale Grocery Trade 
 
 journals and at various conventions, the advisability of making 
 sugar continue at least to bear its share of the expenses has 
 been urged. But whether every article handled by the whole- 
 saler is increased in price by just the amount which it costs to 
 handle it plus profit, or not, the public ultimately pays the 
 costs, either in increases on all articles, or in specially large 
 increases in certain restricted lines. If the expenses of mar- 
 ginal firms are high, the result will be a restriction of supply, 
 and a consequent price level higher than could be possible if 
 more efficient methods of marketing brought more goods to 
 consumers at lower costs. The cost of marketing is increased 
 by the expensive wholesale salesmen, competing with each 
 other, and duplicating each other's work. 
 
 As compared to the regular wholesalers, the co-operative 
 associations are able to market larger quantities of staples, 
 nationally advertised goods, and well known articles without 
 the services of salesmen than the individual wholesalers are 
 able to sell with salesmen. By eliminating the expense of 
 salesmen, they do this marketing in a more efficient and 
 economical manner. This enables them either to undersell 
 the regular wholesalers, or to make larger profits. Theoreti- 
 cally, it should result in a larger supply of goods, thus bringing 
 a lower price. 
 
 It is interesting to note in this connection that some of the 
 wholesalers have given consideration to the plan of changing 
 their methods by restricting their own use of salesmen. None 
 has actually given up the employment of salesmen, but the 
 writer was informed by a member of one of the firms asso- 
 ciated with the Wholesale Grocers' Sales Company that they 
 had sent out a series of letters to a number of manufacturers 
 asking them if they would regard it as desirable for the regular 
 wholesalers to abolish their salesmen, or cut down their ac- 
 tivities very considerably, and adopt the method of selling 
 thru circulars giving prices and goods in stock, the way the 
 co-operative associations do. The responses were very gen- 
 erally in the negative, showing that the manufacturers felt 
 that the services of the salesmen were valuable to them. At 
 
Competition and Combinafion in the Wholesale Grocery Trade 8i 
 
 the same time this fact is evidence that the condition is what the 
 laws of economics would lead us to expect. The reduced 
 costs of the co-operative associations enable them to increase 
 the supply, and bear the resulting lower prices better than the 
 regular firms with higher costs. These, with profits eliminated, 
 must then reduce their expenses, or disappear from the market. 
 
 Nor do the replies of the manufacturers necessarily negative 
 the conclusion reached above that for well-known or nationally 
 advertised goods, from the standpoint of the consuming public, 
 the associations stand for more economical methods of distri- 
 bution. The method which, for competing manufacturers, 
 is profitable, may very well be the one which for the public 
 ultimately bearing the costs of that competition is less efficient. 
 The salesmen of the wholesalers do represent such a less 
 efficient method because they are rendered unnecessary as 
 educational factors by advertising, because they largely dupli- 
 cate each other's efforts and work, and because their chief 
 activity is not educational at all, but simply consists in en- 
 deavoring to win business for their particular houses. Here I 
 again, then, as in the case of the failure of the associations to/ 
 give extended credits, the very fact that they do not fill alli 
 the functions performed by the usual wholesaler means thatl 
 they stand for more efficient business methods. / 
 
 The third function which the associations do not perform 
 so completely as the independent wholesaler is that of furnish^ 
 ing goods at the time required. They will make only one 
 delivery a week, and will accept extra orders only upon making 
 an extra charge, whereas the wholesaler will usually deliver an 
 unlimited number of small orders to the same retailer. 
 
 There does not appear to be any valid reason why a well- 
 managed retail store ought not to be able to get along on one 
 delivery of groceries a week, except in very unusual circum- 
 stances. The articles included in groceries are not perishable 
 goods. The experience of the retailer ought to enable him to r 
 forecast with a fair degree of accuracy the demand for at least/ 
 a week ahead. If he has any famiharity with his stock, he 
 should be able to tell what lines are running low and should 
 
82 Competition and Combination in the Wholesale Grocery Trade 
 
 be replenished. Of course, many retail grocers fail to do these 
 last two things. They make little attempt to forecast demand, 
 and do not realize that their stock of certain articles is low 
 until they suddenly discover that their shelves are nearly 
 empty of them. To such, the method of the associations is a 
 stimulus to more efficient merchandising systems. Here again, 
 in discouraging extra deliveries, the co-operative associations 
 stand for more efficient business methods. 
 
 It seems then that the answer to the first of our questions, 
 What is the effect of the development of the co-operative 
 associations upon the efficiency of the system of distributing 
 groceries, must be that they have tended to make that system 
 more efficient. Simply because of their large size, they can| 
 receive quantity shipments from the manufacturers, store the^ 
 goods and regulate the flow of goods, if efficiently managed, 
 more economically than can the independent wholesalers. 
 Thru their credit restrictions, they tend to limit the business to \ 
 responsible persons, using their own capital and capable of 
 operating a store with a certain degree of business efficiency. 
 Indirectly, they have led to a general tightening of credits by 
 the wholesalers of the city. They represent a tendency, which 
 if continued, would result in a desirable reduction in the 
 number of retail grocery stores. They eliminate the activities 
 of the salesmen in connection with a large number of commod- 
 ities for which they are not necessary. In the matter of deliver- 
 ies, they require the retailer to keep a closer watch on his stock 
 and get along with fewer deliveries. 
 
 The second question raised in connection with the develop- 
 ment of the associations was. Do they represent a tendency 
 
 /toward the elimination of the wholesaler? While the co- 
 operative associations represent more efficient methods, for 
 
 \ many reasons it seems unlikely that they will ever completely 
 supplant the older type of wholesaler. From the standpoint • 
 of the retailer they have certain limitations. In the first place, ^ 
 many require credit, those who give credit to their customers 
 "in particular. As long as the pubHc demands credit the busi- 
 ness cannot be carried on on a strictly cash basis, without an 
 
Competition and Combination in the Wholesale Grocery Trade 83 
 
 unwarrantedly large investment of capital by the retailers. 
 Even the members of the Girard and Frankford must have 
 credit to some extent, and depend upon the wholesalers for it. 
 
 Again, many retailers are unable to meet the entrance require- 
 ments of the two associations. While this does not prohibit 
 them from purchasing from the Girard or Frankford, they 
 can do so only upon the payment of cash. They are able to do 
 this only to the extent of a very small percentage of their total 
 purchases, so that the vast majority of them depend entirely 
 upon the wholesalers. 
 
 Another disadvantage from the standpoint of a certain type 
 of retailer is the lack of salesmen. The wholesale salesmen 
 supply to the wholesale trade a personal touch somewhat 
 analogous to that which the independent store supplies in the 
 retail trade, in contrast with the chain stores. He brings the 
 wholesaler into direct personal contact with the retailer. He 
 aims to make the retailer feel that the wholesaler is interested 
 in him and willing to assist him. Many retailers depend to a 
 large degree upon the wholesaler's salesmen for information 
 and advice. As an offset to this lack of personal touch thru 
 salesmen, the associations have the fact that they are organized, 
 financed, and controlled by the retailers themselves. Because] 
 of this they can command the loyalty of their members. But 
 with many grocers, interest and influence in an association 
 shared with seven hundred or sixteen hundred competitors 
 makes less of an appeal than the direct personal contact with 
 the salesman. 
 
 The lack of salesmen is likewise a disadvantage from the 
 standpoint of certain manufacturers. Those who are intro- 
 ducing new articles will probably still find it to their advantage 
 to avail themselves of a wholesaler's salesmen. Those who 
 have well estabhshed brands may find it profitable to use the 
 same agency, under certain conditions. As we have seen, 
 none of the other agencies attempting these things seem to 
 give complete satisfaction in all cases. 
 
 It is interesting to note that a somewhat similar develop- 
 ment in the drug trade has not resulted in the elimination 
 
84 Competition and Combination in the Wholesale Grocery Trade 
 
 of the wholesaler. The article by L. D. H. Weld^ referred to 
 earlier describes thirteen co-operative associations of retail 
 druggists carrying on wholesale businesses. The business 
 methods of these associations are quite similar to those of the 
 Girard and Frankford. They limit credit, allow it only to 
 members who have stock or cash on deposit, and employ no 
 salesmen. 
 
 The oldest of these is located in Philadelphia. It was 
 organized in 1888 and has had a continuous and successful 
 existence. It includes about half of the retail druggists in the 
 city as its customers. Yet the regular wholesalers are still 
 dominant in the Philadelphia drug trade. The retail druggist 
 is in much the same situation as the retail grocer. He needs 
 a certain amount of credit and must get it from the wholesaler. 
 He needs certain lines of goods which the co-operative associa- 
 tion does not handle. Thus while the co-operative association 
 of druggists handles goods more cheaply than the regular 
 wholesaler, and pays good dividends to its stockholding mem- 
 bers, the retailers must still depend to a large extent upon the 
 regular wholesalers. 
 
 From these facts it seems safe to assume that while the co- 
 operative associations represent a curtailment of the function 
 of the wholesaler with a tendency toward more efficient and 
 more economical distribution in certain lines, the regular 
 wholesaler will still be a necessary factor in our distributing 
 system. 
 
 *L. D. H. Weld, Co-operative Buying by Retail Druggists in the Druggist Circular, Vol. 
 Ixi, pp. 1 19-123 (March 191 7). 
 
Competition and Combination in the Wholesale Grocery Trade 85 
 
 BIBLIOGRAPHY 
 
 GENERAL WORKS ON MARKETING 
 
 Butler, Ralph Starr. Marketing Methods. Alexander Hamilton Insti- 
 tute, New York. 
 
 Gives a general survey of the different steps in the marketing process, and the functions 
 of wholesaler and retailer. 
 
 Erstenberg, Charles W. Principles of Business. Prentice-Hall, Inc., 
 New York. 191 9. 
 
 Chapter XXI, pp. 460-482, gives a brief discussion of the middlemen in the marketing 
 system, and the substitutes for them. 
 
 Nystrom, Paul H. Economics of Retailing. The Ronald Press Company, 
 New York. 1917. 
 
 Describes the systems of marketing various commodities, and the middlemen thru whom 
 they pass in the regular course of marketing. 
 
 Shaw, A. W. Some Problems in Market Distribution. Harvard University 
 
 Press, Cambridge. 191 5. 
 
 Chapter III, pp. 64-99, g'ves a good description of the various methods of distributing 
 products from manufacturer to consumer, comparing the advantages of different policies. 
 
 Swinney, John B. Merchandising. Alexander Hamilton Institute, New 
 
 York. 1 91 7. 
 
 Part I deals with wholesale merchandising, and discusses the functions of jobber, selling 
 agent, factor, commission merchant and broker. Chapter X, pp. 134-145, describes co-operative 
 jobbing. 
 
 Sparling, Samuel E. Business Organization. The Macmillan Company, 
 New York. 1906. 
 
 Chapter XI, pp. 253-269, Wholesaling and Retailing, describes the stages thru which 
 articles pass on their way from manufacturer to consumer, with definite discussion of the 
 wholesale grocery business. 
 
 Weld, L. D. H. The Marketing of Farm Products. The Macmillan Company, 
 New York. 1916. 
 
 Discusses at considerable length the middlemen of the wholesale produce trade and inci- 
 dentally of the grocery trade, and the problems of the retail grocer. 
 
 GOVERNMENT REPORTS ON SPECIAL PHASES 
 
 The Federal Trade Commission. Report on the Meat-Packing Industry. 
 
 The Federal Trade Commission. Report on the Canning Industry. 
 
 Detailed investigations of the two industries, bearing in some aspects upon the questions 
 with which the article is concerned. 
 
 INVESTIGATIONS OF THE GROCERY BUSINESS 
 
 Bureau of Business Research, Harvard University. Bulletin No. 5. Expenses 
 in Operating Retail Grocery Stores. Harvard University Press, Cam- 
 bridge. 1915. 
 
86 Competition and Combination in the Wholesale Grocery Trade 
 
 Bureau of Business Research, Harvard University. Bulletin No. 9. Operat- 
 ing Expenses in the Wholesale Grocery Business. 
 
 MAGAZINE ARTICLES 
 
 Patterson, E. M. Co-operation among Grocers in Philadelphia, in the Ameri- 
 can Economic Review, Supplement, Vol. V. No. 2 (June, 191 5), pp. 279- 
 291. 
 
 An account of developments in the Philadelphia market preceding the events with which 
 this paper is concerned. 
 
 Patterson, E. M. The Cost of Distributing Groceries, in the Annals of the 
 American Academy of Political and Social Science, November, 1913, 
 pp. 74-82. 
 
 Involves a discussion of certain features of the method of distribution thru wholesalers. 
 This entire issue of the "Annals" deals with the system of Food Distribution, but this 
 article alone bears directly on the subject. 
 
 Weld, L. D. H. Co-operative Buying by Retail Druggists, in the Druggists 
 Circular, Vol. Ixi, No. 3 (March, 1917), pp. 1 19-123. 
 Describes a similar movement among retail druggists. 
 
 Weld, L. D. H. High Food Prices, Middleman and Speculator, in the North 
 American Review, Vol. 206 (Oct. 1917), pp. 586-594. 
 Defends the present system of distribution thru a series of middlemen against current 
 
 criticisms. 
 
 TRADE PUBLICATIONS 
 
 American Grocer 
 
 Source for general trade news, with little bearing directly on the situation studied. The 
 following articles touch upon it: 
 
 Girard Grocery Company, Aug. 15, 191 7, p. 6. 
 Retailers Co-operate, Sept. 5, 191 7, p. 4. 
 Sweep Away Middlemen, Aug. 15, 191 7, p. 9. 
 Japanese Grocers' Buying Exchange, Aug. 28, 191 8, p. 15. 
 
 Modern Merchant and Grocer World 
 Of little value. 
 
 The Grocers* Review 
 
 The official publication of the Retail Grocers' Association of Philadelphia, and the chief 
 source for information in regard to the local situation, outside of personal interviews. Material 
 is drawn from a large number of items and articles, given in the footnotes. Among the more 
 important long editorials and articles are the following: 
 
 Proceedings of the Annual Convention of the Retail Merchants' Association of Pennsyl- 
 vania given in one number each year, usually September. 
 
 Annual Reports and Balance Sheets of the Girard Grocery Company, usually published 
 in the August number of each year. 
 
 What is an Association, March, 191 8, p. 46. 
 
 What is the Answer, April, 191 8, p. 114. 
 
 Is 100% Co-operation Worth While, April, 191 8, p. 115. 
 
 The Pennsylvania Merchant 
 Of little value. 
 
 The Unity Bulletin 
 
 The official and confidential organ of the Frankford Grocers' Association. Published for 
 distribution only among members. Considerable information is drawn from paragraphs and 
 items in this publication. Its price lists furnish a basis for comparing the prices of the Frank- 
 ford with those of regular wholesalers. 
 
Competition and Combination in the Wholesale Grocery Trade 87 
 
 PAMPHLETS AND PRIVATE PAPERS 
 
 Fernley, Thomas A. The Middle Man as an Economic Medium of Distri- 
 bution. 
 A popular exposition of the part played by middlemen, of little scientific value. 
 
 National Hardware Association of the United States. The Economic 
 Value of the Wholesaler of Hardware and Reasons Why He is Essential. 
 
 National Wholesale Dry Goods Association. The Value of the Whole- 
 saler of Dry Goods as a Distributor and Reasons Why He is Essential. 
 
 Pamphlets similar to the first. Collections of essays written by interested parties for their 
 own justification. 
 
 Wessels, C. M. The Greatest Merchandising Story Ever Told. 
 Describes the plan of "Co-operators," described in the paper. 
 
 NEWSPAPER ARTICLES 
 
 Philadelphia Public Ledger: 
 
 Oct II, 1917, p. 15. Grocers Unite to Beat Chain Store Methods. 
 
 May II, 1 91 8, p. 11. Independent Grocers Boost Their Business. 
 
 Dec. 29, 1 91 8. Community Stores Vote to Disband. 
 Philadelphia Inquirer: 
 
 Aug. I, 1 91 7, p. 4. $iyOOOyOOO Merger is Grocers' Plan. 
 
 on the chain store merger 
 Philadelphia Public Ledger, Jan. 30, 191 7. Merger Planned by Chain Stores. 
 Philadelphia Public Ledger, Apr. 3, 1917. Chain Stores to Cut Living Cost for 
 
 Consumer. 
 Philadelphia North American, Jan. 30, 191 7. Five Big Chain Store Systems 
 
 Merge into SS^jOOOfioo Concern. 
 The Evening Bulletin, Philadelphia, Apr. 17, 1917. Chain Store Merger 
 
 Details Announced. 
 
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