Exactly 75 years ago, Michael J. Cullen, a veteran of some 27 years in the grocery business, opened up the very first supermarket, King Kullen Grocery Company, on Jamaica Avenue in Queens.
Cullen had first presented his idea in a letter to the president of the Kroger Grocery and Baking Company, for which he was working in 1929. The president's subordinate rejected it summarily, not even bothering to show it to the head honcho. As a result, Cullen handed in his resignation and put his own money and future on the line to make his idea a reality.
The year 1930 might not seem like a propitious time to be opening up a new business and it would not have been a good time were it not for the fact that Cullen's vision was to provide a greater variety of foods to his customers at a lower cost. Low-cost food, after all, was the thing most needed for a people undergoing a serious economic depression, and King Kullen supermarkets thrived. By 1936, Cullen was in charge of an economic powerhouse, with 17 stores and $6 million of revenue a year.
Although Cullen died that same year following an appendectomy, the business continued to grow under the watchful eye of his widow and other family members. In fact, at the height of the Depression, King Kullen was performing so well that Mrs. Cullen was able to give every employee a raise, at least a week's vacation, and insurance.
Today King Kullen continues to serve New York, primarily Long Island, and does $800 million in business annually, employing 5,000 people in nearly 50 stores. It's still owned and operated by the Cullen family and all because someone at Kroger rejected Michael Cullen's innovative and very detailed suggestions. What's more, in the end, Kroger was forced to put Cullen's ideas into practice anyway in order to compete with its former employee's supermarket chain.
Undoubtedly, though, there were those who feared and loathed King Kullen when it first came to prominence. After all, it wasn't for nothing that Cullen billed his store as "The World's Greatest Price Wrecker": He was undercutting all the other grocery stores in town, attracting customers from up to 100 miles away to his stores with their spacious parking lots and wide selections which shoppers could peruse at their leisure. Most other stores at the time were cramped, had a limited inventory, and required the customer to ask the clerk for each thing he wanted to buy.
Were these fears well founded? In the short term, perhaps they were. Surely the rise of the supermarket sounded the death knell for many "mom u2018n' pop" grocery stores, butcher shops, and bakeries. Possibly the lower prices did temporarily depress wages or employment opportunities in the grocery industry as a whole (although the fact that King Kullen was, within a few years, able to offer its employees a grand package of higher wages and benefits undercuts this notion).
In the long term, however, it is clear that any dire predictions that might have been made about the end of American business and jobs at the time were baseless.
Yes, many small grocery stores were put out of business by King Kullen, but then King Kullen was, and is, very much a "mom u2018n' pop" operation itself. Those who were put out of business either retired or found other ways in which to maximize their economic potential, thus contributing to a better economic picture for everyone. Obviously they were no longer putting their resources to their best and most efficient use once supermarkets came along, and thus those resources would have been wasted had they continued to run their stores as they had run them before. It was essential for their economic well-being, as well as the economic well-being of the rest of the country, that they redirect their resources to their most highly valued uses.
Furthermore, there is still plenty of competition in the grocery business. The competition may be among larger firms with big supermarkets, but it hasn't gone away simply because Michael Cullen got there first and managed to cream his smaller competitors.
The lower prices King Kullen was able to offer its customers were not just a boon for those particular shoppers. They also freed up money to be spent on other items, thus helping the economy as a whole to prosper, if not during the Depression then certainly in the postwar era. If instead of spending, say, $10 a week on groceries a family could now spend only $8 for the same or better products at a supermarket, they then had $2 to spend elsewhere. Thus, whereas in pre-supermarket days that $10 would have only bought food for the family, they could now purchase, for example, both food and shoes. In turn, that same $10 no longer contributed to the employment only of those in the grocery business but also helped employ shoemakers and their suppliers.
If our hypothetical naysayers had managed, through government regulations, to stifle King Kullen and other supermarkets in order to preserve the small businesses and high prices, would we all be better off for it? The answer is clearly no.
What, then, are we to make of those who argue today that Wal-Mart and other chain stores are destroying American businesses and jobs? Wal-Mart, too, was the brainchild of a man with years of experience in retailing, and it has succeeded in the very same manner in which King Kullen did: by offering superior selection, prices, and customer service.
Wal-Mart has indeed put some smaller competitors out of business, and it has become the new "World's Greatest Price Wrecker." As we have seen with the example of King Kullen, however, this is something to be celebrated, not feared and attacked. Wal-Mart customers have more money and time (because they can do all their shopping in one place) to spend on other things, thus helping both Wal-Mart's customers and the economy as a whole. There are still plenty of competitors, and those that no longer exist can now put their resources to more highly valued uses. Wal-Mart's employees, too, enjoy better-than-average wages and benefits, including a stake in the company itself. (For proof, see Lew's column on the less-than-stellar suggestion of a Wal-Mart executive that the federal minimum wage be raised. It's an unfortunate attempt to stifle competition which could succeed since Wal-Mart already pays, on average, well above the current minimum wage.)
One objection that was raised by someone with whom I was discussing this subject is that Wal-Mart sells us cheap foreign products, thus taking jobs away from Americans and giving them to inscrutable Asians, whereas King Kullen and other supermarkets did not do that at the time they began. One doubts, however, whether Michael Cullen would have bought flour from a mill in New York when one in Minnesota offered the same product for far less; this would, of course, have resulted in the transfer of jobs from New York to Minnesota, not as far away as China but still potentially displacing some American workers. Now, of course, supermarkets bring us foods from all over the world, making it possible to enjoy fresh produce in January, which also benefits consumers. Again, too, to purchase the product from the more efficient producer, whether that producer is in Minneapolis or Shanghai, is to maximize the potential of one's own resources and, in turn, the resources of the economy as a whole.
Few people today would want to live in a world with no supermarkets. We recognize the economic benefits we derive from Michael Cullen's wonderful invention, and we recognize that some of the temporary negative effects of newer and more efficient businesses are outweighed by the permanent improvements they introduce. The same goes for Wal-Mart and other chain stores today. Instead of fearing and loathing them, Americans need to recognize them as marvels of the free market and look forward to the innovations that future entrepreneurs will derive from their experiences with these companies.
November 24, 2005