Corporations: Stamping Ahead

Five years ago a breezy Michigander named Elton Forbes MacDonald sold out his one-third interest in a retail trading-stamp company called Top Value Enterprises in the belief that the trading stamp fad had about run out. Last week, with a broad grin, “Mac” MacDonald, 61, admitted that he had been dead wrong. He could afford to grin, because today his E.F. MacDonald Co. is the nation’s fastest growing supplier of trading stamps and stamp premiums.

Secret of MacDonald’s success is a single deal—capturing as a customer for his newly created Plaid stamps The Great Atlantic & Pacific Tea Co., biggest U.S.

grocery chain and long a bitter opponent of trading stamps. With A. & P. in his pocket, Chairman MacDonald expects his company’s sales to catapult from 1961’s $55 million to “at least” $115 million this year. Last week, at the company’s annual meeting, MacDonald confirmed plans for a three-for-one stock split and a 20% dividend increase (to 20¢ a year on each new share). On the strength of such giddy gains, MacDonald stock, which was first offered to the public last June at 19, stood at 86½ last week.

A Twinge of Guilt. Though they first appeared in the U.S. in the 1890s, trading stamps did not catch on until the mid-1950s. At that point, the nation’s burgeoning supermarkets discovered that they had exhausted their fund of novel merchandising methods and had gone about as far in price competition as solvency allowed (most supermarkets operate on a 3½% profit margin). Looking for a new competitive edge, grocerymen found it in trading stamps. “Women feel guilty about spending their husbands’ hard-earned dough for ‘extras,’ ” says one stamp-company executive. “But if a woman gets her hair dryer or new chair with stamps, she can convince herself she’s a thrifty shopper.” The “extras” most in demand at the redemption centers are relatively modest items that the average family can acquire in only a few months of stamp saving—steam spray irons (7½ books), bathroom scales (2½ books), wall-mounted can openers (1½ books). But for the truly ambitious saver, the premium catalogues offer Chevrolet Corvairs (700 books, which a family spending 20% of a $12,000 income with stamp-giving retailers could probably amass in 35 years) and even Piper Deluxe Caribbean airplanes (3,000 books, or $360,000 worth of groceries).

Giving out the stamps that procure these delights inevitably represents an added cost to the retailer—a cost that somebody has to pay. The stamp companies argue that in most cases stamps bring in enough extra sales to allow the merchant to absorb the cost himself without raising his prices to customers. But the nation’s biggest stamp distributor, New York’s Sperry & Hutchinson Co.

(S. & H. Green stamps) admits that a retailer must increase his sales by about 12% to make stamps pay. If he can’t, says S. & H., “he would be better off to use some other type of promotion.” His customers would doubtless be better off too. But an estimated 75% of U.S. families now save the stamps offered by 225,000 retail outlets.

Re-entry Point. Among the stamp savers is Mrs. E.F. MacDonald, who refuses to stop at a service station that does not offer stamps, assiduously fills her books to redeem for Christmas presents. Though he himself could bring home the same premiums at wholesale cost, his wife’s habit delights the Scots heart of Mac MacDonald, for whom premiums are a way of life. A rotund, robust optimist, MacDonald started his business career with a small Dayton firm selling luggage as contest prizes for salesmen. By expanding the company’s premium line and concentrating on Detroit’s automakers (who sometimes spend as much as $4,000,000 on a sales incentive campaign), MacDonald built sales rapidly and eventually made the firm his own. Branching out ambitiously, he began opening European offices, and by specializing in sales incentive trips and convention travel arrangements also built E.F. MacDonald Co. into a top U.S. travel agency.

Last year, watching the stamp scramble mount, MacDonald began to regret his uncharacteristic 1957 decision to retreat from the field. Seeking the most effective re-entry point, he decided that A. & P. could not continue to buck the stamp trend much longer, set up the Plaid stamp plan especially for A. & P. “I went there cold,” he says. But MacDonald had one overriding asset: since all the other major trading stamp distributors had already signed up with competing grocery chains, none of them were free to bid for A. & P.’s business.

Dulling the Edge? If the plan proves good for A. & P., it should be better for MacDonald. Plaid stamps already are in use in 2,700 A. & P. stores, and 15,000 other retailers have been signed up in 29 states, although, in deference to A. & P., Plaid is taking on no more grocers. Some retailers argue that the fast-spreading use of stamps is destroying their competitive appeal. “They don’t give an edge any more,” says one grocer. “They just let you keep up with the competition. But it will be years before we can get rid of them, if ever.” Benignly, Mac MacDonald agrees. Within two years, he predicts, trading stamps will be a $2 billion business. And in three years, he says, without so much as a glance at front-running S. & H., Plaid stamps “will be No. 1 in the country.”