Commentary Magazine


Going to Market

To the Editor:

Ben B. Seligman’s article [“The High Cost of Eating,” July] was of great interest to me as editor of a national trade publication serving the grocery-supermarket industry.

Mr. Seligman has bent the available facts and information in a way that is becoming all too frequent among the “trade school” professors. They like to imply that they wear the cloaks of both business expertise and campus purity with equal ability and objectivity. Intellectuals—including readers of your publication—can be snowed in this way as easily as the most unsophisticated dupes of the worst yellow journalism. . . .

Mr. Seligman writes as follows:

Between 1950 and 1965, the Justice Department prosecuted fifty-three anti-trust cases affecting retail food companies, and obtained convictions or consent decrees in thirty-one of them. Only eleven were dismissed and only seven were found not guilty. Some of the more spectacular suits involved Safeway, The National Tea Co., The Borden Co., General Mills, Kroger, Morton Salt, Wards, and even the Teamsters Union and the Kosher Butchers Ass’n.

Just how these suits affected retail food companies Mr. Seligman doesn’t tell us, though previously he had no lack of space to trace the entire history of the food business. We suppose that’s not too important, because Professor Seligman has the conclusion ready for us:

“That such suits had to be instigated,” he goes on, “shows clearly that oldtime competition in the grocery business no longer exists.” That is certainly an interesting view of legal justice—instigation itself implies guilt! . . .

I think it is time that members of the intellectual community . . . took a look at modern capitalism and modern marketing with a view to learning something more about the economy than what they learned during the 30′s or from professors of the 30′s.

Of course, the consumer should have a voice, . . . but she is not going to get it from the group—the 1930′s-type liberal economists—that has been doing most of the talking about these problems. . . .

Mr. Seligman, too, sees the current situation like the angry liberals of the 30′s—as a matter of congealed capitalism pitted against struggling labor, with the consumer caught somewhere in the middle. This is a silly, distorted view of economic life in America in 1967. And it contributes nothing to serve up more unreality to people who want and need more than the conventional campus wisdom. . . .

Kenneth P. Partch
Editor
Food Topics
New York City

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To the Editor:

. . . Despite Ben B. Seligman’s impressive gloss of learning, there are some basic errors in his article that reflect a misunderstanding of mass-marketing. . . . For example, he damns “trading stamps, games, and other gimmicks,” not appreciating that stamps are different from games and other gimmicks, since they are given to all customers on an egalitarian basis. . . .

May I note that the only intensive study of the direct relationship between stamps and food prices (published by the Department of Agriculture, based on research by the Bureau of Labor Statistics, in 1957-58) indicated that stamps had no appreciable effect on food prices. It should be emphasized too that stamps are the only long-term advertising-promotion technique to return the full amount of the dealer’s cost to the consumer in the form of premiums. To quote the aforementioned report, “It would appear, on the average, in the twenty-one cities studied, consumers who save and redeem stamps can more than recoup the relative price difference between stamp and non-stamp stores.” As an academician interested in the field, Mr. Seligman should further have been aware that a BLS study published in 1965 covered seventeen years of stamps and their effect on prices . . . and produced a similar “no appreciable effect” verdict.

The notion that if there were no trading stamps the money “saved” would go to the consumer is naive. BLS studies and others have shown that large numbers of retailers say they would invest this money in other advertising and promotion, and few would turn it back in lower price.

The National Commission on Food Marketing did “hint” strongly, as Seligman says, that trading stamps were a factor in price rises. But its methodology in this is strongly suspect. . . . Though the work of NCFM has the aura of the Sermon on the Mount to some of the mythmakers, much of it is tendentious and squeezes conclusions in a way that must be considered invalid. The work of Professor Ralph Cassady (and to a large measure that of the seven Texas professors who studied prices for Governor Connally in 1966) affirms that average gross margins in a competitive situation may have little to do with individual prices. Thus, a firm that buys cheaper than one of its competitors may have higher gross margins and still undersell the other firm as far as the consumer’s price goes. Or a firm that obtains greater volume by merchandising know-how can undersell its competitor. Or a firm that has reserves that enable it to compete for long-term market dominance can consistently undersell the competitor. The issue is not whether operating costs are great, but how productive operating costs are. This, somehow, escapes Seligman.

Pure price-competition is like sin, or nobility of character; no one is quite sure what it means. Its purity is delusive for, as such, it exists nowhere on this wide earth save in the reports of NCFM and its latter-day disciple, Mr. Seligman. For at the very least, the factors of location, good housekeeping, pleasant manners, are also in the picture as non-price competition. It seems to me the greatest gamble one can undertake in food retailing is to insist that an untried system of “pure” price competition be substituted for the highly efficient and competitive system we now use and enjoy. . . .

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It should further be noted that trading stamps, since they give value back to the consumer, also belong in the category of price competition, though the “value back” is not immediately in dollars and cents. Moreover, if it is claimed that it is impossible for “value back” to be given in trading stamps, then the economic equation would make it equally unlikely that “value back” can be given in any form—in selective pricing or cash discount or what have you, without raising, ultimately, the price level for the consumer.

We say it is possible to give “value back” in the form of stamps, first because stamps are risk-reducing, involving none of the “guesstimates” on results that go into advertising decision or decisions on handling food, or decor. Stamps are given after a purchase is completed, given to every customer, be it noted, in direct proportion to the size of her purchase . . . given essentially as a dividend-now to induce the consumer to return to the store. . . .

In short, . . . Seligman’s asseverations, combined with NCFM’s suspicions and curious double-standards in evaluating sources, constitute a flimsy mythology. For they take a remarkable idea created by the capitalist market and convert it into a dragon. And what do they offer instead?—a theory of “pure” pricing that belongs in Babes-in-Toyland, which neglects to note that prices have been rising notoriously in areas where stamps are not given, that supermarkets spend less proportionately for advertising and promotion than do many sectors of the economy. . . .

Ira Kaplan
President
King Korn Stamp Company
Chicago, Illinois

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To the Editor:

Mr. Seligman uses the traditional propaganda devices—half-truths, selective omission of facts, and innuendo—to damage the entire food industry, to say nothing of the trading stamp industry. To make matters worse, several newspapers, recognizing the high interest in the subject, published excerpts or condensed versions of the article, . . . picking up the bad arithmetic and logic that characterized Mr. Seligman’s piece. . . . Here are some examples of misinformation in Mr. Seligman’s discussion of trading stamps:

A ten-cent purchase entitles the housewife to one stamp, so that a completely filled S&H book, for example, represents a total retail expenditure by the customer of $120. Now, the average value of a book when turned in for redemption is $3. Since the cost to the retailer, who buys the stamps from the redemption company, runs between $2 and $3, the most the customer receives by way of a discount amounts to 8/10 of 1 per cent, and in many cases it is exactly zero.

It is impossible to follow this arithmetic, no matter what assumptions or interpretations one grants the author. The only possible assumption, indeed, is that the author lacks an understanding of the basic economics of retailing. Mr. Seligman continues:

In 1963 the total number of stamps purchased by retailers was 377 billion; of these, some 50 million were not redeemed. Even if we use the figure of $2 per thousand as the cost to the retailer, this would mean that housewives across the nation shelled out $83.3 million for something they never got.

Most of these figures are wrong. Mr. Seligman’s selection of data and his arithmetic are such that each unredeemed stamp is given a value of $1.66. Even we would not make such a claim. As for his innuendo regarding unredeemed stamps, any comment we might make would give it merit it does not have. Mr. Seligman goes on to say, “The National Commission on Food Marketing has hinted rather strongly that trading stamps have been a major factor in the higher prices of recent years.” This is simply not so. The commission disposes of trading stamps in only thirteen sentences in its 170-page final report. This suggests that stamps are not a major force in the relationship btween farm and food prices, food prices in general, or any area of food marketing aside from retail sales promotion.

Mr. Seligman says the U.S. Department of Agriculture found “prices in stamp dispensing stores went up 0.7 per cent in recent years while in non-stamp stores, the increase was 0.1 per cent.” This is total misrepresentation of data. These “recent years” referred to are the three years covered by a USDA study concluded in 1958. The report found the relative change in prices between stamp and non-stamp stores was only .6 of 1 per cent. (Stamps are worth 2 per cent.) Surely Mr. Seligman knows that prices have risen more than 0.7 per cent in recent years. That is supposed to be the point of his article. He neglects to mention a more recent study (May 1965) by the Department of Labor, covering the possible effect trading stamps might have had on the Consumer Price Index over a fifteen-year period. It concluded that any effect was so inconsequential as not to merit their inclusion in the Index’s consideration.

In conclusion Mr. Seligman says, wistfully, “The housewife is no longer confronted by a white-aproned neighborhood grocer ready to serve her, but rather by huge impersonal aggregations of capital whose sole objective is to separate her from the household budget.”

If she wishes, any housewife can patronize a food store where she will be served by a “white-aproned grocer ready to serve her.” She will, of course, probably pay higher prices, possibly get slower service, choose from a smaller variety of items, carry them out herself to her car, which will probably be parked at a meter. These stores still exist for those who prefer highly personal service. Obviously, however, most shoppers prefer the mix of services provided by the modern supermarket.

Eugene R. Beem
Vice President, Corporate Research
The Sperry and Hutchinson Company
New York City

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Mr. Seligman writes:

I am not surprised that such anguished cries of pain should come from the members of the supermarket fraternity (I count stamp companies as siblings). The years I spent in Washington with the Retail Clerks Union gave me some insight into the curious world of retailing. It’s one in which fantasy and reality are mixed in uneven proportions with major weight on the former. In matters of minimum wage regulation, for example, one could always be certain that management would reach for its ample supply of executive towels to weep over the parlous condition of its enterprises. Of course, the facts were invariably other than what retail managements had to say publicly. Mr. Partch writes in this tradition, which is to say, that he talks excited nonsense. To be sure, the problems of the 1930′s were quite different from today’s problems: that was the point of the article. Retailing today isn’t what it used to be.

It comes as no shock to me or anyone that Mr. Beem and Mr. Kaplan would frantically defend their industry: in a pluralistic and democratic society that is their privilege. But Mr. Kaplan ought to quote me correctly. I said nothing about games nor did I “damn” trading stamps. I merely described what they do to the housewife’s pocketbook. Mr. Kaplan holds the report of the National Commission on Food Marketing suspect because it was so critical of his business. But the staff of the NCFM was comprised of competent, careful economists: it’s too bad Mr. Kaplan doesn’t like their conclusions. Such a reaction would have been entirely predictable. And Mr. Beem should have read not only the final 170-page NCFM report, but the several supporting volumes as well, in which there was a good deal more than the thirteen pages to which he refers. His blood pressure would have mounted even higher than it does in his letter.

Evidently, Mr. Beem’s knowledge of arithmetic is as extensive as his reading of the Commission’s report. I have neither the patience nor the space to offer lessons in elementary mathematics to people who suffer from hebetude. Suffice it to say that the data I used were drawn from the NCFM study. Your correspondents seem to suggest that they are blessed with a spirit of philanthropy for the housewife. That is a curious piece of self-delusion I came across often in my Washington days. No one takes it seriously. As for the BLS-Department of Agriculture report, that one is really suspect. For years now the poor research and extension people in the Department of Agriculture have been glorifying the supermarket industry for want of anything else to do. Come boys, your oxen are bleeding!

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