Not too long ago, housewives rebelled all over America. Protesting rising food prices, they picketed supermarkets across the country, and as clerks were furloughed for lack of work and the Retail Clerks Union pleaded with homemakers that the high cost of living was not the fault of employees, prices continued their upward march. It was clear from a Harris opinion poll, however, that the main brunt of the housewives’ anger was directed toward the big food processors and the middlemen (wholesalers and jobbers). It was they, the ladies said, who were keeping up the cost of table food, and especially the price of meat. But so involved, so complicated has the food business become in America that no such diagnosis can any longer correspond to the realities. Because of these realities, moreover, no easy answers—if any at all—are available to the problems raised by last year’s boycotts.

_____________

Food is the nation’s largest industry. In 1964, somewhere between $80 and $85 billion worth was consumed at the retail level. The grocery business itself, that part of the industry which reaches the housewife directly, accounts for over three-fourths of the total. There are almost 320,000 grocery stores in the United States—a number of outlets larger than that of all other retailers combined—and together they employ nearly a million-and-a-half people. Food stores range from the huge supermarket resplendent with banners advertising specials and equipped with play areas for tots, to tiny colmados in upper Harlem whose owners eke out a livelihood just barely above that of their relief customers.

In the past twenty years, a fantastic increase has taken place in the variety of goods offered for sale in retail food stores. In 1946 there were perhaps three thousand items from which the housewife might select her daily or bi-weekly package; today almost eight thousand items clutter the shelves. They not only include the usual assortment of canned goods, but also “convenience” items like TV dinners, and numerous gadgets once bought elsewhere (knives, dishes, and hardware). In addition to all this, there is an endless array of cosmetics, drugs, cleaners, waxes, cigarettes, alcohol, kitchenware, curtains, tires, feed, lawn seed, antifreeze, undershirts, nails, and batteries—items which account for $3 billion of grocery store sales; there are vast amounts of “processed” foods (breads, pre-packaged meats, and frozen foodstuffs) now flooding the shelves; and there are many different packages for the same item (sub-regular, irregular, doubles, economy, and giant). No wonder the housewife is staggered. (A marketing test a few years ago filmed supermarket customers in order to determine the rate at which they blinked their eyes. The theory was that gaudy colors would increase eyelid action. To the surprise of the investigators, it was discovered that the brighter the colors, the lower the blinking rate—the housewives had been paralyzed by supermarket displays!)

Naturally, it all costs money, for much is invested in rotary hoisters, conveyors, chains of bread trays, packaging, advertising, and marketing. And the investment expands as more and more people with more and more money to spend come upon the scene. Thus, between 1929 and 1963 retail sales jumped from $11 billion to almost $60 billion. Since 1911, moreover, per capita consumption of meats and fish has gone up by 27 per cent, and of dairy products, by 6 per cent (potatoes, however—a dish for the poor—have declined by a whopping 54 per cent). Nevertheless, the total effect of the steady increase in sales, along with the parallel expansion in the range of goods offered, has been a decline in the number of stores that the housewife can patronize. In the main it has been the small outlet, the colmado, the “mom and pop” store, that has suffered attrition. Today such stores amount to only about 40 per cent of the total and they are no longer of any consequence in any local or regional market.

The cause of this decline is, of course, the supermarket. The origins of supermarketing—in itself a relatively new merchandising method—may be traced to the “combination” stores that cropped up in California during the 1920′s when grocery and meat departments were brought together under one roof. Such combination stores, called “cheapies,” were usually opened in abandoned warehouses or garages in the slums of the big cities. The King Kullen markets of Long Island, an early “super,” went to the outskirts of New York City in the 1930′s and called on new suburbanites to come with their cars to buy cheaply in large quantities. Food was displayed in open crates; there was little overhead; and the entrepreneurs’ objective was a low-margin, high-turnover business. True, all this was started by enterprising independents who were determined to outdo chains like A & P which had secured an initial advantage by volume buying and excellent urban locations. But between the chain and the supermarket stood the ordinary neighborhood grocer, and in the era of self-service and parking lots he could not survive in very large numbers.

Suburbia grew and created a mass market; the automobile provided mass transportation to shopping centers; home refrigeration made possible a weekly rather than a daily trip to market. And so the grocery business underwent a quiet yet gigantic upheaval, analogous in many ways to that experienced by the manufacturing industries in the 18th and 19th centuries. Marketers scurried about buying or leasing new locations in freshly built towns as the small neighborhood outlet of five thousand square feet, which could hardly accommodate a dozen checkout counters, became inadequate to handle the ever-growing traffic. The new supermarket, operated by chains, franchised licensees, or cooperatives, expanded to an average size of twenty-two thousand square feet in 1957; today it is not uncommon to do one’s purchasing in a mammoth fifty-five thousand square-foot “giant” super.

The complicated network of distribution channels needed to supply these retailers can only be dimly perceived by the housewife. Behind the retailer, there are wholesalers, brokers, processors, and producers, each of whom plays a role in making prices what they are. Wholesalers, numbering some forty-two thousand, employ another five-hundred thousand persons, who in 1963 were responsible for selling $59 billion worth of goods. Brokers, who are akin in many ways to the tolkachi of the Soviet Union, never take physical possession of goods; they merely handle orders and purchases, pieces of paper, and see to it that a retailer gets what he needs on time. There are about two thousand brokers in the food business; they employ seventeen thousand salesmen who handle thirty thousand different items, and who bring in $13.5 billion annually in sales. Food “processors,” from sugar refineries to huge dairy plants to small automated meat-packing installations located in Southern towns, number about fourteen thousand. In 1963 they added $21.4 billion in value to the $42 billion worth of raw materials they acquired from producers, who are to be found mainly on the nation’s three million farms, some of them literally factories in the field.

Yet even with all these middlemen, the price of food might still have remained within bounds if there were a significant degree of competition in the industry. The reality of the food business, however, is concentration. The “chain-store movement,” initiated in 1859 by the Hart-fords of A & P, laid the groundwork by which small retailers were forced together under one management. The chains merged retailing and wholesaling functions, moved backward into processing to cut costs, and did not hesitate to use “loss leaders” and spectacular specials to draw customers away from rivals and independents alike. By 1930, some eighty thousand units had been brought together into one or another form of chain-store—and the grocery business had been brought into the 20th century.

_____________

Initially, of course, resistance to the movement was strong. Some states, such as Louisiana, even tried to tax the chains out of existence. But in the long run the pressures toward integration and consolidation could not be overcome. By 1948, the chains had secured about 35 per cent of the retail market in foods; those independent retailers who had been cajoled by wholesalers into joining “voluntary” cooperatives (based on group merchandising, uniform store layout, joint advertising, and private labels) retained another 35 per cent; about 30 per cent was left for all the others. By 1963, the chains had gobbled up 47 per cent of the market, while the “affiliates” or “voluntaries” had 44 per cent of what was now a substantially larger industry.

Some of the competitive practices indulged in by the chains have been attacked under existing anti-trust legislation. Between 1950 and 1965 the Justice Department prosecuted fifty-three antitrust cases affecting retail food companies and obtained convictions or consent decrees in thirty-one of them. Only eleven cases were dismissed and only seven defendants were found not guilty (four cases are still pending). Some of the more spectacular suits involved Safeway, the National Tea Company, Borden Company, General Mills, Kroger, Morton Salt, Wards, and even the Teamsters’ Union and the Kosher Butchers’ Association of Los Angeles. Many were charged with conspiracy to fix prices and establish monopolies; others were charged with predatory competition; some with price discrimination (these are all violations of the Sherman and Clayton Acts as well as of the Robinson-Patman Act). That such suits had to be instigated shows clearly that old-time competition in the grocery business no longer exists.

To be sure, it is still difficult to speak of market domination on a national scale. The product market—the area in which marketing takes place—has, it is true, widened; once the neighborhood or town, it is now the entire region or metropolitan area. From a national standpoint, the twenty largest food retailers increased their share of the market from 1948 to 1958 by only 7 per cent. Since 1958, the situation for the so-called national chains has been fairly stable, reflecting an increased growth on the part of regional or statewide chains which, merger for merger, have been matching the pace of A & P, Safeway, and Winn-Dixie.

Nevertheless, the strength of the large national chains is such that in 1963, according to a tabulation by the National Commission on Food Marketing, the top four grocery companies obtained, on the average, half the sales in 218 metropolitan areas, while the top eight secured 62 per cent of the sales in these areas. (In 1954, by contrast, the ratios were 45 per cent and 54 per cent respectively.) Thus, despite rivalry with local outfits—not necessarily on the level of price competition—the nationwide chains have continued to bite off somewhat larger pieces of the market, which itself has been burgeoning. Even though their investments are high, these chains are highly mobile. Able to finance themselves from internal resources, they can close down old stores with alacrity, open new ones, spin off acquisitions no longer profitable, search out new locations, and buy out rival companies. In any one year a national chain like Safeway may shut down fifty stores and open sixty new ones; its flexibility is much greater than the balance sheet would suggest. It is this that enables such chains to hold on to, and even expand, their markets.

The strength of the chains is revealed in buying as well as selling. They have so thoroughly invaded the suppliers’ field that one must wonder what they mean when they blame high prices on vendors. For while independent food wholesalers may still occupy a position of importance—there were two thousand of them in 1963—the decline in their number since World War II has been dramatic: a drop of about 20 per cent. More significant, perhaps, is the rather close relationship these middlemen are apt to have with the so-called “voluntary” chains, such as IGA, Red Owl, and Red and White.

The way in which wholesaler and retailer interpenetrate is illustrated by the example of Consolidated Foods. Originally just a wholesaler enforcing “voluntary” affiliation upon independent grocers, Consolidated went directly into retailing in 1952; by 1963 it was the fifteenth largest retail food chain as well as one of the major “voluntary” wholesalers. The fifteen biggest “cooperatives” and the fifteen biggest voluntaries now have about 34 per cent of total grocery sales between them; in 1948 their share was about 12 per cent. Another organization, the National Retailer Owned Grocers in Chicago, links some eighty-five “retailer-owned” wholesale cooperatives and coordinates the buying, advertising, and merchandising of its members with its own trademarks and private labels. NROG is actually a holding company with three regional subsidiaries that do the work; their wholesale business totals a huge $2 billion a year. It has become evident to both the Federal Trade Commission and the National Commission on Food Marketing that concentration at the buying end has increased markedly since 1948 and that such concentration is even greater at the point of sale to the consumer.

These tendencies, moreover, have been strengthened by vertical integration, which, through ownership or by contract, links the disparate operations of production, processing, merchandising, advertising, wholesaling, and retailing. The Temporary National Economic Committee, a congressional group investigating monopoly, observed thirty years ago that grocery chains were reaching back to “bridge the entire span between producer and consumer.” And, indeed, by 1963 all but five of the forty largest food retail chains were engaged in processing something for the shelves.

These retailer-manufacturers produce over $217 million worth of canned fruits and vegetables, $57 million of frozen foods, $427 million of bread products, $158 million worth of coffee; in some instances they supply as much as 65 per cent of their own marketing needs. It is evident that they exert far more control over costs and prices than they are wont to admit.

_____________

The most spectacular gimmick used by grocers, and the most pernicious so far as prices are concerned, is the trading stamp. In one form or another, this come-on has been around for years—the Raleigh cigarette coupon and the United Cigar Store ticket being perhaps the most familiar of all early examples. Trading stamps themselves—gummed stickers accumulated by housewives to be exchanged for blenders, towels, electric can openers, hair dryers, and the like—have become the rage among grocers only in the last fifteen years, but the idea goes back to the 1850′s when the B. T. Babbitt Company sold soap with coupons. In the 1890′s Shuster’s Department Store in Milwaukee thought of gummed stamps and books. Finally, in 1896, Thomas Sperry had the happy thought of establishing a trading-stamp company, and so Sperry and Hutchinson—S & H Green Stamps—was founded. A group of New England retailers was the first to dispense trading stamps as a roundabout way of giving the housewife a “discount.” The trading stamp is now big business, and there are many companies doing only this. S & H, the largest of them all, gives away more catalogues than Sears, Roebuck.

The economics of trading stamps is deceptively simple. 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 $120.00. Now, the average retail value of a book when turned in for redemption is three dollars. Since the cost to the retailer, who buys the stamps from the redemption company, runs between two dollars and three dollars, the most the customer receives by way of a “discount” amounts to 8/10 of one per cent, and in many cases it is exactly zero. 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. If there had been no trading stamps, consumers would have saved all the money spent by retailers for green, gold, or yellow stickers. The only party that gains is the redemption company, for its profits stem not only from the difference between what it charges the retailer and what it pays out in redemptions (usually at 75 per cent of retailer costs) but from unredeemed stamps as well. An additional source of profit is the margin between the cost of premium goods and the redemption value of the stamps. It is quite a business.

Why does the retailer give away trading stamps? The original purpose obviously was to draw customers away from rivals; now, however, when everyone is doing it, only the housewife is left holding the proverbial bag. Of course, the grocer still hopes to generate enough volume to cover the cost of the stamps, and if, as frequently happens, this doesn’t work out, he simply jacks up his prices. (When A & P began to give away Plaid Stamps in 1964, new sales were not forthcoming and the company’s earnings fell.) A good many retailers dislike the whole business and some have ceased handing out trading stamps; others continue for fear they will lose customers.

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 suspicion is borne out by studies conducted by the U.S. Department of Agriculture, according to which 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. Only 30 per cent of this difference was recouped by the housewife—in the form of goods she might or might not have needed.

_____________

The affluent consumer has not seemed to care much about the slow upward drift in food prices, a drift of about 40 per cent since 1957-59. When food prices increase at about the same rate as other goods, the housewife appears to be undisturbed. It is only when the cost of meats, fruits, vegetables, eggs, and dairy products spurts ahead of other items in the household budget that the consumer begins to wonder. In the meantime, food economists offer the usual panoply of reasons for the increase in prices: milk production is down; government support prices for cheese and butter are up; agricultural exports have increased, diminishing the supply for the American people; it costs more to market processed foods, an item in great demand by housewives, less willing today to cook.

None of this, however, tells us much about the kind of competition that is actually taking place, all of which is calculated to jack up the cost of doing business, and ultimately the price of food. In the early days, say before 1930, the basic strategy in the grocery business was to give the customer a break. As the chains expanded and added more outlets, it was discovered that savings in bulk buying gave a competitive edge and could lead to lower prices. Efficiencies were introduced into marketing and the housewife really had a lark. Today, however, the rules of the game have been altered: competition is now focused on such matters as store location, “image,” the size of the parking lot, number of square feet, types of gondolas, lighting—anything but price. The strategy now is to fix the price of a particular mix of goods to fit a particular geographic location. As a study by the Retail Clerks Union shows, there is very little variation in price within any given area.

The importance of sale items or price specials is similarly exaggerated. Generally, less than 150 of the eight thousand or so items in an average supermarket will be subjected to specials. To suggest that the housewife concentrate on “good buys,” as does one food economist, is to ignore the tremendous disadvantage at which the consumer is initially placed. She simply doesn’t know. Few housewives travel from store to store to compare prices; for most, there is really no way to determine where prices may be a penny or two lower. And the “special” is in any case not an authentic form of price competition; it is, rather, a gimmick to catch the purchaser’s attention.

Aside from the area of private brands, where some price competition still exists, most retailers concentrate on competing not by lowering prices but by increasing the number of items stocked, improving carry-out services, instituting convenient store hours, or dispensing trading stamps. All these devices are geared toward increasing the cost of the market basket. As a consequence, gross margins, which measure the cost of retailing to society, have been drifting upward and will in all probability continue to do so.

Retail operators, of course, are apt to argue that wages are at fault and that payments to employees have outpaced food prices by about ten per cent. They usually fail to add that only six years ago hourly earnings in retailing averaged about $1.40 an hour, and in many places were less than a dollar an hour; thus, the base was rather low to begin with. Costs in retailing are affected by numerous other factors—managerial skill, equipment, size of store, layout, the flow of goods from storage to selling areas, the arrangement of checkout counters, and the like. Studies by the NCFM suggest that costs drop with more effective use of store facilities, and at a rate more than sufficient to offset wage increases. The retail worker, moreover, has become increasingly productive over the years, as is evidenced by the startling rise in sales per worker in grocery stores—from $14,000 in 1929 to $23,000 in 1963 (in real dollars). My own studies of supermarket productivity, which were made a few years ago for the Retail Clerks Union, suggest an average annual gain per employee of at least 5 per cent. Yet it is difficult for a man to earn a decent livelihood in food retailing—unless the place has been unionized. At average hourly earnings of $1.73 in 1963, a person would gross about $75 a week, hardly enough to sustain a family. Indeed, most employees in retailing find it difficult even to obtain a full week’s work—a circumstance that occasioned a bitter fourteen-week strike against the chains in Baltimore a few years ago.

In Baltimore, the employers complained that their profits on sales were not more than 2 per cent. How, they asked, could they meet the demands of the union? The employers were right about the ratio—if one looked only at the sales dollar. When their sales were computed on the basis of investment, however, the normal way of calculating profit ratios, it became clear that the Baltimore supermarkets were enjoying a healthy 14 per cent return, far better than the situation in many other industries.

The truth is that while food retailing still employs much human labor, the upward drift in prices cannot be attributed to this factor, for compared to other factors, wages have hardly risen at all. Between 1954 and 1963 total labor costs went up by only 3 per cent, while promotion, rent, and heat were up by 40 to 45 per cent. Similarly, between 1956 and 1960 sales for food chains increased 17 per cent; payrolls were up just over 6 per cent. It can hardly be said that the clerk, who earns a pittance anyway, is responsible for the housewives’ predicament.

Is, then, the farmer responsible? Are food prices increasing because he is receiving more for his products? It seems not. In 1947 the farmer obtained 51 per cent of the cost of a food product; in 1965 his share was down to 39 per cent. To be sure, the amount a farmer receives for particular items varies considerably: he is paid seven cents for the contents of a can of beets, for instance, and seventy-one cents for a pound of butter. The difference between what the housewife pays and what the farmer receives can be substantial—in the case of meats it can be as much as 50 per cent. But the blame for this state of affairs lies not with the farmer but with chaotic distribution methods. For example, in 1964 it cost 53 cents to bring one pound of butter from the farm to the plant; processing, storage, packaging, transportation, and delivery cost another 13.8 cents, of which only 5.1 cents went for labor; the retailer then added another 7.6 cents, to reach a total of 74.4 cents a pound. Or consider choice beef, for which the farmer obtained 42.4 cents a pound; marketing, processing, and wholesaling added 11.4 cents (of which labor received 3.6 cents); the retailer’s margin came to 17 cents, so that the housewife’s bill totaled 70.8 cents a pound. The worst situation was perhaps in breakfast cereals, the farm value of which was 4.3 cents a pound; to this figure, transportation, manufacturing, and wholesaling added 30.9 cents (of which advertising alone represented 7.3 cents, a good deal more than labor’s 6.5 cents); and with a retail margin of 6.4 cents, the housewife had to pay 41.6 cents. Hence, one can no more place the blame for high prices at the farmer’s doorstep than at the door of labor.

_____________

The significant economic element in food marketing remains the continuous upward movement of gross margins in retailing. Between 1949 and 1965, the increase in gross margins was 28 per cent. For some chains the rise has been even greater: Safeway up 73 per cent; Kroger, 40 per cent; Acme, 36 per cent. At least for the calculable future, food prices are apt to rise, according to the Agriculture Department’s food marketing report for November, 1966. The cost of marketing services will also probably rise, said the report, with most of the increase passed on to the consumers; this conclusion has been supported by investigators for the House Agriculture Committee. No wonder the housewife rebels.

It is sometimes argued that gross margins have gone up since the 1950′s because modern supermarket methods shift the burden of services to the housewife. No longer is a human clerk available to advise her as to which product represents the superior buy; the clerk has been transformed into a “materials handler,” stamping prices on canned goods, and the only information he is able to impart concerns the location of the canned beans. In effect, the housewife herself now performs services that at one time were paid for by the retailer. In Switzerland an effort even has been made to have supermarket customers punch their own cash registers (it has not met with much success). The housewife performs more and more tasks—searching the shelves, selecting the items, grinding the coffee, filling the basket—and contributes to the upward drift of margins because she is not reimbursed for her services. Of course, she ought to be paid in the form of lower prices, but in the present context of events, that seems unlikely.

In general, then, the reason for high food prices must be sought in that curious concatenation of affairs which has allowed large corporations to dominate the industry at virtually all levels. The absence of price competition, the conversion of food into articles of manufacture, the shifting of service functions to the housewives themselves, the growth of both vertical and horizontal integration pursued as a matter of corporate expansion, and trading stamps—all have added to the food bill and will continue to do so. In this situation 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. In this confrontation the housewife cannot win; she may walk the sidewalk with picket signs, protesting the high prices, but when it comes time to feed the family she will enter the door of the supermarket to do her shopping, and pay ever increasing prices. For she simply has no other place to go.

_____________