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specials are not always good values. However, it is not possible to determine this without Unit Pricing since there are so many different sizes and so many prices of all available products. In affect, it would be easy to sustain an argument that without Unit Pricing information available to consumers, food ads can be, and in fact, may be very deceptive, unfair, and misleading.
The Commission, therefore, recommends that the Council be given explicit statutory authority to regulate the appearance of Unit Pricing in advertising. Given that this will not cost the Commonwealth any additional money, will provide the consumer with useful and necessary information and will not increase cost to food stores (which had one of their most profitable years in history) the Commission believes this authority should be delegated. One further note: the States of Connecticut and Rhode Island already have authority to require such information to be available in food store ads. A suit by food stores has to date been rebuffed by the courts.
Because of the information provided by the comparative pricing study, and in light of the action taken by the States of Connecticut and Rhode Island, we strongly recommend that the Council be given authority to regulate Unit Pricing in advertising. (See Exhibit 12.) 1
13 See p. 283.
The PART C
This Minority Report is submitted after a careful review of the legislation proposed by the majority which we find, in certain respects, to be incomplete. In the area of milk production and distribution, we see no need for the continuation of the establishment of minimum producer prices in those areas of western Massachusetts not presently regulated by the United States Department of Agriculture. We accordingly recommend that all of the functions and responsibilities of the Milk Control Commission be terminated and only such matters as directly related to the protection of public health be retained and transferred to the Department of Public Health.
In a broader area, the entire food industry should be subject to careful and ongoing scrutiny by the Massachusetts Consumers' Council. The Council should have the authority to investigate areas of effective competition in the industry and have the power to take reasonable steps to promote free trade and restore competition in those segments of the industry found lacking in this regard.
B. THE RESPONSIBILITY AND FUNCTIONS OF THE FOOD COMMISSION
By virtue of House Bill 6581, a Special Commission was established by the Massachusetts Legislature consisting of ten members, eight of whom are legislators and two persons appointed by the Governor.
The Commission was charged with the responsibility of studying the pricing and marketing procedures of grocery store chains in the Commonwealth and to consider in the course of its investigation possible remedies to relieve the burden of the high costs of food for the consumers of the Commonwealth.
The Commission in carrying forth its responsibilities issued written questionnaires as well as more specific interrogatories to members of the food industry within the Commonwealth. Hearings were held in several communities across the Commonwealth, written and verbal testimony from members of the food industry, governmental representatives and the consumer public was received and reviewed. The Commission gathered information concerning the methods of distribution of food products from their source through the various resale levels to the consumer.
As noted in the main Report, our request for subpoena power was denied. In a real sense that denial precluded the gathering of the kind of information which would have permitted the recommendation of legislation to deal directly with the competitive problems of the food industry in Massachusetts. With the exception of milk distribution, for which there exists ample statistical and non-statistical information, too much of what we set out to ascertain still remains unknown.
What information we were able to gather came from publications such as The Griffin Report, a trade journal; prior government studies such as the Final Report on the Governor's Commission on Food (June 24, 1974), hereafter referred to as the Governor's Report;_the Staff Report to the Federal Trade Commission, Economic Report on Food Chain Profits, 1975, hereafter referred to as the FTC Report; and submissions of the industry members including a well-documented Position Paper of Milton W. Segel, Vice-President of Government and Trade Relations for First National Stores, Inc.
C. NON-MASSACHUSETTS FACTORS
The Governor's Report found "that food costs are higher in Massachusetts than in most other states," and proceeded (at pages 18, et seq.) to explain the reasons. Higher and discriminating transportation costs, higher fuel costs, and the lack of local food production were the principal factors cited. Mr. Segel of First National Stores, and Messrs. Kahn, Mugar and Rabb of Purity Supreme, Star and Stop & Shop' respectively all echoed these findings. This however is, in our judga ment, only the starting point of the analysis and by no means its conclusion.
D. MASSACHUSETTS FACTORS-Is THERE FULL AND OPEN
All of the members of the Commission agree that it is this question with all of its enormous ramifications that needed and still needs answering. It is in the ultimate manner of answering this question and resolving any negative responses that the Commission split. The minority is desirous of providing to the Massachusetts Consumers' Council a vastly expanded and important investigative and remedial role. While in agreement on the principle of free trade enforcement, the majority expresses legitimate concerns that this proposal would be too expensive and representative of too much government involvement in the private sector.
1. THE SANCTITY OF COMPETITION
It is in the public interest to have free and unfettered competition as a rule of trade. In discussing the Sherman Act, the basic Federal antitrust statute, Justice Hugo Black said: “It rests on the premise. that the unrestrained interaction of competition forces will yield the best allocation of our economic resources, the lowest prices, the highest quality and the greatest material progress, while at the same time prəyiding an environment conducive to the preservation of our democratic political and social institutions.”
Justice Black was speaking not only about a statute but of a political and economic choice made in this country from the beginning. It was a choice between a government owning or controlling commerce, as in a socialized system, or a government devising and enforcing rules which permit commerce to regulate itself. “This philosophy of conpetition as the regulator is the basis of our antitrust laws and is basic
to our political system.” Remarks of Charles D. Mehaffie, Jr., Chief Trial Section, Antitrust Division, Department of Justice, Cherry Hill, New Jersey, August 18, 1971.
Thus the inquiry was and remains, is competition working to regulate, i.e. allocate resources in the most efficient and productive manner possible? To answer that question requires an analysis of the structure, conduct and performance of particular markets. These categories are themselves subject to further refinement as one views the particular market in terms of concentration, product differentiation, ease or difficulty of entry; predatory and exclusionary tactics of sellers; pricecost margins and profit rates and progress and change resulting in increased productivity.
2. IS CONTINUED SCRUTINY NECESSARY
a. The Wholesale Food Distribution Market
In Massachusetts, it appears as though one firm dominates the distribution of food products to independent retail grocery stores. If the statements quoted from representatives of Springfield Sugar and Products Company in the June 1974 issue of The Griffin Report are accurate, Springfield Sugar and its affiliate, New England Grocer Supply Co. are the "biggest wholesale food distributors" in New England. The Griffin Report, June 1974 at 70. According to David Katz, an executive of Springfield Sugar, "the combined firm now represents the largest single buying and customer retailing force in New England, and he claims, larger than even the biggest chain.” The Griffin Report, Id.
Figures published in The Griffin Report, October 1974, indicate the extent of control exercised by the two consolidated firms. According to the report the top ninety-nine New England wholesalers totaled $1,681,650,000 in sales volume over the course of one year. First in sales was Springfield Sugar with $181 million, second was Hannaford Brothers with $160 million, and third was New England Grocer Supply Co. with $141 million. Thus Springfield Sugar and its affiliates totaled $322 million or about 20 percent of all sales, and the top three firms together totaled about 30 percent of all sales. A further indication of the extensive control exercised in the Commonwealth of Massachusetts by Springfield Sugar and New England Grocer Supply Co. is exhibited by the fact that Hannaford Brothers, the second largest supplier, is a Maine based firm with business substantially limited to Maine, New Hampshire and Vermont.
Of course, while these figures show sales in a substantial percentage of the wholesale market, they do not and cannot but hint that competition is not at workable levels in that segment of the food distribution industry. The need to provide independent retailers with a financially secure and powerful purchasing and warehousing arm so that they can effectively compete against the chains is an obvious counterpoint to any "anticompetitive" argument regarding the size of the Springfield Sugar operation. According to Julian Schultz, Executive Vice-President and General Manager of New England Grocer, "There isn't a single service offered by the big chains that we don't make available to our retail customers: store engineering, accounting, advertising and promotion help, personnel selection and training, site selection and financial assistance to whatever degree is necessary.” The Griffin Report, Ibid at 71.
Certainly bigness is not badness in and of itself. Growth of single firms through aggressive management, efficient operation and quality service is to be encouraged. Whether Springfield Sugar grew this way or whether the firm is engaged in a healthy competitive struggle is at this time difficult to determine. Can other wholesalers really compete for the business of the independents and smaller chains or are they left with the business not desired or obtainable by Springfield Sugar? There are obviously a lot of food wholesale dollar sales that Springfield Sugar is not receiving and on the basis of the figures presently available they certainly do not enjoy an overall monopoly position.
To say this, however, does not complete the puzzle. What is the degree of concentration within particular sub-markets of the Commonwealth? What are those sub-markets? Assuming that a particular area of the Commonwealth could be isolated because of the transportation costs and other factors from the rest of the State and in that market, Springfield Sugar or some other wholesaler has control of eighty or ninety percent of the sales, then what should be done about it? Perhaps it is an area which for any number of reasons can support only one or two wholesalers.
How much actual price competition is there in the wholesale food distribution business? Has service competition totally or substantially supplanted price competition in this industry? Is this a natural phenomenon because of the nature of the business, i.e., the overriding concern with competition from the integrated chains and the singular need to meet or beat them, or is it just another aspect of the pricing policies of the large packers and manufacturers? These are but a few of the questions which we believe should be the
a subject of a continuing inquiry in this industry. We do not want regulation as a substitute for competition and nothing that is suggested in this Report warrants a different conclusion. Retailers must have different channels of supply available to them. They are entitled to have the benefit of rigorous price competition between many competing firms. Just as consumers shop different chain and independent stores so should retailers be able to pick and choose among wholesalers.
What the optimum level of competition should be in the wholesale food distribution business is, of course, a difficult question. It is, however, a question which must be studied and answers sought. It may be that the public interest presently is being served in an economically and socially desirable fashion and no tinkering with the market structure is needed. On balance the Council could determine that the threat to the chains provided by the independents could be diluted if more vigorous yet less stable competition were injected into the wholesale food distribution business.
What we believe however, is that judgments should be made, and they must be made on the basis of sound information not wild speculation. It is our intention that the Council not set the prices for the members of the industry nor bar entrance into the marketplace as occurs in the public utility area. Following the precedent established by the Federal Trade Commission, the Council is to restore competitive conditions where they do not exist and will not replace competition with regulation. 6. The Retail Food Distribution Industry
While at seemingly lesser overall levels the retail food distribution business within various markets in Massachusetts is marked by not