Safeway Strategy

Most big shopkeepers admit that a "loss leader" is sometimes good business. Customers attracted to a store by the cut-rate price of one product linger to buy other products on which the store can make a profit. But "loss leaders" become a large hole in the profit bucket when customers throng a store to buy only the "loss leader" and nothing else. Forcefully last week was this axiom brought home to scores of cut-rate storekeepers in Los Angeles, home of some of the fiercest price wars in the U. S.

Under NRA, shopkeepers were not supposed to sell goods at less than cost. The moment the Blue Eagle was struck down, some Los Angeles grocers began offering "loss leaders" at 25% or more below cost. Their more conservative competitors called protest meetings, loudly thumped for a continuance of "fair practices." The cut-raters stood their ground and all grocery prices began to sag.

Last week Safeway Stores, largest food distributor in Los Angeles and leader of the fight for fair prices, hit upon a scheme to punish the cut-raters. Full-page advertisements appeared in Los Angeles newspapers announcing that Safeway would pay standard prices for butter, bacon, sugar, shortening and a long list of other items which other grocers were offering as "loss leaders." This meant that housewives could buy "loss leaders" at cut-rate stores, walk around the corner and sell them at a profit to Safeway. Merchandise began pouring into Safeway Stores a few minutes after the early editions carrying the announcement hit the street. For Puritan bacon sold by competitors at 18-c- per Ib. Safeway was offering 34-c- for 3-lb. Crisco tins, 54-c- against the cut-rater's 29-c-; for National Brand butter 29-c- against 13-c-. The rush lofted to a peak the first day, then dwindled rapidly until, within three days, the volume of incoming merchandise amounted to only a handful of items. Reason: cut-raters had been forced to drop "loss leaders" entirely soon after the rush started as a matter of profit protection.

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