Behind the Boycotts: Why Prices are High

Behind the boycotts:

Why Price are High

Supermarket boycotts spread like butter on a sizzling griddle last week. Encouraged by reports that several shopping-cart blockades the week before had forced the great chains to lower some prices, housewives marched in more than 100 cities. Placard-waving pickets popped up in places as disparate as Pittsburgh and Cedar Rapids, Iowa, Washington, B.C. and Lubbock, Texas. Esther Peterson, the former Utah schoolteacher who is the President's special assistant for consumer affairs, egged on a band of New York City demonstrators, urging them to "vote with the dollar."

The Federal Trade Commission promised to investigate whether supermarket promotional games inflate food tags. All this gave the impression that food prices have climbed 4% in the past twelve months simply because the supermarkets are grossly profit hungry. The retailers do share some of the blame. But they constitute just one element in a complex mixture of ingredients--including Government policies and rising wages --that make up food cost.

Dwindling Surpluses. The major reason for the price rise is the startling decline in U.S. farm surpluses. Because of Government crop controls and the increasing size of foreign-aid shipments of food to famine-threatened nations, the wheat surplus has dropped since 1963 from 32.5 million to 15.2 million metric tons, is now below the minimum needed as insurance against domestic crop failure. In addition, bad weather reduced this year's harvest. Speaking at the Miami convention of the National Association of Food Chains last week, Boston Supermarket Executive Gordon F. Bloom said: "American consumers have grown accustomed to low food prices based on surpluses that are no longer with us. The honeymoon is over."

Grain shortages have increased the price of flour; consequently, bread prices have risen 7.5% since January. The steep price of feed grains for livestock has also contributed to an appreciable increase in meat prices. At the same time, ranchers have stepped up their slaughter of dairy cattle--to reduce feed expenses, take advantage of high meat prices--with the result that milk prices are up 7.9% this year.

Government policy is also a primary cause of the 10% rise in fruit and vegetable prices this year. Pressured by labor unions, the Government last January reduced the inflow of low-wage Mexican braceros who work in U.S. fields and orchards. Thus farmers had to hire domestic field hands, who demand higher wages and are reluctant to do such backbreaking "stoop labor."

Chain Reaction. The Government estimates that of every dollar spent for food, roughly 39-c- goes to the farmer, 40-c- to the wholesaler and distributor, and only 21-c- to the retailer. Supermarket executives point out that their industry's profit margin after taxes has scarcely changed since 1960, runs a modest 1.3% of sales. But that widely used, poor-mouthing figure does not sum up the whole situation. By the more incisive measure of profit on invested capital, supermarkets earn 11.5%, almost exactly as much as the average for all U.S. manufacturing.

Though the big stores have slashed the costs of food distribution in half since the 1930s, other expenses are rising. From 1955 to 1965, wages went up 46%, but retail food prices rose less than 14%. Yet supermarket operators admit that they could do considerably more to reduce costs through automation. Across the typical checkout counter run 22 tons of merchandise a week--all of it totted up and packed by hand. Says George W. Jenkins, president of Florida-based Publix Super Markets: "Many repetitive supermarket activities are readymade for mechanical and electronic assistance."

Housewives' Target. The boycotting housewives had little interest in the complexities of economics or electronics, but they concentrated much of their ire on a most visible target: supermarket games. The cost of such come-ons as Bonus Bingo, Pot-O-Gold and Let's Go to the Races amounts to approximately two-thirds of 1% of supermarket sales--half as much as the profit margin for the industry. The marketers rationalize that the games are an expensive promotional nuisance, but that Mrs. America is attracted by them despite her protests. Said Clarence G. Adamy, president of the National Association of Food Chains, at the Miami convention: "There is not a retailer here who likes the games or stamps."

Chances are that in most cases the games will stay, the boycotts will fade, and prices will drift upward. It may be small comfort to the housewives, but food still costs less in the U.S. than in many other countries: in West German supermarkets, steak goes for $2.25 a lb.: in Britain, string beans now command 60-c- a lb. Most important, Americans spend only 18% of their after-tax income for food, while Europeans--who have far fewer convenience foods --spend from 29% to 45% .

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