PAGENO="0001" CONSUMER PROBLEMS OF THE POOR: SUPERMARKET~ FEIER*irRS?0NSE~ HEARINGS BEFORE A SUBCOMMITTEE OF THE COMMITTEE ON GOVERNMENT OPERATIONS HOUSE OF REPRESENTATIVES NINETIETH CONGRESS SECOND SESSION OCTOBER 12, NOVEMBER 24 AND 25, 1967 Printed for the use of the Committee on Government Operations ~: ~ ~N MENT DEPOSITORY ~Q~E~iY OF RUTGERS, THE STATE UNIVERSITY COLLEGE OF SOUTH JERSEY LIBRARY. CAMDEN, N. J~ 08102 APR5 1968 U.S. GOVERNMENT PRINTING OFFICE 88 32 WASHINGTON : 1968 v/7 u/a PAGENO="0002" COM~ITTEE ON GOVERNMENT O~ERATIONS WILLIAM L. DAWSON, Illinois, Chai~man' CHET HOLIFIELD, California FLORENCE P. DWYER, New Jersey JACK BROOKS, Texas OGDEN R. REID, New York L. H. FOUNTAIN, North Carolina FRANK HORTON, New York PORTER HARDY, JR., Virginia DONALD RUMSFELD, Illinois JOHN A. BLATNIK, Minnesota JOHN N. ERLENBORN, Illinois ROBERT E. JONES, Alabama JOHN W. WYDLER, New York EDWARD A. GARMATZ, Maryland CLARENCE J. BROWN, JR., Ohio JOHN E. MOSS, California JAC~C EDWARDS, Alabama DANTE B. FASCELL, Florida GUY VANDER JAGT, Michigan HENRY S. REUSS, Wisconsin JOHN T. MYERS, Indiana JOHN S. MONAGAN, ~onnectiCUt . FLETCHER ThOMPSON, Georgia TORBERT H. MACDONALD, Massachusetts WILLIAM 0. COWGER, Kentucky J. EDWARD ROUSH, Indiana MARGARET M. HECKLER, Massachusetts WILLIAM S. MOORHEAD, Pennsylyaflia GILBERT GUDE, Maryland CORNELIUS E. GALLAGHER, New Jersey L~AUL N. McCLOSKEY, Ja., California1 WILLIAM J. RANDALL, Missouri BENJAMIN. S. ROSENTHAL, New York JIM WRIGHT, Texas FERNAND J. ST GERMAIN, Rhode Island CHRISTINE RAY DAVIS, Staff Director JAMES A. LANIGAN, General Counsel MILES Q. ROMNEY, Associate General Counsel J. P. CARLSON, Minority Counsel WILLIAM H. COPENHAVER, Minority Professional Staff THOMAS A. SMITE, Minority Professional Staff SPECIAL STUDIES SUBCOMMITTEE WILLIAM L. DAWSON, Illinois, Chairman PORTER HARDY, JR., Virginia JOHN W. WYDLER, New York CORNELIUS H. GALLAGHER, New Jersey JOHN T. MYERS, Indiana BENJAMIN S. ROSENTHAL, New York WILLIAM 0. COWGER, Kentucky LOUIS I. FREED, Staff Administrator JACOB WASSERMAN, Counsel JOHAN T. BENSON, Professional Staff MARILYN JARVIS, Clerk SPECIAL INQUIRY ON CONSUMER REPRESENTATION IN THE FEDERAL GOVERNMENT BENJAMIN S. ROSENTHAL, New York, Chairman PETER S. BARASH, Professional Staff Member In Charge I. WARREN HARRISON, Professional Staff DOLORES FEL'DOTTO, Clerk 1 Succeeded Hon. Robert Dole of Kansas, Jan. 80, 1968. (II) PAGENO="0003" CONTENTS Hearings held on- Page October 10 1966 311 October 12, 1967 i November24, 1967 113 November 25, 1967 209 Statement of- Aponte, Gladys R., executive director, Consumer Action Program of Bedford-Stuyvesant, Inc 12~ Berry, Theodore M., Director, Community Action Program, Office of Economic Opportunity; accompanied by Ben Zimmerman, Chief, Community Services, Community Action Program, OEO; and Miles Hollister, Deputy Chief, Community Services, Com- munity Action Program, OEO 328 Blassie, Nick, executive director, Laborers Food Council of Greater St. Louis 306 Boyd, Janie, Ad Hoc Committee for Equal Pricing 6 Bozman, William, Deputy Director, Community Action Program, Office of Economic Opportunity; accompanied by Gary Ellis, Congressional Relations Staff; Richard Saul, Community Services Division; Ollie Taylor, Field Director, Watts Consumer Action Demonstration Project 99 Buck, Evelyn C., home economist, University of Missouri Extension Center.. 303 Caplovitz, David, associate professor of sociology, Columbia Uni- versity 312 Caron, David, executive vice president, Waldbaum's, Inc.; accom- panied by Ernest Brown, vice president; and George Brown, vice president 187 Conreaux, Jack C., president, Associated Grocers Co. of St. Louis, Mo - 289 Costello, Dr. Timothy W., deputy mayor, city administrator, chair- man, New York City Council on Consumer Affairs 114 Dames, Joan Foster, reporter, St. Louis Post-Dispatch 237 Franklin, Donald, reporter, St. Louis Post-Dispatch 241 Kelly, Marguerite, Democratic leader, near Northeast, Democratic Central Committee 3 McGowan, Etta and Della Jackson 293 Mandell, Samuel, president, Key Food Stores Cooperative, New York, N.Y 181 Nadler, Harry, and Eugene Baum, Human Development Corp. of Metropolitan St. Louis, Mo. 210 O'Brien, John L., Better Business Bureau of Greater St. Louis, Inc. - 295 O'Neal, RobertA., St. Louis division manager, National Food Stores - 276 Press, Stephen, director, MEND consumer education program, New York, N.Y - 140 Ross, Arthur, Commissioner of Labor Statistics, Department of Labor 41 Schlossberg, Mrs. Kenneth, cochairman, Ad Hoc Committee for Equal Pricing 7 Shampaine, H. Robert, chairman, Mayor's Committee for Develop- ment of Consumer Values 291 Shocklee, Rev. John, pastor, St. Bridget of Erin Church 248 Slavin, Mrs. Raymond, housewife, Clayton, Mo 225 Van Gemert, Robert J., assistant secretary and assistant general counsel, Safeway Stores, Inc 30 Vitulli, William, assistant general superintendent, eastern division, Great Atlantic & Pacific Tea Co., Inc 154 White, Walter W., manager of operations, St. Louis division, Kroger Co 254 Winstead, Basil M., manager, Washington, D.C. division, Safeway Stores, Inc~; accompanied by Raj Dogra, Joe A. Taha, H. C. Alexander, Harold V: Miley, and Russell Cool, store managers 6 (III) PAGENO="0004" Iv Letters, statements, etc., submitted for the record- Fage~ Aponte, Gladys R., executive director, Consumer Action Program of Bedford-Stuyvesant, Inc.: Statement of 138 Tabulated worksheet of comparison shopping 160 Barash, Peter S., professional staff member, Committee on Govern- ment Operations: List of items found almost exclusively in stores inNegroareas 178 Baum, Eugene L., Human Development Corp. of Metropolitan St. Louis, Mo.: Statement of 234 Berry, Theodore M., Director, Community Action Program, Office of Economic Opportunity: Community Action Program consumer-related activity, fiscal year 1966 331 Statement of 341 Supplementary statement re cooperation between OEO and other Federal agencies on behalf of the poor consumer 350 Bozman, William, Deputy Director, Community Action Program, Office of Economic Opportunity: Comparison shopping analysis for various U.S. cities 105 Caplovitz, David, associate professor of sociology, Columbia Uni- versity: Statement of 325 Caron, David, executive vice president, Waldbaum's, Inc.: Copy of raincheck system 189 Costello, Dr. Timothy W., deputy mayor, city administrator, chair- man, New York City Council on Consumer Affairs: Summer partici- pation in the program of the New York City Council on Consumer Affairs 122 Fort Greene Community Corp., Brooklyn, N.Y.: Statement of 207 Kelly, Marguerite, Democratic leader, near Northeast, Democratic Central Committee: Map showing supermarket locations in sections of Washington, D.C Statistical material showing variations in prices between Safeway stores on August 15, September 1, and September 15, 1967_ - - 18-22 Nadler, Harry, Human Development Corp. of Metropolitan St. Louis, Mo.: Chart giving total store prices, arranged by chain, October 22, 1967 213 List of items comprising shopping basket and comparison of prices by store 215 Tabulation of food items surveyed weekly for a period of 3 weeks~ 227 O'Brien, John L., Better Business Bureau of Greater St. Louis, Inc.: Statement of 300 Press, Stephen, director, MEND consumer education program, New York, N.Y.: Statement of 149 Rosenthal, Hon. Benjamin S., a Representative in Congress from the State of New York: Text of telegram from Timothy W. Costello, deputy mayor, city administrator, New York City 26 Ross, Arthur, Commissioner of Labor Statistics, Department of Labor: Letter to Peter Barash, professional staff member, Committee on Government Operations, dated November 1, 1967, re financ- ing of BLS survey Text of Bureau of Labor Statistics food survey 45 Sutton, Hon. Percy E., president, Borough of Manhattan: State- ment and letter 204 Van Gemert, Robert .1., assistant secretary and assistant general counsel, Safeway Stores, Inc.: Letter to Chairman Rosenthal dated October 31, 1967, re Safeway's October 2 survey of food prices in their stores 97 Statement on behalf of Safeway Stores, Inc 39 Vitulli, William, assistant general superintendent, eastern division, Great Atlantic & Pacific Tea Co., Inc.: A. & P.'s raincheck system and policy bulletins 173 Letter from Hon. Richard J. Hughes, Governor, State of New Jersey, to William Walsh, River Vale, N.J., dated July 27, 1967, re A. & P.'s services during Newark, N.J., riots 172 Statement of 168 PAGENO="0005" V White, Walter W., manager of operations, St. Louis division, Kroger Page Co.: Letter to Chairman Rosenthal dated December 19, 1967, re proximity of competitive stores 261 Winstead, Basil M., manager, Washington, D.C. Division, Safeway Stores, Inc.: Letter to Chairman Rosenthal dated October 31, 1967, re discip- linary actions taken against store managers 87 Letter to Chairman Rosenthal dated October 31, 1967, re USDA inspection of fresh meats in Safeway Stores 92 PAGENO="0006" PAGENO="0007" CONSUMER PROBLEMS OF THE POOR: SUPERMARKET OPERATIONS IN LOW-INCOME AREAS AND THE FED- ERAL RESPONSE THURSDAY, OCTOBER 12, 1967 HousE oi~' REPRESENTATIVES, SPECIAL CONSUMER INQUIRY, SPECIAL STUDIES SUBCOMMITTEE OP THE COMMITTEE ON GOVERNMENT OPERATIONS, Washington, D.C. The Special Inquiry on Consumer Representation in the Federal Government, Special Studies Subcommittee, met, pursuant to notice, at 10 a.m., in room 2203, Rayburn House Office Building, the Honor- able Benjamin S. Rosenthal (chairman of the Special Consumer In- quiry) presiding. Present: Representatives Rosenthal, Dawson (chairman of the full committee), Reuss, Dwyer, Myers, and Gude. Also, present: Peter S. Barash, professional staff member in charge; I. Warren Harrison, professional staff, Special Consumer Inquiry; Louis I. Freed, staff administrator, Special Studies Subcommittee; Jacob N. Wasserman, counsel, Special Studies Subcommittee; James A. Larngan, general counsel, House Committee on Government Opera- tions; and William H. Copenhaver, minority counsel. Mr. ROSENTHAL. The Speciai Inquiry on Consumer Representation in the Federal Government will come to order. In October 1966, the Special Consumer Inquiry, `as a part of its continuuing examination of the effectiveness of Federal consumer pro- tection activities, held in-depth hearings on the myriad problems faced by low-income persons as consumers in our society. Testimony was received which demonstrated that consumer injustices most frequently and tragically victimize the poor. This problem was illustrated recently when allegations were made that Safeway Stores was guilty of price discrimination against the economically disadvantaged here in Washington. `The other day, a second supermarket chain, which operates stores in `suburban and inner-city Washington areas, was reported by the National Broad- casting Co. to discriminate against the poor in its pricing practices. As chairman of this Special Consumer Inquiry and as a former member~of the President's National Commission on Food Marketing, I am greatly disturbed by these charges. It is my personal conviction that equal justice in the marketplace is hardly less important to the poor than equal justice before the law. Price discrimination is intoler- able under any circumstances, but particularly so because food expend- itures account for about a third of the income of the urban poor. The allegation that the poor pay more has been voiced in the past by witnesses before this committee and by the Nation's press. The Wall `Street Journal of August 16, 1966, reported that "higher food prices are a major gripe of ghetto Negroes" and that "one of the bitterest coin- (1) PAGENO="0008" 2 plaints among Hough (Cleveland) residents is that white businessmen raise their prices on `Mother's Day'-the 10th of each month when mothers receive * * * welfare checks." Last year before this Special Inquiry, the Assistant Director of the Office of Economic Opportunity for Community Action testified that "~ * * the poor pay higher rates of interest than their affluent fellow citizens." Significantly, the OEO also reported the findings of an OEO-funded survey in Bedford- Stu~vesant that "some merchants raised their prices on * * * the days that the welfare checks arrived." On August 1~i, 1966, at a hearing of the Special Inquiry, I asked the Chairman of the Federal Trade Commission if the FTC has authonty "to move against or expose the activities of chainstores or lendmg institutions that provide the economically disadvantaged with inferior commodities and inflated prices." Chairman Dixon replied that he didn~t believe the FTC had looked into this problem in depth but added that, "We have a pilot program going here in the District of Columbia for well over a year * * * in an effort to find out what the disadvantaged section of our society is in fact subject to." David Oaplovitz, author of a definitive work on this subject entitled "The Poor Pay More" and a previous witness before this Inquiry, ended his testimony by stating that: The probrems that I have tried to describe here are extremely pressing and demand the attention of our Government if the war on poverty is to be won and if our ideals of justice are to be maintained. Whether or not the present charges are sustained, events of the last few weeks lead me to the conclusion that problems such as the exploita- tion of the poor consumer are not receiving the kind of governmental attention they deserve. I am concerned that, in the backyard of the FTC and the OEO, two serious charges of price discrimination have been leveled. I am concerned by statements of some Federal officials that the Federal Government lacks the detailed and comprehensive informa- tion necessary to answer the crucial question of whether price gouging of the type alleged here is widespread throughout the country. It is my belief that if comprehensive information of this kind is not now available to the Congress, and to the executive, then steps must be taken immediately to insure its future availability. We are here as part of the Federal Government to express our con- cern that these allegations and many others like them can exist and to understand how our Government can address itself properly to them, so that solutions may be promptly and rapidly found. I want to say for the record that these hearings are being held expressly because Ohairman Dawson directed them, permitted them to be held, and `this is a subject that he, like myself and other members of the committee, has had under constant attention, and it is of great concern to all of us. Our first witnesses will be the three ladies seated at the table before us, who have brought these charges-Mrs. Marguerite Kelly, Mrs. Janie Boyd, and Mrs. Lisa Schlossberg. Do you have prepared statements.? Mrs. Knr~r4r. Yes, we do. Mr. ROSENTJJAIJ. Please speak up so that we can all hear you. PAGENO="0009" 3 STATEMENT OP MRS. MARGUERITE KELLY, DEMOCRATIC LEADER, NEAR NORTKEAST, DEMOCRATIC CENTRAL COMMITTEE Mrs. KELLY. Mr. Chairman and members of the subcommittee, my name is Marguerite Kelly, representing six Democratic precincts in near Northeast. Joining forces with Merle Baumgart, the near South- east ward leader, we have brought charges through the Democratic central committee against the Safeway Stores. We have charged them, at some managerial level unknown to us, with a willful deception of the people, by systematically overpricing food in some low-income neighborhoods on the first of the month, when welfare checks are received. Specifically, we found this amounted to a 9.1-percent tax on poverty on September 1. These charges are documented by the most respected evidence in a court of law: eyewitness accounts. Before we go any further, let me emphasize that we realize the enor- mity of our statements. It hasn't been easy for us to bring these charges and, in candor, if I had thought there was more than a remote chance of their truth at first, I'm not sure I would have had the stomach to attack `such a big cartel as the Safeway. It started back in July, when I was cruising my alleys with an aide to Senator Robert Kennedy, checking off housing violations by slum- lords. We stopped to talk with one of the key neighborhood leaders- Janie Boyd. Some have asked us since then: "Who is thi's Janie Boyd?" In 5 years, you will be amazed if anyone should ask that question. She has the greatest potential for grassroots leadership I've ever seen, talents which sprang full-blown 18 months ago when the Democrats had forced public and private parties to clear her alley of an illegal junkyard. Janie Boyd has kept that alley clean and started a block club to do it. Her meetings pull out 40 to 50 people. She began hearing the troubles of her neighbors and, characteristically, `she did some- thing about them. She `started an emergency food and clothing center for the more desperate and for others who, like ourselves, just needed to `stretch their food budget a little further---Janie Boyd did some- thing about them, too. She started a branch of the rapidly growing Capitol Hill Wholesale Buying Club, the cooperative produced by the boycott to cut grocery costs. For the little children this summer, Janie Boyd ran a day camp in her clean, bare alley with a daily enroll- ment which grew from 75 to more `than 100 children. It was here that we heard Mrs. Boyd's charges. It was a hot day, six blocks from the Capitol itself, one block from H Street NE., where the action simmers year round. A week earlier, the Democrats had intervened to stop a wrecking company from burn- ing a block of condemned houses in the alley at Sixth and G. This was the week that Newark was on fire. I point this out, because you must know, gentlemen, that we were very conscious of our role, small as it was, to keep our city quiet. We knew that the trickle of city funds and the poor city facilities in our part of town were a major source of unrest, and `these accusations of a markup in welfare area `stores on food stamp days could have been the final incendiary touch. So the Democrats did what any of you would have done. We said we'd look into it. Even this was said with trepidation. We didn't believe the rumors, PAGENO="0010" 4 but we felt they had to be stopped. We considered the possibility that they were true and what the upshot would be. As a former news- paperwoman, I figured we would have to face congressional and execu- tive investigation-as we ar&-and skimp on the needs of our families and run up some pretty shocking babysitting bills_which we certainly `are. And at the risk `of being schmaltzy, there was a moment of reckon- ing in that alley when I had to face the memories of my own poverty as a child and, as anyone who has ever had a basket left on their door- step can tell you, the welfare syndrome leaves deep scars. For the rest of your life, you are inevitably and invisibly bound to those on relief, whatever their color or their education or their reason for poverty. That is your karass. Mr. RosENTHAL. We have been joined this morning by the dis- tinguished ranking minority member, Congresswoman Florence P. Dwyer, from New Jersey. Mrs. KELLY. While the horrors of hunger can be forgotten, the fear of hunger cannot. I tell you this so that you will know that for me at least, this investigation was more a debt of honor than a vote-reaching venture for my party. As unlikely as the charges were, I couldn't per- sonally turn my back on the people on welfare any more than I could turn my back on myself. Before giving her complaint, Mrs. Boyd and six of her friends had done comparative shopping at seven Safeways on July 1, with seven identical lists. Their bills were not the same. Next, the Democrats did a preliminary check of four Safeways on a half-dozen items on August 1 and found enough discrepancies to warrant further study. Mrs. Boyd became cochairman of the party's Ad Hoc Committee for Equal Pricing with Mrs. Lisa Schlo'ssberg, an experienced com- parative shopper who learned those ropes in the 1966 boycott. She is from Boston, a graduate in African studies at `Goddard College, who worked in this field both in Africa and in the United States. They organized this study of nine Safeways, using a list of 20 items, 18 of which had been supplied by Mrs. Boyd because of their popu- larity in her buying club. Eight of us shopped, three times, on Tuesday, August 15, Friday, September 1, and Friday, September 15. Before going, we had legal advice, of course, as we have had throughout this study, and we found that neither the purchases nor the tapes would be as valid as eye- witness reports, and also that our reports were more conclusive than preprinted company pricing orders from headquarters. Besides, we couldn't afford to tie up our grocery money for this eventual con- frontation, and we were still so sure it couldn't be true. I suppose we were just biding time until the long summer ended. On Sunday, September 17, Mrs. Schlossberg and I met with Mrs. Boyd in her living room to compare the prices for the first time. Mrs. Schlossberg will discuss these figures with you in detail, but let us note now that the major September 1 poverty tax was levied almost exclusively in neighborhoods where the Safeway has monop- olistic powers. `We also found three perishable items recorded at Safeway which were above the advertised prices. The crux of our charges, however, is the devastating manner in PAGENO="0011" 5 which the poor have been fleeced. The Safeway denies this, of course, and cites two other Government studies-both 2 years old-to exoner- ate them. Neither study connects the timing of price increases to welfare checks. One study was handled by the fledgling United Planning Organi- zation over a 5-day timespan, covering four aspects of supermarket shopping, one of which covered the behavior of 30 customers in a supermarket. The study, according to UPO spokesmen, did find the poor pay slightly more in the inner city slums, which we find remarkable. We find it remarkable because the study was made in connection with the National Association of Food Chains. The shoppers even carried letters of introduction from the association and UPO to ask the man- agers for permission to record prices. It is not recorded, however, which organization paid for the cost of the study or the purchases. The other study, done by the Bureau of Labor Statistics, covered the 1st through the 30th of a month and would you believe, the in- vestigators gave stores a 2-week notice? They found no discrepancies. You won't find a reporter in this room who would write a story based on investigations like that and we hope the association does not continue to insult the intelligence of this panel with further mention of these "studies." The representatives from Safeway will suggest, I'm sure, that we were incorrect, either out of malice or stupidity. We think we were, if not wise, then painfully careful. If any goods were unmarked, as many were, we asked the manager for the price. No shelf tabs were used-since many were absent. All items were recorded, then and there. Any items questioned later by the shoppers caused the entire section to be disqualified. As for malice, we can only plead stupidity. Not one of these shoppers would have had the intelligence to rig their price charts to make graphs come out like that. It took an economist to figure these things out. We have nothing to gain, and at this point we all lost quite a bit out of our personal funds-our grocery funds-to finance this investigation. Nevertheless, we will continue it, Mr. Chairman. This is just the start. There are too many related, unsolicited reports pouring in to allow us to drop it. We have definite indications-and a lot stronger than we got in a northeast alley-that other chains are involved, other places, other charges connected with quality, shortchanging, customer service. We hope you will continue your inquiry. We hope the Senate will pursue it, as part of the deceptive practices investigation in January. We have asked for an investigation, both by the Agriculture Depart- ment and Congress, of the obvious exploitation of the Federal food stamp program. We have asked for the Federal Trade Commission to rule that stores which advertise chainwide standards of quality, clean- liness, and customer service must give it equally in all neighborhoods, and stores which advertise chainwide sales imply chainwide prices for the unadvertised goods, too. Have you ever seen a shopper go from Safeway to Safeway for a bargain here or a bargain there? They don't, because they have be- PAGENO="0012" 6 lieved the ads. They think all Safeway prices are the same. They should be. All bus fares in the District are the same, even when a line runs at a loss. As long as the Government licenses a chain to operate in the District, we feel it should have uniform pricing. We were pleased in Mr. Magowan's reply to Tilford Dudley, our party chairman, to read that he believes Safeway now follows this policy. Therefore, we feel sure he will join us in urging Congress and the FTC to insure this uniformity through legal enforcement. Mrs. Schlossberg will discuss these figures with you in detail. I would like now to present Mrs. Janie Boyd and Mrs. Schlossberg, who will present their statements. STATEMENT OF MRS. JANIE BOYD, WASHINGTON, D.C., AD HOC COMMITTEE FOR EQUAL PRICING Mrs. Boyn. Congressman Rosenthal, ladies and gentlemen. My name is Janie Boyd. I live at 624 Fourth Street NE., and have been there for 13 years. I am the PTA president for Logan Elementary School. Mr. Boyd, the principal, is no relation. I am on the parent council at Stuart Junior High School. Mr. Barton is the principal there. I am chairman for co-op month in the Northeast area, and I am also chairman of our civic group, the Willing Workers. What brought Safeway's pricing practices to my attention was that in early spring I purchased a 3-pound can of Crisco, which is the brand I always use, for 79 cents in the middle of the month. On the first, I was out of Crisco so I walked down to the Safeway at Sixth and H Streets NE., with the intention of purchasing another can. When I picked up the can I noticed it was marked 95 cents. This was too much for me to pay and I thought it was a mistake, so I asked a checker. She verified that 95 cents was the price so I said, "But I just bought a can of Crisco 2 weeks ago and the price was 79 cents." I asked why there was such a difference and she said with a smile, "Things go up, you know." Later a very dear friend of mine and I were talking about work and she remarked to me that her husband was angry when she got home at 12 midnight the day before from work. I asked why she worked so late and she said to me, "Janie, don't you know that just before the first of the month we work late upping the prices." She worked in what I would say was in an area that I would consider a little worse than mine. She added, "This is the time business is good, when the welfare checks come out and food stamps are most used." We, the people in the area near Sixth and H Streets NE., Safeway store are not and have no intention of trying to make you close your doors, but we do intend to see that you give us fair prices on the first of each month as well as the 15th of the month plus just as nice a qual- ity of meat and everything else you sell. You have no other competi- tion there and the people in that area are quite aware of what is going on. If you, Mr. Winstead, Mr. Safeway Manager, and others refuse to give us, the poor, fair pricing we will surely seek and we are sure we will find, other sources of buying food. We the consumers-and a num- ber of us belong to the Consumers Association of the District of Co- lumbia-do not want to be pampered. We have our pride and our self-respect. We are asking you, Mr. Winstead, and other Safeway personnel to please stop taking advantage of us. Thank you. Mrs. TCi~u~r. Now Mrs. Schlossberg. PAGENO="0013" 7 STATEMENT OP MRS. KENNETH SCHLOSSBER;G, 000EAIBMAN, AD HOC COMMITTEE FOR EQUAL PRICiN~ WASHINGTON, D.C. Mrs. SCIJLOSSBERG. Mr. Chairman and members of this subcommit- tee, I wish to emphasize that none of us on the Ad Hoc Committee for Equal Pricing are either economists, lawyers, or statisticians. Besides the fact that we are concerned and outraged by the unjust practices committed against fellow citizens who can least afford such discrimi~ nation, we are ourselves consumers. It is the consumer who goes out several times weekly to purchase the food her family needs. It is the consumer, the individual housewife and shopper, upon whom the economy of this country is ultimately based. The housewife must use her careful searching eye to shop out those items which her budget can afford. This perhaps is our most legitimate qualification. We are not examining price lists or statistics behind a desk in a neat office far removed from the shoppers' reality. We are out daily or weekly or monthly walking up and down supermarket aisles purchasing that which will appear on our families' tables. It is for this reason that we are geared to examining prices and to comparing them with a determi- nation that professionals cannot employ. The charts and graphs that we have prepared from our research speak for themselves. They point up without question the unfair pric- ing practices which exist. They show that prices on a given item on a given day are not consistent throughout the city. And, further, they are consistently higher in certain areas serving large numbers of wel- fare and low-income families. The most shocking and outrageous of our findings is the fact that the prices of items we used in our survey increase by from 3 to 57 percent in some lower income area stores on the first of the month, at which time welfare checks are issued and the largest number of food stamps are spent. It is just this kind of practice that causes great discontent and bit- terness in the slum areas of our major cities and is a primary factor in making situations ripe for violence, riots, and bloodshed. Job opportunity programs and other very valuable and commend- able projects being undertaken by the poverty program and other Government agencies will do much to improve the climate in these trouble areas. But it will not be, until all forms of discrimination and misuse such as the pricing practices of Safeway are stopped, that this country can eliminate summers of violence such as we had this past July and August. We sincerely hope that justice will be served by your committee and that action will be taken quickly. People on welfare, as we all know, have less than enough to survive on and an average food over- payment of 9.1 percent which we believe is a poverty tax people in low-income areas are now paying on food, could determine whether or not a family has enough to eat from month to month. Mr. ROSENTHAL. Thank you. Mrs. KELLY. Do you want us to give out these graphs to the members of the subcommittee? Mr. ROSENTHAL. Yes. Will you also tell us where the stores num- bered 1 to 9 are located-and as to stores numbered 1, 2, and 3, where their nearest competition is, if any? (The map referred to follows; graphs appear on pp. 19-22.) PAGENO="0014" 8 * ACME AA&P O CONSUMERS DISCOUNT ~ DGS SELF-SERVICE * FEDERAL o FOOD FAIR * KROGER ® GIANT ~ SUPER GIANT U GRAND UNION OlGA * JUMBO * RED & WHITE * SAFEWAY A KORVETTE Compiled and Published, by The Washington Post Promotion Department October 1964 From Information furnished by Food Firms PAGENO="0015" .9 Mrs. KELLY. I can do that. This is Merle Baumgart, Democratic ward leader in near Southeast. This is the store at Fourth and M Streets, the Safeway store in the Southwest. This quadrant is the only quadrant in the city that has only ~one Safeway store. This is the only quadrant in the city, as I say, that has only one supermarket and that is the Safeway store. It is here [indicating]. It is No. 1. Mr. ROSENTHAL. There are no other supermarkets in that area? Mrs. KELLY. No. And this is the store where there were three prices ~that were recorded higher than advertised. Mr. REUSS. In respect to store No. 1, is it not a fact that there is ~not only no supermarket in that area, but there are no other food retailers of any sort in that area? Mrs. KELLY. I do not believe there are. Mr. BAUMOART. There are some within the large high rise section. There is only one shopping center. Mrs. KELLY. There is a market there, too. Mr. REUS5. Where are these other food markets? PAGENO="0016" 10 Mr. BAUMUART. No. 1 is in the basement of the capital Park Towers~ and this is used by those who live in the apartment building. Mr. REuss. Are there any other food markets in that quadrant available to the general public? Mrs. KElLY. No. Mr. BAUMOART. None. Mrs. KELLY. This is at New Jersey and K Streets, where we also checked prices. rllhis is Sixth and i-I NE. This is in the survey that we made. Chevy Chase Circle store is over here [indicating]. This is the one that sounds very impressive. It has much customer service. I am familiar with that one. Another one is on Connecticut Avenue. The sixth store is the International Safeway-not the gourmet section, but the downstairs store, the regular Safeway store. rfhe seventh is the Safeway opposite Eastern Market. The eighth store is also on Seventh Street., off East Capitol. rIli~e ninth is near Kentucky Court., 13th and P. This is where competition is. There is an A. & P. right here [indicating] so this meaiis that if people do not like the prices at. the 13th Street store,. they can walk a block or two over to the A. & P. These weie competItive to the. Connecticat A venue Safeway stores. `This is over here findicat.ingl. We were Surprised. \,~Te. did riot want to investigate this because. it. seemed to us that. they charged higher p1~~e.s in these, No. 1, No. 2, No. 3, areas which are, not within walking djst.aiice of any other chain outlet. Mrs. Scm~ossnriw. This chart is a blowup of the two-page graph that you have. `The welfare stores, as you can see, have the greatest fluctuation of prices. Mr. ROSENThAL. Can you define "welfare stores" for us? Mrs. Scm~ossI3ERG. Stores in areas which serve a great number of welfare clients and food stamp users. There are others of these stores that are sort of mixed. As you know, Capitol Hill, in the restoration area, has a mixture of low-income and some public housing with a large percentage of middle- and upper-income users. This first one, the one in Southwest., Fourth and M Streets; this is near New Jersey and K NW., and this is Chevy Chase Circle [indicat- ing]. And this is International Safeway-this is the Safeway across from Eastern Market, Southeast, 7th and East Capitol. And 13th and D SE. [indicating]. So that where there is this larger or wider line, that is the c1~vidmg line between the stores where we found the greatest differentiat~on in prIces and the other chainstores. All of these items were chosen before the investigation started. Nothing was changed. 1S.Te went and sat down and Mrs. Boyd, i)aiticii- larly, picked out the items. And we typed up the list. Ai~c1 this is the list that we usedi throughout the whole investigation. There was no alteration whatsoever. Mr. MYERS. What do they tell us? Mr. R05ENTIJAL. You have to explain that to us. Mrs. SCHLOSSBERG. I have seen it so many times, excuse inc. rllhie first dot underneath these, the red dot-August 15. This is the price in cents of each item. PAGENO="0017" 11 Mr. ROSENTHAL. What was the price on August 15 in store No.1? Mrs. SGHLOSSBERG. 29 cents. Mr. ROSENTHAL. For bananas? `Mrs. SOHLQSSRERG. ~tight. Mr. ROSENTHAL. And what was the next price? Mrs. SOHLOSSBERG. The blue dot is the first of September. Mr. MYERS. May I ask a question there? Mr. ROSENTHAL. Yes. Mr. MYERS. Does that mean that 29 cents is the red dot? Maybe it starts a little bit higher. It is almost the same price on August 15 in all of the stores, is that correct? Mrs. SCHLOSSBERG. Approximately, yes. Mr. MYERS. In all nine stores? Mrs. SCHLOSSBERG. Yes. The first of the month, which you see is the date of contention- Mr. MYERS. I notice that. Mrs. SCHLOSSBERG. As you can see, 34 cents, consistently, in these three stores. Mr. ROSENTHAL. So that I can understand: Bananas, which is one of your items, on August 15 was 29 cents for 2 pounds in stores Nos. 1 through 3, and on September 1 it was. 34 cents? Mrs. SCHLOSSBERG. That is right. Mr. ROSENTHAL. Tell us about each item-go down the line. Mrs. SOHLOSSBERG. Right. The next item is Town House peas. As you can see, these were very specific in weight. Town House peas is 25 cents on August 15, 2 cents on the 1st of September, `and 27 cents on the 15th of September. Mr. ROSENTHAL. In store No.1. Mrs. SOHLOSSBERG. Store No.1. Mr. ROSENTHAL. You must identify this for the record, because the man who is going to read this later on will not have the advantage of. your finger pointing. Mrs. SCHLOSSBERG. Right. OK. In store No.2, New Jersey and K- Mr. ROSENTHAL. You do not have to identify those geographical locations. You have already done that. Call them by numbers. Mrs. SCHLOSSBERG. It is 19% cents on August 15, 34 cents on Septem- ber 1-I mean 27 cents and 19% cents on the 15th of September. Mr. ROSENTHAL. So that between August 15 and September 1 in the stores the 1 pound can of peas went from what to what? Mrs. SCHLOSSBERG. They went from 19% cents to, 27 cents, Town House peas. It is a substantial increase which is an average of 26 per- cent increase over the other stores, as you can see. Mr. ROSENTHAL. The Town House peas are in every other store- they all stayed at 19 cents on all dates involved? Mrs. SOHLOSSBERG. Right. Right. In all of these stores, I might add, that they were not done by the same person and it woUld have been difficult to be that consistent unless it was `actually the fact. Del Monte peach halves, in the first low-income store, on the 15th of August it was 63. This was consistently 63 throughout. In store No. 2 it was 63 on August 15, 69 on September 1, and down to 63 on the 15th of September. 88-532-68----2 PAGENO="0018" 12 Mr. ROSENTHAL. In stores Nos. 1 and 3, two large cans of Del Monte peach halves on August 15 were 63 and on September .1 in stores 2 and 3 it was 69. Mrs. SCHLOSSBERG. 63 cents on August 15. Mr. ROSENTHAL. 63 cents to 69 cents? Mrs. S0HL0S5BERG. Right. It went up from 63 to 69. Mr. ROSENTHAL. And then on September 15 it dropped back again? Mrs. SCHLOSSBERG. That is right-that is right. It dropped back to the consistent price throughout the rest of the city with one exception. Then it goes a little bit further. Crisco, 3-pound can was 82 on the 15th of August in No. 1; 89 in the store on the first of the month, again a significant increase, and back down again on the 15th of September. Store No.2,79 to 89 on the first of the month-the 1st of September. It went down to 82 on the 15th. No. 3, 79 on the 15th of August, 89 on the 1st of September and, I believe that is 86 on the 15th. Mr. ROSENTHAL. I notice something interesting, that in store No. 4 for Crisco, the price went down on September 1-that is, in stores Nos. 4 and 5 the price went down for Crisco on September 1. Mrs. SCHLOSSBERG. That is right. Mr. ~frr~us. It was higher on August 15 in stores 4 and 5. Mr. ROSENTHAL. Is that right? Mrs. SOHLOSSBERG. Yes. Cheerios, on August 15 in store No. 1 was 28; on the 1st of September it was 34; and on the 15th of September it was 28 again. Store No. 2 it went from 25 on the 15th of August to 28 and back down to 25. And the same holds true for No.3. Mr. ROSENTHAL. Stores 4 to 9, in those stores there was no' appre- ciable change from August 15 to September 15? Mrs. SCHLOSSBERG. Right. Eggs, were 39 cents on the 15th of August. Mr. ROSENTHAL. Why do you not identify it by dozens? Mrs. SCHLOSSBERG. One dozen, grade A medium, 49 cents on the first of the month at the 1st of September and it stayed at 49 cents on the 15th of September in store No. 1. And the same holds true in No.2. In store No. 3 it started out at 39, went up to 49, and then went back down to 39. Mr. ROSENTHAL. The price for one dozen went up 10 cents on Sep- tember 1 from August 15. Mrs. SCHLOSSBERG. Yes. Mr. ROSENTHAL. And back down again? Mrs. SOHLOSSBERG. Right. Mr. ROSENTHAL. And in stores No. 7 and No. 8 and No. 9 there was no appreciable, noticeable change? Mrs. SCHLOSSBERG. Right. And the change, as you can see-what price change there was-was far lower in terms of actual price. Mr. ROSENTHAL. Interestingly enough, store No. 6 went down on September 1. PAGENO="0019" 13 Mrs. SOHLOSSBERG. Right. Right. And went up on the 15th of Sep.- tember, and went down to the lowest price because that was the 15th, when it went down to 25 cents in No.9. Domino sugar, a 5-pound bag-and this is one of the most consistent items that we have, that we had to have the managers check because it was seldom marked-61 cents on the 15th in No. 1, 65 on the 1st of September and back down to 61 cents on the 15th of September. All three stores had exactly the same fluctuation. In 4, that is No. 4, it was 63 on the 15th, 63 on the 1st of September and down to 61 on the 15th of September. And these are all 63, 63, 63, 63, 63, up to here, where there is a 61-63, 63. Mr. ROSENTHAL. Was the price of Domino sugar in stores 1, 2, and 3 exactly the same on September 1? Mrs. SCHLOSSBERG. That is right; 65 cents. Mr. ROSENTHAL. And they are all exactly the same on August 15? Mrs. ScnLossBma. Right; that is correct, 61 cents. Mr. BAUMGART. You can see that that holds true for the rest of the stores involved. And if we have an equal pricing policy, that equal pric- ing policy should mean that we also have the same prices on all three dates, all across the chart, 1 through 9. There should be no fluctua- tion whatsoever-not even in the other stores outside of the poverty stores. Mr. REuss. That is the Domino theory. [Laughter.] Mrs. SOHLOSSBERG. The point is, I think, too, that although there may be fluctuations in. these stores, the fluctuations go up much higher in the first three. If it is any fluctuation in the other stores, it is usually the same or even a bit lower, especially on the first. Lettuce, in store No. 1,39 cents on the 15th of August, 39 cents on the 1st of September, and I think 29 cents-29 cents is right. In the second store, 29 cents on the 15th of August, 39 on the 1st of September, andit got down to 2 on the 15th of September. Mr. ROSENTHAL. A 10-cent increase? Mrs. SCHLOSSBERG. Right. In store No. 3, 39 cents on the first of the month; it went down to 29 cents and down further to 19 cents. You can see that we even included those that do not favor our case. Mr. ROSENTHAL. Store No. 3 has the same price as stores 6, 7, 8, and 9; it is interesting to see, for lettuce. Mrs. SOHLOSSBERC. No. Mr. ROSENTHAL. On the 15th of September. Mrs. SOHLOSSBERG. At stores 4 and 5. Mr. ROSENTHAL. Nos. 6,7, 8, and 9. Mrs. SOHLOSSBERG. I see-yes, these four; you are right. Washington flour, 5-pound bag was 65 cents on August 15, 69 cents on the 1st of September and back down again to 65 cents on the 15th of September at store No. 1. No. 2, 62 cents on the 15th of August; 65 cents on the 1st of Septem- ber, and 60 cents on the 15th of September. Store No. 3, 65 cents throughout all three dates. No. 4, 63 cents on the 15th of August, 63 cents on the first of the month, and 65 cents on the 15th of September. And this is, I believe, a little different. Mr. FREED. What store is that? PAGENO="0020" 14 Mrs. SOHLOSSBERG. This is the Chevy Chase Circle store. And the others on Connecticut Avenue. Mr. ROSENTHAL. Are all of these items covered by Federal food stamps? Mrs. SCHLOSSBERG. Anything that is not edible is not covered. Other things are food stamp items. Mrs. KELLY. But not imported items. Mrs. SCHLOSSBERG. Not imported items; yes. Mrs. KELLY. We have done our homework. Mrs. SCHLOSSBERG. We tried to choose items that would be used by the low-income people because this is one of the problems in the other studies, that they used imported things that the lower-income people just would not use. Gerber's strained bananas-these are pretty straight across-65 cents on the 15th of August, 69 cents on the 1st of September- Mr. FREED. That is store No. 1-please identify it. Mrs. SOHLOSSBERG. In store No. 1. In stores 1, 2, and 3 they are 65 cents, on the first, 69 cents, and back down to 65 cents. In stores 4, 5, 6, 7, and 8, the price is consistently 65 cents. And in store No. 9 the fact is that it is 63 cents-consistently on all three dates. Mr. BArTMGART. Are there any questions? Mr. ROSENTHAL. I do not have any. Mr. BAUMOART. Are there any further questions? Mr. ROSENTHAL. Do you have any at this point? Mrs. KELLY. I have just one thing that I do not believe either of us covered. By the way, I was interested in reading the paper the other day that Safeway always has equal prices. My kid went over to the Safeway the other day to buy some apples, canned apples for some pies. And she got one can at 29 cents and one can at 27 cents, both stamped as such. And it was rung up on the register at 29 cents and 27 cents. And she said, "Say, why? That is the same size, the same quality." And they said, "Give her the 27 cents" but even in the same store we have this problem. We have a different problem with price marking. It is simply up to the customer to discover it. We had 20 items in our list-I would like to point out-in our survey originally, and eight of them we disqualified because they were not in every store every time at the same quantity and quality and so forth. And only two remained constant at all stores. They were in every store in that size and were even. And these are the 10 items of everything that we looked at and they show a 9.1-percent increase on September 1. Mr. MYERS. Mr. Baumgart, I did not get your association here-who are you? Mr. BAUMOART. I am a District Democratic leader in the area in which Mrs. Kelly lives. I have five precincts in Southeast Washington. Mrs. Kelly has six precincts in Northeast Washington area and since we are all in what we call the Capitol area, we cooperate on things together. Mr. ROSENTHAL. Do any of you own any stock in Saféway? Mrs. KELLY. No. Mr. ROSENTHAL. Do you own any stock in any other food company? Mrs. KELLY. No. PAGENO="0021" 15 Mrs. SCHLOSSBERG. No. Mr. REUSS. Mrs. Kelly, at what Safeway store and on what date did your child run into this situation? That is, the two prices for sliced apples? Mrs. KELLY. On Massachusetts and Third Street NE., which was not covered in our survey. It just happened to be the nearest store. Mr. REUSS. When was this? Mrs. KELLY. This was on Saturday, October 7. Mr. Ruess. Last Saturday? `Mrs. KELLY. Yes, after Safeway made the announcement that abso- lutely all prices were the same. We have comparative pricing that Mr. Baumgart will show you. Mrs. SCHLOSSBERG. You have a mimeographed sheet of this [mdi.. eating]. This is a blowup of that [indicating chart]. It is a comparison of Chevy Chase Safeway and the Safeway at Sixth and H Streets NE. `The red line is the Safeway on H Street store, and the green line is the Chevy Chase store. This is your price index. This is just simply to graphically and more vividly show the variations in prices between the store receiving `a larger number of welfare customers and a store in the upper Connecticut Avenue area with safe upper- and middle-in- come families. `Mr. REUSS. The chart shows that in each case for identical com- modities they were higher? Mrs. `SCHLOSSBERG. Consistently. Mr. REuss. In the Connecticut Avenue store with the exception of lettuce. Mrs. SOHLOSSBERG. Consistently higher in the lower income groups. Mr. REUSS. Higher in the lower income stores? Mrs. SCHLOSSBERG. Right. Right. And you can see it across the board. Bananas, this is the Sixth and H Streets store. I believe that with the exception of lettuce the price differential consistently is against the welfare stores. Mr. ROSENTHAL. Would you want to tell us quickly what the percent- age price differential on the 10 items were? Mrs. SCHLOSSBERG. Right. Mr. ROSENTHAL. Vis-a-vis the poor versus the Connecticut Avenue store? Mrs. SCHLOSSBEEG. Right. On bananas-do you want the prices, too? Mr. ROSENTHAL. No, just the percentage differential. Mrs. SCHLOSSBERG. On bananas, the price differential is 17 percent. On Town House peas, 26 percent. On Del Monte peaches, 10 percent. On Crisco, 8 percent. On Cheerios, 12 percent. On eggs, 1 dozen medium grade A, 32 percent. On Domino sugar, 3 percent. On Washington flour, 3 percent. On Gerber's strained bananas, 6 percent. Mr. ROSENTHAL. Mr. Reuss. Mr. REUSS. I would like to ask you ladies some questions. I have the impression that the Safeway stores deny all of this and say that there was no price discrimination. Mrs. KELLY. They did in the telegram to Mr. Dudley. We have not heard from them directly. Mr. REUSS. But they did in their telegram? Mrs. KELLY. Yes. Mr. REuss. So that the issue is, I suppose- Mrs. KELLY. The comparative- PAGENO="0022" 16 Mr. REUSS (continuing). Is whether you ladies invented all of this. Mrs. KELLY. Yes. Mr. REUSS. Or whether Safeway did. Mrs. KELLY. There was no reason to answer-we were ther&-I do not really think that the vice president of the company was out shop- ping there. Mr. REUSS. Let me ask you how these three surveys on August 15, September 1, and September 15 were conducted. How many shoppers participated? Mrs. KELLY. Eight. Mr. REUSS. Eight on each of the 3 days? Mrs. KELLY. No. We used a collection of eight shoppers. Mr. REUSS. How many participated on August 15 and how many on September 1 and how many on September 15, respectively? Mrs. KELLY. I am thinking. Mr. ROSENTHAL. While you think of that, may I break in? Congressman Pawson has to leave, and wants to say a word. Mr. DAw5ON. This has been very interesting. We wish to assure those present that we will look into this, into all of the phases thoroughly, and try to do something about it. This is the greatest country in the world. As you have shown on this occasion, you have shown interest in things that touch the life of the average American citizen which makes it interesting and that you have a forum to which you can bring your grievances and have them listened to and acted upon. I assure you that under Mr. Rosenthal you have one who is sin- cerely interested in the problems of the community. He is interested in your problems. And we will try to do something about it. This is the greatest country in the world. And if the people of it would show their interest in each other that you are showing in what is happening in the different parts of your city and how it affects all citizens thereof, that is the kind of interest that will carry us to greater heights of service to the people of the community and the people who come under the jurisdiction of the Congress of the United States, as all citizens do and I want to assure you that your interest has not been in vain. I do not think that you could find a better Representative than Mr. Rosenthal and Mrs. Dwyer, who has ever been interested in the problems of the common man, because a man who has every- thing does not need a few cents, but those who have sat here today and have listened to these people testify, to them a few cents can mean a lot as it does to the people of the whole community and we have a long way to go, as a Congress, to bring to everyone in the United States the benefits of what this Government and this country has to offer. This has been a very enlightening morning to me to sit here and to see these young people, particularly these young women and to hear them speak and I will say first that I am one person who be- lieves in the womanhood of America-they are the mothers of men- they are the mothers of our children-and they are interested in the prices and in those things that benefit the country. Certainly there are those who want to get rich, but to get rich at the expense, un- fairly, of other human beings is a detestable thing. PAGENO="0023" 17 This hearing this morning has been a `great education to me, these few minutes that I have sat here. I will do all in my power to try to aid you in making America a better America by bringing to them help, by listening to their pleas and bringing to them the benefits that should be brought to everyone of America's citizens. I thank you so much for what I have learned here today. Mrs. KELLY. Thank you. [Applause.] Mr. REuss. You were telling me, Mrs. Kelly, how many shoppers participated on the 3 days. Mrs. KELLY. There were six on the 15th, I think seven on the 1st of September, and six again on the 15th of September. Mr. REuss. Have you finished? Mrs. KELLY. In each of the three stores. And just whatever was ex- pected-although we did not expect some things-well, I personally expected that the 13th and D Street store, if there was going to be any discrepancies, would be higher on the first and it was not. We have no comparison.' These persons who shopped had roughly the same two sets of prices and when we got our original materials together that I have with me in Mrs. Boyd's living room, we each thought that we had no case, and we were just' checking it out, but none of us had a real conflict on our lists. And when we put all of the prices together we were absolutely amazed. Mr. REtTSS. Did you make your composite check after each of these 3~ shopping days? Mrs. KELLY. No. Mr. REuss. Or after September 15? Mrs. KELLY. September 17. And we did not do any comparison- we did not, you know, do any comparisons by phone, either. I was convinced myself that it was an absolutely worthless study. And we would do nothing:more than a civic service to go into this. Mr. REUSS. What form of reporting did the ladies use? Mrs. KELLY. I have typed lists of this. We had lists. We brought them down. Mr. REUSS. Have you got those? Mrs. KELLY. Yes. Mr. REUSS. Would you pick out any one of them that you would like so that we can see what they are-what the worksheets look like? Mrs. KELLY. Yes, if you can read them. Mrs. SOHLOSSBERG. We each had identical sheets. Mr. R~uss. Let me ~ask you this, Mrs. Kelly, whether this one is typical-the one that you have shown me, which is a work sheet, I be- lieve, of Mrs. Janie Boyd. Mrs. KELLY. Yes. Right. Mr. REUSS. Yes, for the No. 1 store at Fourth and M Streets SW. Mrs. KELLY. Yes. Mr. REuss. And it is dated on the 3 days, August 15, September 1, and September 15. Mrs. KELLY. Right. Mr. REUSS. And the commodities listed correspond with the ones shown on your charts? Mrs. KELLY. Yes. Mr. REUSS. They are in the left-hand column, and then there is a place for the price on each one? PAGENO="0024" 18 Mrs. KELLY. Yes. I drew the columns down and I divided each column to cover two stores. Mr. REUSS. Did the ladies who did the shopping use their own re- sources to buy the groceries? Mrs. KELLY. We did not buy the groceries. Mr. REuss. You did not buy them? Mrs. Kirx~y. No. Mrs. SCHLOSSBERG. No. Mrs. KELLY. We did not have that kind of money. Mrs. SOHLOSSBERQ. There was no way of proving that you got them. Mrs. KELLY. I suppose we should have done things like that. Mr. FREED. May we have that for the record? Mrs. KELLY. Yes. This is it. Mr. ROSENTHAL. We will include at this point, without objection, all of the cumulative statistical material that has been offered here today. (The statistical material referred to follows; in the chart on p. 21, stores 7,8, and 9 are poverty stores.) .5 I~c~w ~ ON ~UC.~r %~, ~ 4~4 NOT~ ~cç~g~ C ~ a~ ~ Co~-~Moor~-1_ P~c~ r STO~~ ~ ..~ ~ ~Sro~t~S 2AN~ ~ ~ 4~. ~-1 ~ ~ c~ ~u4c~i3 3'*~~ ~ ~ 1 1 1 ~ `-~) -H / / \ , \ =1/ l/\t \~ ~ ~ ~ ~ -. 2. Tô~.jr-j ~ ~-~4 1* ~ ~ ~ ~ ~ ?~CV* L~S A EJ .~i ~ ~ f///\~ ~ C~~~c0 r PAGENO="0025" 19~ Sc~c~.Jn', PR~C~S ow c,~js-v t'r, SapT6Me~ t cvwp S~PT~N~y~ No Tt t \0 C~E~CVS L EOIST\t%~u-rco ow Om~ S~ooas~--_ Cot-swooit~j Pg1c2 r~L~ CL\~wfl 44~g w 0 4 z) ± PAGENO="0026" O~ ~ ~ N~rre: VJE~~v~ ~ \NE~ STRU3~JTG~o c5~ c~ ~c~Tc~r\~ (5~. ~o5) k~-t. ~ ~ S~s. `E~V4 ~ ~ Ne~ 3er~e~ ~4e. c~ N LAJ ~3. ~J~' c~-~ 4 S4s ~ ~ C~ev~ ~ ~ ~. ~ ~ c~(u~ ~ ~"* ~ ~ ~ ~ ~ ~ C~?%~ ~ 4 \ C) (0 -1 C,, 0 0 0 C) C) Ci) S 0 S C) 0 -~ C') 02 ~1~ C) S C) 0 ci, cC -< -< 0 C,) -l 0 S c* 0 C* ~ E C) C) )-" ~ ~ ~ C) ~C) C) ~,C) C) ~ C) C). ~CD~ C) C) ~`CD ~ C)0 C)~-. -. C) -~ C) C) CC- C) (_) B C) - ~I1I T it~Lt. PAGENO="0064" C) o C,, 0 C- >- C,, 0 C-, ~ - C)0 H ~ C-) C ~Xi <~ E ~ w0 -- `I, ~ -~ 0 -J o ~ C.) 0' 0 C,, C., C- C) 0 0 L. 0 C,, > C.) E C-', -J C-) NC) c,~t,,oo ~ C)C)C)C)C) CC)~')C) C~4C) C)C~ (C ~ -~ C)CON C)C) -~ C) C)C)oO - Q~ 00 C))LC) 00 C') C'4 C) ~ C) C) C) N C') C) C) ~ ~-(C) (CLC)C)Q0 C)C)~o ~ 00 C) C)r-. (CC) C) (C ~o(CQoO C-CO ~ CC) >~ ~ ~ :~ ~ > -~ d d dc~ud~d~ ~ ~C)C)C) (C) `C) C)C)C)C)C)C)C) LU >, C) E (C) C-- 00 (CC) ~ `CO C).-'oo :C)C%JC'4 C) C) CC)~ C) C)C) C) C)C) C)C)C)C) C) C) C) C) 00C).-) C')C~J C)) ~C)COC) 0(C) (CC)) (CC) ~ C) (C)C)C)C)C) (C)C%)C)C)C)C)C)C)C)C) 0 I.- C) C-,, E C)) E E 00CC C~) CO C PAGENO="0065" 59 Mr. ROSENTHAL. Do the poor pay more? Mr. Ross. I have summarized it for food-in the case of rents we found that the poor did pay higher rents for the same or equivalent space and facilities. In the case of nonfood commodities, the results were not so clear. For example, for clothing we found differences in the prices charged in the two income areas were negligible for the same quality, brand and style, but were comparative, but generally the higher income areas had higher priced and higher quality items. We found that the prices for washing machines and television sets were higher in the low-income areas. For drugs we found widespread price variations from one store to another, but no systematic differences between the low-income and the high-income areas. Prices for service items, like haircuts `and other services, were gen- erally lower in the low-income areas. For cigarettes and household supplies, there were little differenoes. The differences were not great, except the one that I have already men- tioned, that is, the prices were lower in the chainstores, and that there were not so many ch'ainstores available in the low-income areas. There was little or no difference between the low- and `high-income areas as to the number of days or `the `average number of hours that the stores were open. Mr. ROSENTHAL. Mr. Ross, you ar~ really in the `business of tabu- lating statistical information, are you not? Mr. Ross. Yes, sir. Mr. ROSENTHAL. And your agency is a repository for many types of information? Mr. Ross. Yes, sir. Mr. ROSENTHAL. And in your judgment, based on the things that y'ou have heard tod'ay and the newspaper `accounts and the other testimony before other committees `about the fact that the poor pay more, do you think that the Federal Government has sufficient information on this subject? Mr. Ross. No. I think that it is a subject on which IL would like to be able to do more. And, certainly with the emphasis on and the consciousness of urban problems, poverty prob]ems that `have emerged in recent years, I think that this particular element `of the poverty problem, that is, the consumer problem, and particularly the `credit problem, deserves a lot more `attention. Mr. ROSENTHAL. What would you recommend he done? What `would you wanttodo? Mr. Ross. Well, Mr. Chairman, I had the pleasure of appearing before you in July and ~`t that time you will recaII~ I indicated some things that we hoped to d~ by way of cons~rn~er education, consumer information. ii tried to `indicate how we might utilize our data to bring more information `and education to consumers. Subsequent to that testi- mony we have tried to price out such a program, what `additional work we have to do in a proper or satisfactory way, in a fairly large number of cities. We ascertained that it would cost about $400,000 a year. Mr. ROSENTHAL. If there is a social need for the Federal Govern- ment to do something in this area, they cannot meet that need without the basic information as a condition precedent to doing anything. Mr. Ross. Right. 88-532-68--5 PAGENO="0066" 60 Mr. ROSENTHAL. Your office does not have the information, and no other branch of the executive has the information. Mr. Ross. As I was going to say, Mr. Chairman, we do not have that kind of money at the moment, but we are trying to see what we can do with what we have. I have scheduled a meeting of all of our regional directors in Washington to discuss fully what can be done within our existing resources to exploit our information and to make it usable for local and State problems. Mr. ROSENTHAL. Do I conclude that you do not have the temerity to ask the Congress for more money? Mr. Ross. Mr. Chairman, I have asked the Congress for a great deal more money, but the problem is that the Congress has not given it. Of course, our budget is scrutinized by the Secretary of Labor and by the Budget Bureau. This year the increase recommended by the appro- priations subcommittee, which, of course, we do not have yet is, I believe, less than 10 percent of what Secretary Wirtz and the president asked Congress for. The increased work by the BLS would have involved heavy emphasis on consumer price information. Mr. ROSENTHAL. When you went to Vietnam was it on a matter related to consumer problems? Mr. Ross. No, sir. Mr. REuss. Will you yield? Mr. ROSENTHAL. Yes. Mr. REuss. Thank you, Mr. Chairman. As you know, I think that you and your associates are doing a good job. I am grateful to you for coming here this morning. Mr. Ross. Thank you. Mr. REtrss. I have just two or three questions. In your study of June 12, 1966, "Prices Charged in Food Stores Located in the Low- and Higher-Income Areas of Six Large Cities"- that is the one that you have been talking about? Mr. Ross. Yes, sir. Mr. REUSS. You did not, as I read the study, gear it as the ladies did in their study, to a first-of-the-month date-the date when welfare checks are first available; a time when many low-income people do a large chunk of food shopping because the money has about run out? Mr. Ross. That is true, m general We did make a little check in one area. I hesitate to mention, because it was so small. Mr. REuss. Was that in Washington? Mr. Ross. It was in the Watts area of Los Angeles. We did make a check there. It was extremely small. It was for 18 items. Let me make sure of the dates. We came ~ack in the first week of March. You will recall I said that the pricing was the last week in February. We came back into a few stores and checked on the 18 items only in the area of Watts in the first week of March, which was after the welfare checks were disseminated in Watts. We did find that among the items where the prices were changed there had been more price increases in the Watts area than there had been in the higher income areas of Los Angeles. We found also that the price increases were more frequent for the items that were the volume sellers in the low-income area than they were for the items that were the voimne sellers in the high- income area, where there was a difference. That was what we found, but as I say, it was a very small check. And I might say that this kind PAGENO="0067" 61 of study, which is done at the request of the Food Marketing Commis- sion and the Office of Economic Opportunity, naturally goes along the lines that they want investigated. Mr. ROSENTHAL. As to food? Mr. Ross. The particular questions or issues that were looked into were the ones that they asked us to look into. Mr. REuss. That is right. This is somewhat of a new wrinkle, the relationship between the welfare check payment and the squibblings on the graphs of food prices. You heard the testimony of the three ladies from the District of Columbia this morning? Mr. Ross. Yes. Mr. REliss. I would ask you this question: Based on your expert knowledge of what I believe you called methodology, how you go about price sampling, would you agree with me that the ladies seemed to have done a pretty workmanlike job, assuming that they are telling the truth? Mr. Ross. Well, I did not hear their testimony, actually, Mr. Reuss. I came in during the questioning. I am really kind of reluctant to com- ment on it. You have, apparently, an issue of a flat contradiction be- tween the company and these ladies, and I really think that it would be better for you to investigate what actually happened, than to get what would have to be a very offhand comment from me. Mr. REuss. You say that you came in during the lady's testimony? Mr. Ross, No, during the questioning. Mr. REuss. You did not even hear the testimony, then. I will, of course, not ask you about it, then. You were here, of course, for the testimony of the legal gentleman from the Safeway Stores? Mr. Ross. Yes. Mr. REUSS. Let me ask you this, based upon knowledge of how it operates, if a large national chain were in the business of systematically discriminating against low-income people by jacking up the prices of food on welfare check day, you would not expect them to memorialize it and to incorporate that in their books and records, would you? Mr. Ross. Well, I think- Mr. REuss. As a matter of commonsense? Mr. Ross. I think that the question answers itself, Mr. Reuss. Mr. REuss. I will ask you just one more question. In a welfare area, in a supermarket, the amounts paid by their customers is simply added up on the adding machine without any particular reference on the tape as to what it is for? Mr. Ross. I think that is the case. Mr. REuss. Therefore, a branch manager anxious to maximize profits in his particular store, can, by overcharging on particular items, look better than if he did not overcharge, and since the only evidence of a particular sale is the adding machine tape, which does not relate to the item, the charge for the goods sold, there is an opportunity for such gouging, is there not? Mr. Ross. Well, I think that it is certainly conceivable; yes. I want to make that reply without any inference that I am commenting at all on the problem. Mr. REuss. I realize that that is clearly hypothetical. Mr. Ross. Because if counsel for Safeway does not have direct PAGENO="0068" 62 knowledge of what was charged on those dates, certainly I have a lot less and I do not wish to comment in any way upon that controversy. Mr. REuss. I appreciate that. My question was in the field of general commonsense. Mr. Ross. As general commonsense it is possible to raise prices and increase profits; yes. Mr. REuss. That is all. Mr. ROSENTHAL. Congressman Myers. Mr. Mn~us. Thank you, Mr. Chairman. In your discussion with Mr. Reuss you were talking about the Watts area and your survey out there. Was it chainstores that you conducted the investigation in? Mr. Ross. Yes; yes. Mr. MYERS. How many chainstores did you go into? Mr. Ross. No; we had chainstores, small independent stores, and large independent stores. Mr. MYERS. They all showed similarly the same conditions; is that. correct? Mr. Ross. Yes. Mr. MYERS. Also, other stores-all of the stores in the Watts area then were in that? Mr. Ross. Well, we did not have every store in the Watts area. Mr. MYERS. The ones- Mr. Ross. We had a sample; yes. Mr. MYERS. In your monthly Labor Review of October of 1966 you make several notations, one of which is the fact that you say that some items in the poor areas are more expensive, while at the same time some of the items in the poor areas are cheaper; is that correct? Mr. Ross. Yes. Mr. MYERS. Maybe one particular item will be higher in the poor area than it will be in the middle-class area? Mr. Ross. Yes. Mr. MYERS. But also you state that some of it will be cheaper, is that correct? Mr. Ross. Yes, sir. Mr. MYERS. Yes? Mr. Ross. On the average, the prices were higher but as you sug- gestéd there were many otherwise. Mr. MYERS. They were generally higher. Did you really make enough of a sampling in these areas to draw any conclusion? Mr. Ross. I believe so. Mr. MYERS. Your conclusion says that the food surveys which were published earlier have created widespread comment about the need of supermarkets and the cost advantage in the poor neighbor- hoods. You did not say anything about prices there. You said that few price c&mparisons can be made from the survey but that the buying habits differ from those in other areas, in 1966. You did not draw any such conclusion in 1966? Mr. Ross. I do not recall that particular article that you are quoting from. The study itself, which is a much longer study, did reach the conclusion that on the average that the food prices are higher in the low-income areas. PAGENO="0069" 63 Mr. MYERS. You generally think from your surveys that they are higher in the po*-income areas? Mr. Ross. Yes, particularly associated with the fact that in many of these income areas there is a small number of the lower-priced stores. Mr. MYEu5. This is just across-the-board-every day of the month is higher or did you notice any significance otherwise? Mr. Ross. We did not price every day of the month. We only price once a month. Mr. MYEits. Is there any given day? Mr. Ross. This survey was the last week in February, the year of 1966. Mr. MYERS. The last of the month? Mr. Ross. The last week of the month. The 21st to the 25th. Mr. MYERS. As I recall, my mother-in-law is in the grocery business and has stated that on Thursday they have their biggest sales or something. If you went in on certain days you might get different prices in different stores on different sales. Mr. Ross. Yes. Mr. Chase I think might be able to help us on that question of the week and specials with respect to food pricing. Mr. CHASE. We do our pricing, generally, not in this study which has been referred to, but generally on Tuesdays, Wednesday, and Thursdays, so that we do get the weekend specials on Thursday. Mr. MYERs. Thank you. That is all I have. Mr. ROSENTHAL. Thank you very much, Commissioner Ross. The subcommittee stands in recess until 2 o'clock this afternoon. (Whereupon, at 12:30 the s~bcominittee adjourned to reconvene at 2 p.m. of the same day.) AFrERNOON SES5ION Mr. ROSENTHAL. The subcommittee will please be in order. Will the three women who appeared here this morning stand and raise your right hand? Do you swear and affirm that all the testimony you have given in this proceeding here today is the truth, the whole truth, and nothing but the truth? Mrs. KELLY. Yes. Mrs. BOYE. I do. Mrs. SCHL0S5BERG. I do. Mr. ROSENTHAL. Now, Counsellor, can we do the same for all the Safeway personnel? Mr. VAN GEMERT. Yes, I would appreciate it. Mr. ROSENTHAL. Can we get their names and addresses, and then we can do it. Mr. VAN GEMERT. In the center I would like to introduce Mr. Basil Winstead, manager of our Washington, D.C., retail division. To his immediate left, or your right, Mr. Horace Alexander, Sixth and H Street NE., who is, incidentally, the manager of the store identi- fied in the exhibit you saw this morning as No.3. Mr. REuss. What is the address? Mr. VAN GEMERT. The address is Sixth and H NE. Mr. ALEXANDER. 610. Mr. VAN GEMERT. 610 H is the specific address. PAGENO="0070" 64 To Mr. Winstead's immediate right, your left, is Mr. Raj Dogra, manager of our international store, which is identified on the charts you have seen this morning as store No. 6. To Mr. Dogra's right, your left, is Mr. Joe Taha, who is th~ man- ager of our store at New Jersey Avenue and K NW., and this is the store shown on the charts as store No.2. May I just give one brief explanation? Of course, Mr. Winstead is here under specific request. The way I selected the other store managers is to use a selection used by the Federal Trade Commission. These three managers have been requested to appear before the Commission along with two others, whom I have also asked to come here, but we were unable to locate them. When the other two arrive, if it is satisfactory with the committee, I would like to have them join us here at the table. Mr. ROSENTHAL. Of course. Would you three gentlemen please stand up. Mr. VAN GEMERT. Four. Mr. ROSENTHAL. Four gentlemen. Do you swear and affirm that everything you will testify to in this proceeding is the truth, the whole truth, and nothing but the truth? Mr. ALEXANDER. Yes. Mr. DOGRA. I do. Mr. TAHA. Yes, sir. Mr. WINSTEAD. I do. Mr. VAN GEMERT. M ~ontinue, then, with the statement? Mr. ROSENTHAL. Mr. Winstead, we appreciate your appearance and are grateful to you for taking time out from what I know is a busy schedule to appear here today. And if you have a prepared statement or any remarks that you want to make to begin the dialog, why just go right ahead, sir. You may sit down. Mr. WINSTEAD. Thank you, sir. Mr. Chairman, I will continue with our statement. Mr. ROSENTHAL. Mr. Winstead, would you tell us what your respon- sibilities are, your area of jurisdiction, and where you are head- quartered? STATEMENT OP BASIL M. WINSTEAD; ACCOMPANIED BY RAJ DOGRA, JOE A. TAHA, H~. C. ALEXANDER, HAROLD' V. MILEY, AND RUSSELL COOL, STORE MANAGERS Mr. WINSTEAD. I am manager of the Washington, D.C., Division of Safeway Stores, Inc. My division headquarters office is in Wash- ington, D.C.; address, 6700 Columbia Park Road, Landover, Md. The Washington, D.C., division includes all stores in the State of Virg1nla, the District of Columbia, the State of Maryland, the south- ern part of Delaware, and the central-southern part of Pennsylvania. Mr. ROSENTHAL. How many stores do you have under your direct control and jurisdiction? Mr. WINSTEAD. I have under my control 236 supermarkets. Mr. ROSENTHAL. And how many employees do you have under your control? PAGENO="0071" 65 Mr. WINsai~r. We have approximately 8,400 employees in this division. Is that accurate enough, sir? Mr. ROSENTHAL. Yes. Mr. WINSTEAD. Thank you. Mr. ROSENTHAL. Go right ahead, sir. Mr. WINSTEAD. The prices which are referred to in the remainder of this statement are our book prices for the entire metropolitan area. I have personally and thoroughly investigated this matter, and it is my sincere belief and considered judgment on the basis of this investiga- tion, they are the actual prices charged in all stores on the dates indi- cated. References hereafter in my statement to actual prices should be in- terpreted in this context. The prices tabulated for six other Safeway stores which were merely described as "other stores," but which, in fact, include one store serving a poverty area, appear to be a very accurate reporting of the book prices that were in effect in all our Safeway supermarkets in ~the metropolitan area on September 1; that is, allowing for inexperienced price-reported errors. However, the prices tabulated for the three stores described as serv- ing "welfare clients," were not the prices at which these 10 items were priced, or sold, in those stores. Nor were they the prices at which those items were sold in any of Safeway's supermarkets in the Greater Wash- ington, D.C., metropolitan area. Furthermore, it seems peculiar that for the seven dry grocery staple items, the group's survey showed a first-of-the-month rise for all seven items in the poverty-area stores. But for six of the items, Safe- way's actual prices were not changed whatsoever in any of our Wash- ington, D.C., stores over the entire period (from mid-August to mid- September), and the one item that did change in price during that period was lowered 2 cents, not raised, and just before the first of the month. Mr. ROSENTHAL. We want to welcome Congressman Gilbert Gude, who is going to join us for the hearing. Mr. GUDE. Thank you, Mr. Chairman. Mr. WINSTEAD. May I continue, sir? Mr. ROSENTHAL. Yes; I am sorry, sir. I apologize for the interrup- tion. Mr. WINSTEAD. Thank you. And on three perishable items, the survey showed for poverty-area stores either a price increase on September 1, or a price reduction after September 1-whereas Safeway's actual price on one of the perishables dropped on August 21; another perishable item was reduced in price on September 5, after remaining unchanged since mid-August; and the price of the other perishable item indeed rose, but not until September 11. Several of the deviations in the survey prices might reflect errors in price reporting; for example, confusion of side-by-side shelf items of different sizes or grades, or the recording of a "2-for" multiple price as though it were the price for just one unit of the item. But, however charitable an allowance is made for inadvertent errors, the PAGENO="0072" 66 publicized emergence from the survey of a poverty-pattern impression just about defies explanation. We believe it possible that the explanation may lie in the procedures followed by those conducting the three pricing surveys on which the tabulation is based. We suggest that the following information would be relevant to any consideration the c~om.rnittee may wish to give that question: 1. The written specifications given each shopper, on each date, as to the store to be shopped, and the items to be checked (that is, ~ brand, size, pack, variety, grade, quality, and where an item bore a "cents-off" label, whether it or the "non-cents-off" item should be reported). 2. Whether purchases were made and cash register receipts were retained. 3. The actual survey pattern, that is, on each date, which price reporter made the price survey at each store; and, more specifically,. whether the same person made the survey at the three stores ~described as serving welfare clients? Because of our deep concern regarding the accusation made against us, we are cooperating with the Federal Trade Commission in its study of that accusation. We have opened our pricing records and books to the Oommission and are currently engaged in hearings in which the Commission is receiving the sworn testimony of Safeway employees~ including that of myself `and various store managers. The FTC hear- ings began Monday, continued Tuesday and Wednesday, and will resume on Friday, after recessing for the purpose of our appearing before you to'day. I personally supervised and participated in the collection of Safe1- way's pricing and other relevant records and am the manager of Safe~ way's Washington, D.C., division. It is my personal belief and convic- tion that Safeway's selling prices on~ the 10 items were, except for pos~ slIde human errors, identically the same on September 1 in all Safe- way supermarkets serving the Greater Washington, D.C., metropolitan area, `including our 40 or more stores serving poverty areas, and were as I stated them above. The October 2 letter charging discrimintary pricing differentials was distributed to news media, to legislators, and to governmental agencies, even before its receipt by me to whom it was nominally ad- dressed. That letter also demanded our "negotiation" with these in- dividuals toward discontinuance of discriminary pricing practices- practices in which Safeway had not, in fact, engaged. These were and are dangerous accusations. Even though untrue, they are of the type that can ignite the fuse of further discontent and de- structive disruptions of our central core cities. Even though untrue, they can destroy a business which has been built upon a commitment- followed up with a dedication in practice-to completely fair, nondis- criminatory treatment of all its customers. As well as being dangerous, the charges are ridiculous. Well over half of the Safeway stores in the District are located in neighborhoods that probably would be classified as "poverty areas" by any logical standards. Residents of those areas are, hopefully, among our cus- tomers. And customers are the lifeblood of any retailing enterprise. Through advertising and other promotional efforts, we invite poten- PAGENO="0073" 67 tial customers to our stores. We welcome them into our stores to in- spect what we offer in the way of products, services, and conven- iences-and our prices. We make every effort to assure that they like what they see. And we are delighted-and successful-when they stay to shop and come back as repeat customers. That is our business. Yet these apparently publicity-prone individuals claim to have found a "poverty pattern" in Safeway prices and pricing. The prices they tabulated and the graphs they constructed might indeed give that impression. But it is my opinion they simply won't stand up under factual examination. Safeway's general philosophy and policies as to retail pricing in our stores reflect a total commitment to fairness and equity in the prices of products offered-not only for all the customers who may patronize a given store, but also for the customers of our various stores in each trading area. Any other policy would be sheer business folly. All of our Washington, D.C., stores are in the same Safeway price area. This means that it is Safeway's policy, implemented in practice through careful procedures and controls, that a given item bears the same price on the same date in each and every Safeway supermarket in the District of Columbia that handles the item, and that even the occasional human error is caught and corrected promptly. If there has been or is any "poverty pattern" in our pricing, it is simply that the poor pay no more at Safeway. Mr. ROSENTHAL. Thank you very much, Mr. Winstead. I wonder if you could look at this map, which is a biow-~up map of a part of the District. Store No. 1, at Fourth and M Streets SW., does that have~ any Super- market competition? Mr. WINSTEAD. Yes, sir; it does. Mr. ROSENTHAL. Where `is the nearest competitive supermarket? Mr. WINSTEAD. We have competition throughout the area, both in the District of Columbia and the surrounding suburbs. Mr. ROSENTHAL, No, no. I mean within walking distance of that store. Mr. WIN5TEAD. I think you would have to define "walking distance" for me, sir. Mr. RE~SS. Between the freeway on the north and South Capitol. Mr. ROSENTHAL. Between the freeway and the river? Mr. WINSTEAD. That is a redevelopment area, and. our store is the only supermarket between the freeway and th~ river. There are independent stores along South Capitol Street. Mr. ROSENTHAL. Yes. We had some testimony that there is a small independent store in the basement of Capitol Park Towers. Mr. WINSTEAD. Also, on M Street there are stores, sir. Mr. ROSENTHAL. Yes. Now, store No. 2, what kind of supermarket competition do you have there? Mr. WINSTEAD. The supermarket competition in the area of No. 2 would be located in the general area further down on K Street. This store is very close to the heart of Washington. It is in a redevelopment area. It is in the right-of ~way of the new freeway that is going through there. There has not been any business development or progress in that area. PAGENO="0074" 68 Mr. ROSENTHAL. Are there any other supermarkets within 10 blocks of that store? Mr. WINSTEAD. In 10 blocks I would say "yes," but I would have to check the exact distance, sir. There are markets near Lafayette Square and various other stores near there. Mr. ROSENTHAL. And store No. 3, where would you say the nearest supermarket, competitive-type supermarket is to that? Mr. WINSTEAD. The nearest competitive-type supermarket to store No. 3 is an A. & P. store on Benning Road. There is a Giant store at 17th and Bladensburg Road. Mr. ROSENTHAL. How close is the closest competitive supermarket? Mr. WINSTEAD. In distance, six-tenths of a mile. Is that correct? Mr. ALEXANDER. Approximately. Mr. WINSTEAD. Approximately. May I use an approximate term in distances, sir, because it is diffi- cult to define it exactly? Mr. ROSENTHAL. Oh, yes. Sure. So that I can recount this testimony, No. 1 has no supermarket competition other than across the freeway, or across the river? Mr. WINSTEAD. I would like to elaborate on that point, if 1 may. Our supermarket in the Southwest Redevelopment Area is in the only shopping center in that area. It is an unusual supermarket in that it has been merchandised and operated to attract clientele from various parts of the city. And, yes, in fact, many of the customers shopping in that supermarket drive past the doors of chainstore com- petition, strong chainstore competition to shop in that store. Mr. ROSENTHAL. You have a fair number of welfare customers in that store; do you not? Mr. WINSTEAD. I could not give you the exact number. However, our store manager just arrived, and I am sure he can help us on this point. Mr. VAN GEMERT. May I introduce to the committee Mr. Harold Miley, manager of the store at Fourth and M Streets, who has already been identified as the manager of store No. 1 in the tabulation. Mr. ROSENTHAL. Sir, would you raise your right hand. Do you swear and affirm that all the testimony you give before this proceeding today is the truth, the whole truth, and nothing but the truth? Mr. MILEY. I do, sir. Mr. ROSENTHAL. Well, maybe he could help you out on where the nearest supermarket competition is. Mr. WINSTEAD. Harold, would you like to tell us about the stores in the Southwest area? I think we have confined this to the area immediately surroundin your store, meaning between South Capitol Street and the river an the Freeway, I believe is what the area is you defined. Mr. MILDY. Well, there are no supermarkets within that area that Mr. Winstead just mentioned. The nearest competition, competitive store of a chain would be the A. & P., I believe, at 12th and Pennsyl- vania Avenue. Mr. ROSENTHAL. How far is that in distance? Mr. MILEY. Approximately 2 miles-maybe 18 to 20 blocks. PAGENO="0075" 69 Mr. ROSENTHAL. You yourself would not classify that as walking competition, would you? Mr. Mua~. I would not in a sense, and I would in another sense. Mr. ROSENTHAL. Do you have welfare recipient customers in your store? Mr. Mii~~. We do. Mr. ROSENTHAL. You are right next door to a public housing develop- ment, are you not? Mr. MILEY. We are in front of it; yes, sir. Mr. ROSENTHAL. Now, store No. 2, if we can just recount that, the nearest supermarket competition is how far? Mr. MYERS. You have the manager here. Mr. WINSTEAD. I have the manager here. Joe, can you help us, give us the information? Mr. TAHA. Actually, all the stores in that area are what you call corner stores2 in that area. They are about three and four blocks away. There are quite a few of them. Mr. ROSENTHAL. Right. And what is the nearest large competitive supermarket to you? Mr. TAHA. There is a supermarket on Seventh Street before you get to Florida Avenue. Mr. ROSENTHAL. And who is that? Mr. TAHA. I do not recall the chain name, but I know there is one there. Mr. ROSENTHAL. How far is that from you? Mr. TAHA. Well, I will say it is about-it is on Seventh between S and Florida, and we are on Third and K. Mr. ROSENTHAL. In blocks. Mr. TAHA. It is about seven blocks, eight blocks actually. Mr. ROSENTHAL. You do not know who that is? Mr. TAHA. No, I do not know. Mr. ROSENTHAL. It is A. & P., or one of those big stores? Mr. TAHA. No, sir-no. Mr. ROSENTHAL. Is it privately owned? Mr. TAHA. Privately owned store. Mr. ROSENTHAL. What I really want to know is, how far is the near- est supermarket in your range? Mr. TAHA. Nothing on North Capitol, of course. And the only one has to come in on Pennsylvania Avenue, I will say. Mr. ROSENTHAL. How far is that? Mr. TAHA. Twelfth and Pennsylvania Avenue, I believe, Northeast or Southwest. I do not recall exactly. Mr. ROSENTHAL. How far is that? Mr. TAHA. Well, it is about-we are on Third and K NW.-about 15 blocks. Mr. ROSENTHAL. And store No. 3, what is the nearest large-scale competitive supermarket? Mr. ALEXANDER. As Mr. Winstead said, the A. & P. is on Benning Road, and the Giant is on Bladensburg Road about one-sixth of a mile away, and about three blocks straight up Sixth Street, the Florida Avenue market is there, and then there is the Ocean Farm Market two blocks from me. Mr. ROSENTHAL. Ocean Farm? PAGENO="0076" 70 Mr. ALEXANDER, Yes. Mr. ROSENTHAL. Is that a store as large as yours? Mr. ALEXANDER. No, sir. Mr. ROSENTHAL. Do you consider them competition? Mr. ALEXANDER. Yes, sir. Mr. ROSENTHAL. And the A. & P. is how close? Mr. ALEXANDER. Approximately one-sixth of a mile. Mr. ROSENTHAL. In blocks what is that? Mr. ALEXANDER. Well, I am on Sixth Street. It is around 6 blocks, 7 blocks. And the Giant approximately the same distance. And the Farmer's Market, as it is called, that is 3 blocks. Mr. ROSENTHAL. Do you have many welfare customers in your store? Mr. ALEXANDER. Yes, sir. Mr. ROSENTHAL. I do not know that I asked you that. Mr. TAHA. Also in ours. Mr. ALEXANDER. I also have many working customers in my store. Mr. ROSENTHAL. What percentage of your customers would you say are welfare recipients? Mr. ALEXANDER. I would say less than-I would say approximately 40 percent. Mr. ROSENTHAL. And you, sir? Mr. TAHA. Well, I will say concerning the welfare business here- when I say "corner stores," I would like to elaborate on that to say that they are the biggest competitors to us because-for one single reason. People who are receiving welfare, they are borrowing on the book during the month, and at the end of the month-very few of them actually come in to us during the month, only to come in and cash the checks, and so as the record will prove, of $103, for instance, they spend $2-and these amounts are marked on the backs of the checks, They hardly spend any money in the store. And we go and eash their checks, and we know they are living in the immediate area. And very few spend money there who are on welfare. People who have moved away or been replaced, they still come, and, of course, they are seeking good service and good merchandise. Mr. ROSENTHAL. How much in food stamps do you take in a month? Mr. TAHA. I will say no more than $2,500 to $3,000 monthly. Mr. ROSENTHAL. Now, Mr. Winstead, could you tell us just gen- erally what the salary or commission or bonus arrangements for man- agers are? Mr. WINSTEAD. You want it for these specific men? Mr. ROSENTHAL. Well, begin generally and then go specific. Mr. WINSTEAD. All right. The salary range for our store managers- Mr. ROSENTHAL. No, I am not interested in the salary range. Does a manager's salary or bonus depend upon any other figure, gross volume, gross sales, net sales, net profit? Mr. WINSTEAD. The manager's salary is based on a weekly drawing account, salary and a bonus paid once each year on a percentage of the profits of the store. The bonus is limited to 60 percent of his reg- ular weekly salary. Mr. ROSENTHAL. So if a manager's base salary is $10,000 a year, he can earn another $6,000 if he is a good businessman and the store does well? PAGENO="0077" 71 Mr. WINSTEAD, That is correct. Mr. ROSENTHAL. Now, do you yourself check prices in any stores, Mr. Winstead? Mr. WIN5TEAD. Yes, sir; I do. Mr. ROSENTHAL. How often? Mr. WINSTEAD. I am in some of our stores every week. I am not a regular price checker as such because we have a department takin care of this, and others in our organization, but I am quite intereste in the retail food business. I am basically a merchant. Mr. ROSENTHAL. Who stands between you and the store manager? Is there a district supervisor that also checks prices? Mr. WINSTEAD. I have a retail operations manager-the Washing- ton, D.C., division is comprised of two retail areas, an eastern retail area and a western retail area, each with a retail operations manager. Mr. ROSENTHAL. And is their annual salary also based on a salary plus profitability of the stores under their jurisdiction? Mr. WINSTEAD. The retail operations manager's salary is a base salary plus a percentage of profits in their area. Mr. ROSENTHAL. The salary bonus that the individual manager can make, up to 6~ percent, this is based on the net profit of a store? Mr. WINSTEAD. Excuse me, sir- Mr. ROSENTHAL. It is based on the net profit of a store? Mr. WINSTEAD. Would you repeat the entire question-I missed the first point-please? Mr. ROSENTHAL. The salary plus bonus arrangement that a store manager has, is his net annual salary based on his base salary plus a proportion of the net profit of the store? Mr. WINSTEAD. Plus a percentage of the profits of the store in the form of the bonus-excuse me, Mr. Chairman. I think we missed a point in the discussion of the people between me and the store manager. I refer to two retail areas. Under each retail operations manager we have district managers. We have 17 district managers. Mr. ROSENTHAL. Is his annual salary based on a salary plus a bonus arrangement based on net profits? Mr. WINSTEAD. His annual salary is based on regular drawing sal- ary plus a percentage of profits of his district. Mr. ROSENTHAL. So that the total salary of each of your men, be- ginning with the store managOr, the district manager, the regioTial manager, and maybe even yourself, has a relationship to net profits of the store or stores under their jurisdiction? Mr. WINSTEAD. That is correct. But may I comment on that? I would like to state that the two retail operations managers in this division, in fact, qualify for maximum bonus very early in the year. I would also like to state that I myself draw maximum that I could draw. I have done so for the past 2 years, 1965-66----- Mr. ROSENTHAL. Does that apply to any one of stores 1, 2, or 3? Mr. WINSTEAD. I would like Mr. Miley to comment on that. Mr. MILEY. My maximum-I cannot tell you exactly, but my maxi- mum bonus is arrived at approximately this time of the year or ear- lier, so that there is no use for me, no need for me to go ahead and make an attempt to increase the profits to hold it up there if I were in that position. PAGENO="0078" Mr. ROSENTHAL. How Could you increase the profit, if you w~uited to? Mr. Mir~y. I could not, other than merchandising, having a good volume of business, a quick turnover, which reduces your spoils, your distressed merchandise, a low expense by keeping my payroll within line, by keeping my lights out when they are not supposed to he on, by getting the trucks back to the warehouse---- Mr. ROSENTHAL. Now that you reached a maximum salary at about the halfway point in the year, is there any additional incentive for you to increase the sales of the store, perhaps another larger store or pro- motion up the line? Mr. MILEY. There is no additional incentive other than that 1 am a Safeway employee, and I have been for over 35 years. Mr. ROSENTHAL. How long have you been in this store? Mr. MILEY. Since December 14, 1960, when it opened, the day it opened. Mr. ROSENTHAL. Now, do you have an upsurge in customers at the first of the month, an upsurge in sales? Mr. MILEY. We have an upsurge in cashing checks.. We have an up- surge in-yes, we can call it an upsurge, but my volume of business runs rather level, consistent-regardless of whether it is the first of the month, second, third or fourth week in the month; my sales are average because I do, do cater to the public-assistance customers, because they come to the Southwest because they get treated right in Southwest. My other customers come in there because they get treated right. Customers move out of Southwest that continue to come back to me because they are treated right. There is never a question in price, attitude, or anything you want. Mr. ROSENTHAL. Do you have any discretion in raising prices above the book price? Mr. MILEY. Any discretion? Can I do it, you mean? Mr. ROSENTHAL. Yes. Mr. MILEY. No, sir. Mr. ROSENTHAL. It is a violation of company rules if you do do it. Mr. MILEY. That is correct. Mr. ROSENTHAL. Have you ever heard of a Safeway manager raising prices above the book price? Mr. MILEY. I cannot say that I truthfully have. Mr. ROSENTHAL. If you raised the prices above the book price around the first of the month, this is a potential way of increasing the net profit, isn't it? Mr. MILEY. If, but it is not. Mr. ROSENTHAL. Well- Mr. MILEY. The prices are not raised. Mr. ROSENTHAL. In your area you have captive customers. Mr. MILEY. We have captive customers as some may look at it. But all of those customers down there have some means of transportation to get to other stores. Mr. ROSENTHAL. Even the 40 percent welfare customers? Mr. MILEY. They have neighbors that are not on welfare; and they have friends. Mr. ROSENTHAL. And is it your testimony that these neighbors get together in a carpool to go shop somewhere else? PAGENO="0079" 73 Mr. MILEY. I cannot say that to be, but I believe it to be true be- cause they come from other parts of the city in a car to my store to get their checks cashed, to go to some other hank to get their food coupons, and then come back and spend their coupons. And if they get $100 worth of coupons at their bank, they will come back and spend the $100 worth of coupons in one order, perhaps. Mr. ROSENTHAL. Now, what percentage of your items are sold at book value? Mr. MILEY. 100 percent. Mr. ROSENTHAL. Well, sometimes you sell it below book value. Mr. MILEY. That is if it has passed the-what you are referring to in that case, I feel sure, is vegetables and meats. Mr. ROSENTHAL. I just want for the record whether you have au- thority to reduce prices. Mr. MILEY. If we are overstocked on merchandise that will ~poil before it can be sold at the regular price, we have the authority to reduce that price. Mr. ROSENTHAL. Now, your district managers or supervisors do you ever see them checking prices in your store? Mr. MILEY. Yes, sir. Yes, sir. Mr. ROSENTHAL. They walk around and look at the cans? Mr. MILEY. He doesn't walk around. He takes me with him. Mr. ROSENTHAL. And looks-how often does he do that? Mr. Mua~y. I would say once perhaps every week. Sometimes I do not see him for 2 weeks. Mr. ROSENTHAL. Why do they do that? Mr. MILEY. Because they want to see if we are in line and following our rules and regulations, which is fair practices. Mr. ROSENTHAL. But you have been there 30 years. Mr. MILEY. Yes, sir; with Safeway over 35 years. Mr. ROSENTHAL. Don't they have confidence in you? Mr. MILEY. They do. Mr. ROSENTHAL. But they still have tQ check you every we~k? Mr. MILEY. They do. I feel everybody should be checked every week. Mr. ROSENTHAL. Even a man who's been there 30 years? Mr. MILEY. I think so. Mr. ROSENTHAL. Now, these other two men, they have not reached- they do not reach their maximum bonus opportunities in their stores. Mr. WINSTEAD. I do not believe your store qualifies maximum. Mr. TAHA. I wouldn't even reach it by the end of the year. Mr. WINSTEAD. The volume in his particular store is-I would like to comment, may I, sir-on Mr. Miley's earnings. His bonus was reached this current year at approximately July 15. He earned maximum for the year. Our records will indicate that. Mr. ROSENTHAL. Sir, have you been made aware of the charges that the ladies made that in your store prices go up on the first of the month? Mr. TAHA. Yes, sir. Mr. ROSENTHAL. And how do you explain that? Mr. TAHA. I will say they are fabrications and have no truth whatsoever. Mr. ROSENTHAL. You think the ladies are telling a lie? PAGENO="0080" 74 Mr. TAHA. I will say the statements and those figures are complete fabrication and have no truth whatsoever in them as far as I am concerned-my operation is concerned-and my customers are not only two or three public assistance people. I have as customers judges; I have customers from the Congress and the Senate, their staffs. I have some ex-Presidential aides and they shop weekly in my store. I have known them for 10 and 12 years, and I have been managing this store since 1955. Mr. ROSENTHAL. Do you cash many checks on the first of the month? Mr. TAHA. I do cash, I would say, about, roughly, a hundred checks, but I will say I believe they won't bring-the value of the checks, they do not have any effect on the volume of the business. But, from the value of the check, they are, on the average, I will say, out of 110 checks, maybe, which I may receive-and I made a survey, as a matter of fact, last month-some spend about a dollar, which averages about 2 percent, maybe, or 3 percent. Except for a few people, when Mr. Miley mentioned that they ride from different areas and come to your store, I have some customers who come in every month from a very far distance to shop, and I say they are the best spenders out of all the public-assistance people. Mr. ROSENTHAL. Do you ever sell any products above the book price? Mr. TAHA. Never. Mr. ROSENTHAL. Never have? Mr. TAHA. Never. I would not work for any human being or any company for one single minute if I had to do that. I would not- my reputation and my company's, I believe, is of much integrity and businesslike with everybody involved. Mr. ROSENTHAL. It is against Safeway's rules to sell- Mr. TAHA. Absolutely. Mr. ROSENTHAL (continuing). Above the book price? Mr. TAHA. Absolutely. Mr. ROSENTHAL. But, if on the first of the month you had a flurry of customers, you raised prices, you could increase your net profit that way; is that correct? Mr. TAHA. I wouldn't do it. Mr. ROSENTHAL. But, if there was a manager in a store who was so inclined, he could do it? Mr. TAHA. It could happen; yes. Mr. ROSENTHAL. Have you ever heard any manager- Mr. TAHA. I never heard- Mr. ROSENTHAL (continuing). In any other store besides Safe- way- Mr. TAHA. I never heard of it; never. Mr. ROSENTHAL. How much food-stamp money do you take in a month? Mr. TAHA. I told you a while ago it's about $2,500 to $3,000. Mr. ROSENTHAL. And do you get that at the end of the month? Mr. TAHA. During the month, for instance, you can deposit-like yesterday, we deposited $103, and every day you deposit the receipts of the food stamps and that will show exactly how much you get. Mr. ROSENTHAL. You are allowed to reduce prices if you want. PAGENO="0081" 75 Mr. TAHA. Only on items that I feel will be, for instance, spoiled. And in this case we give the customer the advantage of the price by reducing that merchandise instead of putting it in the garbage dis- posal. Mr. ROSENTHAL. How often do any of your supervisors or district managers come around to check prices? Mr. TAHA. Well, I see my district manager, who has been recently appomted-I have seen him every week once, except 2 weeks I saw him twice. Mr. ROSENTHAL. Does he check prices? Mr. TAHA. And I saw him once checking prices; yes, sir. Mr. ROSENTHAL. He was recently appointed? Mr. TAHA. Yes, sir. Mr. ROSENTHAL. When was that? Mr. TAHA. About 5 weeks, 6 weeks ago, I will say. Mr. ROSENTHAL. Now, the man who was there before him, how often did he come around and check prices? Mr. TAHA. I would say about the same routine, every 3 weeks or so. Mr. ROSENTHAL. Every 3 weeks you walked around with him, and he looked at the prices? Mr. TAr[A. Sometimes, yes. If I am busy, if I don't have assistants, or if I have to be up front to OK checks, he would go along by him- self. Mr. ROSENTHAL. What time of the month did he come and do that? Mr. TAHA. Well, the middle of the month, the third week of the month, the second week of the month. There's no actual table actu- ally-whenever he feels like it. Mr. ROSENTHAL. Why does he go around and check the prices? Mr. TAHA. They check for carelessness. We have to protect our company-I know it's for carelessness because with the standard of employees at the present time, as everybody knows, as every com- pany and the Govermnent knows, everybody has lowered the stand- aids, for instance, of hiring employees. You don't get, for instance, as ambitious employees as we used to get before, and those employees do make quite a few mistakes sometimes. Mr. ROSENTHAL. Do you find a large number of mistakes in prices? Mr. TAHA. Not very large. If I do find a few things, I have a record from which I write my employee `a memo- Mr. ROSENTHAL. These mistakes, do you find `them below sometimes book value? Mr. TAHA. Well, most below. Mr. ROSENTHAL. Do you ever find `a mistake `above book value? Mr. TAHA. Yes, sir. Mr. Ro5~T1i~&L. In what items? Mr. TAHA. And I woixid say most of the mistakes~ or 98 percent of the mistakes are in the very slow-seller lines which even the employees do not have very much, what you call, knowledge of it. Mr. ROSENTHAL. So there would not be `an item such as Townhouse peas `or Del Monte peaches or Crisco or Cheerios, none of `those items? Mr. TAHA. Absolutely not, because the employee works these items every `single day of the week, or every week `once or twice, filling and refilling, and he is `the least subject to make `an error in such items. 88-532-68-6 PAGENO="0082" 76 Mr. ROSENTHAL. Do you have your best employees working on the fast-selling items? Mr. TAHA. All the employees that we have are the two stockmen, and they are working-my assistants cut and mark for them right from the book, and they price them. And we catch, sometimes, prices that went down by mistake. There are human errors. I will give you an example. Let's `take, for instance, chili con came. An employee won't take the time to look at it, for instance, to see if it's with beans or without beans, and he will stamp them both 39 cents while one should be 45 cents. These are the human errors that happen very often in the store. Mr. ROSENTHAL. Mr. Alexander, your store is where? Mr. ALEXANDER. Sixth `and H NE. Mr. ROSENTHAL. And how long have you been a manager? Mr. ALEXANDER. 1960. Mr. ROSENTHAL. Seven years now. You have been made awa~e of the charges `that these ladies made thout the prices going up on the first of `the month? Mr. ALEXANDER. Yes, sir. Mr. ROSENTHAL. How do you explain that? Mr. ALEXANDER. I don't feel there is any information that they are true. Mr. ROSENTHAL. Do you think there is any possibility you may be mistaken? Mr. ALEXANDER. There's a possibility, for wrong prices in one store, but never in the store intentionally. Mr. ROSENTHAL. Now, are you permitted to raise prices in your store? Mr. ALEXANDER. Only when I receive an advance and decline sheet from the zone office. Mr. ROSENTHAL. And how often does your supervisor come around and check your prices? Mr. ALEXANDER. He visits my store approximately three times a week. Mr. ROSENTHAL. Now, why does he come to your store three times a week and to his store once every 3 `weeks? Mr. ALEXANDER. We have different supervisors-district managers. I am sorry. District managers. Mr. WINSTEAD. He is correcting the title to district manager. Mr. ROSENTHAL. Why is that, Mr. Winstead? Mr. WINSTEAD. I do not believe that I could say that the same prob- lems or the same complex work or requirements are required to oper- ate every store within our division. Some stores require more super- vision than others. Some require more help than others. And that is- the intent of our supervision is to give what is needed. Mr. ROSENTHAL. What is the difference between these two stores that one requires three-times-a-week surveillance and one once every 3 weeks? Mr. WINSTEAD. Correction, sir. I don't believe we said once every 3 weeks. Mr. ROSENTHAL. I think you did. Mr. TAHA. You asked about price checking. Mr. ROSENTHAL. Oh, he comes around- PAGENO="0083" 77 Mr. TAHA. That's right. He might check them once every 3 weeks, I say, not visiting once every 3 weeks. Mr. ROSENTHAL. How often does he visit the store? Mr. TAHA. He visits the store twice a week. Mr. ROSENTHAL. Twice a week? Mr. TAHA. Twice a week. Sometimes if it's maybe a busy time for him or they have a meeting, I might see him once. That's the situation. Mr. ROSENTHAL. Yes, sir. Mr. ALEXANDER. One of the reasons my district manager sees me quite often, we run the meat relief out of my store, and he comes in to set up his schedules for the district out of my store. Any excess help is put in my store, and if a smaller store has a wrapper call in sick, we are to replace him. In the small two-man markets we send men over in the evenings to relieve the meat men to go home. So he actually runs his meat department, meat district, out of my store. That's the main reason be is there three times a week. Mr. ROSENTHAL. And do you categorically deny you have ever raised prices above the book value that Safeway permits you to charge? Mr. ALEXANDER. Yes, sir. Mr. ROSENTHAL. You are permitted to reduce prices on perishable items or excess items, things of that nature? Mr. ALEXANDER. Yes, sir. Mr. ROSENTHAL. Has any district manager or supervisor ever said to you, "That price is above the book price. Let's cut it down"? Mr. ALEXANDER. Not to my knowledge. Mr. ROSENTHAL. Now, you could increase your annual salary by raising prices, for example, on the first of the month, if you were that type, couldn't you? Mr. ALEXANDER. I would say no. Mr. ROSENTHAL. Well, can you explain that? Mr. ALEXANDER. If you was working for me and you know the book value, and I say, "Mr. Rosenthal, raise the price of bananas to 17 cents a pound," right there I lose control of you. Mr. ROSENTHAL. Why is that? Mr. ALEXANDER. If I see you in the back eating a banana, and when I ask you where your sales slip is-well, I don't have a slip. I am sell- ing my bananas 2 cents a pound higher than what they should-I would lose control of you. There would be no way I could control my help. So I would say it would be quite foolish for me to raise prices. I would lose more than I would ever hope to gain, plus if the company would catch me, I would lose my bonus completely. It would definitely affect my bonus. Mr. ROSENTHAL. It would probably affect more than your bonus if you were caught? Mr. ALEXANDER. It would affect my jab. Mr. ROSENTHAL. Have you ever heard of a manager being caught doing that? Mr. ALEXANDER. No, sir. Mr. ROSENTHAL. Do you mean that the employees in your stores, the people who stamp the prices, know what the book value is? Mr. ALEXANDER. They should. They write the orders. They make the entries in the book-when the price and decline sheets come PAGENO="0084" 78 from the main office, they will take them and change them in the book, and then they go change them on the shelf with the price tag and all. That's part of their job function. Mr. ROSENTHAL. Do all stores get these price changes at the same time? Mr. ALEXANDER. Yes, sir. They come out of the mailroom. Mr. ROSENTHAL. Do you tell the employees what price to put on the items, or do they themselves look it up to see what the prices should be? Mr. ALEXANDER. They themselves look it up. They use the code book. Mr. ROSENTHAL. Yes. Are there any items at all that you tell employees to put prices on? Mr. ALEXANDER. Only a reduced item. An unlabeled item, maybe, they might ask how much to mark this down. I may give them a price then. Mr. ROSENTHAL. Without telling me the amounts, because I am not really interested, how close are you to making the maximum bonus? Mr. ALEXANDER. I don't believe I will make it. Mr. ROSENTHAL.. You will make some bonus, though? Mr. ALEXANDER. I think so. Mr. ROSENTHAL. Would you say you will increase your salary by about 50 percent? Mr. ALEXANDER. My salary? Mr. ROSENTHAL. Yes. Mr. ALEXANDER. No, sir; I don't think Twill come that close. Mr. ROSENTHAL. Do you have a pilferage problem in your store? Mr. ALEXANDER. No more than any other store. I would say we are more aware of it thati some of the finer neighborhoods. Mr. ROSENTHAL. What percentage of your sales or profit does it amount to? Mr. ALEXANDER. Well, I hate to say we don't catch them, so there would be no way to determine that figure. Mr. ROSENTHAL. Well, you have a running inventory, do you not? Mr. ALEXANDER. Right, but pilferage could not be the only prob- lem in inventory. it's carelessness at the check stand, shortage on orders- Mr. ROSENTHAL. Whatever amount the pilferage is, how do you make up that loss? Mr. ALEXANDER. We don't make it up. Mr. ROSENTHAL. You just take it-it's counted into your net profits? Mr. ALEXANDER. Yes, sir. Mr. ROSENTHAL. So if pilferage gets heavy in your store, it reduces your bonus? Mr. ALEXANDER. If I don't control it; yes, sir. If we overload, over- order bananas and dump it in the garbage disposal, that affects it,, also. So if I don't control my bananas or my ground beef, that will affect my bonus. Mr. ROSENTHAL. Talking in nonperishable items, canned items, if they were pilfered, you couldn't make it up any way at all? Mr. ALEXANDER. Well, we could make it up in multiple prices. Mr. ROSENTHAL. What does that mean? Mr. ALEXANDER. Well, we will charge-take Townhouse peas, two for 39. That's the way we charge for them. These people buy one can,, PAGENO="0085" 79 so we receive 40 cents-20 cents each time. They are buying them separate now. Mr. ROSENTHAL. Do you ever go to visit your colleagues' stores, the other stores, and talk to your fellow mana~er~? Mr. ALEXANDER. I haven't seen Mr. Miley in approximately 21/2 years, and Joe and I, we swap bags or something occasionally when we get behind. Mr. ROSENTHAL. So you do not know whether their prices are the same as yours or not. Mr. ALEXANDER. I know they are supposed to be. I have enough peo- ple within my own four walls without trying to help them. Mr. ROSENTHAL. You don't know whether their prices are the same as yours? Mr. ALEXANDER. No, sir. Mr. ROSENTHAL. Mrs. Dwyer? Mrs. Dw~n. No questions at this time. Mr. ROSENTHAL. Mr. Reuss? Mr. REuss. Thank you, Mr. Chairman. And thank you, Mr. Winstead, for being with us this afternoon. Mr. WINSTEAD. Thank you, Mr. Reuss. Mr. REuss. And your associates. As I gather from your testimony, Mr. Winstead, in answer to the charges of the three ladies this morning on what happened on August 15, September 1, and September 15, your answer is that Safeway throughout this area has book prices which are uniform and give the same price and the same quality at all Safeway stores. And that, sec- ond, those book prices are actually observed in the stores. is that a fair restatement of your testimony? Mr. WINSTEAD. That is approximately correct. Mr. REuss. Will you elaborate if I have misunderstood you? Mr. WINSTEAD. The statement that we have and that our policy is a single price for all stores in this price area is correct. We must con- sider the element of human error in answer to the second part of your question, sir. Mr. REUSS. Now, during the lunch hour between 12:30 and 2, I visited a number of your stores, three of them in poverty areas, and the beautiful store of Mr. Dogra's, which you have the honor of pre- siding over, the international store on 11th and F. Mr. DoIIL&. Eleventh and F; right, sir. Mr. REUSS. I made some purchases, and I would like to talk to you about them. I purchased at three stores a pepper, a head of bib lettuce, and a head of chicory lettuce. At each of the stores I might say I was treated very courteously. And the price of these three items at three stores was identical in each case. It was 48 cents for the three items. I would now like to show you these items. Mr. Chairman, could I have the assistance of counsel in identifying the exhibits? If you would, after we have identified them and marked them, put them on the witness tthle so that the witnesses may examine them. I have here purchases made between 12:30 and 2, as all of them were, ~t your store at 522 Seventh Street SE. PAGENO="0086" 80 Mr. WINSTEAD. Our store numbered- Mr. MILEY. 840. Mr. WINSTEAD. Is that store No. 840? Is that correct? Mr. ALEXANDER. I think so. Mr. REU5S. And we will call these exhibit 1, and then you can make them 1-A, 1-B, 1-C, and so on. From this store at 522 Seventh Street SE., is a pepper which I selected with several large holes in it. Would you put that on the table? Mr. MYERS. Pretty poor shopper; isn't he? Mr. REUSS. A bib lettuce and a chicory with several detached fragments. Then at your store at Seventh and North Carolina SE.- Mr. WINSTEAD. Seventh and North Carolina SE.? Mr. REUSS. It is a few- Mrs. KELLY. Seventh and C. Mr. iREuss. It is a few doors from North Carolina, Seventh and B. Mr. MILEY. Is it across from Eastern Market? Mr. REUSS. Yes; Seventh and C. Mr. WINSTEAD. 666. I know them by numbers, sir, so please bear with me. Mr. REUSS. We will call this exhibit 2 with its subdivisions. Mr. MYERS. I hope you bought some salad dressing. Mr. REuss. Here is a pepper with a large hole in it, a bib lettuce and a-to show how honest I was-very nice-looking chicory. Mr. MILEY. You purchased this at 2 o'clock, or before? Mr. REUSS. And exhibit C, items purchased at the international store on F Street, 11th and F, a pepper, which is quite a beautiful pepper, unblemished, and a bib lettuce in cellophane, and a prize-winning chicory. I would like you to look at those, because they were picked by me at random, and I invite you to retrace my footsteps and look at the same ones. It seems to me that the person who shops at the international store on 11th and F gets a lot more for his 48 cents than the people at the other two stores. Mr. WINSTEAD. May I comment, sir? Mr. VAN GEMERT. Could I interrupt, sir, to introduce Mr. Russell Cool? Mr. Russell Cool is manager of store No. 7 on the chart and ap- parently responsible for some of the comments regarding the perish- ables here on the table. Mr. WINSTEAD. May I comment, please? Mr. Rnuss. Please. Mr. WINSTEAD. First, I would recommend to Mrs. Reuss not to send you shopping again. And then I would make the comment that you are coming near now to qualifying as a district manager in one of our stores. I believe you could help us. Mr. REUSS. I want to help you. Mr. WINSTEAD. These items are certainly not of comparable quality. And if I would see this type merchandise sold to any customer, or any one of our managers, or if this was brought to their attention, without question, we would say that we would like to refund all the money for these items that are below standard, and we would like to make that offer to you, sir. We do not believe you have been treated fairly. Our PAGENO="0087" 81 policy is fairness in all of our dealings. We guarantee everything that we sell. I do believe that in this particular case it is possible that you may have caught a careless operation in a particular store, and I do believe that you did select those items for your particular point here. I assume that we had other merchandise on display of better quality. Mr. REUSS. Well, I invite you to retrace my footsteps- Mr. WINSTEAD. Yes, I will. Mr. Ri~uss (continuing). And make an honest judgment- Mr. WINSTEAD. All right. Mr. REtrss (continuing). As to whether the merchandise offered in these and allied lines at your F Street luxury store are not of a superior quality to those at the other two poor-district stores. Mr. WINSTEAD. This information is helpful to us, and I thank you for it. Mr. REuss. It is offered in that spirit, and I know you will- Mr. WINSTEAD. Thank you, sir. Mr. REUSS. Make the trip. And if you find what I found you may want to divvy up the cornucopia and treat all alike in the future. Mr. WINSTEAD. Mr. Dogra, would you like to make a comment? Mr. DOGRA. I would like to make a statement as manager of Safeway International. Mr. REuss. And congratulations, sir. Are you going to make your bonus this year? Mr. DOGRA. Yes, sir. Mr. REuss. You deserve it. Mr. D0GEA. One thing I would like to mention is that every day dur- ing the day, four or five times a day I go over the produce stand. I have picked up worse peppers from my stand than this, you know. Mr. Ri~uss. You are too modest. You go there today and every one is a State fair prizewinner. Mr. DOGRA. Well, the only thing I can tell you is that our company tells us not to sell something that we will not buy. They are not telling just me this. They are telling every manager-we have bulletins on these-do not sell anything that you would not buy yourself. And I can tell you this that I have picked up peppers worse than this one-as a matter of fact, half a pepper, rotten, out of my produce stand. Mr. REuss. Have you kept them on sale? Mr. DOGRA. No, sir. Mr. REuss. Well, that is the difference between you and the other two stores. Mr. DOGRA. I am just mentioning our company policy, what the corn- ~any asks us to do. If we do not do it, it is our own fault. Mr. REUSS. Well, now, let me turn to an adventure I had at your store at Third and Massachusetts NE. What number is that? Mr. WINSTEAD. 568 sir. Mr. REuss. I there bought three cans of your Sea Trader light chunk tuna for 89 cents, and the charge slip which I have here properly identifies that-three for 89. You will notice that each one is marked three for 89. Mr. ROSENTHAL. Did you identify the store? Mr. REUSS. Yes. It is the Third and Massachusetts NE., store, in a poverty area. PAGENO="0088" 82 I then noticed on the same shelf this sign, which I will admit I snitched and which I herewith return to you, "Light meat chunk tuna, 4 6'/2-ounce cans-$1", and I bought three of those for 75 cents. So on the shelf the unwitting shopper-and I will admit that my wife could well get a better shopper-could have bought an identical can of tuna for 25 cents a can or for 29 and a fraction cents a can. I bought one set of each. Do you want to comment on this- Mr. WINSTEAD. Yes, I would be very happy to comment on this. Mr. REUSS (continuing). Slippage of the dream of the boiok price and the reality of the price paid by the consumer? Mr. WINSTEAD. The price card that you exh~bited here is a special price that is advertised in our advertising of four cans for a dollar, which is a special feat~ired price on this item. I would have to refresh my memory on the regular price, but I as- sume that the three for 89 is the regular price. This, `too- Mr. REU5S. Bu:t I bought them off the same shelf: one for 25 cents a can; one for 29-plus cents a can. Mr. WINSTEAD. We have, indeed, made an error in the store. All of these items should have been changed to the four-for-the dollar price and should have been sold `to you at 25 cents per can. That is an error. We again owe you a refund, which we would be very happy to pay. Mr. iREuss. I then went to the poverty-area store, which has already been referred to at Seventh and C SE. And I there bought for $1, three cans of Hawaiian punch marked three for $1, and that is what I was charged. However, standing over the cans of Hawaiian punch was a sign similar to this saying, "Hawaiian punch-three for 89 cents." Despite that sign, which is there, I was charged $1 for three of them, Can you explain that? Mr. WIwsn~D. This- Mr. REUSS. I have here-yes, I now have and make that as part of the exhibit, the sign "three for $1," which I snitched and which I herewith return to you, as I did the other sign, "Priced as marked." Now, the checking official charged me the $1 price which appears marked on the can rather than the 89-cent price which was visibly marked on the slip which you hold in your hand. Mr. WINSTEAD. The correct price on this item is three for a dollar, as marked. This three for 89 cents price sign was a spec~ial feature last week that ended Saturday, and I do not know the date- Mr. CooL. Saturday night. Mr. WINST~Ap. Last Saturday night. This is a case of the store not removing last week's feature item sign. And may I ask these manag- ers, was this an advertised item? Mr. TAHA. This was an advertised item last week. Mr. WINSTEAD. This was advertised last week? Mr. TAHA. Yes, sir. And Monday morning, going back to the orig- inal regular price, three for a dollar. Mr. WINSTEAD. May I comment on this? Mr. REuss. If you have any doubt as to the existence of that sign, I welcome your making a personal verification, but I plucked it down within the hour. PAGENO="0089" 83 Mr. WINSTEAD. I do not question that at all, sir. This is certainly a human error. I was giving you the reason for it, or at least my feeling of the reason. May I ask this: did you call the checker's attention to this sign ~ Mr. REuss. No, I did not. Mr. WINSTEAD. You did not. Mr. REuss. No, I did not. Mr. WINSTEAD. Well, our checkers are instructed to sell at the price marked, and should a customer come to the counter with these items marked three for a dollar, and you would have said, "No, they were on the shelf at three for 89," it is our instructions for that checker to charge you at the lower price, as marked, and, of course, take immediate action to get the price changed at the retail level. Mr. REuss. I now show you the results of my forays into salad dress- ing at your poverty-area store at Third Street and Massachusetts Ave- nue, Northeast, the store we have already referred to. Attorney Van Gemert, perhaps you can tell me how many ounces are there in a pint. Mr. VAN GEMERT. I gather 16. Mr. REuss. I had the same difficulty. We must have been to the same law school. They never taught us that there. I frankly had to wrack my recollection, too. At any rate, on the same counter there was, and I purchased a can of Nu-Made salad dressing for 33 cents consisting of 1 pint 6 fluid ounces. After I got out in the car, I did a little arithmetic and dis- covered that that was 22 fluid ounces. I also bought for 33 cents each, two containers of the same salad dressing, each containing 12 fluid ounces. Both of these purchases, the 22 ounces for 89 cents and the 24 ounces for-83 times 2 is 66 cents, were made from the same counter. If I had not been so inquisitive, I would have settled for this, but I did get one of these, too. Does that seem to be a reasonable price differential ~ Mr. WINSTEAD. I would have to check with manufacturer on produc- tion cost in this particular case, but before I go to that, I would like to make one point on the recording of the weight on that label. That item is sold throughout our division, and it is also sold in the State of Virginia. The State of Virginia requires us to record weight on products by pints and ounces, not 24 ounces. So this is a law we must comply with or we would record it as 24 ounces, I am sure. But I cannot answer your questions on the relative value of the two pints versus the, or rather the two 12-ounce containers versus the 1-pint-6-ounce container, other than this is a special offer offered to us by our manufacturer in which a pro- duction run, or the cost of the product was such that it could be passed on to us and we in turn could pass it on to our customers. This is a special item in the 1.8-ounce container. Our regular price on that item I cannot give you. Possibly one of our managers can. Mr. REU5S. But the fact is on your same counter the identical mer- chandise sold 22 ounces for 33 cents and 24 ounces for 66 cents, depend- ing where the customer happened to reach; is that not so Mr. WINSTEAD. You are speaking now of two different containers. Mr. REuss. Yes. PAGENO="0090" 84 Mr. WINSTEAD. And the packaging cost, or the container cost is a large part of the cost in the distribution of items of this nature. Mr. REijss. Do you think it covers the entire differential? Mr. WIN&ri~AD. As I say, I could not answer that until I have looked at cost figures and production figures. I am not prepared to give that answer here, sir. Mr. REuss. Well, if you find that it does cover the entire price dif- ferential and the prices are in effect comparably priced, would you at this point in the record let us know what your research shows? Mr. WINsn~w. Yes, we will. Mr. REUSS. For an hour and a half shopping tour over the lunch hour, I put it to you that quite a bit of human error was discovered, wasn't it? Mr. WINSTEAD. Yes, sir. Thank you. We will certainly work on this. Mr. REuss. May I say, because I want to approach this in a construc- tive spirit, I applaud Safeway for operating food stores in poor areas. Another company might well have decided, we are just going to take the cream in the Northwest and in the suburbs, and your stores in the poverty areas which I looked at this noon were clean, decent, and served by very obliging sales personnel. In the light, however, of what has been said by the three ladies this morning, and in the light of what we have developed here this after- noon, is it not possible that there could be something to what the ladies say, and that they are not motivated by vindictiveness but by an effort to secure fairer treatment for people in poorer areas? Mr. WINSTEAD. I submit to you, sir, that I believe a logical error or a logical reason for human error, or basis for human error has been stated in most of these cases here. Mr. REuss. Are you willing to review the situation with respect to Safeway stores in the Washington district and see whether tO a larger extent than obtains at present error or whatever it is can be avoided so that people in poorer areas can be assured of the same quality and the same price as people in wealthier areas? Mr. WINSTEAD. Sir, I believe an exhibit such as you have shown here is helpful to us. It would be helpful to any business concern. I believe it is very vividly shown. You are to be complimented for it. It is our policy to correct errors of this nature and not only in our poverty area stores, but if they exist in any of our stores throughout our division, we would certainly want to correct errors of this nature. We would strongly work on problems of this nature. Mr. REUSS. Thank you. No further questions at this time. Mr. ROSENTHAL. Mr. Myers. Mr. MYERs. Well, Henry, we are glad to have you back. It looks to me like during your lucrative noon hour you might have been ar- rested for speeding and pilferage. Mr. REuss. Well, I did act as an involuntary bailee of those signs which I knew the manager would want to have, and I thought the best way was to bring them to him directly, and he has been more than gracious. I don't think he will prefer charges. Mr. MYERS. I have been sitting here anxiously. I thought you were going to pull a rabbit out of there pretty soon, too. You mentioned the food stamps, and that you have to go to the bank to purchase the food stamps. PAGENO="0091" 85 Would each of the managers tell me how far the nearest bank is from your store that you can get these food stamps at? Mr. ALEXANDER. We don't get food stamps. Mr. MILEY. We don't purchase the stamps. Mr. MYERS. The customer does, though. How far is it from your store to the nearest banks~ Mr. ALEXANDER. Two blocks. Mr. MYERS. Two blocks. And it's about the same distance to an- other store, I think, in your testimony. Mr. ALEXANDER. Yes. Mr. MYERS. Store No. 6? Mr. COOL. Three blocks. Mr. MYERS. Still about the same distance. Store No. 1,1 guess, isn't it? Mr. MILEY. May I say something? My bank is within two doors of my store, but my customers that do live in the poverty area, in the high rise and the tenant houses have to go uptown somewhere to purchase their stamps. Mr. MYERS. They can't get them at the~- Mr. MILEY. They can't get them at this bank. The people from up- town have to come down to my bank to purchase their stamps. Well, my customers come in, they get the checks cashed. They take off uptown somewhere, wherever they are designated to cash their- to buy their stamps, and then they come back with the stamps and make the purchases. Mr. MYERS. So they do pass other chainstores going to get their stamps? Mr. MILEY. They do. Mr. MYERS. OK. How about-you don't have any food stamps, I guess, in your area. Mr. DOGRA. No sir. Mr. MYERS. OK'. Mr. TAFEA. I would like to elaborate on those unfortunate people who have to buy those food stamps. They go to the bank and the bank refuses to cash their checks, even if they have the card to buy their stamps from there. The bank refuses and will not cash their checks. Mr. Myi~ins. Their welfare- Mr. TAIJA. Absolutely. We have to cash those checks for them. And I have a few customers-we could not, as a matter of fact, deal with this- Mr. MYERS. Does the bank just refuse, or do `they do it for a charge? Mr. TAHA. Absolutely. They do not cash them at all. And I talked to some people from the bank, and I talked to the public welfare peo- ple, and I requested them that they should go to the Welfare Depart- ment and tell them that the bank refuses to cash their checks, and they have to go outside, travel so long somewhere where they are known, like some people come in from an area in, let's say, Northeast or Southeast who used to live in my area. And we cash the check for them as a courtesy, and they never come back to buy a thing. Mr. MYERS. How far do they have to go to get their food stamps? Mr. TAHA. That depends on a designated- Mr. MYERS. The nearest distance from your store? PAGENO="0092" 86 Mr. TAIIA. I think it's about seven, eight blocks to get the stamps. But those people have to get their stamps from Northeast. Mr. MYERS. They could go from the bank to another store, then, as well as to your store? Mr. TAHA. Absolutely. Mr. M~i~ns. Another chainstore? Mr. TAHA. Absolutely. Mr. MYERS. And still be within the same distance? Mr. TAHA. Yes. Mr. Myi~s. OK. Now, we realize in these inflationary times-and we certainly do have them now-prices change such as we have seen here. Now, the mechanics--how do you go about changing your price? There was something here three for 89 and four for a dollar. Now, how mechanically-what kind of a control do you use? Do you wash it off and put a new price on, or how do you go about changing the price? Mr. TAHA. The employee is designated to do this. First we give him the list of the specials, and I have a copy of iL He has to turn this list back to me after changing the prices. And there is a note to that sheet stating "Prices all changed, price tags changed, signs posted." The same thing he will do next week when he has to take them off. And then I take that sheet from him after he signs it, and I put it on file. Mr. MYERS. You all have the same practice, then- Mr. TAHA. Yes. Mr. MYERS (continuing). Where an employee does it, and he finds he has done it. Mr. TAHA. And in the meantime we check on this notice. Mr. Myi~s. Now, Mr. Winstead, you talked about a price and decline sheet that is sent out to the stores; is that correct Mr. WINSTEAD. That is correct; yes. Mr. MYERS. Now, you send the same stores in this area the same price and decline sheet the same day-I believe that was your testimony. Mr. WINSTEAD. Yes. As I-let me refer back. As I stated, we have one price throughout the entire Metropolitan Washington price area. We have a price book in our dry grocery departments, a printed book. We have a printed price sheet in our produce department. We have a printed price sheet in our meat depart- ment. Any movement of price, either up or down within that price book, must be supported by an advance and decline sheet, and we send that advance and decline sheet from our central division office to all stores in this price area. It is a printed sheet that says, in fact, an item either went up or went down. And on this basis, the people in the store change the prices on the shelves. They record the inventory on hand for accounting control, and then they return a copy of this to our accounting department for the bookkeeping records. Mr. MYERS. But they are all treated exactly alike as far as time is concerned? Mr. WINsm~w. That is correct. PAGENO="0093" 87 Mr. MYERS. They are all sent the same day? Mr. WINSTEAD. Each advance and decline sheet has a date, has the listing of all items, including the nomenclature, and it includes the new price and the effective date. Mr. MYERs. The effective date is always the same? Mr. WINsTm~D. Always the same. Mr. Mnms. For every store? Mr. WINSTEAD. For all stores within the division. Mr. Myi~s. OK. Now, Mr. Alexander, I think you stated that if you did not keep the price exactly as it was stated in your pricing guide, that you would be subject to supervision and possibly termination. Now, how many people, Mr. Winstead-have you had ai~y termi- nation, we will say, in the last 2 years for this purpose? Have any managers been reprimanded in any form whatsoever? Mr. WINSTEAD. I have no personal knowledge of the termination of a manager for this act. However, I will state that we would termi- nate a manager if he violated policy of this nature. And we would be-we would act very rapidly on something like this. Mr. MYlDns. Could I ask for permission, Mr. Chairman, that you might check for the last year and see if there has been any manager in your division who has been discharged or been reprimanded for price increases beyond your price fixing, your price book? Mr. WINSTEAD. You are asking if we have this? Mr. Myjuis. Yes. Will you send us a record of whether there has been? Mr. WINSTEAD. Yes; we would be very happy to. (The information follows:) SAFEWAY STonEs, INC., Landover, Md., October 31, 1967. Hon. BEN~rAMIN S. ROSENTHAL, Chairman, SpeeiaZ Studies Subcommittee, Com4n'ittee on Government Operations, House of Representatives, Washington, D.U. DEAR CHAIRMAN ROSENTHAL: During Safeway's appearance on Thursday, October 12, 1967, before the Special Studies Subcommittee, we were requested to check our records and advise whether, during the year preceding our appearance, any store manager in Safeway's Washington, D.C., Division had been discharged or reprimanded for violation of Safeway's policy prohibiting managers from pricing or selling merchandise above the centrally announced "book" prices. This will advise that there have been no instances during the past year of any store manager in this division having deliberately priced or sold merchandise above ~~book" prices. As we testified, we have various Internal controls which would enable us to detect any such violations of our policy. These controls in- clude internal price checks by personnel at various managerial levels, some of whom have no responsibility for retail operations. The price checks made during the past year disclosed only the infrequent errors that, unfortunately, cannot be avoided in an operation involving thousands of employees, thousands of items, and millions of transactions. The checks showed that these errors usually occur on slow-moving, infrequently purchased items, and resulted in a random, mixed pattern of both "Under" and "over" the book prices. Our records showing the store managers' compliance with our policy prohibiting the selling of merchandise over the "book" prices, ha~e been turned over to the Federal Trade Commission, and have not yet been returned to us. We shall appreciate it if the subcommittee will have this response inserted at the appropriate place in tb~ hearing record. Sincerely yours, BASIL WINSTEAD, Vice President and Divis~o~t Manager, WasMngto~i, D.C., Division. PAGENO="0094" 88 Mr. MYEns. Now, this turnover in merchandise such as the thing you have out here, that is pretty hard to control, is it not? How do you break down-I remember back in the Army you had ration breakdown. How do you break down; send merchandise to one store or the other? Do the same trucks deliver to all your 150 stores here m the-- Mr. WINSTEAD. We operate 236 supermarkets in this division. We also operate a division center at Landover, Md. It's a large division center. We serve all the stores throughout this division from the same produce warehouse. I will direct my comments to the produce warehouse because I think this is the question in your mind. Mr. MYERS. They are all served out of the same warehouse? Mr. WINSTEAD. They are all served out of the same warehouse. Mr. MYERS. At the same time? Mr. WINsm~u~. Not necessarily at the same time. Mr. MYERS. Oh, then, this could be the victim of a turnover. People don't buy bib lettuce at the same rate as they do in another stor~; is that right? Mr. WINSTEAD. The local store managers order merchandise as they need it. The frequency of delivery will range from three deliveries per week to six deliveries per week, and that would occur primarily based on the volume of the store, the holding facilities at the store and vari- ous factors such as that. Mr. MYERS. In other words, due to turnover they have some bib lettuce at Seventh and, what, C, SE.-this one store where it was kind of dilapidated- Mr. WINSTEAD. That is right. Mr. MYERS. And at the International, maybe they use a lot more, and therefore they have better quality. Is that what you are saying? Mr. WINSTEAD. I don't know the movement of items in these three stores concerned, but I can say from personal knowledge of the store, I would suspect we sell more of these three items in ther-Mr. Dogra's store than we probably sell in all the other stores that you have mentioned. Mr. MYERS. Then this would be one reason why you would get better produce there. But then as to the fixed items, there is no- Mr. WINSTEAD. There's no excuse. Mr. MYERS. It's sloppy operation. Mr. WINSTEAD. This is not right. Mr. MYERS. Now, what kind of records-I suppose you keep some kind of records on-I think you called them distress items, didn't you? Mr. TAHA. rrhis item, of course, this is not fit for distress. This has got to go into the garbage can. Distressed-items to be distressed have to be of good quality. Before we lose `the quality of the item, we must distress it. We have to make `a survey and see. Suppose the warehouse sends me a unit of Boston lettuce. I know the movement of my store amounts to zero. And instead of sending that unit the next day or the third day back to the warehouse, to eliminate all that expense I will take the initiative either to distress it at a very low price, or try to exchange it with one of my stores around the area. PAGENO="0095" 89 Mr. MYERS. Then some stores who might have an outlet for dis- tressed items will buy this? Mr. TAHA. Not the distressed, no, not distressed. I distress myself. If I feel I could transfer it to another store, I would send it there. Mr. ROSENTHAL. What store would you transfer it to? Mr. TAHA. Within my area, I have nobody right now, but I am talk- ing about in the past. Mr. WINSTEAD. May I address myself to that point, Mr. Chairman? Mr. ROSENTHAL. Yes, sir. Mr. WINSTEAD. I think there may have been a point of misunder- standing in Joe's comment, and we may have left the wrong impres- sion. We do not transfer this merchandise from one store to another store within the area. If Joe makes a mistake in ordering, Joe sells it. If any `of the other men make a mistake in ordering, they sell it. If any of the other men make a mistake in `ordering, they either throw it away, distress it or dispose of it, passing the savings on to their customers. We ship every item from this produce warehouse to every store in the Washington, D.C., division based on a code number. Any of these three items came from the same produce warehouse at Laud- over, Md. They were ordered under the same code number. They were shipped at the same, or generally the `same weights and of the same quality from the same stack in the same warehouse, regardless of what area we shipp~d the item to. Mr. Myi~aus. Well, now, let me ask you, does the manager have a distress allowance or a throwaway allowance on perishable goods? Is he `allowed so much- Mr. WINSTEAD. Would any- Mr. TAHA. No; there's no allowance. Mr. MYERS. It comes out of your profit. Mr. TAHA. It depends how smart you are and how you operate. Mr. MYERS. It comes out of your net profit. Mr. TAHA. Of course. Mr. MYERS. If it is thrown away, it affects your net profit. There would not be any benefit- Mr. TAHA. I would give the benefit to the customer and give the benefit to myself before I threw it in the garbage-while it is of good quality. I would not distress it if I wouldn't buy it myself. That is one single standard we have and I have myself, too. Mr. MYERS. But here are some peppers that you say should not be sold. But if there is no throwaway allowance, the manager is going to try and sell it, is he not? Mr. TAHA. Not this, no. Mr. MYERS. That is your judgment, but you have 149 other man- agers here who may try to sell it. You didn't make your bonus, either. Mr. TAHA. They are marked down, which is allowed, but every month we have an inventory in the produce department or meat department which shows actually the percentage of the spoilage in that store. Mr. MYERS. Yes, but that still comes out of your profit. There is no allowance for you, is there? PAGENO="0096" 90 Mr. TAHA. You are not going to get out of this. It's always going to come out some way or another. We cannot sell 100 percent of every- thing we get. Mr. MYERs. Safeway does not allow you a certain percentage of your perishables that you can throw away before it is charged to your store, do they? Mr. TAHA. No. Mr. WINSTEAD. Mr. Chairman, may 1 comment on this? Mr. MYERs. Sure. Mr. WINSThAD. There is an acceptable or a reasonable percentage of spoilage expected in a perishable operation such as produce, and certainly we observe that percentage for all of our stores. But under no condition do we set a quota or a tolerance figure on produce or any other perishable item for a retail store. We insist that the store managers sell only that type merchandise that they themselves would buy. Merchandise of this nature, as Joe has said, should go in the garbage can. Mr. MYERS. If the price is right, I will buy. FLeck, it is not to be completely thrown away. Mr. WINSTEAD. That becomes a distress action which they have a prerogative of doing. Mr. MYERS. Let me say, the poor people are not all out there. See that tear? I have worn a torn shirt here today, sir. Mr. WINSTEAD. We are trying real hard, too~ sir. Mr. MYERS. You are not with the right company, though. Mr. Mir~y. May I make a comment? Any customer coming in a store with food stamps would not buy any of that merchandise there. They would not buy that pepper. So eventually it's going to be thrown away. This again with all due respect- Mr. ROSENTHAL. Why wouldn't they buy that? Mr. MILEY. Because it is not quality merchandise. They are the most particular customers that we have in buying quality merchandise. They would not buy that pepper. They would not buy the second pepper. The third pepper they would have bought. Mr. ROSENTHAL. You mean the people on welfare are the most dis- criminating shoppers? Mr. MILEY. They are the most particular ones, I will say, that we have. Mr. ROSENTHAL. Most sophisticated? Mr. MILEY. Well, sophisticated, I don't 1~now about sophisticated, but they want their money's worth. They would buy neither one of those peppers. Mr. MYERS. I would like to ask you one more question. You speak about your p&iodic inspe~ctions which vary from time to time. They are on no given day; is that correct? Mr. WINSTEAD. That is right. Mr. MYERS. Do you keep any recor~1 after you make this inspection? Do you keep any record that you did inspect this and what the inspec- tor found upon inspection, visiting this store? Mr. WINSTEAD. We have a district established usually of about 14 stores and this district manager is the direct, is directly responsible for his stores in the district. And, yes, there is information on when he PAGENO="0097" 91 visits stores and certainly some information on what he actually does in this store. Mr. Mmiis. He reports back to his supervisor, then? Mr. WINSTEAD. He reports back to his retail operations manager. Now, most of our work that is performed at the supervisory level, meaning the store managers' supervisory level, and the district man- agers' supervisory level, simply by the nature of retail business is handled verbally. In other words, we wouldn't have to write a man- ager a letter to tell him to get that pepper in the garbage can-whether I visited the store or any one of these other people. This would be something that you would tell the manager right on the spot, to take care of it, or the produce department manager. Mr. MYERS. Do you do any- What do you call that when you go out and spot buy without the manager knowing it? Mr. MILEY. Spot check? Mr. MYERS. Well, you go out and purchase, make purchases. Mr. WINSTEAD. Yes, we do. Mr. MYERS. Does the inspector always report to the manager so he knows he is there? Could I go in on Monday morning maybe and buy- Mr. WINSTEAD. No, he does riot. Mr. MYERS. They call that a type of buying-comparative shopping. Mr. WINSTEAD. Yes. That is correct. Mr. MYERS. Do you do thab-does your store engage in that kind of- Mr. WINSTEADS We have on occasion. Mr. MYmis. How occasionally? Mr. WINSTEAD. It's handled through our security department when we want a shopping of `a particular store, and we most times have a particular reason for shopping a store, or we want a special check on a store. Mr. MYERS. But you have no periodic inspection of your 150 stores in this chain, `in this division? Mr. WINST~AD. It would be based on, `again, the anticipated need or the expected need. Mr. MYERS. But there is no regular-you have no program, then, do you? It is only when you suspect something? Mr. WINSTEAD. We are addressing ourselves to the point of outside shopper service. The outside shopper service is not a regularly `sched- uled program but on a request basis as needed, and we have on occasion had `that. And if we need service of this nature, we would request it. Mr. MYERS. But no program-you have no such program. Did I understand that correctly? Mr. WINSTEAD. I meant no regul'arly scheduled program. Mr. MYERS. Okay. Mr. WINSTEAD. That is correct. Mr. MYERs. I think that pretty well covers the questioning. Thank you very much. Mr. ROSENTHAL. Congressman Gude? Mr. GrIDE. Thank you very much, Mr. Rosenthal. I am not a member of this subcommittee. I appreciate the courtesy of being able to sit in on this hearing. There is one question I would like to ask. 88-532-68-7 PAGENO="0098" 92 I am a cosponsor of a rather strong meat-inspection bill with Con- gressmen Smith and Foley, and others, and this has to do with getting additional meats included under Federal inspection. We have received samples of meat that were purchased in Maryland that were not inspected by the Department of Agriculture, and a num-~ her of them were of poor quality, and adulterated, and so on. What type of meats do you handle? Is it USDA inspected? Do you handle meats that are no't inspected by the Department of Agriculture? Mr. WINSTEAD. We are so proud of our meat reputation. That is the most important part of our store. We sell only USDA-inspected,. choice-grade beef in our stores, and we sell some prime beef. Other items, I would have to refresh my memory on the source of origin on the other meat items, but we always buy the best top- quality merchandise, whether it be packaged, carcass, or whatever product it might be. I am not familiar enough with the grades of which you speak to make a definite statement on some package items that might be sold in the store. Mr. GuDE. The meats that were purchased in these particular samples, in these surveys, were uninspected. I mean they weren't marked "inspected" by the Department of Agriculture. Do you handle meats that are not inspected by the Department of Agriculture? Mr. WIN5TEAD. I would like to refer to our records on that, but I would like to make this comment, and then I will explain to you why I want to refer to records. We operate a meat warehouse along with the other warehouses in this distribution center. 17~Te ship meats to all stores in the division. from the one central warehouse. This warehouse is under U.S. Gov.~ ernment inspection-complete. Now, the reason I asked deference on the one question, on occasion in some localities we buy some delicatessen items, as an example, at a local source, and I cannot truthfully give the full answer on that until I have had an opportunity to look at all the records. Mr. Gui~. Well, would you mean, then, that all of your fresh meats are USDA inspected? Mr. WINSTEAD. No question about beef. May I refer to records on this, please? Mr. GUDE. I wonder if you could give us a sta)tement at this point in the record on meat. Mr. WINsn~An. In my comment on full U.S. Government inspection,, of course, I referenced our warehouse information. I would like to get the background before I answer fully, sir. (The information was subsequently furnished, as follows:) SAFEWAY STORES, Iwo., Landover, Md., October 31, 1067. Hon. BENJAMIN S. ROSENTHAL, Chairman, Special Studies Subcomm4ttee, Committee on Government Operations,. House of Representatives, Washington, D.C. Dx~&n CHAIRMAN ROSENTHAL: During Safeway's appearance on Thursday~ October 12, 1~67, before the Special Studies Subcommittee, we were requested to submit for the hearing record a statement regarding the extent to which the fresh meats stocked by the stores in Safeway's Washington, D.C. Retail Division~ were inspected by the U.S. Department of Agriculture. PAGENO="0099" 93 This will advise that all fresh meats stocked in this Division are inspected by the Meat Inspection Division of the U.S. Department of Agriculture. Sincerely Yours, BASiL WIN5TEAD, Vice President and Division Manager, Washington, D.C., Division. Mr. GUDE. In regard to the district managers, their job is the routine checking of prices-I mean that is one of their duties. Mr. WINSTEAD. The district managers are totally responsible for the management and the operation of the stores in their particular district, and price checks are a part of both their responsibility and duty. And they are completely responsible to see that proper prices are charged in those stores under their supervision at their level. Mr. Guiu~. All right. How many stores on the average does each district manager super- vise? Mr. WINSTEAD. Average, about 14 stores per district. Mr. GUDE. Per district? Mr. WINSTEAD. That's right. Mr. GUDE. One manager ha's 14 stores? Mr. WINSTEAD. Approximately. Mr. Gura~. Would there be any rough estimate that could be made of what percentage of their time is spent checking food prices, or is it lumped in with the many other duties on visiting the stores? Mr. WINSTEAD. We have not made a complete time study on this particular facet of our business. We do not have that information. Mr. GlIDE. Well, Mr. Chairman, I certainly want to congratulate you on having these hearings. I think this is a two-edged sword. Certainly, you know, if evidence could be uncovered that systemati- cally lower prices were charged in, you might say, areas where there was a higher economic level, why we certainly should take some very direct action. On the other hand, if this cannot be proven, I think that full public record should be made of that, also, in fair.. ness to the chainstores. Mr. ROSENTHAL. Thank you, Congressman. Mr. WINSTEAD. Mr. Chairman- Mr. ROSENTHAL. We are going to try and finish in 5 minutes be~ cause we have one other witness today. Mr. WINSTEAD. May I comment? Mr. ROSENTHAL. Yes, sir. Mr. WINSTEAD. Make one comment on district management, please? And I think this is important. You have here these store managers today, and the three stores referred to as poverty-area stores managed by three managers here are in fact on three separate districts. Our districts come in in a wedge shape to the city. These are all in different districts managed by a different man in each case. Mr. ROSENTHAL. Mr. Dogra, you represent what we have classified, or what the women have classified as store No. 6? Mr. Dorni~. Yes, sir. Mr. ROSENTHAL. Yours is really a quality store and, apparently sells quality merchandise. Have you seen this chart before that's up on the wall? Mr. DOGRA. Yes, sir, Mr. ROSENTHAL. And you can see that for your store prices are PAGENO="0100" 94 consistently in keeping with what we understand to be the book value of the company and in this regard you are to be congratulated. Mr. DOGRA. Thank you. Mr. ROSENTHAL. How do you-how could you explain the price differentials showing on that chart for stores 1,2, and 3? Mr. DOGRA. Sir, I can't explain it. I don't believe it, because I have worked in the Southeast area. I have worked in the store where the first of the month we used to get relief checks with the policy at that time that I am following in this store. There hasn't been any change in the policy of pricing or any other thing. To me I just couldn't believe it. Mr. ROSENTHAL. You can't believe it? Mr. DOGRA. No, sir. It's unbelievable. I think it's-I hate to say it-it's just not true. I just couldn't believe it. Mr. ROSENTHAL. Mr. Winstead, do you occasionally have meetings with your district managers and with your store managers? Mr. WINSTEAD. Yes, sir. We have regularly scheduled district managers' meetings at the division office. These are always scheduled regularly every 4 weeks and more often when necessary. Mr. ROSENTHAL. How often do your district managers meet with your store managers in terms of- Mr. WINSTEAD. I think you will find most district managers have a store-manager meeting, also, each 4-week period, `and this also can change. When a number of subjects need to be discussed, they will call them in more often. Possibly these managers could give you the frequency of their meeting `as a group with their district manager. Mr. ROSENTHAL. Would you say that the theme for those meetings and your meetings with the supervisors is how to increase sales, how to increase net profits? Mr. WINSTeAD. The theme for most meetings naturally includes sales and profits. Sales `are the lifeblood of our business. We also in- clude in those meetings `all other items of interest or need for the fin- provement of the operation within our store. It may include items about personnel. It may include items about merchandising. Mr. ROSENTHAL. In other words, you are not prepared to say that increasing sales or increasing volume is the principle thrust of these meetings? Mr. WINSTEAD. The principle thrust of these meetings is successful management and merchandising of retail food stores. Sales are the byproduct of that type management. Mr. ROSENTHAL. Now, if an individual manager was under the gun to increase his net profits, and if he had a store where he had virtually no competition from another major supermarket chain, and if he had a large number of customers wh'ose principle source of income arrived around the first of the month, he could increase his net profits by raising prices for a few days around the first of the month; is that correct, if he was so disposed? Mr. WINSTEAD. I would like to say that this is not in fact true in the supermarket business. Practices of this kind would be a deterrent to sales. Our business is built on a premise of-we are volume-oriented. We are sales-oriented. These people understand sales figures. They also understand dollar gross, which might be a lesser percentage of gross but, because of the volume, yields them `a much better return for their particular store. Mr. ROSENTHAL. If he wanted to increase-if he had what we con- sider, at least what I consider to be a captive customer in his immediate PAGENO="0101" 95 area, and if he wanted to increase his net profit, and if the first of the month w~s the time when these people principally had their source of income, he could raise his gross income by raising prices for a few days. Mr. WINSTEAD. I do not- Mr. ROSENTHAL. He could, if he wanted to. Mr. WINSTEAD. I do not believe this could occur. This is a short- sighted view of the operation of a supermarket. Mr. ROSENTHAL. Is it your view that people who buy in super~ markets know from day to day and week to week what prices are? Mr. WINSTEAD. I would suspect that the knowledge of prices today would be in the neighborhood of double or even as much as three times as important a factor in the mind of a customer as it was just 2 years ago in our business. I believe most supermarket shoppers believe them- selves to be sophisticated, and I am using that word because that word was used in questioning some of our people. I believe they believe that they are sophisticated. I believe that they believe that they are knowledgeable. Price is a factor in our economy. Money is not plentiful- Mr. ROSENTHAL. If they have nowhere else to go, price is not as im- portant a factor as if they had an option to walk across the street. Mr. WINSTEAD. I would question whether we can say that the people in Washington, D.C., have no other place to go. This city is covered with supermarkets, and we have surrounding-area supermarkets- Mr. ROSENTHAL. At your store No. 1 they have no place else to go. The welfare client has nowhere else to go. Mr. WINSTEAD. I do not agree with that, sir. Mr. ROSENTHAL. Well, they would have to get a car to go somewhere else. A welfare recipient would have to get a car to shop outside of your No. 1 store if he lived in public housing next to your store. Mr. ALEXANDER. They find transportation. On the first of the month. we have anywhere from six to seven Cadillacs pulling into our package~ pickup for welfare recipients. So I am sure that this Cadillac could make it to Northwest Washington. We have six to seven every month with Cadillacs. Mr. ROSENTHAL. Do* most of the welfare people come there in Cadillacs? Mr. ALEXANDER. I don't think many in Northwest come in Cadillacs; no, sir. Mr. ROSENTHAL. I am just trying to find out, Mr. Winstead, is it mechanically possible- I know you and your people suggest that it has never happened. I am just trying to find out, is it mechanically possible to do what these ladies imply happened? Mr. WINSTEAD. I do not believe this is mechanically possible to hap- pen without us knowing about this at our division office, because we operate a customer service department. it is listed in the book. It can be reached by telephone. Mr. ROSENTHAL. Do you think these welfare recipients know that, know how to find it? Mr. WINSTEAD. I believe they certainly could use it. Welfare recip- ients are more knowledgeable today than possibly we give them credit for. Mr. ROSENTHAL. Is it possible to have happened without your know- ing about it? Mr. WINSTEAD. I do not believe that it could happen without me knowing about it. PAGENO="0102" Mr. ROSENTHAL. So that if it did happen, you, of course, would have been a party to this. Mr. WINSTEAD. I repeat my statement that I do not believe this could happen without me having some indication of it occurring, or people reporting directly to me having sufficient information on it to give me the information on the problem. Mr. MYERS. Mr. Chairman, may I ask a question here relative to this? You say you keep some records. Do you have any records where you have made inspections of these three questioned stores here about the date of September 1, any place close to that date so you can substantiate whether these stores `are true or not? Mr. WIN5TEAD. I would have to refer to records to get you the spe- cific items. Mr. MYERS. Well, if you have them, can you send them to us, if you made an inspection of your stores about that time? (No information was received by the subcommittee.) Mr. WINSTEAD. May I refer to counsel? (Short interval.) Mr. WINSTEAD. Mr. Myers? Mr. MYERS. Yes. Mr. WINSTEAD. You referred to a check on these stores. At the time of receipt of this survey at `approximately 11 o'clock on October 2, three people were dispatched from our buying department and our grocery merchandising department to make an on-the-spot check. Mr. MYERS. The day after the first, on October 2. Mr. ROSENTHAL. That was after the complaint w'as received. Mr. MYERS. Yes. That's about the date some people receive their checks, wouldn't it be? Mr. WINSTEAD. The date `of the first this prior month, or this present month was on a Sunday. So `check day, as it's known, was really, in fact, the 2d. The date of receipt of this letter was the 2d in my office `at about 11 o'clock. We had three of our `buyers check pri'ces in these three `stores. Mr. MYERS. These three `stores? `Mr. WINSTEAD. These three stores. Mr. MYERS. One, two, `and three. Mr. WINSTEAD. One, two, and three-without the knowledge of these managers, `and I `d'o not believe the managers knew those people. They may have known one of them, but I question whether they knew the others at all, and we made a check o'f `these items, and we did not reveal this pattern in our check on `October 2 which was, in fact, welfare check day and also food stamp `day in the three stores shown in this chart. Mr. MYERS. You found no irregularities then? Mr. WINSTEAD. Yes, we did find an irregularity. We found an error on peas, the regular price being three for 59, and the price on one can on `a shelf was five `for a dollar, similar t'o this problem here. We found an error on eggs `and Mr. ROSENTHAL. Was the error up or down? Mr. WINSTEAD.' The error up on peas wü one-'sixth `of 1 cent up, one- sixth, sir. Three for 59 versus five for a dollar is one-sixth of 1 cent difference. PAGENO="0103" 97 We found an error on eggs, and I am not sure the number of dozen involved, but it was three or four dozen eggs. I would have to refer to records to give it to you exactly. Mr. MYERS. Was this in one store or all three stores you found this same pattern? Mr. WINSTEAD. I found this pattern in store No. 869, which is Sixth and H, and I found no errors in store No. 730 at all. We found one error in store No. 828, Town Center, in which Crisco was marked at 89 cents, the correct price is 86. Mr. WASSERMAN. Pardon me, Mr. Chairman. I think his arithmetic is wrong-on what you said was the difference per can on peas. Mr. WINSTEAD. Correct me on my arithmetic if I am in error. The price was marked-the correct price was three for 59. Mr. WASSERMAN. Three for 59 and six for a dollar. Mr. WINSTEAD. Five for a dollar. Mr. WASSERMAN. Oh, five for a dollar. I am sorry. Mr. WINSTEAD. I believe I am correct. Mr. ROSENTHAL. Crisco was 6 cents over book price? Mr. WINSTEAD. Crisco was incorrectly priced in the Town Center store. Mr. ROSENTHAL. How do you explain that? Mr. WINSTEAD. I think this really-that item could be explained logically. Mr. ROSENTHAL. That was 3 cents over book value. Mr. WINSTEAD. This is an item priced in which the number also could be interchangeaible. We have some problems with errors in our pricing where the numeral 8, which is reversible either way, and the numeral 6 or 9 reverses the value when it is reversed, and this is particularly true where you use a band marker, and the employee looks at the marker's head directly and when it turns it reverses it, and this is a problem. We may mark a 99-cent item through error at 66 cents on the same premise. Mr. ROSENTHAL. Which way do you think it happens, 99 for 66 or 66 for99? Mr. WINSTEAD. I don't believe I could give you the details on that. Mr. ROSENTHAL. Thank you very much. Thank you very much, gentlemen. Our next witness will be Mr. William H. Bozman. (Short interval.) Mr. ROSENTHAL. Mr. Winstead, this survey of October 2; would you send us a copy of that so we can put it in the record? Mr. VAN GEMERT. Sir, we will have to get it back from the FTC~ Mr. ROSENTHAL. You can send us a photostatic copy, can't you? Mr. VAN GEMERT. Sir, the FTC can give you anything that we gave to them. Mr. ROSENTHAL. If you can make a copy of it, all right. Mr. VAN GEMERT. All right. (The material referred to follows:) SAFEWAY STORES, INC., Lceutorer, Ma., October 31, 1967. Hon. BENJAMIN S. ROSENTHAL, Chairman, ~pecia[t Studies S'uAbco'mmittee, Comsnittee on~ Government Opera.~ tions, Honse of Representetivus, WasMngtou, D.C. DEAR CHAIRMAN ROSENTHAL: During Safeway's appearance on Thurslay, October 12, 1967, before the special Studies Subcommittee, I testified that on PAGENO="0104" 98 October 2, withIn minutes after opening the letter from the Ad Hoc Committee on Equal Pricing, I sent three buyers from the division office to the three poverty area stores in which we were charged with having raised prices, to check and record the prices on the 10 items questioned. Pursuant to the request you made during the hearing, I'm enclosing photo- copies of the three October 2 price check reports by the three buyers, together with the related material turned aver to the Federal Trade Commission. This consists of (1) the certifications of the three buyers to the effect that they commenced their price checks at approximately 11:30 a.m. on October 2, and that at the time they conducted the checks they did not know either the book prices or the prices set forth in the complaint letter, and (2) a tabulation com- paring the price check results with the book prices on the 10 items. Our store managers have testified in the Federal Trade Commission hearings, that these three price checks were made without their knowledge, and before they were aware that any complaint had been made against Safeway. When I first read the complaint letter at about 11 a.ni. on October 2, it was clear to me (as it still is) that we were being charged with raising our prices In poverty area stores, around the first of every month, and not just on Septem- ber 1. I therefore ordered immediate price checks made of the three stores com- plained about, and without the knowledge of the store manager, for if the charges were true (which I could not conceive) the price checks would neces- sarily reveal raised prices on October 2. However, out of 30 instan4~,es three stores, 10 items per store), the October 2 price checks showed only four deviations from the book prices. One was the reporter's error in recording the wrong brand. One was an error in pricemarking, where a "6" was reversed and appeared as a "9". The other two involved only one can of peas, and one carton of eggs, the other shelf stock of those products being properly marked with the book price. The subcommittee will note that the buyer's certification for store No. 730 has been conformed to the original in the possession of the Federal Trade Com- mission. If the subcommittee wishes to inspect or copy the original of that certification, or of any of the attached material, we are hereby authorizing the Commission to make the originals available to the subcommittee for that purpose. We shall appreciate it if the subcommittee will have this letter and the at- tached material inserted at the appropriate place in the hearing record. Very truly yours, BASIL WINSTEAD, Vice President and Division Manager, WasMngton, DXI., DiviSion. EXHIBiT A.-PRICE CHECKS CONDUCTED BEFORE NOON ON OCT. 2, 1967, BY RETAIL DIVISION STAFF, PURSUAN TO INSTRUCTIONS OF DIVISION GROCERY MERCHANDISING MANAGER IN "POVERTY STORES" NOS. 730, 828 AND 869 [Checks covered items listed in attachments to letter of Sept 29, 1967, and summary of tabulation of results is shown belowl item "Book" price as of Oct 2, 1967 - ----- Store No. 730 Price at- - - Store No. 828 ~- Store No. 869 (1) (2) (3) (4) Townhouse peas, 16-oz 3 for 59 cents___ 3 for 59 cents_ 3 for 59 cents__ 3 for 59 cents. Del Monte cling peaches, 30-oz Crisco, 3-lb Cheerios, 7-oz Breakfast Gem eggs, medium 2 for 63 cents__~ 86 cents 23 cents 39 cents 2 for 63 cents - 86 cents 23 cents 39 cents 2 for 63 cents___ 89 cents 23 cents 39 cents 5 for $1.1 2 for 63 cents. 86 cents. 23 cents. 39 cents. Domino sugar, 5-lb Washington self-rising flour, 5-lb Gerber's strained baby foods Bananas 61 cents 65 cents 6 for 65 cents...~ 17 cents Out 65 cents 6 for 65 cents~~ 17 cents 61 cents 65 cents 6 for 65 cents.~.~ 17 43 cents.2 61 cents. 65 cents. 6 for 59 cepts.3 Lettuce 25 cents 25 cents cents 25 cents 17 cents. 25 cents. 1 2 cans on shelf; 1 marked 3 for 59 cents; other one 5 for $1. 2 Only 1 carton at 43 cents; remaining eggs full case, at 39 cents. Upon noting price, checker realized that tk~~ was price for Beechnut rather than Gerber strained baby food, PAGENO="0105" 99 Mr. ROSENTHAL. Do I pronounce it correctly ~ Is it Mr. Bozmanl Mr. BOZMAN. Yes, sir. Mr. ROSENTHAL. Mr. Bozman, do you have a prepared statement? Mr. BOZMAN. Well sir, I have some- Mr. ROSENTHAL. ~ould you identify yourself and your colleagues, and if you have a prepared statement, you may commence. And if you have not, you may commence, too. Mr. BOZMAN. Ok. Thank you. STATEMENT OP WILLIAM BOZMAN, DEPUTY DIRECTOR, COMMU- NITY ACTION PROGRAM, OPPICE OP ECONOMIC OPPORTlJNIT~; ACCOMPANIED BY GARY ELLIS, CONGRESSIONAL BELATIONS STAFF; RICHARD SAUL, COMMUNITY SERVICES DIVISIO~T; OLLIE TAYLOR, FIELD DIRECTOR, WATTS CONSUMER ACTION DEMON- STRATION PROJECT Mr. BOZMAN. Mr. Ohairman, I am William II. Bozman, Deputy Director, community action program, Office of Economic Opportu- nity. Mr. Shriver regrets that he had a prior commitment preventing him from appearing before your subcommittee, sir. I have with me Gary Ellis of our congressional relations staff ; Rich- ard Saul of our Community Services Division; Ollie Taylor, who is field director of our Watts consumer action demonstration project. He happens to be in the District for a training program, and I thought he would be interested in what you gentlemen are doing. Mr. ROSENTHAL. We would be more interested in what he is doing. Mr. BOZMAN. We at OEO share your concern for the problems of the low-income consumer-and we know that these problems are many. The recent news stories in our own Washington newspapers are, un- fortunately, not unique. They are being duplicated in other cities. In Philadelphia angry consumers are running their own candidate for mayor on a consumer protection ticket. There is increasing evidence to suggest that discontent and disorder in cities across the country are in no small part consumer revolt against a system that has for years per- mitted the unscrupulous to take advantage of those least able to pay- a system that has at the same time deprived the poor of any real choice in the quality of goods they can buy, the prices they pay or the methOd of. financing or source of credit available to them. OEO is convinced that the consumer problems of the poor must be solved if they are ever to be victors in the war against poverty. Traditional programs of con- sumer education are not the answer. Changes must come in the eco- nomic and legal structure of the marketplace. New institutions must be built which serve the needs of poor people in ways which permit them to improve their standard of living and give them greater eco- nomic freedom rather than making them victims of spiraling indebted- ness, wage garnishment, the confession of judgment, and powerless before the holder in due course. You have asked what we at OEO have in the way of hard data to support the charges of price gouging ~nd other forms of exploitation of the poor consumer. We have a little and we need much more; but we have enough ~o know that we must be committed to `a program which will bring about the needed changes `and which will develop the needed PAGENO="0106" 100 inst~tu'tions. We are committed to such a program, which we call consumer action, and through this program we plan to accumulate the hard data. which can guide us, as well as the Congress, other Govern- ment agencies, and the business community in helping to provide the means to a better life for millions of poor people. PLANS FOR ACQUIRING HARD DATA OEO has under its research and demonstration program funded five' new consumer action projects in Chicago, Tulsa, the Watts area of Los. Angeles, the Bedford-Stuyvesant area of Brooklyn, and in rural Ap- palachian Ohio. We also have an ongoing program in the San Fran- cisco Bay `area. In addi'tion, `a number of community action agencies across the country have strong and `active consumer action components which have been started `this year. We are now developing a comprehensive plan `to use these programs as `sources of hard data on consumer problems of the poor. Directors of `these projects are being invited `to attend `a conference in Washing- ton during the week of October 23, a major part `of which will be de- voted to the design of `an indep'th `analysis of the consumer problems in the areas they `serve, `and `an ongoing system of fact retrieval which will build a solid base of knowledge about the nature and scope of con- sumer problem's in low-income neighborhoods. These `studies will include the pricing, quality of merchandise and credit practices of existing retail facilities, as well as more precise definition `of the needs of the residents for goods, service's, transport'a- tion, and credit which are not now being met. These `studies will `seek answers `to `specific questions `such `as the rela- tion `of pricing `to `welfare check issuance, `the `shifting of produce from high-income area stores to low-income area stores, availability of ad- vertised `specials, bait and swi'tch selling, interest and `c'arrying charge rates on installment purchases, repossession practices, and o'ther sim- ilar issues about which we have some knowledge and about which al- lega'ti'on's have frequently `been made. At the same `time we will be prepared to discover new facts `that we d'o not now know. FACTS WHICH IVE NOW HAVE What do we now have, first, in terms of hard data, concerning whether the poor in fact do pay more? `Under `a contract financed by OEO, The Bureau of Federal Credit Unions, has ~for over a year been conducting `courses in credit union operations and management called Operation Moneywise. As part of these courses, the trainees have conducted comparison shopping trips in seven different cities, pricing `television sets in low-income `areas in the so-called easy-credit stores~ and also in ethical downtown stores. Although `the quoted prices resulted fr'om `a training demonstration and should not be considered official Government figures, they `are re- vealing, consistent, and certainly as reliable `as any other figures avail- able. Mr. Chairman, I will only cite a few typical examples here, and I am furnishing with my prepared statement a complete set of `the com- parative sh'opping analyses for Washington, D.C., New York City, PAGENO="0107" 101 New Orleans, Los Angeles, Chicago, Miami, Florida, `and Boston, Mass. Some examples: In Washington, D.C., a portable Admiral tele- vision set selling for $129.95 on the ethical market in do'wntown Dis- trict of Columbia sold in low-income areas for as high as $269 with most stores in the low-income areas selling the set at prices between $150 and $200. An Emerson portable available for $119.88 on the ethical market, in one case was priced in a low-income area at $289 and in the same are.a a repossessed set of the same make and model sold for $166. In New Orleans, an Admiral television set selling for $118 on the legitimate or ethical market, was priced at from $169.60 to $249 in all but one of the stores visited in the low-income areas. In comparison shopping trips made just last week in Boston, a Philco television set selling for $149.95 on the legitimate market was priced at $179.95 and $210 in the low-income market. And we must not forget that most of the sales in low-income areas are installment sales which cost the buyer, in addition to the inflated prices, interest and carrying charges often amounting to about 30 per- cent per year. In the area of food market prices, the most recent,, and apparently most reliable, data available to OEO-ancl I am not here including the recent news items in Washington, D.C., newspapers- have come from a consumer price survey conducted this past summer by Prof. Carleton Wright of Cornell University, under the `auspices of the office of Deputy Mayor CostellO of New York. We have been promised a copy of Professor Wright's final report which I will be happy to submit for the record, hopefully early next week. In the meantime, I have attached to the prepared text of my state- ment transcripts of a series of radio broadcasts made `by Dr. Costello over station WNYC, based on the survey findings. A sample of these findings indicates that in food purchases, as in television set buying, the poor in fact do pay more: 1. On one given day, a food basket in Jackson Heights, Queens, a middle-class neighborhood, was bought for $8.99. In a neighbor~. ing, low-income shopping district (Astoria), the same shopping basket on the same day was priced at $9.47. The quoted prices are derived from a combination of common lows from each neighborhood. 2. `Tomatoes on one given day in Astoria were priced at 55 cents per pound, while in Jackson Heights the price was only 39 cents. 3. In Fort Greene and East Harlem, both low-income districts, one day the price of `tomatoes was 55 cents, while in other parts of the city the price was only 45 cents. There are, certainly, causative factors which operate here other than a lack of concern for the poor on the part of merchants or chain- store managers, or a desire on their part to exploit the consumer. It is utidoubtedly true that luxury or specialty items, like caviar or pat~ de foie gras, which are higher profit items than the staples, do not sell in a poor neighborhood. This means that `the store has less margin within which to operate. Other overhead costs may be higher. Un- happily, breakage and pilferage will often be higher, as will the cost of insurance. PAGENO="0108" 102 The high cost of insurance is a serious problem, not just for the business in the poor neighborhood, but for the consumer-the home- owner, the automobile owner-as well. But for the business it can often be prohibitive, or not available at all. For example, take the case of a certain Los Angeles businessman. For several years he has wanted to go into the cosmetics business and build a warehouse in the Watts area of Los Angeles. He is the west coast representative for two large cosmetics firms. He is prepared to hire and train up to 50 local Watts residents. But he cannot buy insurance to insure inventory which would be stored in the warehouse. These problems are real. But unfortunately, some of them have grown out of, and fed upon, mutual attitudes of distrust and lack of confidence between some local businesses and the residents of poor neighborhoods. And some of these attitud~s have been due to uncon- scionable business practices by businesses of every kind. It is no acci- dent that five markets of one chain in Watts were burned down in 1965, ~vhile three ABC markets in the riot area did not suffer even a broken window. Mr. ROSENTHAL. Who operates the ABC markets? Mr. BOZMAN. That is a local firm. I hope that by next week we will have for submission in the - record a copy of a consumer survey that was made in the Watts riot area shortly after the Watts riot of 1965. An OEO staff member has~poken to persons involved in that survey who have stated that it, too, indicates price discrimination on food and other products against-the low-income neighborhoods. Poor food quality was also a recurring complaint. Another is that in certain supermarkets in the Watts area, some residents stated they have never found the advertised special in stock and available and that they never received a substitute value or a so-called raincheck-until on a few occasions one patron complained personally to the management. Residents questioned also pointed out that to their knowledge not one supermarket in the Watts area has ever had an express checkout line, as do all the stores in the more affluent neighborhoods. These are, I realize, but indications of the kinds of problems facing the low-income consumer. W~ need much more and better information. We will work hard to get it. In the meantime, we do know enough about these prob- lems to have undertaken a comprehensive attack on them. THE PROGRAMS WE PROPOSE OEO is proceeding with a program of consumer action which will attack these problems in ways which will develop lasting solutions. This means involvement of the poor people themselves in the building of institutions based on the principle of self-help. It also means in- volvement of the private sector, for public tax dollars alone cannot do the job. It means imaginative use of OEO funds to attract private investment which can bring the benefits of the affluent society to the ghetto marketplace. Finally, it means taking a close look at the needs of poor consumers-working with them to define and articulate these needs more precisely-and working for changes in the laws which govern the relationships between seller and buyer, borrower and lender, so that those being exploited will be provided the protection PAGENO="0109" 103 which will stop the exploitation, Only then will the poor person be able to use with dignity and confidence the tools which our economy has devised to enable individuals to better themselves and improve their living standards. One of the greatest needs of the poor is a source of low-cost credit. Consumer action has this as one of its prime goals, either through use of existing institutions or through development of' credit unions. Mr. ROSENTHAL. Did you gentlemen hear the testimony of store manager No. 2 who said he cashes a hundred or some odd checks? Mr. BOZMAN. I did hear that; yes, sir. Mr. ROSENTHAL. And he actually gets very little purchases from that, maybe a dollar or two from about 10 customers. How does that sound to you? Mr. BOZMAN. Well, I was impressed by the fact that he said they could not get their checks cashed at the banks; that they had to come to his particular store. I have no reaction as to whether or not the people buy there. I could not possibly react to that. But I was inter- ested to note that the banks would not take the checks, but the grocery store had to. Mr. ROSENTHAL. Well, why would you think he could cash some 90 checks without purchases? Mr. BOZMAN. I am assuming that he does not know when they cash the check whether they are going to spend the money there or not. Mr. ROSENTHAL. Well, if he testifies this is a monthly procedure; he is bound to know about it by now. Mr. BOZMAN. Yes; but every individual that comes up may very well end up buying. Mr. ROSENTHAL. I just wondered if you had any reaction to that statement. Mr. BOZMAN. None. May I go back and repeat the sentence I was on? Mr. ROSENTHAL. Sure. Go ahead. Mr. BOZMAN. An effective credit union can be the source of many effective services to the poor: check cashing-in Watts today welfare recipients are being charged a dollar to cash their welfare checks; prorating of debts, to permit those caught in a mountain of debts to extricate themselves; financial counseling, so that once above water, a family can begin to build and plan and save; legal services which can help the poor person to avoid the crooked deal and defend himself against the unscrupulous merchant. The credit union also helps to teach its members how to make deci- sions, to manage their affairs, to govern themselves, because it is a cooperative enterprise, in which people learn to work together for their common good, to attack their common problems. And it can lead to other group efforts to attack directly the consumer problems of high prices and low quality. Through buying clubs, organized shopping trips, availability of credit to small local merchants, consumers acting together can, with our help, bring better merchandise to their neigh- borhoods at lower prices, and on better terms. ` Finally, consumer action must attack the problems of consuñier protection legislation: of wage garnishment, confession of judgment, PAGENO="0110" 104 and other archaic legal doctrines which for the poor person symbolize the "system" which in their eyes keeps the rich, rich and the poor, poor. Take the confession of judgment as an example. It seems clear that there is no justification for the confession of judgment other than that the creditor in the typical consumer credit situation is in such a strong position vis-a-vis the debtor that he can insist on the inclusion of any terms that he desires. Certainly no borrower would agree to the inclusion of a confession of judgment if he had the bargaining power to avoid it-and if he understood its consequences. The con- fession of judgment is typical of the complicated, obtuse legal doctrines which have grown up around credit transactions as a means of stimu- lating the use of commercial credit. Having been developed as a tool of commerce between merchants, it has been transplanted to the arena of consumer credit where it is not needed, and where it can cause real hardship. I am sure that there is not a borrower in a thousand who understands the legal consequences of his signing a note which contains a confession of judgment. Mr. Chairman, while I am on the subject of obtuse legal doctrines, let me mention a few more about which something should be done. To the person without a job, with inadequate education, in substandard housing, to the resident of the big city ghetto, to these people the world of comfort and affluence to which they are denied entry operates with rules they do not understand, but whose goals seem to them to be to put them down and keep them down. Nowhere does this world and its rules confront them more directly-or in their eyes more unjustly- than in their dealings with the merchant and the money lender, who come armed with the weapons of the law which make it legal to col- lect finance charges of over 50 percent, to take away all one's house- hold furnishings, and to deprive the buyer of any recourse where the goods are shoddy or don't live up to warranty. These legal doctrines, such as confession of judgment, time sale price, the after-acquired property clause, and the holder in due course, represent to the poor person precisely what is evil and unjust about the system, and perhaps even more important, they demonstrate to the poor man the hopeless- ness of ever achieving anything within the system.. We are not prepared at this time to spell out in detail the reforms which we believe are necessary. Let me just suggest a few possibilities: (1) limitation of security interest to the goods purchased in the par- ticular transaction; (2) recourse against the assignee of loan paper as well as against the seller in case of failure of the goods sold to live up to a warranty; (3) limitation of right of acceleration to cases of actual default plus a reasonable opportunity to make payment; arid (4) limitation of the amount of default judgment, after repossession and sale, to the amount of the debt outstanding at the time of the repossession. These are a few needed reforms. In closing, Mr. Chairman, let me stress the point that as much as these legal reforms are needed, they will not solve all the consumer problems of the poor. One important problem it will not solve is the ready availability of low-cost credit. In fact enforcement of needed reforms may well. tend to dry up sources of credit rather than simply reducing their cost and curbing their abuses. The low-income con- PAGENO="0111" 105 sumer will still be faced with the problem of finding sources of credit from which he can borrow at reasonable rates and with the protection of adequate safeguards. He will still need accessible retail outlets with quality merchandise at fair prices. We hope that OEO's consumer action program can find the way to solve some of these difficult prob- lems. We will soon have more and better information about the exact nature and extent of these problems. We will always stand ready to work with the Congress, with the Federal Trade Commission, with other concerned Government and private agencies and with the busi- ness community, to help bring a better life and a more valuable dollar to the low-income consumer. I would like to submit for the record these tables that I have with me on the prices that were found in these various areas. Mr. ROSENTHAL. Without objection, they will be received. (The material referred to follows:) COMPARISON SHOPPING ANALYSIS, ~ Low-income market Legiti- Item mate Central Five Vermont Boyle R.aoul and market Points Heights Phoenix 19 inch portable Emerson TV (1) $204. 00 $176.75 $169. 60 (1) $139. 88 239.95 2 280. 00 119.88 228.75 104.88 189.95 - 19-inch portable Olympic TV (1) 229.95 2 280. 00 176. 75 $229.95 (l 3) 259.95 249.95 199.95 ~ RANGE . Comparison of low-income to Comparison of prices within Item legitimate market low-income market High Low Difference High Low ....: Emerson 2 $280. 00 $104. 88 $175. 12 2 $280. 00 $169.60 $110.40 239.95 104.88 135.07 239.95 169.60 70.35 Olympic 2 280. 00 3 110. 00 170.00 2 280. 00 176. 75 103~ 25 259.95 3110.00 149.95 259.95 176.75 83.20 ,,. ......,.~.-.: .~ ,..~. ..-......,, .....~..... ... ,.. ~ .-.-,...,..-.-. ~ I Not available. 2 Quoted price probably inflated by salesman attempting to divert business to another store in which he had financial interest. - 19-inch portable Olympic TV not available in stores in the legitimate market used for this comparative shopping analy- sis. Average price from previous shopping trips used for comparative purposes. COMPARATIVE SHOPPING ANALYSIS, NEW ORLEANS Low-income market Legitimate Item ~ market, Area A Area B Area C Area D .~,,- .._.. .. ,,_,_ -. ,,_,_ . 19-inch portable Emerson.TV $199. 9~ $147. 88 $199 95 $129. 95 189.95 169.60 176.75 139.88 199.95 189.95 19-inch portable Olympic TC 194. 95 (I) 194.95 2 110. 00 19-inch portable Admiral TV 249. 00 135. 77 249: 00 -118:00 229~00 210. P0, ., 169.60 . .U~:95 239.95 228.75 189.95 199. 95 176.75 179. 95 I Not available. 2 This set not available in the legitimate market used for this comparative shopping analysis. Average price from previous shopping trips used for comparative purposes. PAGENO="0112" 106 Compar Item High ison of prices in low- income market Overall betwee comparison of prices n the low-income and the legitimate markets Low Difference High Low Difference Emerson $199. 95 $147. 00 $52. 17 $199. 95 $129. 95 $70. 00 Olympic. 194.95 194.95 110.00 84.95 Admiral 249.00 135.77 113.23 249.00 118.00 131.00 Note: This shoppingirip was conducted as a training demonstration only and prices obtained should not be construed as official Government figures. Low-income market Legitimate Item market Area 1 Area 2 Area 3 Area 4 19-inch portable Emerson TV $219. 00 $199. 50 $199 229.00 1150 $145 171.88 210 229 Admiral 169.88 $169.99 199.50 125 165.00 159.00 145 Olympic 189.50 110 169.88 159.00 149 RANGE Comparison of low-income to Comparison of prices within legitimate market low-income market Item - - High Low Difference High Low Difference Emerson $229.00 $145 $84.00 $229.00 $150.00 $79.00 Admiral 199. 50 125 74. 50 199. 50 159. 00 40. 50 Olympic 189. 50 110 79. 50 GE 169.88 149 20.88 169.88 159.00 10.88 I Cash. COMPARISON SHOPPING ANALYSIS, BOSTON (1967) Low-income market Item -~---~- Legitmate Upper Uphams Stuart Broadway market Wash 19-inch portable Emerson TV $239. 00 $149. 00 $129. 00 138.00 148.00 Admiral 169.95 1116.95 2$17900 $169.00 189.95 138.00 1312900 169.95 `115.95 138.00 1129.50 Olympic 200. 00 159. 50 210.00 110.00 4179.00 189.95 RCA 189. 95 159. 95 189.00 179.00 Philco 210. 00 149. 95 179.95 1 Ethical store in low-income area. 2 1966 model. 3 Wholesale. 1967 PAGENO="0113" 107 RANGE Comparison of low-income to tern legitimate market High Low Difference Comparison of prices v~ithin low-income market High Low Difference Emerson $239.00 $129.00 $110.00 $239.00 $138.00 $101.00 Admiral 189.95 115.95 74.00 189.95 138.00 51.95 Olympic 210. 00 110. 00 100. 00 210. 00 159. 50 50. 50 RCA 189.95 159.95 30. 00 189.95 179. 00 10.95 Philcb 210.00 149.95 60.05 210.00 179.95 30.05 PROJECT MONEYWISE-BOSTON-COMPARISON SHOPPING ANALYSIS Low-inco Item Store A Store B me market - Ethica I market ~- Store C Store D Discount store Depart- ment store 19-inch portable Olympic TV $169. 50 $159.95 $179.95 $198. 89 $89.95 $98. 95 Comparison of low-income to Comparison-Of prices within low legitimate market income market High Low Difference High Low Difference Range $198.89 $89.95 $108.94 $198.89 $159.95 $38.94 COMPARATIVE SHOPPING ANALYSIS, WASHINGTON, D.C. Low-income market Item .. Ethical market ~ Downtown Area A Area B Area C Area D Area E District of Area F Columbia 19-inch portable Admiral TV $169. 99 $179. 95 $189. 00 (1) 179. 99 189. 00 2 126. 95 $159.00 $129. 95 (1) 179. 00 - 139. 95 149.95 269. 00 135.00 159.00 149. 00 a ($199-229. 00) 19-inch portable Emerson TV___ (1) 185, 00 4 110. 00 (1) 179.00 169.00 289. 00 139. 95 119. 88 199.00 149.00 175.00 ~166.95 19-inch portable Olympic 129.00. 189.00 (1) (1) 151.90 149.95 179.00 (6) (6) a 166.95 189. 00 145.00 199.00 RANGE Comparison of low-income to Item ethical market High Low Differance Comparison within low-income market High Low Difference Admiral $269 4 $129.95 $139.05 Emerson 289 119.88 169.12 Olympic 199 6110.00 89.00 $269 $135 $134 289 169 120 199 129 70 1 Not available. 2 Cash discount store (not low-income marketplace). 3 Lower price stated if bought with furniture. 4 Used set. Repossessed set. 6 19-inch portable Olympic TV not available in stores in the legitimate market used for this comparative shopping analysis. Average price from previous shopping trips used for comparative purposes. Note: Shopping trip conducted astraining demonstration: Prices should not be construed asofficial Government figures. 88-532-68-8 PAGENO="0114" 108 COMPARISON SHOPPING ANALYSIS, NEW YORK Item ~ 125th St Calnes Brooklyn East Side Legiti. market Olympic 19-inch portable TV $269 $199.95 (1) 2 $279, 95 $129. 95 $119. 95 2199.95 199.00 110.89 Emerson 19-inch portable TV 229 210 263 279.95 129.95 109.00 RANGE Overall Low-Income market Item High Low Difference High Low Difference Olympic $279 $110 $169 $279 $199 $80 Emerson 263 109 154 203 210 53 1 Refused to show. 2 Range in same store. COMPARATIVE SHOPPING ANALYSIS, CHICAGO Low-income market Legitimate market Item Madison North 63d and 47th and Roosevelt Commu~ Down. and and Halstead South and Hal- nity town Pulaski Sedgwick Parkway stead discount 19-Inch portable Emerson TV $229 $170 ($239) $139 $169 $116 .~ 150 1(125) 220 179 180 (259) 1(150) 19-inch portable RCA TV 159 154 $153 140 135 130 138 19-inch portableOlympicTV2 118 189 139 200 198 170 200 140 - 170 139 130 RANGE Ranges from low-income market Ranges within low-income market item to legitimate market High Low Difference High Low Difference 19-inch Emerson TV $259 $110 $149 $259 $125 $134 19-inch RCA TV 159 130 29 159 154 5 19-inch Olympic TV 200 110 90 200 118 82 1 Lower price obtained after bargaining with the merchant 2 This set not available in the legitimate market used for this comparative shopping analysis. Average price from pre- vious shopping trips used for comparative purposes. Note: This shopping trip was conducted as a training demonstration only and the prices obtained should not be con- strued as official Government figures. Mr. ROSENTHAL. Have you had any complaints made to any of your consumer groups or community-action groups that prices in super- markets were raised on Mother's Day, or the first of the month, or the kinds of things we have heard about here today? Mr. BOZMAN. We have heard some indication about prices going up on the days that checks are known to be in the poor community. Mr. ROSENTHAL. Where have you heard this from? How about your colleague from California? PAGENO="0115" 109 Mr. TAYLOR. We have this documented in California. We did a survey immediately after the riot. We have been doing surveys since before the riots. And when this Safeway thing came up, I was par- ticularly interested, because they were our No. 1 offenders in Cali- fornia. Mr. ROSENTHAL. Safeway was the No. 1 offender? Mr. TAYLOR. Yes, they were. Mr. ROSEWrHAL. In what way? Mr. TAYLOR. Safeway never had their specials in the low-income neighborhoods. We have testimony taken from people by the staff of the legal commission of the-McCone commission, I should say, taken in my presence. Mr. ROSENTHAL. Could you `furnish us with a copy of that? Mr. TAYLOR. We intend to. If I bad known this was going to happen today, I would have brought it along. Mr. ROSENTHAL. If I had known you were going to say that, I would have kept the Safeway people here. Mr. TAYLOR. I called this morning and asked that it be sent. Mr. ROSENTHAL. Would you do that so we can include it in the record? Mr. TAYLOR. We definitely will. Mr. ROSENTHAL. Was Safeway the biggest store in the Watts area? Mr. TAYLOR. One of the biggest; yes. They had more stores. Mr. ROSENTHAL. They had the most stores in the Watts area? Mr. TAYLOR. Yes; they did. I think they lost five stores in that area at that particular time. Mr. ROSENTHAL. Have they rebuilt them there? Mr. TAYLOR. No. Mr. ROSENTHAL. Has anybody else gone in there? Mr. TAYLOR. About the only market chain that has expanded in there is the ABC Markets. Mr. ROSENTHAL. And that's a private, community-owned group? Mr. TAYLOR. Well, it is not owned by the community. It is owned by, I guess you would say, an individual who cares. He had three markets in that vicinity during the times of the riots and did not suffer a broken window. Mr. ROSENTHAL. Nothing happened to his markets? Mr. TAYLOR. Nothing happened to his markets. This was one of the things that was brought out in the commission during the investiga- tion. We have-in Los Angeles in doing our survey we have the little chips that Safeway gave out, you know, if you cashed a check. If you purchased in that store, then they would cash your check. If you were not going to purchase anything, it was an outright $1 or an outright 50 cents to cash your check. We have them from a Mrs. Rocheile who lived near one of the Safeway stores, and she confronted the president of Safeway in Oakland with all of these things that happened at this particular store, and she had a. record of her calling the people at Saf~- way and making these complaints. `She aiso had proof that, I guess you would say, they were soothing her a bit. They had a special on eggs one weekend, and they did not have them in the store, so when she corn- plained the manager brought h~r two dozen. . PAGENO="0116" 110 Mr. ROSENTHAL. Now, you say that Safeway was the biggest offender of these type practices in Watts. Have you heard that about any other areas like Hough in Cleveland or other places where there has been turmoil? Mr. TAYLOR. No; I have not. I just heard about this yesterday. Mr. BOZMAN. Mr. Taylor would probably know about Los Angeles and Watts- Mr. TAYLOR. Yes, I do; very well. Mr. BOZMAN (continuing). Rather than these other areas. We have some consumer-action programs in those areas, and we are going to try to get this kind of information for you. Mr. ROSENTHAL. Well, the unfortunate thing is consumer action is an infinitesmial part of your budget. Mr. BOZMAN. That is very true. Mr. ROSENTHAL. You are as guilty as the rest of the Federal agencies. You are doing virtually nothing. Mr. BOZMAN. I think we are doing what we can. We try under com- munity action to give local communities as much of the responsibility as is consistent with law for determining what programs they go into. Mr. ROSENTHAL. Your consumer community-action programs rep- resent about one-half of 1 percent of your budget. Mr. BOZMAN. That is true, sir, but those determinations, Mr. Chair- man, are by and large made in the communities. Mr. ROSENTHAL. Could you do more if you had more? Mr. BOZMAN. Absolutely. The fact of the matter is that our local initiative funds are the source under title 2 of the act for these partic- ular types of programs, and those are the funds that ought to be aug- mented so that we can give the communities at least the option of aug- menting this particular program. Mr. ROSENTHAL. Congressman Reuss? Mr. REUSS. No questions. Mr. ROSENTHAL. Congressman Gude? Mr. GUDE. Thank you, Mr. Rosenthal. How many employees does OEO have assigned full time to conduct- ing price surveys? Mr. BOZMAN. We do not have any employees directly in that par- ticular activity. However, we do have a number of consumer-action demonstration projects where the projects are in part devoted to find- ing out what the prices of things are in various stores. Now, the total number of projects that we have in this area of con- sumer action is about, oh, I think it is six; is it not? Mr. SAul4. Six. Mr. BOZMAN. Six. And in each of those programs, rather small demonstration pro- grams, there might be no more than eight or 10 people doing this, and this is not a full-time job with anyone. Mr. GuDE. The two surveys that you could supply us as to price dif- ferentials would be the Cornell survey and the one for Watts; would that be correct? Mr. BOZMAN. We would be able to provide information from the Cornell survey. We have another-.- PAGENO="0117" 111 Mr. SAUL. We are bringing in the directors of the six consumer- action demonstrations in these different cities, pius some community- action people from the local agencies, such as Boston and St. Louis, that have active programs, on the 23d of October, and then we will work with them so that we can get comparable information from all of them. We want-we are going to spend at least a day just designing a system for getting just what information we feel we want and need. Mr. Taylor is one of these people. He is here now. He is going to take over- Mr. ROSENTHAL. Mr. Taylor, the comments you made about Safeway m Los Angeles, were you personally involved in the investigation or did you observe any of these practices? Mr. TAYLOR. In most of them I was. Mr. ROSENTHAL. So that when you made that charge you speak from personal knowledge? Mr. TAYLOR. Yes; I do. Mr. ROSENTHAL. Mr. Reuss, anything else? Mr. REUSS. What is the name of the grocery chain which is now ex- panding in Watts? Mr. TAYLOR. ABC Markets. Mr. REUSS. You said the owner of that was a humane person. Mr. TAYLOR. Very much so. Mr. REUSS. What happens to be his race, white, Negro, Chinese? Mr. TAYLOR. I suppose he would be Caucasian. His name is Kothen- meyer, so I really couldn't say. Mr. REUSS. I do not know what a Caucasian is. Mr. TAYLOR. White. Mr. REUSS. He is white. Yes. Thank you. Mr. GUDE. What was the food chain in New York that the Cornell survey was based on? Mr. BOZMAN. I am not familiar with that. I believe those were privately owned markets. Mr. SAUL. It was made across the board, I think, in different stores. Mr. GUDE. It was not on one chain? Mr. BOZMAN. No, sir. If I understand his process, it was to shop in each place, a number of markets and then take the low average and say this is what the market basket costs in this neighborhood, low average prices, and this is what it cost in the other neighborhood, low average prices. Mr. GtTDE. So it could have been some chain and some "ma and pa" delicatessen, a mixture? Mr. BOZMAN. Right. I have a feeling that it was a combination of chain and privately owned, or individually owned, excuse me. Mr. GUDE. Thank you very much. Mr. ROSENTHAL. You are going to furnish us with all the things from the McCone commission and the Watts survey, and you are going to furnish the Cornell report, etcetera? Mr. BOZMAN. Yes. Mr. ROSENTHAL Fine. The subcommittee stands adjourned. (Whereupon, at 4:20 p.m., the subcommittee was adjourned, to re- convene subject to the call of the Chair.) PAGENO="0118" PAGENO="0119" CONSUMER PROBLEMS OF THE POOR: SUPERMARKET OPERATIONS IN LOW-INCOME AREAS AND THE FED- ERAL RESPONSE _______ PRIDAY, NOV1~1VLBER 24, 1967 HOUSE OP REPRESENTATIVES, SPECIAL CONSUMER INQUIRY, SPECIAL STUDIES SUBCOMMITTEE OP THE COMMITTEE ON GOVERNMENT OPERATIONS, New YoDk, N.Y. The subcommittee met at 10 a.m. at the Intermediate School 201, 2005 Madison Avenue, East 127th Street, New York City, Hon. Ben- jamin S. Rosenthal presiding. Present: Representatives Rosenthal, Gallagher, Reid, and Erlen- born, Also present: Messrs. Barash, Harrison, and Copenhaver, staff mem- bers, Committee on Government Operations, Washington, D.C. Mr. ROSENTHAL. The subcommittee will be in order. Today's hear- ing by the Special Consumer Inquiry of the House Committee on Government Operations continues and broadens an investigation be- gun last month in Washington, D.C., on charges that certain super- market chainstores discriminate in their pricing and marketing practices against the poor. Subsequent to our Washington, D.C., hearing, numerous reports of similar practices in other cities, includ- ing New York and St. Louis, have been received. We are confronted, therefore, with allegations that there may be exploitation of the poor in their most essential human activity-the consumption of food. Whether or not the charges being heard today are sustained, events of the last month lead me to the conclusion that consumer problems of the poor in our society have not received the kind of attention that they deserve. No less than five Federal agencies have either a legal responsibility or a moral obligation, or both, to confront the types of consumer injustices to be alleged here today. Federal responsibility in this area is clear: The Federal Trade Commission has broad legal responsibilities to safeguard the consuming public by preventing unfair or deceptive acts or practices and also has a responsibility for putting the spotlight of publicity on economic developments adverse to the public interest which may fall short of specific law violations. The Office of Economic Opportunity represents the institutional em- bodiment of U.S. policy to eliminate the paradox of "poverty in the midst of plenty" in this Nation by opening to everyone the oppor- tunity to live in decency and dignity. (113) PAGENO="0120" 114 The U.S. Department of Agriculture, in its administration of the food stamp program, has a responsibility both to the beneficiaries of that plan and the fiscal integrity of the food stamps themselves. The Welfare Administration of the Department of Health, Educa- tion, and Welfare underwrites a large part of the costs to the States for welfare assistance to needy families spending approximately a third of their income on food. The Bureau of Labor Statistics of the Department of Labor has re- sponsibility for identifying and developing family-budget studies, including budget studies for the poor consumer. The House Committee on Government Operations, of which this subcommittee is a part, under the Rules of the House of Representa- tives, and under the Legislative Reorganization Act of 1946, has re- sponsibilities and duties which cover a wide range of Government activities. Primary among these duties is our statutory mandate to study the op~ratiQn of Government activities at all levels with a view to determining its economy and efficiency. Whether the operations of the agency activities described above are efficient relative to the prob- lem being discussed here, is the long-range question we seek to answ~r.~ We are here today to examine into the nature and extent of ~the problem itself and to express our concern that these~ allegations and many others like them can exist and to understand how our Govern- ment can address itself properly to them so that solutions may be properly and rapidly found. Equal justice in the marketplace is ha~diy~ less important to the poor than equal justice before the law. price discrimination is intolerable under any circumstances but partieu~ larly so because food expenditures account for about a third of the III- come of the urban poor. Onb, I want to say this: I am delighted that my colleagues could. join me today, the day after Thanksgiving. It isn't always our eon~ gressional custom to be working Thanksgiving weejumd, but this, matter was of concern to us and that is why we are here. I want to particularly welcome those members from out of State: Congressman Gallagher, from New Jersey and Congressman Erlenborn, from Illi- nois; also, of course, Congressman Reid from Westchester County. Our first witness this morning will be Timothy Costello. Dr. Costello. STATEMENT OP DR. TIMOTHY W. COSTELLO, DEPUTY MAYOR, CITY ADMINISTRATOR, CHAIRMAN, NEW YORK CITY CO'ETNGIL ON CONSUMER APFAIRS, CITY OP NEW YORK Mr. Cos~iiLLo. Congressman Rosenthal, fellow congressional Mem- bers, fellow witnesses, ladies and gentlemen, I too would like to thank the committee for breaking into their holiday to concern themselves with what is indeed a very significant problem. My name is Timothy W. Costello. I am the deputy mayor-city admrnistrator of the city of New York by appointment of Mayor John V. Lindsay. I am also chairman of the Mayor's Council on Consumer Affairs, an agency Mayor Lindsay established in April by Executive order to coordinate the city's attack on consumer problems. First let me commend this subcommittee for its decision to hold to- `day's hearing in intermediate school 201. Not only is this building an example of New York's finest and most modern public schools, but the PAGENO="0121" 115 cotttroversy that surrounded the school called national attention to the issue of community participation in public education. And the site is convenient to the people most concerned with the subject of the hearing. Before presenting my own testimony 1 would like to express my admiration and respect for the work being done in this community and other ghetto markets throughout the city by such people as Mrs. Gladys Aponte, Steve Press, and Mrs. Florence Rice. I assume all of these people will be represented today during your hearings. I had the chance to work with them, share their concern and to draw them into Mayor Lindsay's Council on Consumer Affairs, and I want to take this public opportunity of thanking them for their efforts in this regard. The purpose of today's session, as I understand it, is to study food prices in ghetto areas, comparable prices outside the ghetto, and the reasons, if any, for the difference. This is an important subject which was investigated this summer by the Council on Consumer Affairs, and I want to report to you on our study. Under a grant from the 20th century fund, we engaged Prof. Carlton E. Wright, who teaches consumer education at Cornell University. He is the author of the standard text on "Food Buying." Under Dr. Wright's direction, a group of 40 Urban Corps members spent the summer combing the city's foodstores. (The text of the Wright study appears at the conclusion of Dr. Costello's testimony.) May I describe this? This is a total group of some 2,500 students from 100 colleges across the country who spent the summer working in one or another city department. Forty were assigned to the Mayor's Council on Consumer Affairs, and I will be talking principally about the work of this group of 40 college students. They looked up prices for a shopping basket of 3~T items in each store. Approximately 2,500 stores were covered by the survey, ranging in size from mom-and-pop groceries to supermarkets. The city was divided into 58 community districts, following the brand new lines laid down by the city plan- fling commission. Results were compiled, and broadcast over the radio daily, on a district-by-district basis. This was the first time that a citywide food price survey was conducted on a community district basis, and results obtained for each of the city's 58 communities. A copy of the survey was submitted several weeks ago to the staff of this subcommittee, and additional copies are available on request. May I add, also, that we are continuing these surveys although on a limited basis with the help of the city's volunteer coordination council. We have volunteer shoppers distributed across the city who report prices to us on a weekly basis and these prices are also conveyed to the consumers of New York City on a daily basis through New York's radio stations. Mr. ROSENTHAL. If I might interrupt, you say the results of your survey were made available daily? In other words, I conclude that all of the stores knew you were making the survey. In other words, anyone who had a radio knew you were making the survey. Dr. CosTELLo. Anyone who had a radio knew 2 days after I made the survey that I had been in their neighborhood, yes. We didn't pub- licize in advance that tomorrow we would go to Harlem, the next day we would go to Bedford-Stuyvesant. PAGENO="0122" 116 Mr. ROSENTHAL. But they did know there was a continuing survey and there was a possibility of their being surveyed any time that week or the week after that? Dr. Cosa~sLLo. Indeed they know about my survey, and I have been subject to rather regular harassment by the newspapers that supply the larger chains throughout the city. My point is that the merchants of New York City know for the past 6 months they have been subject to food price surveys; yes. Mr. ROSENTHAL. My question, precisely, is: Is it fair to assume that a store would have known that they were going to be surveyed? Dr. COSTELLO. That is the very purpose of my survey, to make sure that the stores in New York City know that they are subject to shop- ping surveys, and so will keep their prices in line on a long-term basis. This is one of the accomplishments of the survey, I would think- The survey's conclusion was as follows: "Overall food prices ap- pear to be higher in poor areas, bearing out the belief that the poor indeed do pay more." We also found that "There are fewer large stores in the poor areas and prices tend to be lower in large stores. Therefore, on a communitywide basis it follows that at least one reason why the poor pay more is that they buy their food in small stores." This is a direct statement from the survey, prepared by Dr. Carlton Wright. May I add that this is not a situation reflecting the poor's own choice; it reflects the absence of large stores in poor areas, which our survey documented. If I can point this up, in surveys taken one day after the other, one in Queens, another in a ghetto area, we sampled approximately 25 stores in each of these two areas, and the ratio of poor to large stores was precisely the opposite. In the large middle-class area of Queens there were about 20 large supermarkets and four or five small neighborhood groceries. In the ghetto market, there' were 20 small neighborhood groceries and four or five large supermarkets. Dr. Wright was also asked about the pricing practices of chain- stores. He wrote: "It is generally believed that chains charge higher prices for identical commodities in their stores in poor areas." I want to make this statement very, very carefully. Let me repeat what I just said. It is generally believed that chains charge higher prices for identical commodities in their stores in poor areas. If this is true, it didn't show up in our survey. I want to emphasize further detailed study is needed on a large number of items to confirm pricing practices in chainstores. If we are going to assess this statement scien- tifically, additional study is certainly needed. On the basis of our sample, however, we didn't find evidence that would support a state- ment that chainstores systematically have different price ranges for poor areas as compared to middle-class areas. Mr. ROSENTHAL. But they knew you were coming. Dr. COSTELLO. Did they know I was coming Tuesday or Wednesday? Mr. ROSENTHAL. They knew it was inevitable that within the next few weeks-they knew it had to happen during the summer, because that is when the Urban Corps was in business. Dr. CosmLLo. I guess I'd better say that one of the functions of the systematic food price survey that we were doing is that merchants in New York City are alert to the fact that their prices are being surveyed on a regular basis. Right. PAGENO="0123" 117 Mr. ROsENTHAL. The oniy point I was trying to make, and I'm not being critical, you can't do it ~always with a surprise move, but the Bureau of Labor Statistics spent $45,000 for a survey to find out whether the poor pay more or whether the chainstores charge more, so what they did was call up the chainstores in advance and said they would be there Tuesday or Wednesday, and it was a nice, happy relationship. Yours was not quite- Dr. CosmLLo. Not anywhere near that. Mr. ROSENThIAL. But they did know you were coming. Dr. OOSTELLO. Well, just like I know it's going to rain someday soon. They knew I was coming, yes, that's right, but I'm trying to emphasize that one of the functions of any person working in the con- sumer area, is to generate a sense of concern on the merchant that they are subject to regular inspection and survey, and if this caused anyone to lower his prices, I'm very happy about that. Mr. ROSENTHAL. It's like a police car riding the turnpike. When people see him, they slow down. Dr. CosmI~Lo. Yes. Or the policeman on the beat. It's very valuable to have their presence felt throughout the community. Mr. ROSENTHAL. But in terms of an investigative tool, its efficacy is kind of weak. Dr. Cos~rsLLo. Well, thaJt's your conclusion. I don't happen to agree with it. Mr. REID. In the same general area, permit me first to welcome you most warmly to this si~bcommittee this morning. We have checked in the last week on two types of allegations which you don't cover in your testimony, and you may waiit to touch on it in this general area this morning. One, we received reports of instances where prices are increased on welfare check day and also in some instances prices have been increased on common paydays for certain factories `in this area, particularly prices on staples. The other allegation we received, and I believe we have some docu- mentation for the allegation, indicates that some-and this is an alle- gation, I repeat-chainstores have advertised on Wednesdays in the papers certain lead items, staples, which are marked down theor- etically, Thursday, Friday, and Saturday, but reportedly the prices on the cans have not been changed, have not been marked down, and as a result, unless there is considerable awareness on the part of the consumer, they go into the store and see the old price. Have you seen instances either o'f price variations on welfare check days or factory paydays, or have you seen instances where chainstores or other stores have not marked down the price on the can consistent with their advertising? Dr. COSTELLO. Yes. Our surveys have evidence, provide evidence on the first point. We did a survey of food prices across some 25 stores in the ghetto area on June 26, wihich would be several days before welfare checks were distributed, and established what we call our price for the basket. We went back on July 1 and July 3, and found that there was an increase in the average cost of about 15 percent. Now this kind of survey has got to be continued, has got to be done over neighborhoods, has ~ot to be done over a course of time2 `but the one test of this that we did, we did find there was a differentiation in PAGENO="0124" 118 cost between June 26 and July 1 and July 3. In between those two events, of course, welfare checks had been distributed in neighbor- hoods. Mr. REID. So that you have found at least on one instance correlation between an increase and the dates when welfare checks or factory pay checks might have been available? Dr. Cosi~Lr~o. Right. With regard to the second point you made, our commissioner of markets, Wiseberg, has recently developed a program he calls Operation Lamb Chop in which he develops a cooperative pro- gram between neighborhood consumers and his investigators. Neigh- borhood consumers are given some money, asked to go in and buy menthandise. This is then compared against advertised prices, and in a recent foray, he did find there was a differentiation between the prices marked on the merchandise and prices previously advertised. Mr. REID. Might I ask one question following that? Representatives of chains here may wish to respond as well. Did Mr. Wiseberg, com- missioner of markets, then talk to the relevant stores or chains and ask whether they brought in `a crew Wednesday night to change the prices on the cans, so that `there could be no question as to the individual chain or store of a chain sending in a crew to change it? Dr. Cos1~LLo. I don't have that information. Mr. REID. Would that be an appropriate area for the commissioner of markets to check? Dr. `Cos~rELLo. I `think it would. It would be appropriate to discover what efforts are made by `all stores to realine their prices on the basis of advertising that they do. Mr. REID. It's my understanding, from members of the committee who worked in supermarkets, that it is, normal for a crew to come in Wednesday night and physically change the markings on the cans, and if this is not- Dr. CosTELLo. `To correspond with the advertised prices? Mr. REID. `Correct. What we got reports on is that `this is not done, that the manager of the store says, "Well, of course the salesmen didn't know there had been a change in the price, and of course the price is not correct. It's advertised otherwise." But unless the store takes an affirmative responsibility to change it and remark all `the cans, the consumer may not be aware of it. Dr. CosmLLo. I would agree with that very definitely. I think I ought to add that for the past 6 months there is no question at all about my own concern with the inadequacies of the ghetto market and with the fact that very frequently there is a lack of correspondence between the proper price and the marked price. On regular radio pro- grams I have named stores and addresses where there are price dis- crepancies. I am reporting this morning on the basis of a careful sur- vey. That survey, as I have `already indicated, substantially indicates that those with the least amount of money to spend on consumer goods frequently are asked `to pay the highest prices. At the same time, in honesty and in deference to `the need to nail down things on a scien- tific basis, I am required by the evidence to indicate that I do not have any signs of any systematic price variations across a chainstore network. Mr. ROSENTHAL. Are the welfare checks in the city of New York all distributed on the first of the month? PAGENO="0125" 119 Dr. COSTELLO. No. They are distributed at biweekly intervals. The 15th of the month and the first of the month. Mr. ROSENTHAL. But I think you told US that when you made the check you made it only July 1, So you didn't cover the 15th period. Dr. COSTELLO. That's right. Yes. And I emphasized also that this was a single attempt to test this Statement. It indicated that further studies very definitely are needed on this, because there could be nothing more contemptible than a systematic adjustment in prices after welfare checks or regular paychecks are distributed in the neigh- borhood. Mr. REID. Or indeed a failure to mark down a can when in fact it is so advertised, would be equally contemptible. Dr. COSTELLO. That's right. Mr. ERLENBORN. Might I ask, the one check you did make does not provide evidence of a systematic attempt to raise prices at the time the checks go out. The one check couldn't possibly do that, could it? Dr. COSTELLO. It does not. Mr. ERLENROX~N. So all this does indicate to you is that further in- vestigation is necessary? Dr. COSTELLO. Well, it's disturbing to find it existed in the single case and it certainly does indicate that further investigation is needed, and while I'm talking to a group of Congressmen, I wonder if I might call to your attention that perhaps Federal legislation providing funds for systematic testing of these statements should be made to some of the larger cities. We feel we could make excellent use of a research team that would go out quietly, without fanfare, without informing merchants in advance, to test some of these things. We think for one thing, knowing about this might provide the basis for legislation and ultimately doing it would cause merchants to be- come concerned about it and perhaps stop them from doing it. I wonder, might I proceed with my prepared statement? Mr. GALLAGHER. May I ask one question before you proceed? The welfare checks go out twice a month? Dr. COSTELLO. Yes. The 15th and the 1st. Mr. GALLAGHER. What is the influx of money into the consumer market on those days? What is the amount of money that goes out on welfare checks, say on the 1st and 15th? Dr. CosTELLo. In New York City? Let me report the figure I know and check with Mr. Stern who may have a more precise figure. Our welfare buci~et on an annual basis, as I recall, it is Some $600 million. Not all of this is available of course for consumer purchases by welfare clients. Let's agree that it's a substantial sum of money and it would be having a major impact on the consumer industry, the food industry, in the city of New York~ Mr. GALLAGHER. Approximately $600 million a year? Dr. COSTELLO. That is the total budget, yes. As I recall it. Mr. GALLAGHER. Figure that one-third of that is normally-.- Dr. COSTELLO. Right. It would be $400 million perhaps that would go directly into the hands of the clients. Mr. GALLAGHER. All right. Dr. COSTELLO. Going back to the report, now, I mentioned originally, this report does not mean that pricing variations do not exist, or that they are defensible. It does mean that we found no general pattern of PAGENO="0126" 120 major chains consistently charging higher prices in ghetto areas. There is a substantial variation, ranging from 15 to 30 percent, on food prices from store to store in both rich and poor areas. The careful shopper can save substantial sums on her food bill by watching prices, comparing values, and looking for specials. The nature of our free1 economy provides for price variations, and with the limited choice available to ghetto shoppers, they are least able to benefit and most likely to suffer from these variations. Our talks with food industry people have confirmed their reluctance to make substantial investments in poverty areas. The argument has been raised that costs of doing business are higher in the ghetto. Storemen point to such costs as pilferage and theft, insurance rates, delivery difficulties, labor problems, danger of riots, low spending levels of the population and the hazards of urban renewal to justify their avoidance of ghetto sites. In fact, supermarkets have closed down and left Harlem, and other chains maintain obsolete, small units rather than expanding them. The industry feels responsible to its stockholders to invest in the most profitable markets, and more money can be made in Harrison or Hartsdale than in Harlem. My point is that business has a responsi- bility to the community, to all the people, not just to the affluent. If the people of the South Bronx cannot buy good food at fair prices, that will some day soon affect the digestion of the people of South Orange, and some day later will be felt as far as Southampton. Mr. ROSENTHAL. Mayor Lindsay is chairman of the urban coalition that is attempting to coax private enterprise and business into helping improve society. Have they concerned themselves with this problem? Dr. Cos~rELLo. They have indeed, and we have been meeting with a small delegation of progressive supermarket owners together with rep- resentatives of the meatcutters union to see if we can't obtain the credit and provide the management know-how to increase the numbez~ of supermarkets in ghetto areas. I'll talk about that a little bit later in my testimony. But our goal is to establish a larger number of super- markets employing local talent not only at the checkout counters but at the managerial counters as well, so we can meet this problem of higher food costs. Mr. ROSENTHAL. Have you gone to the big chains, A. & P., Safeway, the people that have enormous financial resources, to try and get them to cooperate? Dr. Cos~iir~i~o. We have regularly been meeting with representatives of the largest chains, as I pointed out, and have had particular appeal to the more progressive leaders of those chains who are right now attempting, in line with the New York coalition, to provide the capital to increase the number of supermarkets in our ghetto areas. Mr. REID. Have you done the same thing with cooperative food stores, co-op concept? Dr. COSTELLO. I would not want to take responsibility for either ini- tiating or doing anything directly with that. Through our radio pro- grams, we have, of course, been supporting the cooperative food buying and furniture buying effort in the city of New York. We have at- tempted to identify cooperative markets where ghetto residents might purchase food on a cooperative basis at lower costs, and indeed, pur- chase furniture on a cooperative basis at a lower cost. PAGENO="0127" 121 Mr. GALLAGHER. South Orange is just a little north of my district. Dr. COSTELLO. Thank you. No personal innuendo is meant, Congress- man. At the same time, supermarkets that build in ghetto areas, em- ploying local people in responsible positions, should receive com- munity support. They cannot charge more than their branches in other locations, but they should not be expected to charge less. They should be held to the same standards of quality in all stores, for quality is one area in which the ghetto consumer has often been shortchanged. The members of this congressional delegation indeed during the break in the hearings might want to walk through some of the very few supermarkets that exist in this area, and I'm afraid that you will not find either the environment there or the quality of merchandise pro- vided there to be equal to that which you might find in your own residential neighborhoods. It's in quality particularly that the supermarkets don't come up- supermarkets in the ghetto areas don't come up to the supermarkets in other areas of the city. Mr. REID. Is this true in staples as well as more specific items? Dr. COSTELLO. Packaged items, I would say. I think for one thing it has to do with the nature of the store itself. Spaciousness, cleanli- ness, the degree to which it's attractive to come into to shop. Quality differentials probably apply more to produce and meats than they do to packaged goods or staples. It's the quality area in which the ghetto consumer has often been shortchanged. And if pricing variations oc- cur from time to time, they should be settled promptly and fairly with cooperation between store management and local groups, with- out the need for communitywide mobilization. That is a responsibility for the stores, as well as for the antipoverty and other neighborhood organIzations. The local merchant has an important place in the economy as well as the supermarket. He provides extra services, delivery, credit, late hours, unusual foods-all items often unavailable in the supermarket. He needs help to be able to compete effectively for the consumer dol- lar at the same time as we caution him not to take too much of it. ~he examples which will be cited today of higher food prices in ghetto areas represent a situation which cries out for correction. The fact that they may be isolated cases does not absolve anyone. Crime in- volves essentially occasional acts, but it still must be suppressed when- ever it occurs. And deliberate overcharge of those least able to pay is economic crime, a variety of petty larceny which becomes grand when you multiply the number of helpless victims. At the same time, I would add some words about not burning down the barn to catch the vagrants. In general, supermarkets and other food stores are helpful institutions in the ghetto. They are far better than the rows of vacant stores that haunt some decaying urban areas. Stores provide liveliness, economic vitality and social interchange. They bring people the necessities of life, as well as luxuries they can and cannot afford. Business and commerce have helped make New York City great, and they are not enemies of the people. If stores are well behaved, they can be good neighbors. By shining the light on discriminatory pricing practices, this sub- committee and the witnesses appearing befor~ it are providing a real service. This is the first time that the Federal Oovermnenjt has taken PAGENO="0128" 122 an interest in these local conditions, and we on the urban frontier in New York welcome Washington's concern. Federal assistance may be necessary to enable business in the ghetto to serve the public at fair prices and at fair profits. We hope that your interest is not transitory, but consistent, and that it will result in a substantial improvement in the life of the people of the ghetto, who have hurt so much for so long. Thank you very much. I want to thank Congressman Rosenthal and his colleagues in Congress for appearing here in Harlem and concern- ing themselves with what is, indeed, one of the problems at the very heart of the plight of the urban resident. We very much appreciate the time that you have invested in this problem. Mr. ROSENTHAL. We thank you for appearing here today. I know I speak for all my colleagues when I say you are to be commended for all the good, enormously good work you have done in this field. 1 think the final answer is that all of us have to do a little more and do it a bit better on occasions, but this is an experiment. We are sort of going into a new field, and I think with your cooperation and the help you have given in this field, I am hopeful we can accomplish something together. Mr. REID. I would merely like to add, we certainly welcome the cre- ative leadership you and Mayor Lindsay have given us and we will try to help on our end. Dr. CosmLLo. Thank you very much. (The Wright study referred to above follows:) SUMMER PARTICIPATION IN THE PROGRAM OF THE NEw YoRK CITY Comecrr~ ox CONSUMER ArrAnis (By Canton B. Wright, professor of consumer education, Cornell University 1) When Mayor Lindsay established the council on consumer affairs on April 23, 1967, the first of the charges he gave the council was "to develop an overall plan for governmental programs for consumer education and protection." This, and other stated functions, lay out the hopes and aspirations of the city's top admin- istrator for helping the consumers of New York City (see app. A). The importance which Mayor Lindsay attached to the council is indicated by his appointment of Dr. Timothy W. Costello, deputy mayor-city administrator, as its chairman. Dr. Costello saw the opportunity, at once, to start a service to New York's consumers by instigating an informative program of reporting retail food prices by neighborhoods. This be did and the response to his efforts sug- gests that the information provided has served a genuine need. "The poor pay more" has become the battlecry of the economically deprived and the motto of many who work with them. If indeed they do pay more, the ques- tion follows (as seen on printed shopping bags in one poverty area), "Why should the poor pay more?" Herein lies the challenge-to find the facts and tO use the facts as a basis for action. WORK WITH THE COUNCIL It was a singular honor to be invited to work during the summer of 1967 with the professors in public agencies program (financed by the 20th century fund) with the council on consumer affairs. While a major responsibility was to assist in the establishment and operation of the retail food price survey (described later), this was but one aspect of the summer program. If the council and its chairman profited from my presence and participation as much as I, personally, gained from the experience, it was indeed a successful summer. The cOu~wiI The council, under the able leadership of Deputy Mayor Ti~otby ~W. Costello, represents a strong move toward providing assistance to the consumers of New 1Professors in public agencies program, New York City, summer, 1967. PAGENO="0129" 123 York Oity. Its very existence evidences interest on tI~e nart of city administration in the welfare of the consu~xier. It also provides an ei~tity to which consumers can go with their problems and complaints. The work of the council seems to divide into three logical aspects: (1) projects or activities the council, per se, can ipstigate and carry out; (2) coordination of the consumer programs or functions of the various city departments and agencies; and (3) assignment to particular city agencies certain activities, programs, or studies as they arise. To these a fourth dimension ~bould ~e added-that of becoming aware of nonpublic consumer programs and g~viug eateourgg~merit and support to worthy efforts. The program of the council, as it takes shape, has two functions-coi~sumer protection and consumer education. While efforts are Jeiag exerted to~stard the iatter-the information handbook, the price survey, the daily and weekly radio programs of th.e chairman, are examples---cxtuch emphasis is beiug placed on pro- tection. And so it should. From an educator's point of view, however, the best form of protection is education-on a longer range basis. One of the important steps being taken along this line is the consumer education course being de- veloped by the board of education through the council tor introduction on a limited basis in six schools this fall. It should be expanded to include students beyond those in distributive education and to other schools In addition to the six. In fact, introduction of consumer economic content into existing courses and cur- riculums, from the elementary school on up, would be of the most beneficial and lasting influence. Protection by legislation is good, as evidenced by such things as meat inspec- tion, product labeling, and other controls of a similar nature. Truth in packaging and truth in lending are certainly essential and should have the support of the counciL Perhaps as important is the implementation and enforcement of existing laws and regulations. One example is that of regulation 49 requiring prices to be posted on goods sold in retail stores. This regulation Is not enforced and often, as the food price survey illustrated many time, the consumer does not know what he pays for what he buys and is not able to compare prices between stores and among commodities. It would (be helpful for the council to encourage its constitu- ent departments to look into exis'ting regulations and methods to enforcing them, as well as to look to new legislation. As the council moves forward with its work it would seem to be increasingly important that specific assignments be given to specific individuals or departments to carry out. This, then, would be supported by subcommittees and, in some cases, lay advisory groups. While this is currently being done to some extent, it should be followed with consistency and vigor. The effectiveness of the council depends on its membership. My observation is that the members of the council, as well as the staff members who carry out their program, are talented and dedicated public servants, (See app. B.) It has been a pleasure knowing many of the~n personally and especially satisfying being associated with them profpssionally. My ~soeiat1an with Dr. Costello hi.s been particularly enjoyable, lie is a man whom I observe to be held in high regard by all-~a recognition well deserved. The staff of the council consists of representatives of the council members. These are capable persons; it has been a pleasure being associated with them in the biweekly meetings. Staff leadership is carried out by Lew~s Feldatein, assistant to Mayor Lindsay, and Henry Stern, special assistant to Deputy Mayor Costello. Working closely with them during the summer months, I have found them both to be both competent and congenial. I should also like to mention the friendly and satisf~4ug relatlqns~ip I have had with PhillIp Finkelsteln, executive assistant to Dr. Costello. While he has many other demanding duties, he has ably engineered the daily aud weekly radio programs presented over WNYC by Dr. Oo~tello. having had a small hand in them, and having appeared personally many times on the weekly show, I know how effective he has been in this activity. TIlE RETAIL FOOD PRICE sunvnv A major purpose of the retail food price survey is to provide current, timely, and pertinent information to consumers on a ne1ghborhoc~d basis to serve as a guide to them In their day-to-day food shopping. This is of vital importance since food takes the largest share of the take-home pay of any of the family living eosts-18 percent on a national average. Significantly, however, in ac- 88-532--68------9 PAGENO="0130" 124 cordance with Engle's law, the lower the income the larger the proportion that goes for food. With low-income families, this proportion may go to one-third, one-half, or even higher. This suggests the importance of careful spending to conserve the food dollar. In times when great emphasis is placed on increased wages, it may be less popular but equally significant to work at getting more for the money at hand. Two other retail food price surveys are conducted within New York City (see appendix C), but neither reports on a neighborhood basis. And low-income families, in particular, shop in their own neighborhoods. The guideline ap- proach provides valuable information to these neighborhood shoppers and can assist them in stretching their food dollars. Conducted with the assistance of some 35 Urban Corps workers, the survey covered all 58 planning districts of New York City. Usually, two or three districts were surveyed each day with 20 to 30 stores reported for each. During July well over 1,400 stores were checked; all but five of the panning districts were covered that month. Nearly as many more stores were surveyed in August, many for the second time. The results were tabulated, analyzed, and reported 5 days a week. The daily 5- minute radio program by Dr. Costello on WNYC provides the medium for early dissemination of this neighborhood information. Pew large stores in poor areas Of 1,418 stores surveyed during the first 4 weeks in July (54 districts) the ratio of large stores to smaller ones was 1 to 4. In the poorer areas the propor- tion of large stores was much smaller-in some areas 1 to 7 or 8. This suggests that those living in poor neighborhoods enjoy neither the choice of foods nor the lower prices found in larger stores. Prices were the sole basis of the survey. The reports reflected the prices shoppers found in the stores in which they shopped. They did not show the quality or condition of the foods nor the condition of the store. Nor were store services studied. Presumably, some smaller stores justify their higher prices on the basis of extra services. The fact that the small stores are there indicates a service to the neighborhood even though prices may be high. Higher prices in smaller stores Cursory observation suggests that prices are higher in small stores, regardless of area, even to the eyes of the uninformed. Survey results bear this out although there are always exceptions. By and large, the range of prices is greater among small stores but generally the low of the range is higher in small stores, as is the high of the range. Results are shown in detail in appendix D for one low-income area (Bushwick), surveyed on July 22. On the 26 grocery items surveyed, the prices averaged 7.1 percent higher in the 18 smaller stores than in the seven large ones. In another low-income area (Central Harlem), checked on August 8, the food basket of 26 food staples in eight small stores averaged 10.1 percent more than the same basket in six large stores. The average cost of the basket in 11 medIum- sized stores was slightly higher than in the eight small stores (1.1 percent) in this area. Higher prices in poor areas Overall food prices appear to be higher in poor areas bearing out the belief that the poor indeed do pay more. A comparison of the cost of a 20-item food basket in five areas on July 18 and 19 is reported in detail in appendix E. In brief, the prices were higher for the identical food basket in Astoria and Hunts Point (low-income areas) than in Sheepshead Bay, Bensonhurst or Jack- son Heights. In Astoria (a poor area) the highest price of $9.47 was reported, compared to Jackson Heights (a middle-income area) where the same basket cost $8.97. This represents a 5~-percent differential. This same relationship was reported several times over but for some areas the results were not that clear cut. It should be pointed out, too, that the list of items was limited, though comparable. As reported earlier, there are fewer large stores in the poor areas and prices tend to be lower in large stores. Therefore, on a communitywide basis it follows that at least one reason why the poor pay more is that they buy their food in small stores. No pattern for chainstore prices by area It is generally believed that chains charge higher prices for identical com- modities in their stores in poor areas. If this is true, it did not show up in this PAGENO="0131" 125 survey. Further detailed study is needed on a large number of items to confirm pricing practices in chainstores. Such a study should seek further information as to the quality and condition of foods offered, the breadth of selection carried, and the size, condition, and orderliness' of the store, in addition to the actual prices charged. In one large chain, 94 stores were found, spread among 38 city districts, for an average of 2.5 stores per district. Eighty-two of the stores were located in 27 districts considered to be middle income or higher, or 2.7 stores per district. In contrast, 12 stores were located in seven recognized low-income districts, or 1.7 stores per district. (No stores in this chain were reported in four districts.) This bears out the obvious-fewer chain outlets in poorer districts. For this chain, although there was a modest variation in prices among the stores, there was no pattern by borough or district, or by low-income or other area, of higher or lower prices. For example, a can of nationally advertised brand of peas was priced at 27 cents in 83 stores spread over 29 districts, in- cluding such diversity as South Jamaica (Queens), Williamsburg (Brooklyn), and Hunts Point (Bronx) on the one hand, and Murray Hill (Manhattan)1 Flushing (Queens), and University Heights (Bronx) on the other. A 2-cent higher price was reported for the identical can of peas in stores in two middle-income areas in Brooklyn, while a 2~cent lower price was found in one less affluent area of the Bronx. A similar check of 39 stores of `another chain showed a greater variation in prices among individual stores, but the data revealed no pattern of higher or lower prices. A survey of 14 stores of another chain, was taken on a given day (August 28), in Manhattan. This covered stores in east, central, and west Harlem, as well as in the upper East Side, upper West Side, Washington Heights, and Murray HilL While identical prices were not found on identical items in all stores, there was no pattern of higher or lower prices in the poorer areas for the 37 items on our list. Further study suggested Special projects of a research nature, taking advantage of the existing summer survey data but requiring additional field work, would provide answers to several questkns. These, researchable by undergraduate or graduate students in marketing, economics, statistics, sociology, or other disciplines, might include the following: (a) What is the quality and condition of foods in stores In poverty areas versus nonpoverty ones? Equate with price. (b) What is the extent of stock and selection in stores in poor areas? Number and kind on hand, variety of goods, opportunity for selection, range of quality- all this compared to stores in middle-income areas. (c) What is the condition of the stores in poor areas compared to those in more affluent areas? Cleanliness, ordeliness, attractiveness, space, display, etc. (d) To what extent are "specials" offered in poorer areas? How much do they mean to consumers? Do consumers take full advantage of them? (e) To what extent do grocery stores carry nonfood items (soap, detergents, etc.) in poverty areas versus middle-income areas? What prices are charged? (1) To what extent are food ads deceptive, if they are? A careful study of ads, and practices attached to their use, would be a real service to the consumer. (g) To what extent do small stores, particularly in poor areas, provide extra services (as often claimed)? Check cashing, delivery, store hours, days open, eto. What do these stores charge for cashing welfare (or other) checks? (h) Do prices rise on welfare check days, and if so, how extensive is the practice? Might be conducted on a "complaint" basis and b3T the purchasing of food. (i) What are the pricing practices Of major food chains in the poor areas versus others. Compare statements of company offlcial~ with actual survey in the field. (j) To what extent do families In poor areas utilize delicatessens? How mush extra do they pay for this practice? (k) What is the product cost in small stores versus large? What is the extent of their markup? What are these buying practices? (~) What are the increased costs of operating in poor areas, particularly for chainstores where a comparison is possible? Compare cests of rent, insurance, protection from pilferage, and other. PAGENO="0132" 126 (m) What are the operating costs and profits of chainstores in poor versus other areas? APPENDIX A Cirx or Nnw Yoi~, Orrxcz OF THE MAYOR, New York, N.Y., April 23, 19~7. ExncuTiv~ Onnnn No. 41: ESTABLISHMENT OF A COUNCIL ON C0NStTMER A~Fi~Ams Whereas it is the policy of the administration to take affirmative action to pro- tect the consumer interests of the citizens of New York and Whereas the city,gorvernment is vested with important powers to safeguard con- sumer interests, and Whereas the development of a coherent and comprehensive program of con- sumer education and protection will enhance the effectiveness of various city programs now underway or contemplated, and Whereas there i's at present no coordination of the planning, development, and operation of programs for consumer protection and education, Now, therefore, by virtue of the power vested in me as mayor of the city of New York, it is hereby ordered as follows: SuCTION 1. There is established the council on consumer affairs which shall consist of the chief officer of each of the following departments and agencies of the city of New York: Community development agency, council against poverty, health services administration, law department, department of licenses, depart- ment of markets and the department of welfare. The mayor shall appoint the chairman and the secretary of the council of consumer affairs and the council shall meet at the call of the chairman. Sue. 2. The president of the board of education and the chairman of the hous- ing authority shall also be invited to be members. `Sue. 3. The Secretary to the council on consumer affairs shall serve as the staff to the counciL Subject to applicable provisions of law, the council may retain consultants. Sue. 4. The council shall have the following functions, powers and `duties: (a) To develop an overall plan for governmental programs for consumer education `and `protection. (li) To~facil1tate the exchange of information between agencies and groups working in this area. (c) To review and evaluate the effectiveness of existing programs of con- sumer protection and education subject to the jurisdiction of the mayor in New York City. (d) To mhke recommendations for the improved coordination of existing programs, and for the establishment `of ne~ programs. (e) To 4evelop an inventory of city, State, Federal and private resources availablefor consumer protection and education programs. (f) To consult `with State `and Federal official's, commercial interests and other Institutions and persons with respect to consumer protection and education programs. (g) To determine legislative priorities and to develop city, State and Federal legislative programs relating to consumer protection and education in the city. (h) To convene conferences and to hold public hearings to discuss exist- ing programs and to develop new programs. Suc. 5. The `council may require such reports, analyses and statements from the agencies of the city as It may deem to be necessary for the proper performance of its dt~ties hereunder. louw V. LINDSAY, Mayor. APPENDIX B City of New York, Office of the Mayor COUNCIL ON CoNsuMun AFFAIIIS Dr. Timothy W. Costello, chairman, deputy mayor-city administrator, New York, N.Y. Dr. Howard ~1. Brown, administrator of health services, New York, N,Y. Mitchell I. Ginsberg, commissioner, Department of Welfare, New lYork, N.Y. Rev. H. Carl McCall, chairman, council against poverty. PAGENO="0133" 127 George Nicolau, commissioner, community development agency, New York, N.Y. J. Lee Rankin, corporation counsel, New York, N.Y. Norman Redlich, Esq. Mrs~ Rose Shapiro, member, boa~rd of education, Brooklyn, N.Y. Joel J. Tyler, commissioner, department of licenses, New York, N.Y. Walter B. Washington, chairman, New York City l]ousing Authority, New York, N.Y. Gerard M. Weisberg~ commissioner, department of markets, New York, N.Y. Richard W. Brevoort. Lewis M. Feldstein, assistant to the mayor, New York, N.Y. Lewis M. Feldstein, secretary, assistant to the mayor, New York, N.Y. Henry J. Stern, special assistant to the deputy mayor, New York, N.Y. APPENDIX C RETAIL FooD Pnic~ SURVEYS, Nnw YORK Cirr THREE PRICE SURVEYS Three separate retail food price surveys are being conducted within New York City, as follows: 1. Federal, by the Bureau of Labor Statistics; 2. State, by the New York State Department of Agriculture and Markets; 3. City, by the Mayor's Council on Consumer Affairs. Bach provides different information siid ~sch serves a different purpose. The city survey should complement, not duplicate, the Federal and State efforts. 1. Bureau of Labor Statistics (monthly) (a) Reports one citywide price for selected individual basic food items and shows the level of prices and the month-to-month movement on prices of individ- ual foods. (b) Since many cities across the Nation are similarly surveyed each month, the report permits comparison of actual prices of individual food items in New York City with those in Chicago, Los Angeles, and elsewhere. (c) Translated into the food price index, related to a base period (currently ll~57-59 average), the trend in the cost of food can be traced. The index for New York City shows the extent of change from the base period, as it does elsewhere. It also shows which food prices have gone up faster in one city than another. It Is possible to compare food price changes in New York City with those of other cities and with the average changes for the United States. (d) The index does not indicate whether food prices are higher or lower In New York City than elsewhere. (e) Neither the specific food prices nor the Index give any Information by boroughs or neighborhoods, nor does the report reflect prices by store size or location. 2. New York State Department of Markets (weekly) (a) Reports one citywide price, with a range and the "mostly" price for perishable foods. Special sale prices expected for the weekend are indleeted. (b) The report reflects the week-to-week movement of prices of individual foods, making it possible to spot Items In good supply as indicated by lower prices. (~) It does not provide a statistical series but rather guidelines to follow from week to week. (d) The prices reported are for large markets representing a large volume of trade; they do not represent prices families pay in smaller stores, predomi- nant in lower Income neighborhoods. (e) The report is based on Monday, Tuesday, and Wednesday morning prices; It is summarized Wednesday afternoon and made available to press and radio on Thursday. (f) Accompanying the prices in this report are market tips based on whole- sale market receipts and prices. This information is helpful in predicting both supplies and retail prices for days and weeks ahead. 8. Mayor's oouneil on consumer affa~irs (daily) (a) The retail food price survey of the council offers the opportunity of pro- viding neighborhood information, a function not performed by the Federal and State reports. PAGENO="0134" 128 (b) It reports on staple grocery items; most are not found in the State report. (o) It permits comparisons of prices on Uke items in large stores and those in small stores. (d) It permits direct comparison of prices on identical items in affluent, middle-income, and low-income areas. (e) It does not reveal unethical trade practices, such as charging different prices to different persons, or recording (for credit) a higher price than is either posted or stated. Nor does it reflect differences in quality of foods between areas. These are important considerations and deserve attention but they are not part of a retail price survey, per so. APPENDIX P Pnioss IN SMALL AND LABOR Sronins TN A Low-INCOME AREA, BusuwIcK DISTRICT, BROOKLYN, JULY 27, 1967 (In centsl 26items 7 large stores 18 smal -- -- -~ Range Average Range stores - Average Butter 43-45 43. 5 45-50 47. 6 Margarine Cheese 30-33 41-49 32. 0 44. 0 31-40 39-49 36. 3 44.5 Cottage cheese Flour 20-23 61-69 21. 5 65. 0 27-29 59-75 28. 0 67. 8 Canned peas Canned corn 25-27 23-27 26. 3 25. 0 25-27 25-27 26. 6 25. 4 Frozen beans 23-26 24. 7 25-29 26. 5 Frozen broccoli 29-31 30. 0 31 31. 0 Baby food, meat Baby food, vegetables Tunafish. 19-24 10-12 37-45 22.0 10.7 42.5 24-29 11-13 44-53 24.0 11.9 46.8 Corn flakes Rice 31-33 19-21 32. 1 20.7 29-39 21-25 35. 4 22.2 Sugar Coffee, canned Coffee, Instant Coca-Cola 59-69 75-83 81-99 79-90 63. 3 80.0 90. 6 86. 1 55-73 79-89 85-115 85-102 66. 8 86.9 101. 9 90.0 Beer Milk Eggs Whole chicken 115-120 25-28 49-59 29-43 116.3 26.4 54. 1 35. 0 115-125 25-29 55-69 39-49 121.6 26.8 61. 8 40. 7 Bananas 13-17 15.2 13-17 15.2 Tomatoes 39-59 45. 5 29-59 43. 3 Potatoes 35-55 47. 0 25-53 39.9 Lettuce 29-30 29.2 20-35 29.7 Total 10. 39-12. 17 11. 29 10. 61-13.31 11.99 SUMMARY 1. Prices in the 18 small stores averaged more than 7 percent higher than those in the seven large stores for the basket of 26 items included. Small stores versus large stores Pdrcent Low of range +2.1 High of range +84 Average +7.1 2. Seven items of twenty-six showed a lower price in the small stores; 15 showed a lower price in the large stores. Nineteen of the twenty-six items showed a higher price in the small stores; one was reported higher in the large stores. Three items averaged lower in price in small stores; 23 items averaged lower in price in the large stores. PAGENO="0135" 129 APPENDIX E COST OF Two-ITEM FOOD BASKET, Fivis AREAS, JULY 11 AND 19, 1967 item Jackson Heights (Queens) Bensonhurst (Brooklyn) Sheepshead Bay (Brooklyn) Hunts Point (Bronx) Astoria (Queens) (14) (48) (40) (8) (18) Margarine Cheese $0. 30 *43 $0. 35 43 $0. 32 43 $0. 32 43 $0. 35 43 Flour .63 .63 .63 .63 .67 Canned peas Frozen green beans Frozen orange juice Baby food, meat Tunafish .25 . 25 .20 . 25 .40 .27 .25 .22 . 25 .43 .27 . 25 .20 . 25 .39 .27 . 25 .23 . 25 .45 .27 . 25 .22 - 25 .43 Corn flakes Rice .33 .21 . 33 .21 . 33 .21 . 35 .21 . 32 .21 Instant coffee . 89 . 89 . 89 . 89 - 89 Coca-Cola . 89 . 89 . 89 . 89 . 89 Milk .27 . 27 - 27 . 25 - 28 Eggs Chuck steak . 55 . 59 . 55 . 59 - 59 . 59 - 59 - 59 . 59 . 59 Pork chops Chicken 1. 09 43 1. 09 43 1. 19 45 1. 19 43 1. 19 45 Tomatoes Potatoes Dried beans .39 . 39 .23 - 39 . 39 .25 - 49 - 39 . 25 - 59 . 39 - 23 . 55 . 39 . 25 Total Percentage increase 8.97 9. 11 +1. 5 9. 28 +3.4 9. 43 - 9. 47 +5 1 +5. 6 Mr. ROSENTHAL. Our next witness will be Mrs. Gladys Aponte. Mrs. Aponte, we welcome you here this morning and 1 note from your statement, you are executive director of the Consumer Action Program of Bedford-Stuyvesant, Inc. You have a printed statement, and if you like, you can proceed by reading it. STATEMENT OP MRS. GLADYS R~ APONTE, EXECUTIVE DIRECTOR OP THE CONSUMER ACTION PROGRAM OP BEDPORD.STUYVESI&NT, INC. Mrs. APONTE. Yes, sir. First of all, I would like to thank you and the other witnesses, as well as the other Congressmen here for- Mr. ROSENTHAL. Are these gentlemen with you? Mrs. APONTE. Yes, sir. Mr. ROSENTHAL. Let them all sit right here at the table. Mrs. APONTE. Will you excuse me a minute, please? I apologize because of the fact I decided to bring all this food as evidence of what I have gone through on different days. As a matter of fact, I was shopping for 2 different days, November 14 and November 16, and findings were so-I would like to use the word- Mr. ROSENTHAL. Why don't you just tell us the facts, and we will characterize it. Mrs. APONTE. I want to make it clear that I come here to testify about the consumer problems that particularly affect the low-income consumer of our "ghetto" area. I want to stress the fact that the pur~ pose of my testimony is to point out existing conditions and not to make accusations. There is a nationwide concern on consumer problems which is ex~ pressed in the Government spheres by the creation of President John- PAGENO="0136" 130 son's Committee on Consumer Affairs, different bills presented in the Congress, and the hearings that are conducted on a nationwide basis, such as this one of today. This concern is not only shared by the Government, the rich con- sumer, the middle-class consunlér; but also by the "poor" consumer. I have been a witness on how the "poor" consumer is getting alerted to their daily problems as consumers and how they, themselves, are looking for the ways and means to overcome such problems. In our Bedford-Stuyvesant community, the residents have been asking themselves ou a day-to-day basis, Why is it that they pay such high prices, particularly for food? The concern of this com- munity has been brought by many residents to our organization and to me, personally. Plans of action to analyze the reasons behind their concerns have taken place. Questions like the following are being asked by these "ghetto" residents: 1. Why is it that my money goes "down the drain" when I enter a supermarket? 2. Why is it that when the welfare checks are received I have the feeling I am paying more? 3. Why is it that some of my family and friends who have been able to move to the so-called better neighborhoods are telling me that "over there" things are cheaper? Do we have a definite answer? No. Are we looking for reasons ano answers? Yes. How? First. Community meetings were held by the different consumer block committees organized by our staff, in order to analyze and put into a frame of r~efei~nce the complaints of the residents. Second. The residents deoided to carry out a comparison shopping survey. Third. Five residents and myself conducted the comparison shop- ping surV~ey. The consumer block committee leaders employed "poor" residents of the CABS Corp.; requested these residents to submit a regular shopping list of the items, amounts, brands, and chainstores where they i~egular1y buy. Tabulation and analysis of the submitted lists was made; the outcome being a resident's typical shopping list of 20 items and five major chainstores. Plans were made to conduct the survey of these 20 ite~ns on the five different major chain~tores on November 14 and November 16. The dates ~v~%re picked in accordance with the residents' complaints of variance in price On welfare checks arrival date; namely, the 1st and 16th of the nlonth. The five major chainstores were survyed on the same dates in Fiat- bush, a middle-class-income area. The actual purchase of the items took place on November 14 in the five major chainstores in Bedford- Stuyvesant and the same 20 items were purchased on the same day in the same major chainstores in the Flatbush community. On November 16, the same five residents purchased the same 20 items on the same Bedford-Stuyvesant major chainstores as well as in the corre~ponding major ehainstores in Flatbush. It is now that we can talk about findings. For reporting purposes, we identified the major chainstores with the letters A to E. PAGENO="0137" 131 What were our findings in the Bedford-Stuyvesant and Flatbush areas on November 14? We found that: (1) A store charged $0.78 more in Bedford-Stuyvesant than in Flatbush. Mr. EIILENBORN. Is this for all 20 items? Mrs. APONTE. Yes. Mr. ERLENBORN. The total? Mrs. APONTE. Yes. (2) B store charged $0.07 more in Bedford-Stuyvesant than in Flatbush. (3) C store charged $0.21 more in Bedford~Stuyvesant than in Flatbush. (4) P store charged $0.08 more in Bedford-Stuyvesant than in Flatbush. (5) E store had no difference between the two areas, but we have to note that within this specific store, although there was no change in the total price of the shopping list, there were quite a few variances of prices among the items which counter- acted each other, bringing about a balance of zero. Mr. ROSENTHAL. Could you tell us what the total cost of some of these things were, so we get some percentage relationship to the total? Mrs. APONTE. Yes, sir. Mr. ROSENTHAL. I also think it would be useful if you identified the stores. Who is A, B, 0, and P, so the people from those stores can respond? Mrs. APONTE. Well, I decided at the specific time and because of what I would like to say later, not to identify these stores by name, but if at the end of the statement you request such, I will be willing to do it. At the A chainstore, on November 14, we paid $12.60 for the 20 items compared. On November 16-this is ou page 9-we paid $12.78. You can see the change of $0.18. B store was $10.87. On November 16, it was-e~cuse me, there ~s a mistake-on the B store we had $10.29 ai~d $10.14-this is in the C store. This is a mistake, I am sorry. This was the typewriter. Mr. BARASH. The chart on page 9 relates to the differences in prices between November 14 and November 16? Mrs. APONTE. Yes. This is why I would like, if you let me to centinue as I started, because you are asking questions I have answered already on the other pages. May I please continue? Mr. ROSENTHAL. Yes, go ahead. Mrs. APONTE. What were our findings in both areas I day later, that is November 16? We found that: (1) A store charged $1 more in Bedford-Stuyvesant than in Flatbush. (2) B store chai~ged $0.25 more in Bedford-Stuyvesant than in Flatbush. (3) 0 store charged $0.33 more in Bedford-Stuyvesant than in Flatbush. (4) D store charged $0.49 more in Bedford-Stuyvesant than in Flatbush. PAGENO="0138" 132 (5) E store charged $0.34 more in Bedford-Stuyvesant than in Flatbush. Are these facts conclusive that prices in major chainstores are higher in "ghetto" areas than in "nonghetto" areas? No and yes. No, because they do not point out a general trend and it is my meas- ured professional opinion that at least for a period of 2 months these comparison-shopping surveys have to be carried out in order to bring conclusive data to point out a possible general trend of operations of these major chainstores. Yes, because it shows clearly that there are differences. We cannot point out any immediate reasons for these changes. But it brings out the need for continued research upon these lines in order to see if the residents of the "ghetto" are discriminated on an economic and resi- dency basis. Nevertheless, Mrs. Brown, Mrs. Perez, and other residents of the Bedford-Stuyvesant area and the ones who conducted the shopping survey, Mrs. Mateo, Mrs. Fagan, Mrs. Lopez, Mrs. Livermore, Miss Soto, and myself, are questioning the fact that on those specific dates, regardless of the reasons for these differences, the fact of the matter is that we paid from $0.01 to $1 more on different and particular items. If we tabulate the changes in these 2 days, November 14 and Novem- ber 16, we can clearly see that the change increases in November 16 are higher than the change increases on November 14. Continuing on page 8, we see on A store, the change on November 14 was $0.78 and the change on November 16 was $1. Mr. ROSENTHAL. I don't understand what that means. You mean it was $0.78 higher in Bedford-Stuyvesant than Flatbush on Novem- ber14? Mrs. APONTE. That's right. In other words, A store charged $0.78 more on November 14 in Bedford-Stuyvesant than in Flatbush on the same date of November 14. Mr. ROSENTHAL. And on November 16 they charged $1 more? Mrs. APONTE. On November 16 it was $1 more. B store charged, on November 14, $0.07 more in Bedford-Stuyvesant than in Flatbush. But on November 16 it was $0.25 the change. C store charged $0.21 more on November 14 in Bedford-Stuyvesant than in Flatbii~h, and on November 16 it was $0.33. D store charged November 14 $0.08 more in Bedford-Stuyvesant than in Flatbush and $0.49 on November 16 in Bedford-Stuyvesant. E store had a change of zero, but nevertheless- Mr. ROSENTHAL. When you say "A change of zero," you mean that on November 14 the market-basket price was exactly the same in store E between Bedford-Stuyvesant and Flatbush? Mrs. APo~s~r}~. Yes, but on November 16 E store had a change of-~ increase, I would say, of $0.34. Mr. REID. On either the 14th or the 16th, had specials been ad- vertised, and were there any differences between the advertised price and the price marked on the can or the commodity? Mrs. APONTE. This is what I would like to proceed later on. I brought the articles in order to show in these hearings that we can point out even by the stamped price on the cans, that these changes occurred, Mr. REID. My question is, Did you find instances where the prices stamped on the bottle or the can was not the price advertised? PAGENO="0139" 133 Mrs. APONTE. Yes, sir. As, for example, we have here one Velveeta cheese that was purchased in one of the stores. Mr. REID. It looks like you have several, Mrs. Aponte. Mrs. APONTE. Where you have the price on one side of $1.28 and then on the other side you have $0.99. Mr. REID. What was the price you paid? Mrs. AP0Nra. $1.28. Mr. Rrn). Did you ask why- Mrs. APoWFE. Not at any specific time. Mr. R1~ID. What was the advertised price of the Velveeta that day? Mrs. APONTE. It was $1.28. Mr. REm. Advertised in the newspapers? Mrs. APONTE. We didn't look to the newspaper. As a matter of fact, we didn't make any type of presurvey for the survey. In other words, we conducted the survey as if we were a housewife that decides to buy 20 articles in one store. Mr. Rem. Thank you. Mr. GALLAGHER. Excuse me, it was marked on there $0.99, yet you paid $1.28? Mrs. APONTE. Yes. Mr. GALLAGHER. Without making an inquiry? Mrs. APONTE. Because of the fact that the price was here. Mr. GALLAGHER. Yes; but I also see on the side, $0.99. Mrs. APONTE. Yes. We didn't make any inquiries in relationship to these. We thought for the purpose of the shopping survey, it is not of our concern to `analyze with the cashier or the manager, "Why is it that you are charging $1.28 or $0.99?" It is my experience that the average housewife, especially the poor housewife, doesn't even look, because of the lack of consumer sophistication, doesn't even look to the price that is on the can. Mr. REID. On the day you purchased that for $1.28 in one store, what was the price of the Velveeta in another store? Was it $0.99? Mrs. APONTE. This is why I brought so many packages of Velveeta. This is the real difference in price you can see. In one store we had $1.23, the same November 14. In another store we had $1.19. It is the same brand. Mr. REID. The same chain? Mrs. APONTE. The same chain. Then we have $1.14, which is rather confusing. In another one we didn't have the price-in this one, this is very im- portant, you can see we have $0.89 here but behind it-as a matter of fact, I don't know why they decided to put a sticker-there is the price of $1.15 apparently. So this is what happened with the Velveeta cheese. Mr. GALLAGHER. Did anyone ask about the $0.99 figure? Wouldn't anyone ask or be interested in `the $0.99 figure being stamped? Mrs. APONTE. No; we didn't. We didn't ask. Mr. GALLAGHER. Why? Mrs. APONTE. Our purpose was not to ask for the price or why the situation was occurring. Our purpose was to demonstrate that any housewife that goes to a supermarket and `find's the situation, if she is not aware or if she doesn't look at the package, which many of us PAGENO="0140" 134 do because we are always in a hurry, you are going to be paying more regardless of the price stamped on the specific box. Mr. ROSENTHAL. Had you been doing your own personal shopping you would have fought it ~ut for the $0.99? Mrs. Aro~~. Yes, sir. Mr. ROSENTHAL. But to show this committee that there are frequent differences in prices on packages, you purchased the package at the price they wanted, to bring it along? Mrs. A~o~re. Exactly. Mr. GALLAGHER. Do you think this reflects the chain's thinking or the individual cashier's thinking? Mrs. APONTE. I don't know. I am going, as I always say, by the facts. I don't know what reasons are behind this, but the facts are here and as I said before, and I want to stress and repeat, a poor housewife or even a middle-class housewife is not- Mr. GALLAGHER. All housewives are poor. Mrs. APONTE. I don't have that opinion, sir. I know in my ghetto area-I know our housewives are very, very poor. What were the findings in relation to the residents' complaints that prices changed on welfare checks arrival date; that is; on the 1st and the 16th of the month? The foll&wing table presents the changes between November 14 and November 16 in the five major chainstores in the Eedford-Stuyire- sant area only. This is where we had a problem with the typewriter, but we have another evidence here that we can pass around which corrects the mistake. Oti "A" store, November 14, we paid $12.60 in Bedford- Stuyvesant. On November 14 in the Flatbush "A" store, we paid $11.82. The change therefore on November 14 is $0.78. Mr. GALLAGHER. Is this reflected in your chart here on page 9? Mrs. AroNm. Yes. The changes only. Mr. BARASH. The chart on page 8 relates to the differences in prices between Bedford-Stuyvesant and Flatbush on the dates November 14 and November 16. The chart on page 9 relates to the increase in prices in Bedford-Stuyvesant and in Flatbush between the dates No- vember 14 and November 16? Mrs. APONTE. Exactly. May I continue? Mr. BARASH. Please do. Mrs. APoNTE. Then as I said; in "B" store we paid on November 14, $10.32. In Flatbush we paid $10.25. In Bedford-Stuyvesant, this is "0" store, we paid $10.29. In Flat- bush November 14, $10.08. In one place we paid $8.41 and-on November 14, and on November 14 in Flatbush we paid $8.33. In "E" store we paid $10.31, same amount in Flafbush. Now, let's go to the 16th now. On November 16 in "A" store, we paid in Bedford-Stuyvesant $12.78. Then in Flatbush in the same store on the 16th we paid $11.78. "B" store we paid $10.50 in Bedford-Stuyvesant; $10.25 in Flat- bush. "C" store we paid $10.41 in Bedford-Stuyvesant and $10.08 in Flat- bu~h. PAGENO="0141" 135 "D" store we paid $8.70 in Bedford-Stuyvesant and $8.21 in Flat- bush. In "E" store we paid $10.90 in Bedford-Stuyvesant and $10.58 in Flatbush. Therefore, the change on November 1 was, in "A" store, $1; "B" store, $0.25; in "C" store $0.33; in "D" store $0.49 and "E" store $0.34. Mr. ROSENTHAL. I think it absolutely essential that you identify these stores so we have an opportunity to permit these people to respond. Mrs. APONTE. Yes, sir. I will do that. The "A" store is Key Food. The "B" store is Associated Food Stores. The "0" store is A. & P. The "D" store is Waldbaum's. The "E" store is Royal Farms. Mr. ROSENTHAL. You heard Dr. Oostello say he had a survey made and did find an instance of a price rise on welfare check date. Do you want to comment on that? Mrs. APONTIS. Well, I would like to say, Congressman, that the facts speak for themselves. Now, are we going to make conclusions on those facts? These con~ clusions, professionally speaking, I will not make because of the fact that for making that type of conclusion, to establish a pattern followed by these stores, that on the 16th of the month, when the welfare checks arrive, they purposely change the prices, I would think that we would have to conduct more surveys like the one I conducted on a monthly or weekly basis for about, let's say, 6 months. Mr. ROSENTHAL. Did the stores know you were making the survey? Mrs. APONTE. Of course not. Mr. ROSENTHAL. Once it became public knowledge that you were ing to do it every month, it probably wouldn't happen again, would it? Mrs. APONTE. I wouldn't know. My opinion has been that since this concern for the consumer problems, and since the book "The Poor Pay More," the chainstores are concerned with maintaining the prices in different areas the same, but nevertheless, I don't know why it is that still, with all the publicity, you can find, as we did with facts, variance of prices. Mr. GALLACItaR. May I say was this more than 1 day shopping spree, or was this a one-shop proposition? Mrs. APONTE,. Say that again, please? Mr. GALLAOHER. November 14 and November 16 reflects an increase in food prices after relief checks have been issued. Mrs. APoNTE. It shows that, but I don't know if this increase in prices are due to the arrival of the welfare checks on the 16th. Mr. GALLAOHm~. I am not asking that. I am asking whether this was a one-shot proposition, or had you done this previously? Mrs. Apowrj~. We did this about-we did a survey like this about 2 years ago, and at that specific time we still have the survey with us, there apparently was a change in prices. Mr. REm. To follow the same line of reasoning and get back to a point I made earlier, have you done any checking or received any re- ports with regard to special days to check whether the amounts stamped PAGENO="0142" 136 on the Velveeta or the cans correspond to what is advertised for a special? Mrs. APONPE. I have not done that survey yet. We intend to do it. Mr. REm. Have you received any reports or any indications that prices stamped have not been changed on special days? Mrs. APONTE. Oh, yes. I found that, but we have not conducted any further investigations. Mr. REm. You received reports of this, but have not confirmed them? Mrs. APoNii~. Yes. Mr. ROSENTHAL. Two or three more questions. In your experience, other than just shopping on these two days, when any one of these five stores advertise in the newspaper that Crisco or Wesson oil, or something else is on special that day, and if you go into the store and they don't have it, what do you do about it? If you go to the manager or clerk and say, "This advertised special is out," what happetis? Mrs. APONTE. Well, for example, in one case, and this was some time ago, about 6 months ago, one of my shoppers that was purchasing food with the welfare recipient found there was a sale in one of these chainstores, but there was no article, as a matter of fact, so she de- manded the article, and believe me in a half hour, she got the article. I don't know where they got it from. I think it was from the back. Mr. ROSENTHAL. Is that your experience, too? Mrs. APONTE. Yes, sir. Mr. ROSENTHAL. In other words, if they are out of an advertised special, somehow if you coir~plain, they produce it? Is that what you are telling us? Mrs. APONTE. Yes, sir. Mr. ROSENTHAL. Have you, yourself, found any difference in quality of, for example, meats or perishables, between the stores in Bedford- Stuyvesant and the stores in Flatbush? Mrs. APONTE. Well, at the present time in this specific survey we conducted, we didn't look into that specific matter. We wanted to see what the value of the dollar in Bedford-Stuyvesant was in relation- ship to the value of the dollar in Flatbush. At that specified time, we didn't look for the quality of it, just the price. Mr. ROSENTHAL. Do you have any feeling that there may be more of a problem with pilferage in some stores, as compared to others? Mrs. APONTE. No, sir. Mr. GALLAGHER. Where did the money come from to purchase these articles? Mrs. APONTE. Well, this money was given to us on a loan basis from the Comparative League to conduct the survey. The opinions expressed here are those of the author and should not be construed as representing the opinions or policy of any agency of the U.S. Government. In other words, this program of ours is called the consumer edu- cation and action program of Bedford-Stuyvesant and this is-as a matter of fact, a corporation that is called by the same name. We received a 207 demonstration grant to educate the consumer- Mr. GALLAGHER. Grant from whom? Mrs. AP0NTE. From the Office of Economic Opportunity. PAGENO="0143" 137 Mr. GALLAGHER. What amount? Mrs. APONTE. 207 demonstration. Mr. GALLAGHER. What amount? Mrs. APONTE. $200,000. And in that specific budget, no money was allocated to do comparison shopping the way we are supposed to be doing it, by buying the same articles. We requested a loan from the Comparative League in order to be able to purchase the articles. U.S. Comparative League. Mr. GALLAGHER. Who sponsors the U.S. Comparative League? Mrs. APONTE. The U.S. Comparative League is an independent organization, as far as I know. Mr. GALLAGHER. How is that funded? Mrs. APONTE. I don't know. It has to be an individual transaction. Mr. GALLAGHER. What were the other purposes of the $200,000 grant? Mrs. APONTE. Well, the $200,000 grant is for the purpose of dem- onstrating through a consumer education project that the poor in the residence areas come together with the merchants, can overcome their problems as consumers, to establish a credit union for the poor, to deal with problems of garnishees through the assistance of a lawyer for the specific residents, refer the residents to the different social services of the city like the welfare department, have them fill in applications, but basically it is to demonstrate that through an economic tool which is the credit union and through consumer education, the poorest con- sumer can get sophisticated and alerted enough as to get the best value for their dollar spent. Mr. GALLAGHER. Was anything more done to determine whether or not this was a pattern, than the purchases made on November 14 and November 16? Mrs. AYONTE. No, sir. As I said before, we can't be talking of prior- ity of a pattern taking place. I said, and I repeated clearly, that this comparison shopping tour is a tool. If we find in our purchases, or if any housewife finds in her purchases, that she can buy products at a lower price in Flatbush than in Bedford-Stuyvesant, that the owners or the managers of these stores sit down in roundtable meetings with the persons or the consumer to sit down with what are the causes of this situation, and find the ways and the means for a beneficial solu- tion to both. Mr. GALLAGHER. Did anyone go back after the 16th, say on the 17th or 18th, to see if the prices dropped again? Mrs. Arowri~. No, sir; we are going to follow up. Mr. GALLAGHER. Could this be interpreted as a normal rise, or do you think it might be specifically aimed at- Mrs. APONTE. I can't project what is going to happen. I have to go and see and then I will be able to know. Mr. GALLAGHER. That is why I was just wondering whether or not it might be reflecting a price increase generally, and therefore, if someone went back on the 17th or the 18th, it might be of interest to see whether or not the prices drop. Mrs. APONTE. It will be interesting. As a matter of fact, we are going to follow up, but we can't make any statements prior to the fact. Mr. GALLAGHER. I have no further questions. PAGENO="0144" 138 Mr. ROSENTHAL. Thank you very much. (Mrs. Aponte has furnished the comirntthe with original work- papers and cash register tapes of all surveys. Complete text of hearing statetnent appears below.) PREPARED STATEMENT OF MRS. GLADYS B. AroNris, EXECUTIVE Dim~cron, CoNsuMita ACTION PROGRAM OF BEDFORD-STUYVESANT, INC. Honorable Congressmen, I am Mrs. Gladys R. Aponte, exeeuthte director of the consumer action program of Bedford-Stuyvesant, Inc., mother, housewife and all-time consumer. It Is an honor to have been Invited to testify before this committee. I want to make it clear that I come here to testify ahont the consumer pnoblem~ that particularly `affect the low-income eon'suther of our ghetto area. I want to stress the fact that the purpose of my testimony is to point out existing ~ondltion's and not to make accusations~ There Is a nationwide concern on consumer problems which is ex~res'sed in the Government spheres by the creation of President Johnson's Committee on Consumer Affairs, different `bills preaented in the Congress, and the hearings that are conducted on a nationwide basis, `such as this one of today. This concern is not only shared by the Government, the rich consumer, the middle-class consumer, but also by the poor consumer. I have been a witness on how the poor cOnsutuer is getting alerted to their daily problems as consemers and how they, themselves, are looking for the ways and means to overcome such problem's. In our Bedford-Stuyvesant community, the res'idents have been `asking them- selves on a day-to~day basis, why is it that they pay such high prices, paiticularly for food. The concern o~ this community has been brought by thany residents to our organization and to me, personally. Plans of action to analyze the reasona behind their concerns have taken place. Questions like the following are being asked `by these ghetto residents: 1. Why is it that my money goes "down the drain" when I enter a super- market? 2. Why is it that when the welfare checks are received I `have the feeling I am paying more? 3. Why is it that `some of my family and friends who h'ave been able to move to the so-called `better neighborhoods are telling me that over there things are cheaper? Do we have a definite anSwer? No. Are we looking for reasons and answers? Yes. How? First. Community meetings were hOld by the different consumer block com- mittees organized by our `staff, in order to analyze `and put into a frame of ref- erence the complaints of the residents. Second. The reSidents decided to carry out a eo~parLson shopping survey. Third. Five residents and myself conducted the comparison shopping survey. The consumer block committee leaders, employed poor residents of the CAB'S Corp., requested these residents `to submit a regular shopping list of the items,, amounts, brands, a~nd'chtinstores where they regularly bu'y. Tabulation and anal- ysis of the submitted lists were made, the outcome being a reSidents' typical shopping list of 20 items and five major `chainstores. Plans were `made `to conduct the survey of these 20 Items on the five `different major chainstores on Novemb'er 14, and November 16. The dates were picked' in `accordance with the residents' complaints of variance in price `on welfare check's arrival's'date; namely, the 1st and the 16th of the month. The five major eh'ainstores were surveyed on the same date's in lPlatbus'h, a middle-class Income area. The `actual purchase o'f `the items took place on No- vember 14 in `the fIve major chainstores in Bedford-Stuytusant and the `same 2& items were purchased the same day in the `same major chains'tores in the Flat- bush community. On November 16, the same five resdients purchased the `same 20 items on the same Bedford-Stuyvesant major ehain'stores `as well as In ti~e `oorresponding ma- jor chain'store's in Fl'atbush. It is now that we can `talk about findings. For reporting purpoSes, w'e identified the maj'or chainsto'res with the letters "A_" to "~E." What were our findings in the Bedford-Stuyvesant and Flatbush areas on November 14? PAGENO="0145" 139 We found that: (1) "A" store charged $0.78 more in Bedford-Stuyvesant than In Flathush. (2) "B" store charged $0.07 more in Bedford-Stuyvesant than iti Flatbush. (3) "C" store charged $0.21 more In Bedford-Stu~yvesa~it than In Flathush. (4) "13" store charged $0.08 more in Bedford-Stuyvesant than in Flatbush. (5) "E" store had no difference between `the two areas; bn't we have to note that within this specific store, although there was no change in the total price of the shoj~pIng list, there -we're quite a few variances of prices among the items which counteracted each other, bringing about a balance of r~ero. What were our findings in both areas one date later, that is November 16? We found that: (1) "A" store charged $1 more in Bedford-Stuyvesant than in Flatbush. (2)'13" store charged $0.25 more in Bedford-Stuyvesant than in Flathush. (3) "C" store charged $0.33 more in Eedford-Stuyvesant than In Flat- bush. (4) "13" etore cha~ged $0.49 more in Bedford-Stuyvesant than in Flat- bush. (5) "E" store charged $0.34 `more in Bedford-Stuyvesant than In Flat- bush. Ai~e these facts conclusive that prices in major chainstores are higher in "ghet- to" areas than in non-ghetto area's? No, `and yes. No, be,cau~e they `do not point out a general trend afld it Is my measured professieaal opinion that at `least for `a period of 2 months these comparison shopping sui~veys have to be ~arried out in order to btlng conclusive "data" to point out a possible general trend of o~ei~a~tiOns of `these ntajor chain'stores. Yes, beettuse it shows clearly that there are differences. We cannot point out any immediate reasons for these changes. But it brings out the need for con- tinued research u'pon `these lines In order to see if the residents of the ghetto are discriminated on an economic and residency basis. ~teverthelè~s, Mrs. Brown, Mrs. Pet~z, an'd other resid'eTt'ts of the Bedford- Stuyvesant area, and the ones who conducted the shopping survey: Mrs. Mateo, Mrs. Fagan, Mrs. Lopez, Mrs. Livermore, Miss Soto and myself are questioning the fact that on those specific dates, rdgai~dless of the reason for thdse dif- ferences, the fact of the matter is tha't we paid from $0.01 to $0.28 more on d1fferè~t ~ pardi~iilaritem~s. If we tahuiatb tile ~hItrig~s in these 2 days (Noreniiber 14 and November 16) we can clearly see that the change increases on November 16 are higher than the change increases on Noveatber 14. TABULATION OF CHA~N0ES BETWEEN BEDFORD-STUYVESANT AND FLATBUSHI Chainstore Change on Nov. 14 Chanke on Nov. 16 A (Key Food) B (Associated Grocers) C (A. ~ P.) 0 (Waldbaum's) E (ROyal Farms) +$0. 78 +. 07 +21 +. 08 0 +$1. 00 +. 25 +33 +. 49 +. 34 1 All these increases are On Bedford-Stuyvesant. What were the findings In relation to the residents' complaints that prices changed on welfare checks arrival's date; that is, on the 1st and the 16th of the trs~nth? The following table presents the changes between November 14 `and November 16 in the five major chaiustores in the Bedford~Stuyvesant area only. CHANGES IN PRICES IN BEDFORD-STUYVESANT CHAI~S1ORES BEtWEEN NOV. 14 AND NOV. 16 Chainstore Total price Chante Nov. 14 Nov.16 A (Key Food) B (Associated G~ocets) C (A. & P.) D (Waldbaum's) E(Royal Farms) $12.60 10. 87 10. 29 8.60 10.31 $12. 78 11. 05 10.41 9. 05 10.65 +$0. 18 +. 18 +. 12 +. 45 +34 88-532-68----1O PAGENO="0146" 140 The findings were: (1) That in "A" store we paid $0.18 more on November 16 than on November 14. (2) That in "B" store we paid also $0.18 more on November 16 than on November 14. (3) That in "C" store we paid $0.12 more on November 16 than on November 14. (4) That in "D" store we paid $0.45 more on November 16 than on November 14. (5) That in "E" store we paid $0.34 more on November 16 than on November 14. What do these facts mean to the Bedford-Stuyvesant residents? What do they mean to the businesses involved? What do they mean to CABS Corp. as an interested and concerned partyt As the executive director and the delegate of the 2,000 members of the CABS ~Corp., I want to stress once and for all that "comparison shopping" is not a weapon for patronizing or discrediting any store, but rather as a tool of negotia- tion in order to achieve one of our most innovative goals, that is to bridge the ~gap between consumer and business. As a consumer action program our highest goal is to promote, develop, and preserve a healthy free enterprise system within the "ghetto" marketing conditions. Dialog has to take place.. The door is open. Let's make the best of it. Mr. ROSENTHAL. Our next witness is Mr. Stephen Press, director, MEND consumer education program. Mr. Press, if you are ready we will begin in a moment. Mrs. Aponte, I wanted to compliment you for all the good work you have done, and regardless of what one thinks of the conclusions or the outcome, any dialog is a very useful thing, and certainly a plus in making ours a more viable democracy. Mr. Press, do you want to begin, please? STATEMENT OP STEPHEN PRESS, DIRECTOR, MEND CONSUMER EDUCATION PROGRAM, NEW YORK, N.Y. Mr. PEESS. Yes. Before I get into my prepared remarks, I would like to say a few things related to what I will talk about. First of all, I am sure my program would have been able to do a far more effec- tive job if our funds would not have been cut off on the 15th of September. We were not extended by the city of New York, and since there are problems in Washington with the poverty program, we had to let most of our staff go. We did exist a while on foundation funds, and they ran out, and we are presently existing on myself, an assistant and a secretary as far as directly paid staff is concerned. The second thing I wanted to comment on is that of all the chains I will talk about, and that have been talked about here today, the A. & P. is the only chain, as far as I am concerned, that has shown ~any real interest in dealing with its own problems and has worked closely with us on the various things that we have dealt with, the various problems they have in their own chain. The third thing is, if you turn to exhibit A in the back of my testimony [the complete text of Mr. Press' remarks appears at the conclusion of his testimony] you will see that I have a copy of the Congressional Record from July 13, 1965, and marked in that copy is a little section of a letter to Mrs. Esther Peterson, and that section PAGENO="0147" 141 talks about the fact that many large chains charge higher prices in the stores than the advertised price. I just threw this in there because this is something that has been going on for many years. Mr. ROSENTHAL. We want facts, not conclusions. Do you have facts to support that? Mr. PRESS. Yes. Mr. ROSENTHAL. Why don't we get to them? Mr. Pm~ss. All right. I will get into my testimony. I might as well go right into surveys that I have done. First of all, our program started in the summer of 1966, an antipoverty pro- gram in East Harlem, and we have 10 offices which cover an area of 96th to 132d Street from the East River to Fifth Avenue. In the summer of 1966, we were concerned with only one of those areas, so we only dealt with the stores in that particular area and at that time we did surveys in two supermarkets, two major chains, actually. One, Sloan's, which has 15 stores in the Manhattan area, and the A. & P. Now, in the A. & P. we didn't find any major price discrepancies. I say "major," because we have thrown aside any time we have seen a few pennies' difference or a few items' difference, we haven't in- cluded them in our surveys. We did find in the A. & P. stores at that time a major difference in quality. We found things like moldy pies on the shelves and what we felt was inferior-quality meats. We brought this to the attention of the A. & P. and these particular things were corrected. Now, in relation to the other chain, we did a survey over a 4-week period, and in the testimony I have included the last week, which is the week we actually purchased the goods, and we held a little conference in which we invited the general man- ager of Sloan's to that conference. I would say the price discrepancies are about 15 to 20 percent. As you can see on page 2, things like, well, Libby's peaches were 39 cents on 72d Street, which is an upper income area- Mr. ROSENTHAL. Why don't you just read the list. One store is on I'Qd Street, Manhattan, and the other store is 120th Street, Manhattan; is that correct? Mr. PRESS. Right. The one on 72d Street was an upper middle or upper income area. The one on 120th Street is a low-income area. We had done other stores in the chain which showed the same type of price discrepancy, but these two are the most striking. I also have it on this chart right here. Now, the Sweet Life-I will start with the list in the testimony. Libby's peaches halves on 72d Street were 39 cents. On 120th Street, were 45 cents. Mazola, half pint of oil was 59 cents on 72d Street. Sweet Life mayonnaise was 31 cents on 72d Street and 41 cents on 120th Street. Mr. ROSENTHAL. Miracle Whip dressing was 41 cents on 72d Street and 45 cents on 120th Street. Mr. PRESS. Safeguard soap was two for 33 cents on 72d, and two for .35 cents on 120th Street. Ajax cleanser was two for 29c on 72d Street, two for 33 cents on, 120th Street. Sweet Life vinegar was 18 cents on 72d Street and 25 cents on 120th Street. Sweet Life sauerkraut was two for 31 cents on 72d Street and two for 35 cents on 120th Street. Mr. ROSENTHAL. Is Sweet Life their own brand? PAGENO="0148" 142 Mr. PRESS. Sweet Life is the lower cost line of the store. It's no1~ really their own brand, but they use it as such. In the surveys, we did find the items that were the low-cost brands were higher priced in the low-income neighborhood. In c~ther words, the items people would be more likely to buy in a'. low-income neighborhood were higher priced in the low-income neigh- borhood. Sweet Life tuna was 33 cents on 72d Street and 35 cents on 120th Street. Del Monte spinach was two for 42 cents on 72d Street, two for 45 cents on 120th Street. Gold Medal flour was 59 cents on 72d Street and 63 cents on 120th Street. Dock's minced clams was 29 cents on 72d Street and 33 cents on 120th Street. Sweet Life fruit cocktail was 25 cents on 72d Street and. 33 cents on 1~0th Street. Sweet Life orange juice was two for 35 cents on 72d Street and two for 38 cents on 120th Street. Mr. EnLE~noRN. Might I ask at this point, since every one of these items is higher on 120th Street, did you chooose only those items where this discrepancy appeared, or would there be, in some instances, items that were comparably priced at 120th Street or even lower priced? Mr. Piu~s's. There were some items that were lower priced. Very few.. And there were some items that were comparably priced. Also, many other items which were also higher priced on 120th Street that we~ did&t include in the survey where there was a penny or two difference. At the time we actually went out and purchased these goods on a particular day in both stores, and we wanted to have the most striking~ dirferences apparent. We have thrown out `surveys in relation to some chains in which we found as many items to be higher priced as lower priced, and this has happened. It's just a general inefficiency on the part of the manager to have as many prices higher and lower. This was quite apparent early in the survey. We only did about 13 items the first week. This was the first- week survey in which a number of items showed up higher, including baby food, 1 cent a can, and at that point we felt that since anybody that does have young children and babies would buy so much of this~ that it seemed to be pretty obvious there was some kind of price dis- crepancy, and we expanded our survey a little and we did it week after week until we finally essentially brought this thing to a halt by publicizing it last year. I think in this whole vein that there have been a tremendous amount of surveys run in ghetto areas, and I think the storekeepers are aware of this, and I think that they are trying more today to keep their prices in line than they were a year ago. I will also comment: I remember the Bureau of Labor Statistics doing a survey in New York a year ago `and finding that prices were the same in low- and middle-income areas, and at that time I spoke to Mr. Bienstock and he told me he asked the permission of each manager, asked him whether he could survey or not, and Sloan's was one of those stores that turned him down. It can be pretty interesting if you are going to do a survey in the storo, any store can say no and you don't do a survey. It's quite ob- vious the stores turning you down could be the stores charging the higher prices. I brought this to hi's attention last year. I really feel strongly you can't run a survey if t'he storekeepers will know you ~tre doing it. PAGENO="0149" 143 ~Mr. ROSENTHAL. What else besides this Sloan survey do you want to ~tell us about? Mr. Pm~ss. Well, in the area of the other practices that I think are going on in the city today, and more than in just the city, are the prac- tices of charging higher prices in the store than the advertisement in the newspaper. On page 4 of my testimony, you see an ad which deals with a key foodstore on 110th Street between Lexington and Third. The actual list for that week is a little longer than the list on the testimony, but essentially what we found the practice to be in a large number of stores is that these stores will advertise sales in the paper to get people to come into the ~t'ores, but the items in the stores are marked incorrectly. And this list shows what I have marked exhibits B and C in the back- Mr. ROSENTHAL. Tell us what date this was, what the items were, where they were advertised, and what the prices were. Mr. PRESS. All right. The advertisement was placed in the New York Post on October 25, 1967. The store on 110th Street between Lexington and Third had the following items marked higher in the store: Chock Full of Nuts coffee was advertised at 69 cents. It was 7~ cents in the store. Nestle's chocolate bars was three for 89 cents in the paper, but one for 39 cents in the store. Key tea bags were 75 cents in the newspaper but 93 cents in the store. Del Monte peas were two for 43 cents in the newspaper and two for 49 cents in the store. Key peaches were three for 79 cents in the newspaper and one for 31 cents in the store, Key frozen orange juice was six for 79 cents in the newspaper and six for 87 cents in the store. Key frozen asparagus was 45 cents in the newspaper, 51 cents in the store. Coney Island potatoes were 25 cents in the newspaper and 33 cents in the store. Frozen Carnation shrimp was $1.79 in the newspaper and $2.15 in the store. Eat Good wheat bread was for two for 35 cents in the newspaper and two for 39 cents in the store. Now, I have another list, exhibit C- Mr. ROSENTHAL. Is that on page 3 of your statement? Mr. PRESS. No, this is in addition to the statement. It is the third- it is marked exhibit C. It is one of the pages in the back. These are two other stores which were surveyed the same day and I might add that all of these stores were visited by the department of markets and my program, volunteers who came out, shopped for these goods on the list, actually went through the cash register and were charged higher prices on the items. At that point the department of markets issued about 50-some-odd summonses to six food stores for overcharging. Now, let me get back to the Key Food on 91st Street and Broadway which, by the way, is not a low-income area. It's a middle-income area. Key pineapple and grape drink advertised ait two for 55 cents was in the store for 29 cents. Del Monte pineapple and grape drink was 29 cents advertised and 35 cents in the store. Del Monte peas and carrots were two for 43 cents advertised and two for 45 cents in the store. Mazola oil was two for 25 cents advertised and two for 29 cents in the store. Cold-Water All was 75 cents advertised but sold for 17 cents in the store. Sunshine Rinso, 32 cents advertised, 33 cents in the store. Brace PAGENO="0150" 144 detergent advertised 33 cents, but sold for 35 cents. Key quality slice peaches, three for 79 cents advertised and two for 55 cents in the store.. Del Monte peas, two for 43 cents advertised and two for 49 cents in the store. Carnation shrimp, $1.79 advertised and $1.99 in the store.. Key margarine, two for 35 cents advertised and two for 39 cents in the store. Kraft baby Gouda, 55 cents advertised and 59 cents in the store. Key quality tea bags, 75 cents advertised and 93 cents in the store. Lux soap, two for 33 cents advertised and two for 37 cents in the store. Lifebuoy soap, two for 27 cents advertised and two for 29 cents in the store. The larger size was two for 37 cents advertised and two for 39 cents in the store. Phase 3 soap was two for 37 cents advertised and two for 39 cents in the store. Mr. ROSENTHAL. Did anybody say anything to the manager of these stores about the pricing being higher in the store than the advertised price? Mr. PRESS. Yes. Mr. ROSENTHAL. What happened then? Mr. PRESS. The manager consistently said that the cashiers know the right price, so therefore the consumer who comes into the store will end up getting the price that is advertised because the cashier, when he rings up the price, regardless of what is marked on the can-- Mr. ROSENTHAL. This is what the manager says? Mr. PREss. Yes. Mr. ROSENTHAL. What is your feeling about it? Mr. PRESS. It's obvious that it's not true, because the department of markets went in there with these lists, these very same lists, and shop- pers who picked out only the items marked higher, and they went to the cash register with these items and the cashiers rang up the wrong prices. Mr. REID. Mr. Press, if I might, did you then ask the manager whether he brought a crew in, we will say on Wednesday night, if the special was Thursday, Friday, and Saturday, to change all of the stamped prices on the items that were advertised for a lower figure on the succeediiig days? Mr. PRESS. We haven't really spoken at all to Key Food. Key Food is the particular chain involved here. We have spoken to the local managers. Mr. REID. For example, in Westchester it's frequently the case where this is done that a whole crew will come in WedDesday night,. will take all of the cans off the shelves that will be a special, and then mark down the prices that night for the 3 days, say, that they are advertised and then, if they are going back up to a regular price for the 3 days in the beginning of the week, they will bring another crew in Sunday night and rechange them so in this case there is no question whatsoever. Mr. ROSENTHAL. The store takes responsibility to make sure the cans are properly labeled consistent with the advertised price. Mr. PRESS. There is no doubt about it that this is what we want. The same thing came up with A. & P. chain last summer and that is what they have done. We have checked them ever since, and the prices are correct. They are giving the same prices as they advertise. PAGENO="0151" 145 Many other chains seem to be a little more recalcitrant in doing the things they should be doing, which is-I have personally spoken to managers of these same stores, and they, up to this point, they have steadily argued that their cashiers know the prices and therefore they don't have to change the prices. Mr. ROSENTHAL. So they make no attempt to change the prices? Mr. PRESS. That is right. They made some attempt on some of the lead items and you must realize they put in very large ads in the news- paper so they take their lead items and change the prices on those, but the rest of the ad which is the bulk of the ad, they don't change the prices on. In a middle-income area, a middle-income housewife many times will go into the store with an ad in her hand and argue with the cashier and say, this is the way the price should be and in that particular case,. in a middle-income area, she wjll get the right price, but in the low- income areas I feel that many of the store managers take advantage of the fact that people don't shop as alertly as they do in other areas, and they don't come into the stores with the ads in their hands. Mr. ROSENTHAL. Did you meet a situation where advertised items were physically unavailable in the store? What happens when the housewife asks for one of those items they claim to be out of? Mr. PRESS. We have run into many situations like that. With Key, it has been a matter of them really charging higher prices. Several items have not been available. They will promise they will be in later. They don't offer any rainchecks. With the A. & P., and we brought that to the attention of the A. & P. management, there have been a large number of items in the East Harlem stores which have not been available and many of these items are never going to be available, so the raincheck policy just doesn't work in that particular case. Mr. ROSENTHAL. This raincheck policy, do they have signs? Mr. Pm~ss. They have signs in the A. & P. stores that they have a raincheck policy, and that any item that isn't available that is on sale can be picked up at a later time at the same price. The problem is that these items-up to this point, these items would never be available. I say "up to this point" because I understand that the A. & P. has done quite a bit in the East Harlem area to make sure that all the items that it advertises are available in the stores. This has been a late thing. This is over the last month or so. I have in my testimony, and also as exhibit D, a list of items- Mr. ROSENTHAL. What is the list on page 3? What is that all about? Mr. Pm~ss. That is the same-the page 3 list is essentially the same as one of the lists on exhibit D. The page 3 list is a list in one particu- lar A. & P. store in East Harlem of goods that were advertised in the newspaper on September 27, 1967. Mr. ROSENTHAL. What newspaper? Mr. Pm~ss. They were advertised in the Daily News and the New York Post. By the way, I brought along copies of the newspapers. Mr. BARASH. Can we have them for our files? Mr. Piu~ss. Yes. Mr. ROSENTHAL. Without objection, they will be included in the committee's files. Mr. PRESS. The list of the store at 119th Street and Third Avenue is 16 items long, and many are everyday household items. There is soap PAGENO="0152" 146 on there, cheese, meat. Also, in exhibit D there are two other stores we visited the same day on 106th Street and Third Avenue and 110th and Third Avenue. Mr. ROSENTHAL. Let me understand you. On September 27, 1967, you went into the A. & P. store at 119th Street and Third Avenue and these 16 items that are listed here were advertised and weren't available? Mr. PRESS. That is right. Mr. ROSENTHAL. Did anyone ask the manager if and when they could obtain these items? Mr. PRESS. They did. Mr. ROSENTHAL. What happened? Mr. Piu~ss. They were told they just weren't going to have them, because they didn't have-for some of the things they didn't have ~enough sufficient freezer space or floorspace to hold these items. Mr. ROSENTHAL. Do you have any notion as to the time of day these items were requested? Mr. PRESS. We visited twice, Wednesday afternoon and Friday, be- cause we wanted to find out if by the end of the week some of these items would be available. Mr. ROSENTHAL. Do any of the stores you visited have ramcheck signs? Mr. Pm~ss. Yes. Au the A. & P. stores we visited have these rain- check signs. Mr. ROSENTHAL. Do any other stores? Mr. PRESS. No. Most don't. Mr. ROSENTHAL. So, notwithstanding what you say about A. & P. having the sign, they don't deliver on the raincheck? Mr. PRESS. They can't, because up to now they have had an in- ability to hold as many products as they advertise in some of these stores. I heard a comment before- Mr. ROSENTHAL. That is their problem. Maybe they shouldn't ad- vertise products they can't sell. Mr. PRESS. I have discussed the fact that possibly they should change their advertisements to indicate that not all the items that they advertise are available, will be available in their stores in the New York metropolitan area. I think that might cover- Mr. ROSENTHAL. What did they tell you? Mr. Pimss. I understood that they have been discussing this. I don't know what their final decision is. Mr. ROSENTHAL. Maybe we will find out momentarily. Mr. Pm~ss. There was a comment made before in relation to the overhead of the ghetto stores being much higher. I know there have * been many comments made on it. I have my own point of view o~i it, * and I think it's a fairly decent point of view. Many of the stores in the ghetto areas, particularly the A. & P. chain, but in other chains also, have been there an awful long time. They are run down. They have insufficient help, too much part-time help. The stores aren't painted. They are not renovated. I would say from looking at them that their overhead is not as high as it should be. I think they have been losing a lot of money in these areas because they refuse to realize that the poor person can be just as good a customer as the middle-income person if he is treated the right way. PAGENO="0153" 147 Many of these stores have been losing business to other, more en- ergetic chains that move into these Harlem communities. The b~ic problems arise when you don't have another chain. There is an ~)rea in East Harlem where new projects were put up which extend from about 120th to 125th Street from the East River through about thre~ city blocks wide in which there is not one supermarket, and the Only supermarket, really, between 116th and 125th Street in that area is this Sloan supermarket that we surveyed. Mr. ROSENTHAL. Does Sloan's have a physical monopoly of their immediate community? Mr. PRESS. Well, they happen to be the only major supermarket- the only chain supermarket between 116th and 125th Street between the river and Third Avenue, which is a rather large area. Many of the people go out of this area to shop. In fact, it's been our experience that many of the shoppers in our area who really looked for their bargains don't shop in East Harlem. They go elsewhere. The ladies that did the comparison price surveys last year, when they did their surveys outside of the East Harlem area, also did a lot of shopping when they were at the Sloan's or A. & P. downtown, and I think this is a fact that these supermarket chains have to reckon with. They just have to start providing the same kind of quality and service and prices in the ghetto areas that they provide elsewhere. Otherwise, they will continue to run a poor operation. Their overhead will be higher because their intake will be low. They are just not drawing a lot of shoppers they should be draw- ing into their stores. I don't know if I have too mucI~. more to say oh the subject. One more thing: I have added a survey from November 15 which wasn't in the original testimony, which I added- Mr. ROSENTHAL. November 15, 1967? Mr. Prn~iss. That is right. Mr. ROSENTHAL. You mean a couple days ago? Mr. PRESS. Well, last week. It is exhibit B. We did this because we wanted to see what the reaction of the store would be to the visit of the department of markets. This particular store received a fine of $280 for- Mr. ROSENTHAL. What store? Mr. PRESS. 110th Street betwe~en Le~dngton and Third. Exhibit B. Mr. ROSENTHAL. Is it an A. & P. store? Mr. Pni~ss. No. This is a Key foodstore. Again on advertised prices.. This is a store that received $28~J, as I said, in fines from the depart- ment of markets. We went back last week to find out if they had changed their practices and that exhibit, exhibit B, will show you-- Mr. ROSENTHAL. Exhibit D; isn't it? Mr. Pm~ss. Exhibit B. The adverti~ement of November 15, 1967. That particular list of prices will show you that not much has changed from the previous time. I would also like to say that we did survey them this week, and this week we found the stor~'s prices to be per- fect. I wonder if there is any coincidence with this hearing and theY fact that the prices were the same. Mr. ROSENTHAL. In other words, this Key foodstore, 110th St~eet and Lexington Avenue, after the department of markets had been there and after you had been there, on November 15, they advertised PAGENO="0154" 148 the 12 or 14 items listed here, and the price marked was considerably higher? Mr. PRESS. Right. As I said, I am not sure if you caught it, we went back this week. ~We surveyed on Wednesday because we were interested, also, in bring- ing you a shopping basket, but when we surveyed on Wednesday we found the prices were all fine. Wednesday of this week. Mr. ROSENTHAL. How do you figure your November 15 findings? Mr. PRESS. Well, this has been going on regularly. The only way 1 can figure-the only change has been that this week the prices are right and the only reason I can see for the prices being right this week is that Key food finally decided to do exactly what the Congress- man suggested before and hire extra people to change prices when they have a sale, because I was in the store and I spoke to a couple of people who told me they weren't regular employees and they were busy changing prices and I imagine that they decided to start chang- ing prices in accordance with their advertisement. It's the only thing I can see in this particular situation. I would also like to say in the earlier surveys where we found prices higher in the ghetto areas than in the upper-income areas, we spoke to the general manager of the firm involved, and he told us that his prices were the same in both areas and that we should come up and look at his books, because the books would indicate the prices were the same and I suggested that I didn't have to look at his books, be- cause the prices in the store were different, and it seems to me that they were a better qualification of what his prices really were than his books. Actually, I could say that I don't think the management of these stores are purposefully carrying out these kinds of practices, the upper management, but I would say that they need to spend more time in making sure that the managers on the lower level are not doing just what I talk about here today. Mr. REID. To just ask one final question, if I understand correctly from your testimony: You certainly found instances where they have not marked certain items or not marked down certain items consistent with advertising? Mr. Pm~ss. Right. Mr. REm. In your earlier shopping sample in 1966 you found one chain in which there was no great difference between a store in one area versus one in the inner city or ghetto area, whereas another chainstore did show considerable difference of about 15 percent. Is it your im- pression now that there are some chains where there are significant disparities, compared with your 1966 concern? Mr. PRESS. I have to say, and again we only deal with the chains in our area, so we are a little limited in that sense-I would have to say that there does not seem to be any evidence of significant disparities in price. We found some, but nothing worth while talking about, in the East Harlem area. But again we have kept up a steady stream of pressure on the stores on this type of thing, and they know they are being surveyed. They don't know whether they are being surveyed, but they know occasionally they are being surveyed. I think this type of situation for PAGENO="0155" 149 them is one where they have to be on guard, and they have been on guard. I am afraid-I was afraid last year when the publicity died that the stores would go back to their former practices. Mr. REID. You found no great change on factory paydays or welfare check days? Mr. Pu~ass. We haven't really done surveys in that area. I have been familiar with some in the past, and I would say it's a very sophisticated way of raising prices. Mr. REID. But in the main, what we are talking about is deceptive practices in terms of not marking down certain items as advertised? Mr. Piuiss. Yes. This year, this is what our main thrust in our pro- gram has been to. Mr. REID. Thank you. Mr. ROSENTHAL. Mr. Gallagher? Mr. GALLAGHER. No questions. Mr. ERLENBORN. I would just ask, since you checked Wednesday of this week and found the prices had been marked in accordance with the advertising, do you think it's quite fitting that the next day we celebrated Thanksgiving? Mr. PRESS. I guess so. Mr. ROSENTHAL. Thank you very much. You, too, are to be com- mended. Our next witness will be Mr. William `STitulli of the A. & P. (The complete text of Mr. Press' prepared statement appears below:) PREPARED STATEMENT OF STEPHEN PREss, DIRECTOR, MEND CONSUMER EDUCATION PROGRAM, NEw YORK, N.Y. If there have been any voices raised in support of increased consumer protec- tion, the consumer education program of MEND would like to join the chorus. MEND (Massive Economic Neighborhood Development, Inc.) is an antipoverty agency operating in East Harlem. Its consumer education program, of which I am Director, is trying to make the poor consumer alert to the problems he faces, as well as to provide him with the practical and technical know-how to cope with these problems and the deceptive methods with which East Harlem residents are confronted. In educating our consumers we have had to make them aware of tne pitfalls of dealing with storekeepers who seek to take advantage of their weak- nesses. TJtilizing community people as comparison shoppers, MEND's consumer pro- gram has run a series of surveys which have clearly pointed out many irregu- larities in the treatment of low-income consumers by major food chains. In 1~GG we surveyed prices of two major chains in East Harlem to see whether their prices were higher in East Harlem stores (a low-income area) then in their stores in higher income areas. In one of these chains, the A. & P. we could find no significant difference in prices in comparison with the A. & P. store on East 64th Street, for example. We found, however, lower quality meats, moldy pies and cakes and abominable conditions in the stores servicing low-income clientele. The aisles of the East Harlem stores were cluttered, the stores were dirty and needed paint, and the help was not as plentiful. In another chainstore, Sloans, we found a large disparity in prices between the stores in East Harlem and those on 05th, 72d, and 78th Streets (Middle- and upper-income areas). Our findings, based on a 4-week-long survey of about 50 items, seemed to indicate that it would cost the low-income consumer of East Harlem almost 15 percent more to shop on 116th or 120th streets rather than in the stores first mentioned. From our survey of August 11, 1966, here are some of the price discrepancies. PAGENO="0156" 150 S LOANS Product 72d St. 120th St. Libbys peach halves Mazola (Vi pint) oil Sweet Life (1 pint) mayonnaise Wish Bone dressing (8 ounces) Miracle Whip (1 pint) Safeguard soap Ajax cleanser Sweet Life (1 quart) vinegar Sweet Life sauerkraut (14 ounces) Sweet Life tuna (63/i ounces) Del Monte spinaCh (15 ounc~) Gold Medal flour Doxsee minced clams Sweet Life fruit cocktail Sweet Life orange juice (1 pint, 2 ounces) 39 cents 59 centr 31 cents 35 cents 41 cents 2 for 33 cents 2 for 29 cents 18 cents 2 for 31 cents 33 cents 2 for 42 cents 59 cents 29 cents 25 cents 2 for 35 cents 45 cents. 65 cents 41 cents. 39 centS. 45 cents. 2 for 35 cents. 2 for 33 cents. 25 cents. 2 for 35 cents. 35 cents. 2 for 45 cents. 63 cents. 33 cents. 33 cents. 2 for 38 cents. The Sweet Life products, the lower cost line of Sloans, were consistently higher priced in East Harlem. After having been told by the Sloans general manager that there were no such discrepancies and that our surVeyors were "too ignorant" to survey correctly, we called a press conference during which we displayed some 15 items purchased that same day in two of Sloansi stores; one on 120th Street the other on 72d Street. The above mentioned items were included on that list. The subsequent publicity caused Sloans to immediately lower their prices in their East Harlem stores. Their excuse was that the price discrepancies were caused by human error not by choice. We have no present evidence that theSe price disparities have continued. In another food survey our program attempted to determine whether chain- stores were selling items at a higher price than advertised. It was here that we found a great deal of fault with the A. & P. chain. In the three A. & P. stores in East Harlem that we surveyed we found at least 20 items in each store that were either higher priced than advertised or unavailable altogether. Some items were even listed as being on sale in the window but were marked at a higher price in the store. When we brought this practice to the attention of the local area manager of the A. & P. and threatened action, he took immediate actiofl to rectify this practice in East Harlem. However, we know this practice has continued in many other areas of the city and even in other chains in East Harlem. It was this `belief which led `us to extend our surveys into the operations of other chains in 1967. Our surveys clearly showed that many supermarkets in and out of ghetto areas share practices harmful to the consumer. These practices include advertising products for sale in local newspapers which products are not available for sale in the stores. Also, advertising products for sale at one price and selling them at a higher price. An example of the first practice can be seen from a `list of items which were advertised as being on sale in the New York Daily News on Wednesday, Septem- ber 27, 1967, but which were not available in the A. & P. store on 119th Street and Third Avenue that week. 1. Band AItIS, Johal9k~k1 & Johusoti 79 centa 2. Bagels, plain or onion, 11 ounces 2 for 49 cents. 3. Schrrtfflis ~1iic~keñ ox' Beef, 13% ouncesi 75 cents. 4. Sliced Beef (Banquet) 5 ounceS 29 cents. 5. Mealtime Maid ~eef Otihe Steak, 1 poUnd 85 cents. 6. Welch's Grape Juice, 6 ounces 2 for 43 cents. 7. Golden Cake, 12 ounces 49 cents. 8. Cracker Barrel Cheese: Mellow 49 cents. Sharp 55 cents. 9. Cream cheese, Temptee, 802 39 cents. 10. Purex (Super Bleach 3 cents off label), % gallon 213 cents. 11. Palmolive Soap 2 for 25 cents. 12. Burry's Vanilla Scooter Pies, 14 ounces 49 cents. 13. Codfish fillets, 2/1 pound 89 cents'. 14. Halibut Steaks (frozen) 79 cents. 15. Flounder Fillet (fresh) 79 cents. 16. Jun~b'o Shrimp-_-21-25 Count Frozen $1.35 PAGENO="0157" 151 As to stores charging higher prices in the store than they advertise, I think MEND 4ias proved its point On October 2G, 19~7, we surveyed six chain food- stores both in~anil out of ghetto aveas. Here is thie e~ainp1e of the Key i~oodstore at 110th Street and Third Avenue: Product Advertised price in New York Post, Oct. 25, 1967 Price actually mgrked o~ cans and charged in store Check Full 0' Nuts coffee Nestle chocolate bars Key tea bags (100) Del Monte peas Key peaches Key frozen orange juice Key frozen asparagus Coney Island potatoes Frozen Carnation shrimp -- Eat Good white bread $0.69 3 for $0.89 $0.75 2 for $0.43 3 for $0.79 6 for $0.79 $0.45 $0.25 $1.79 2for $0.35 $0.79. 1 for $0.39. $0.93, 2 for $0.49. 1 for $0.31. 6 for $0.87. $0.51. $0.33. $2.15. 2 for $0.39. All of the six foodstores in question received summonses on that date be- cause of the fact their prices were higher than ,advertised. The summonses were handed out after the cashiers rang up the higher prices. Again it is inter- esting to note that one of the stores carrying on this practice was in a middle- income area. I bring this up to point out that practices like this are also used outside of ghetto areas against all different kinds of consumers. Can we change these sort of practices. We at MEND certainly hope so. But from our point of view ineffective laws enforced by ineffective agencies cer- tainly can't do the job. From looking at the type of protection the consumer gets in our country, you would never believe be is in the majority. It's about time we started using the phrase "~Let the seller beware instead of the buyer." EXHIBIT A [From the Congressional Record, July 13, 1965] TRuTH IN PACKAGING Mr. HART. Mr. President, much has been said by oppQnents of the truth-:in- packaging bill (5. 985) concerning the alleged lack of interest in the bill by the average consumer. Much also has been said by the opponents-all of it lauda- tory-about the intelligence of our American women. As opponents tell the story, women are much too smart to be fooled by the packaging they face in to- day's supermarket. Therefore, the argument continues, women have no interest in a bill which would correct some of those packaging practices. There is no question in my mind as to the capabilities of American women. As a matter of fact, I have contributed several thousand words of praise to the ever-swelling collection of tributes. However, bue thing has struck me. That is that all of the defenders of the "too-smart-to-be-fooled" American women are American men. Women them- selves have another story to tell. Recently, Special Assistant to the President for Consumer Affairs I3~sther Peterson-a very intelligent woman who strongly supports the truth-in-packaging bill-exchanged letters with another of our intelligent American women who also strongly supports-and wants-the bill. Mrs. Peterson thought the ex- ehange so typical-as do I-that she wanted to share the letters with the Members of Congress. Mr. President, I ask unanimous consent that the correspondence of Mrs. &ephen Press, of New York City, with Mrs. Peterson be printed in the Record. There being no objection, the correspondence was ordered to be printed in the Record, as follows: "Nnw Yonx, N.Y., "May 18, 1965. 4'Mrs. EsTHER PETERSON, ~`$peciaZ Assistant to the President for Cons~cmer Affairs, Eoec'utive Office of the President, WasM1ngton, D.C. "DEAR MRS. PETERSON: Thank you so much for your letter of May 10. "I would certainly have no objection to having any part or all of my letter inserted in the Congressional Record. Would it be possible for me to cfbtain a PAGENO="0158" 152 copy of the section of the Congressional Record in which it will appear or else to find out just where in the Record to look for it myself? My curiosity also prompts me to ask whether you would not recall on what television program it was that you quoted from my letter. "In my previous letter to you, I had made a statement to the effect that there' did not seem `to be any agency to which the consumer group that I had been heading could turn. Since this was a rather vagu~ statement, I would like to present to you a sampling of the problems that we discovered and seek your advice in regard to them. "We were surveying food stores, for example, to see how faithfully they' adhered to their advertisements in the newspapers. We discovered that, of the' large chains, the A. & P. stores were among the most consistent offenders, in terms of charging more than advertised or of not having the products advertised available. We collected factual proof of discrepancies between prices advertised on certain products and the prices actually charged for them, and the first place that we turned to with this information was the New York City Department of Markets. The department of markets expressed interest in the matter, but, despite our numerous and protracted efforts, we were never able to find out what, if anything, had been done in regard to the si'tuation. We turned to' the Better' Business Bureau, and this agency never inspected the matter at first hand at all; they simply talked to the executives at the A. & P., gave us the A. & P.'s version' of the story (which we already knew) and said they trusted the matter had' been explained to our satisfaction. The New York State attorney general's office and the Federal Trade Commission were of no help either. The false advertising was a fact, we had proof of it. `but no one was interes'ted. "As a second example, we determined through surveys that the price of milk in the city of New York varied fantastically in different parts of the city. At the time of the survey, the price of a half-gallon container of milk, for instance, averaged 57-58 cents in the lower and middle portions o'f Manhattan, 49 cents in upper' Manhattan and the lower Bronx, and progfessively less as one advanced further north in the Bronx; in the adjoining Borough of Queens, it averaged 45 cents. We also analyzed the prices from `the point of view of what certain specific chainstores were charging in different sections of the city. Our results showed that the prices in the chainstore branches correspond to the average prices men- tioned above. Thus, for example, the price of milk in one chain-the A. & P.-on one brand of milk-Borden's-differed according to the section of the city the' branch store was located in . . ." ~lXHIBIT B KEY FOOD, 110 ST. BETWEEN LEXINGTON AND THIRD AyES. EBased on New York Post Advertisement of Nov. 15, 1967] Item Advertised price Price marked in store' Ocean Spray cranberry sauce Diamond walnuts (pound) Motts apple sauce (25 ounces) Welch's tomato juice (1 quart) Del Monte cream style corn Key frozen broccoli Birds Eye peas SauSea shrimp cocktail Ardsley ice cream (b gallon) Ken-I Ration Wesson oil (gallon) H-O oats (16 ounces) Key paper towels (giant size) Key paper towels (2 rolls) 10 cents 45 cents 31 cents 29 cents 2 for 41 cents 2 for 43 cents 2 for 31 cents 3 for 79 cents 79 cents 2 for 33 cents $1.95 27 cents 27 cents 35 cents 2 for 29 cents.. 55 cents. 36 cents. 32 cents. 2 for 47 cents.. 2 for 47 cents.. 2 for 39 cents. 3 for 85 cents.. 85 cents. 2 for 37 cents. $2.15. 28 cents. 33 cents. 43 cents. PAGENO="0159" 153 Exin~i~ C KEY FOOD, 91 ST. AND BROADWAY (Based on New York Post advertisement of Oct. 25, 19671 Item Advertised price Price marked in store Key pineapple and grape drink 2 for 55 cents Del Monte pineapple and grape drink 29 cents Del Monte peas and carrots 2 for 43 cents Mazola oil 2 for 25 cents 29 cents. 35 cents. 2 for 45 cents. 2 for 29 cents. Coldwater All 75 cents 77 cents. Sunshine Rinso 32 cents 33 cents. Breeze detergent 33 cents Key quality sliced peaches 3 for 79 cents Del Monte peas 2 for 43 cents Carnation shrimp $1.79 Key margarine 2 for 35 cents Kraft Baby Gouda 55 cents Key quality tea bags (100) 75 cents Lox soap (2 bath bars) 2 for 33 cents Lifebuoy soap 2 for 27 cents Do 2 for 37 cents Phase Ill soap 2 for 37 cents 35 cents. 2 for 55 cents. 2 for 49 cents. $1.99. 2 for 39 cents. 59 cents. 93 cents. 2 for 37 cents. 2 for 29 cents. 2 for 39 cents. 2 for 39 cents. KEY FOOD, 106 ST. AND THIRD AVE. Eggs(Jersey) 2for75cents Cnock Full o' Nuts coffee 69 cents 49 cents. 79 cents. Key apple cider (gallon) - - 59 cents Key tea bags (IOU) 75 cents Del Monte peas 2 for 43 cents Key peaches 3 for 79 cents Key frozen asparagus 45 cents. Birds Eye broccoli (10 ounces) - 2 for 49 cents -- - Alcoa aluminum foil (25 feet) 25 cents Crisco oil (1 gallon) $2.05 Del Monte peas and carrots 2 for 43 cents Swan Liquid (22 ounces) 57 cents H-O Oats (16 ounces) 27 cents Key paper towels 2 for 35 cents 79 cents. 93 cents. 2 for 49 cents. 31 cents. 53 cents. 2 for 55 cents. 29 cents. $2.25. 2 for 45 cents. 60 cents. 29 cents. 2 for 39 cents. EXHIBIT D SURVEu OF A. & P. SUPERMARKETS Items advertised in New York Post on September 27, 1967,. that were unavail- able in the following stores: 119th ~Strect and Third Avenue 1. Band-aids, Johnson & Johnson, 70 in package. 2. Bagels, plain or onion, 11 ounces. 3. Schrafft's chicken or beef pie, 131-/2-ounce package. 4. Sliced beef with gravy, Banquet, 3-ounce package. 5. Beef cube steak, Mealtime Maid, 1-pound package. 6. Welch's grape juice, 6-ounce cans. 7. Golden cake, 12-ounce package. 8. Cracker barrel, Kraft, mellow and sharp, 10-ounce package.. 9. Cream cheese, Temptee, 8-ounce package. 10. Purex super bleach, one-half gallons. 11. Palmolive soap, regular size and gold bath size bars. 12. Burry's vanilla Scooter Pies, 14 ounces. 13. Codfish fillets, 1-pound packages. 14. Halibut steaks, frozen. 15. Flounder fillet, fresh. 16. Jumbo shrimp, frozen, 21 to 25 count. PAGENO="0160" 154 106th $treet and Third Avenue 1. Fresh prunes. 2. Bagels, plain and onion, 11-ounce packages. 3. Schrafft's chicken or beef pies, 13'/2-ounce package. 4. Sliced beef with gravy, Banquet, s-ounce package. 5. Golden cake, 12-ou~ce package. 6. Cracker barrel, Kraft, mellow and sharp, 10-ounce package. 7. Bromo-Seltzer, 314-ounce bottle. 8. Bufferin tablets, 3G-in bottle. 9. Daily dog meal, 5- and 10-pound bags. 10. Purex super bleach, one-half gallons. 11. Burrey's vanilla Scooter Pies--14 ounces. 110th f~treet and Third Avenue 1. Medallion dog food, 14l/2~ounce cans. 2. Dog meal-Daily, 5- and 10-pound bags. 3. Cracker barrel, Kraft, mellow and sharp, 10-ounce package. 4. Bagels, plain and onion, 11-ounce package. 5. Schrafft's chicken and beef pies, 13'/2-ounce package. 6. Beef cube steaks, Mealtime Maid, 1-pound package. 7. Golden cake, 12-ounce package. 8. Purex super bleach-one-half gallons. 9. Burry's vanilla Scooter Pies, 14~ounce package. Mr. ROSENTHAL. Mr. Vitulli, we welcome you here and are delighted YOU could come. If YOU want to, YOU might identify your associates who are with you. STATEMENT OP WILLIAM VITULIJ, ASSISTANT GENERAL SUPER- INTENDENT, EASTERN DIVISION, `GREAT ATLANTIC & PACIPIC `TEA CO., INC. Mr. VITULLI. My name is William Vitulli. I am assistant general superintendent of A. & P. stores located in the Bronx and Manhattan, and I am responsible for the general supervision of some 115 stores in those areas. With me here today is Louis Van Lenten, director of sales for A. & P.'s eastern division, covering the Metropolitan New York area and the New England States, which is divided into seven units, including the Brooklyn-Long Island unit and the Bronx-Man- hattan unit. With us is Penis Mclnerney, a member of the firm of Cahill, Gordon, Sonnett, Reindel & Ohl, counsel for A. & P. At the outset, I would like to say that I am happy and proud to represent my company on this occasion because I feel that A. & P. has made a real contribution to the health of this Nation by its policy of selling at prices so low that they yield only about a 1-percent return on sales. As a result of that pricing policy, and of A. & P.'s insistence on selling the best quality food available, millions of people in the poorer areas in this country are able to get better food at lower prices than they would otherwise be able to obtain. I know of no private organiza- tion, and certainly no profitmaking organization, which ha,s done a better job in helping the poor to obtain high-quality merchandise at the lowest possible prices. A. & P.'s merchandising policy is carried out in this area by Mr. Van Lenten, who is here with me today. He is responsible for setting the retail prices for all products in all of the stores in this division and has followed the practice of having completely uniform prices in all of our stores in Manhattan, Brooklyn, Bronx, Westchester, Queens, Nassau, and Suffolk, which I will call the Metropolitan New York area. These PAGENO="0161" 155 prices are `the same in the approximately 450 A. & P. stores in that area, regardless of whether the store is located in a. high?, `low- or middle- income neighborb~x4. Some variations from these uniform prices may arise in particular competItive situations, or with respect to perishable coaiunodities. Mr. ROSENTHAL. Those would all be dowr~ward a4j~istments, wouldn't, they? Mr. VITULLL Yes. They are not permitted to make any adjustment other than downward. Eowever, and I cannot em~phasi~ø, `tbis too strongly, all of those variations would be in the form of a reduction in price rather than an increase. Similarly, store managers have no au- thority over prices except to reduce them on food that might spoil if not moved promptly. In other words, they have no authority to in- crease prices. As soon as the divisional sales department makes any change in our retail prices, those changes are communicated to the store managers immediately. They are instructed as a matter of general policy to change those prices which are reduced before they proceed to mark any increases in prices. Store personnel are periodically reminded, by bulletins to the store managers, of the necessity of strictly adhering to the company's poli- cies on accurate pricing. I have samples of such bulletins here with me today. These bulletins are followed up by our store supervisors, who generally are responsible for a group of about 15 stores and who peri~ od'ically spot check prices to be sure that they are correct. Mr. REID. How often is periodically? Mr. VIT1JLI~I. Approximately once to twice a week. Mr. REID. Might I ask when you have a special item that you adver- tise on Wednesday in the papers, do you then send a crew into' the individual stores at night to `change those prices ~f there i's a decrease on those special items? What is the procedure you follow? Mr. VITULLI. No, `sir. Our procedure is to send the price changes to the sto'res in their Saturday morning mail. Mr. REID. Fo'r the following week? Mr. VITULLI. Yes, `sir, Mr. Reid. These prices that are reduced are changed on Saturday. Then, as a matter of procedure, on Monday they start to advance any prices that might have increased in retail. Mr. Ri~m. Don't you run `specials in the morning papers, say Wednesday, for Thursday, Friday~ and Saturday? Mr. VITULLI. Pertaining to meat and produce. Our grocery prices are changed on Saturday. Mr. REID. I see. The canned goods and staples? Mr. VrrcTLLI. Yes. On a rare occasion there might be a special reduc- tion on Wednesday. That is not the usual practice. The prices that you see in the ads, as far as groceries `are concerned, they are our normal regular everyday low prices. They are not just changed `for the sakc of advertising them except, as I said, under unusual circumstances where we feel we might want to' feature some items. Mr. REID. But if there is a change in one of your bulletins, a crew then on Saturday night changes these so the shopper coming in Monday' gets the new price; is that the way it wo'rks? Mr. VITULLI. Our regular store personnel change them during the course of the day. 88-~32-68-1i PAGENO="0162" 156 ~[r~ REID. Durir~g ~th~ course of the day? Mr. VrrULLI.' Yes. Mr. REID. Is that technically possible? Suppc~se yOu change all the prices of tomato juice or Velveeta cheese or ~w~hatever; could you change it all during the course of the day? Mr. Vrru1~LI. Yes. Mr. REID. Because we have received reports here of some items being advertised, without reference to a particular chain, where the ithms weren't changed on the date they allegedly `wre advertised at a lower price. Mr. VITuLLI. That is not our policy to change the prices on Wednes- day. Within the limits of the space available, we try to keep every A. & P. store completely stocked with every item and size of item that our customers might want. As a result, there are some 5,000 to 7,500 items stocked in A. & P. stores, and virtually `all of these are individ- ually price marked. Making sure that each of these thousands of items is properly `marked with the appropria'te retail price in ~each of the thousands of A. & P. stores is a monumental task. We recognize that 100-percent `accuracy is not possible because of human error, but I am happy to say that we have approximately 99.8-percent accuracy. You may wonder bow I am able to make such a statement with such confidence. The answer is that A. & P. has for decades followed a very exacting and expensive but worthwhile procedure of having audits taken of the prices in its stores. This is done not only for purposes of inventory-which are taken about three times a year in each of our stores in this area-but also by way of unannounced or surprise price audits at least twice a year. These audits are not taken by the store personnel themselves, but by a staff of field auditors who report to our unit office managers. The store managers have absolutely no jurisdic- tion over these auditors. As you know, Mr. Chairman, A. & P. received notice of this hearing only this week, and it was only Thanksgiving Eve that we received any particulars as to the matters that would be discussed. In this short time we have not been able to do all the research that we would like to. We have, however, surveyed the results of the regular and surprise audits in the Bedford-Stuyvesant area as compared with the Flatbush Bay Bridge area in Brooklyn `and of the Harlem area as compared with a like number of stores in middle- and high-income areas in New York City and Westchester. This survey shows that the average num- ber of items found erroneously priced on each audit was only about 10 items out of more than 5,000 items which are subject to these price checks, so that our percentage of error is less than one-fifth of 1 per- cent, and those errors included underpricing items as well as overpric- ing them. As the attached survey shows (see attachment to statement, p. 170) we have a very high degree of accuracy in pricing in all of our stores. Not only does A. & P. insist on strict accuracy of retail prices, but there is no reason for the store manager or anyone else to increase the prices in A. & P. stores. There is no compensation or bonus system which might possibly reward any such misconduct at A. & P. stores. I mentioned earlier that space limitations will not permit us to carry every conceivable item that any customer may want, and yet our prices are advertised in newspapers serving the metropolitan area. As a re- PAGENO="0163" 157 suit of these facts, or of unexpected demand, it sometimes happens that a customer is unable to obtain an advertised item at her local A. & P. store. When this happens, we have a well-established and well- advertised procedure known as our raincheck policy. The raincheck is simply a receipt given the customer allowing her to secure any adver- tised item at the advertised price the next time she visits her A. & P. store during the following week. We are proud of this policy and insist that all our stores prominently display signs describing it. These signs, incidentally, are in both English and Spanish, and 1 have examples of both here with me today. Mr. ROSENTHAL. For how long a period of time has it been your practice to put these signs up in stores? Mr. VITULLI. Several years, Mr. Chairman. I don~\t know exactly when we started to post this particular sign but it has been our practice for a number of years to issue rainchecks both-this is the English sign and in stores where we consider it `appropriate, we display this. This word is exactly the same. Mr. ROSENTHAL. Is it your testimony in every A. & P. store a sign. like this hangs somewhere? Mr. VITTJLLI. Over the front checkout by policy and procedure. The store is required to hang the sign in theproximity of `the front eheQk- out so every customer can see `it. These signs, incidentally, are in both English and Spanish. In addition, our newspaper ads containing sp~- cially priced items frequently contain a statement of the raincheck policy, `and I also have an example of such `ads. Here are samples. To put it very briefly, gentlemen, there is absolutely no tru'th what- ever to the allegation th'at A. & P. discriminates `against the poor in any way. Quite the contrary, we are proud of our history of over 100 years of service to the American people of all income groups. On behalf of A. & P., I want to express our appreciation for this op- portunity to state the facts concerning A. & P.'s record on this im- portant issue. Th'ank you. Mr. ROSENTHAL. Thank you very much for what I consider a very useful and enlightening statement. One thing I am interested in: Your managers are all on a straight- salary basis? Mr. VITULLI. Yes. Mr. ROSENTHAL. In other words there is no bonus or net profit ar- rangement whereby they could increase their income in any way based on the performance of the store? Mr. VITULLI. None whatsoever. Mr. ROSENTHAL. Does each store have a profitability or a net-profit picture or is there assigned to each store a profit they must turn in for their operation for a year? Mr. VITULLI. No, sir. Mr. ROSENTHAL. In other `words there is no incentive arrangement under which a manager operates? Mr. VITULLI. No, sir. Mr. ROSENTHAL. Is that true throughout the industry? Mr. VITULLI. It is unique to an A. & P. Mr. ROSENTHAL. In other words, most other chain managers do have a bonus or other arrangement. PAGENO="0164" 158 Mr. VITtTLLI. I can't speak for all, but to the best of my knowledge chains do have an incentive program of that nature. Mr. ROSENTHAL. Now, you have a book price for the many thousands of items you have. A manager is not permitted to raise prices above the book price under any condition? Mr. Vrrtrw. That is correct. Mr. ROSENTHAL. This I gather is a reprehensible act and would be punished in some fashion. Mr. VITULLI. Yes. There would be disciplinary action taken if-I can think of no reason why a manager would want to do this. How- ever, if we were to uncover such a situation, there would be some action taken. Mr. ROSENTHAL. In other words, all A. & P. stores in the metropoli- tan area, the 115 stores under your jurisdiction, are supposed to have the same price? Mr?VITULLI. Yes. Mr. ROSENTHAL. And it would be surprising to you if they didn't have the same price? Mr. Vrrur~LI. Yes. Mr. ROSENTHAL. Well now, you heard Mrs. Aponte testify as to the comparison between Bedford-Stuyvesant and Flatbush on a number of items. How do you account for her testimony? How do you explain it? Mr. MoINr~nNEY. If I may, she was speaking of the Bedford- Stuyvesant area which is not within his area. That is why we have two witnesses here. Mr. ROSENTHAL. We can change jurisdictions in midstream. Mr. VAN LENTEN. I would like to answer you as directly as I can. Mr. ROSENTHAL. Your name? Mr. VAN LENTEN. We have had very little time to investigate this. We only had a few hours actually but considering the fact that there is the human element in these things, both in the operation of our stores, as well as the purchasing of this merchandise, and from what I under- stand a list of merchandise, there could be perhaps some difference there. I think this is the answer in our case. One thing that makes me say this, I am not trying to discredit the purchaser, but the orange juice question, to the best of my knowledge, from what I have been fur- nished, we don't have Tropicana in the 1 quart and consequently it could have been a Tropicana in a half gallon, which of course would have been approximately 22 cents more. As I say, we haven't had a- Mr. ROSENTHAL. We could use a little Tropicana in this cold room to- day. [Laughter.] Mr. VAN LENTJ4N. We have our own A. & P. orange juice and that is why I say, we could have things-our men may have been inefficient in some regard and perhaps may be the same thing as far as the shopping. Mr. ROSENTHAL. I may be wrong, but doesn't inefficiency always fall hardest on the ghetto store as compared to the middle-income store? Mr. VAN LEwrI~N. No, sir. I wouldn't say that. I have no reason to believe that. Mr. ROSENTHAL. You see, Mr. Van Lenten, what distresses me and what I don't understand is that in the Flatbush store, on November 14, the market basket of 20 items was $10.08. In Flatbush on November 16, the day after welfare checks were received it was also $10.08. In the PAGENO="0165" 159 Bedford-Stuyvesant A. & P. it was $10.29 on November 14, and $10.41 on November 16. There are two problems there. One, the discrepancy between $10.29 and $10.08 on November 14; and the amazing allegation that prices in Flatbush didn't change at all be- tween the 14th and 16th while in Bedford-Stuyvesant they did change. They were higher to begin with and they changed. Mr. VAN LENTEN. As I said before, we haven't had an opportunity to investigate it. The prices have not changed and the prices in the first store mentioned are correct. The second store, as I say, we will try to find out what did happen and correct it. We feel there are errors. Mr. ERLENBORN. I think, according to the testimony, you only change your prices once a week and that is over the weekend, is that correct? Mr. VAN LENTEN. Yes, sir. Mr. ERLENBORN. So theoretically, Mr. Van Lenten, there should be no change whatsoever between November 14 and 16, that 2-day period, not including the weekend? All items in the store should be priced the same one day as the next, is that correct? Mr. VAN LENTEN. Yes. Mr. ROSENTHAL. For the record, November 15, 1967, was a Wednes- day. Pursuant to Mr. Erlenborn's colloquy, there couidn~t have been any change in an A. & P. store on Wednesday? Mr. VAN LENTEN. That is right. There shouldn't have been. Mr. ROSENTHAL. There shouldn't have `been. Let's put it that way. But these ladies found in Bedford-Stuyvesant that there was a change. Mr. VAN LENTEN. This is what we are led to believe, yes. Mr. ROSENTHAL. This policy `of maintaining the same prices, does this apply to canned goods and that sort of item only, or does it also) apply to vegetaibles, fresh meat and so forth? I am just curious. Do you change your meat prices during the week?~ Mr. VAN LENTEN. The meat prices are changed. We have an early week special and weekend special. We have it in perishables. We have~ it on produce, too. But the groceries, as Mr. Vituffi testified, the list ~ goes out Saturday morning and they start the reductions first. Then~ the advances. And these grocery items are, in most cases I can almost say every case, advertised on Wednesday so that the stores have a real leadtime and we shouldn't run into this problem. Mr. ERLENBORN. Do we have any testimony as to what these 20 items were, Mr. Chairman, and whether they included produce or meat items? Mr. ROSENTHAL. I think Mrs. Aponte is still here. Do you have your worksheet that we could put into the record to shoiw the items? Mrs. APONTE. Yes. I will send for them. They are coming. Yes. (Xerox copies of register tapes are in subcommittee flies, `the tabu- lated worksheet foiows:) PAGENO="0166" 160 COMPARISON SHOPPING A. & P-Bedford- A. & P.-Flatbush Item Brand Amount Stuyvesant Nov. 14 Nov. 16 Nov. 14 Nov. 16 Rice Carolina 2 lb $0. 41 $0. 41 $0. 41 $0. 41 Sugar Jack Frost 5 lb . 63 . 63 . 63 . 63 Orange juice Tropicana 1 qt . 31 . 37 . 31 . 31 Coffee, drip grind Maxwell 1 lb...... -- -- - . 75 . 75 . 75 . 75 Eggs Grade A, large~ I doz .47 .57 .45 .45 Tomato sauce Del Monte 8 oz . 12 . 12 . 12 . 12 Butter Hotel Bar 1 lb . 87 . 87 . 87 . 87 Tomato soup Campbell's 1O3,~ oz . 10 . 13 . 13 . 13 Bologna Oscar Mayer 8 oz . 49 .49 . 49 . 49 Salt Red Cross 1 lb. 10 oz_ . 10 . 10 . 10 . 10 Cheese Velveeta 2 lb 1. 23 1. 23 1. 23 1. 23 Frankfurters Armour 1 lb .79 .79 .79 .79 Fruit cocktail Del Monte 1 lb. 14 oz. - . 45 . 45 , 45 . 45 Flour Gold Medal 2 lb . 33 . 33 . 33 .3~ Milk, evaporated Pet 13 oz . 18 . 18 . 18 . 18 Cooking oil Wesson 1 qt. 6 oz~_ . 75 . 75 . 75 . 75 Potatoes Idaho 5 lb .55 .55 .57 .57 Bacon Swift Premium...... 1 lb 1.06 1.06 .89 .89 Canned corn, (whole kernel) Green Giant 12 oz . 25 . 25 . 25 . 25 Canned whole tomatoes Progresso 2 lb 3 oz - .45 .38 . 38 .38 Total 10.29 10.41 10.08 10.08 Mr. MOINIO1iNEY. We have received some information as to what went into that market basket in A. & P. stores, and among other things, listed Tropicana orange juice in the one-quart size, which as you just heard, they don't sell. We also~- Mr. ROSENTHAL. To add to the informality of the hearing we have a lady that seems to be all excited back there. VOICE. Please, we want to hear what they are saying, but it is im- possible to hear. Mr. ROSENTHAL. Why don't you move up closer. VOICE. Can they speak on the microphones ~ Mr. ROSENTHAL. Our fault. We have no heat and the microphones are about as good as the heat. My first suggestion is, why not move up here. VoICE. They all feel the same way. Not just me. Mr. ROSENTHAL. The reason for that is I am facing this way and counsel is facing me. We will do our best to use the microphone. Mr. MOINERNEY. This one doesn't seem to work very well, but we will do our best. Mr. ROSENTHAL. Use mine. Mr. VAN LENTEN. I mentioned the Tropicana orange juice in quarts. There is also the Progresso tomatoes; That comes in the same site can with and without puree. Perhaps it could have been an error there. Also on eggs. We have two `brands of both grade A eggs. One is mixed colors, brown and white, and the other is white. There is a difference in the price. There could have been errors on the shopping. I am not discrediting it. I am not saying it happened, but without positive items, it would be difficult to justify. Mr. ROSENTHAL. Do you have that list handy? Mrs. APONTE. Yes. Here it is. Mr. ROSENTHAL. Why don't you show it to this gentleman right here? Mr. MCINERNEY. It's difficult to tell from these graphs for instance, what brand of egg and what size and quality. PAGENO="0167" 161 Mr. ROSENTHAL. I have an idea. We might adjourn now until 1:30 and if you had an hour's time to look this over, do you think you could be precise in responding to the charge? Mr. VAN LENTEN. I think we can probably identify it as being items which perhaps we carry hut as far as investigating it all the way through, we wouldn't have time to make- Mr ROSENTHAL In an investigation all the way through you will never come up with anything because you can't have a~yone say what the price on a can was that day But what you can do is if she has some products there that you don't carry, you could say that pretty quickly Mr. MOINERNEY. We should be able to. I believe we have the basket here. Do we have the basket you bought? Mrs. APONTE. Not specifically the whole basket of A. & P. but if you look at the picture and the slips, you will have to relate to the A. & P. slip that we got with the amount, total amount and the pictures that we *took of the food because we couldn't carry your specific basket here. Mr. ROSENTHAL. We will have an example of massive cooperation. She will work with you. You stay here and work with them for an hour and- Mr. ERLENBORN. No. lunch? Mr. ROSENTHAL. Yes, that is right. Mr. GALLAGHER. You can eat the Velveeta cheese. [Laughter.] Mr. ROSENTHAL. We will be back at-Mr. Reid has a question. Mr. REID. Mr. Vitulli, I would like to just pursue one question a little further because we received reports, some of them fairly recent, not necessarily with respect to a particular practice that seems to occur, and that is where a store or a chain advertises certain staples at a lower price on certain days, that some stores do not mark these items down on the day in question. You said that most of your changes occur on Saturday, if I under- stand you. My question is this: Do you have the administrative sys- tem to be sure that all of your stores, and I think we are talking about 115 in the Bronx and Manhattan, actually do change the prices that are stamped, the actual label, on the commodity in the day in question where you have advertised A. & P. changes? Have you got the means of being sure those changes in prices are in fact on the items to be sold? I am not talking about this being done deliberately in any sense, but just the failure of an individual store to do it. Mr. VITULLI. The system we use in our stores, and this is required by policy and it is up to my supervisory staff to see it. is followed and I observe it has been followed, is to take the price change list with them on Saturday. This list shows the items that are being reduced and the new retail. Mr. REID. How many items would that be Mr. Vitulli? Mr. VITULLI. It could vary anywhere from 40 to 60 items that are being reduced. Mr. REID. And you would advertise those items on what day? Mr. VITUIJLI. Oh. I would like to clarify a point at this time. The items that are reduced on Saturday are not reduced for the purpose of being advertised We have a constant price structure where the grocery item~ are concerned and these we feel are the lowest and the fairest prices in the metropolitan area. Mr. REID. But do you advertise some specials? PAGENO="0168" 162 Mr. VITULLI. As a general practice, on groceries, no, sir. Mr. REID. Don't you have some specials that you cMry on certain days that are reduced? Mr VrrULI~I sow, are you referrrng to the general practice in the entire store? On meat items, on ~We4nesday, we are ~speaking of meat now~ we will take specific items and reduce those items. Those items invariably will be found in the case on Wednesday morning correctly piriced l3ecause the meat department takes necessary prep- ara,tions-this is a primary function of the department Our pro~ chico departments are set up practically on a day to day basis, with fresh merchandise and those prices are checked by the produce de- partment head who has a program responsibility- Mr. REm. Aren't there certain days where there is produce or staples, whether rice or flour or sugar or eggs or whatever it may be,. on certain days., prices are lower than they might be the following week and that item, for 2 or 3 days, is a special item. Don't you advertise special items? Mr. VITULLI. Yes, we do. Mr. REm. Now, my question then is not what is in the~ Saturday hst, but what you do on the special items and how you change the price on.thespeciais. Mr. VITULLI. The produce department receives their meat and pro- duce price list in .Saturday~s mail for the prices that will be in effect the following Monday and Tuesday. Now, being that these items are perishable, they are not set up too far in advance. It is a matter of pricing them as you produce them for.di~pla.y asopiposed to- Mr. RIcID. What about the item that is a canned goods or cheese that is not perishable in the same sense, where you have a special on those? When do you re-mark those?. Mr. Vi~uu~i. Saturday. Mr. REID. And they are advertised when? in which paper? Mon~ day and Tuesday papers? Mr. `VITULLI. Perhaps Monday and Tuesday or Wednesday. Mr. REID. So in this ease, it might be a cheese item that would be a special on Monday, Tuesday, and Wednesday. Mr. VITULLI. Yes. Mr. REID.. Is that correct? Mr. VITULLI. Yes. Mr. REm. And it would be changed on a Saturday? Mr. VITtrI4u. Yes. Mr. ROSENThAL. That is your busiest day of the week. Mr. VITULLI. Regardless, it is necessary to change these prices and if you go into any A. & P. supermarket on a Saturday, you will ~ee a young man with a set of price stamps and a list and a piece of steel wool to remove the old price going up and down the aisles making these changes. lOhortis of noes.] Mr. VITULLI. This young man takes an actual~ count, checks it off and moves on to the ne~ item. Mr. Rem. How many men would you have doing this? Mr. VITULL1. One or two. PAGENO="0169" *l~3 Mr. REm. What we are receiving reports on, and we are trying to substantiate, is that in effect in some stores-and I am not talking specifically about a particular chain-in fact these items are not changed. The customer comes to the checkout ëounter, perhaps is not aware of the special items, the checker at the cash register goes fast and the individual customer may not notice it, but the fact is that frequently, some of these items are not chanted. What I am getting at here is should there not be a better administrative procedure where you do have these special items to make sure all the items are in fact fully changed because there are some stores that bring in a crew at night when there is no one in the store and physically pull all the items off the shelves and change it so that it's systematically done and there is no question that an occasional can or box is missed. Mr. Vipuu~i. Congressman, may I point out the difference between our practice-~-I believe now I understand fully the Foint that you are getting at, We don't as a matter of policy, reduce items on Saturday and advance them the following week. The prices, that we change arc reduced on a permanent basis, unless market changes dictate the necessity of readvancing them. Mr. Rum. I understand that and I am not questioning that. What I am talking about are the items that are specials that you have a systematic means of changing the price on these nonrelatively perishable items and what I gather is that in these instauces, you have one or two men on Saturd~ay during store hours doing it and they may or may not get it all done during the day in question. What I am asking is, if you do have specials in volume, should you not have a procedure that would more nearly insure in nonbusiness hours perhaps or whenever you can do it,, that all the items~ are changed because there are reports reaching the subcommittee that spme of these items ju~t are not Marked di~wn. s Mr. VrrtILI. Our system is to change the items in the seilmg area. Perhaps you are under the impression that a l~rge quantity has to be changed initially. Mr. Rum. All the tomato j'uiice or a certain type of cheese or all the rice or flour or something, that would be a fair amount to be stamped, wouldn't it ~ Mr. VITuLU. Only a moderate amoi~ut~ bec~iaise the majorrty of the merchandise will be in i?he~ storage area. That will not be price marked until it is ready to come into the seili~ig area. So we will mark the mer- chandise on tii~ shelves. Mr. Ru~. All I am tryth~g to call t~ your attention is the fact that there `seem to be some instances where this has not occurred. Isn't this worth your looking at to s~e whether procedures c~uid be improved to insure that the items on the shelves, where they are special items~ are all remarked before~ the store opens? Mr. VITCTLLI. Yes; ji~ is. Mr. Molwunwut As we m~nt~oned ~t the outset, Mr. Vituili speaks for the area of his jurisdiction which i~ ~rou~ a~id~ 1~LaiihMtaia. Mr. Van Lenten, who has jurisdiction over all of the New England `States and the metropoIita~i area, I thiuk, i~ better able to answer the question of whether there is any broad policy of marking price changes during business hours. Mr. Rum. Certainly Mr. Van Lenten can respond. PAGENO="0170" 164 Mr. VAN LENTEN. Congressman Reid, in this area, perhaps Mr. Vitulli is more familiar with this; we have probably very few night crews. You take in the entire metropolitan area you go into a wider scope. I assume you are interested in this subject, not only for the New York area, but for a much wider area. Mr. REID. I am told in Westchester, crews do come in in some stores and make the changes when that is appropriate with specials. Mr. VAN LENTEN. We do have more flexibility. Because of this, many of the stores operate almost 24 hours a day. Consequently, you could pick your time. Some areas where we are restricted in these schedules, and don't have the ability to do it, of course we must do it during store hours because we have no one working other than store hours. Mr. REID. What we get at here is, it seems to me in some of the inner-city areas~ in the ghetto areas, where food price is particularly important because it is such a large share of the family budget, there ought to be haste, hopefully in the public interest, to get these changes effected. I am well aware that in certain other areas, more affluent, there are more crews and longer hours and these changes are made. But to the extent they are made as an overall price and it is a low price and you are trying to give the best value to the consumer, shouldn't you make perhaps greater efforts in areas where a failure to do this for administrative reasons will invoke a hardship? Mr. VAN LENTEN. I think it is a very good suggestion. We will certainly consider it. Mr. GALLAGHER. I would like to ask one question. I think the allega- tion is a very dreadful allegation that on the 16th, when relief checks come out, that there is an increase, a broad increase, in many of the stores as oppossd to prior to the day when relief checks come out. Would you care to comment on it? Mr. VAN LENTEN. These audits which were part of the statement, these are prepared and these are taken any day of the week, at any time, so this would indicate, too, that this would be a surprise. It would come in at a time when no one suspect/ed it. These would pretty much authenticate, as far as we can distinguish, how accurate we are. Now, I would like to see this merchandise. I think there is an element of-human element in this because we have so many items; we have people working for us, some for short periods of time, some for longer periods. The longer working people have more responsible jobs, such as head cashiers. They wouldn't be changing merchandise or stocking shelves. Our policy is our advertising, window sign, shelf ticket, price mark- ing on the merchandise as well as the register's receipt should all be identical on the item. This is why we insist, and this is a program even put through our personnel department in training, that the receipt be given to the customer so if a child even comes to the store with a $1 bill, when she or he gets home, the mother can take the receipt and change and this should tie in with advertising and the price marking on the package. As I said before, without an opportunity to thor- oughly investigate this, this is all I can say. PAGENO="0171" 165 Mr. GALLAGHER. You then would come to the conclusion, Mr. Van Lenten, there is no evidence at all to support that charge as it pertains to your stores? Mr. VAN LENTEN. No, sir. Mr. GALLAGHER. I hear a lot of grunts. VoICE. That is right. We know. Mr. ERLENBORN. Let me preface my question by saying if this re- veals anything about your merchandising practices you can feel free not to answer it, but do you have any practice of comparison shopping in other chainstores to find, out how your prices compare with theirs? Mr. VAN LENTEN. Well, certainly we always compare ads, and I think at times we are inquisitive inasmuch as the stores are open to the public as shoppers, we avail ourselves of the opportunity to de- termine what the competition is presenting, too. Mr. ERLENBORN. From this, have you drawn or can you draw any conclusions as to the variance in prices in other chainstores between ghetto areas and other areas? Mr. VAN LENTEN. No, I wouldn't be able to do that. VOICE. We can tell you, though. Mr. ERLENBORN. Have you been able to draw any conclusions as to the efficiency in the other stores of marking the product to compare with the advertised price? Mr. VAN LENTEN. No. I don't think I would be qualified to- Mr. GALLAGHER. I would say the Chair would yield. What would you like to ask? VOICE. My name is Mrs. Fox. I am an East Harlem parent. I trade with A. & P. store here in East Harlem and it is quite often as late as Wednesday when I went in to get groceries. I got two cans of string beans, french-style string beans, which was 31 cents and when I brought them to the counter the lady say that the price had been changed. They were two cans for 39 cents. That is after I got to the counter, I am looking on the price list and seeing what is happening there and oftentimes when you go-I am speaking about the A. & P. store here between 93d and 92d Street. The price list that you go there and see when you take it up to the counter to the lady, she tells you got to pay something else. Such as napkins, two for 27 cents, and when I get down to the counter, it's two for 29 cents. You know what I mean. This is what is going on. Mr. GALLAGHER. That appears to be the basis of a great deal of the complaint. Just that sort of thing. How would you account for that? Mr. VITUILI. Well- Mr. REID. Before Mrs. Fox continues, could I ask her whether there are some other items- g Mrs. Fox. An awful lot. Mr. REID. Could you get us a brief list of some of the times where you found a difference between the advertised price and the marked price? Mrs. Fox. Sure. Campbell's pork and beans. They are supposed to be two for 29 cents, and they says that when we get up there they say no not 29 cents, two for 33 cents, but what happens iS they got a 29-cent stamp, they got a 33-cent stamp. Somebody forgot to take out PAGENO="0172" 166 the 29-cent stamp. It's one of these things. They have tw~ and three stamps on a can. Mr. REID. It was advertised for 29 cents, but the stamp was still 33 cents. Mrs. Fox. Yes. Mr. REID. What are some other examples, Mrs. Fox? Pork and beans is one. Is this true of tomato juice or cheese? Mrs. Fox. Again, if you go into ~ne of these A. & P. stores, you can see, as I understood the gentleman saying, that the man takes a piece of tissue or something to rub those prices off, but this is not true. Not here in East Harlem. Here they take something, they stamp two and three prices over these things. Mr. REID. Similar to what we saw with the cheese, where there are two different- Mrs. Fox. Yes. And I have been trading with them over the past 10 years. Mr. REID. Now for cheese, which is $1.29 on one stamp and 99 cents on another and you go to the cashier-its not the lower price. Mrs. Fox. That is right. Mr. REID. Do you take out the ad occasionally and show them this is what it is+- Mrs. Fox. The man says, "Well, no, we don't have this on gale. This is just the price what you got there." Mr. REID. That at another store. Mrs. Fox. So what do you do? You need the food. You buy it. This is it. Mr. GALLAOITE1~. Thank you very much. ~Applause.] The Chair would like to know whether or not you would like to respond? Mr. VITtTLLI. Yes. First of all, I can't understand the comments that were made by Mrs. Fox. The managers that we have managing our stores, in any area of the Bronx unit, Westchester County, Bronx, and Manhattan, are all very honorable gentlemen. They have con- scien ces. They have families and I can see no reason under the sun why they would intentionally charge a wrong price. Now a specific item was mentioned here. Campbell's pork and beans. Naturally we don't have managers price marking merchandise. An employee assigned to price mark the pork and beans, for example, at the time the price of Camp- bell's pork and beans was two for 33 cents. That was the correct retail. Right alongside is our own brand of Ann Page beans which sell at two for 29 cents. A price marker looking at the price on the shelf, having a case in front of him, marks that two for 29 cents. The important thing I am sure you are interested in, Mrs. Fox: Are you charged the correct price? Certainly it is a little annoying to feel that the correct price is two for 29 cents and get charged two for 33 cents but I can assure everyone in this room there is no organization that tries as hard in any area to give you complete accuracy and our price checks and our price surveys show that we do succeed, to a very suitable degree, in achieving that purpose. Mr. GALLAGHER. I am sure you can sense there would be some dis- satisfaction if there were, on a can of pork and beans-whatever the item might be-a two-for-29-cent label and a two-for-33-cent label. PAGENO="0173" 167 How should that be resolved if you will have a satisfied customer who feels they are getting a fair deal? Mr. VITtTLLI. The person should be charged the price marked onth~ can. That is our policy. Mr. GALLAGHER. If there are two prices? Mr. VITULLI. The lower price should be charged if there were two prices on an item. That is our policy. Mrs. Fox. That is never done. Not in our area. Mr. GALLAGHER. May I say from now on you will have a reasonable basis to say the management said the lower price should be charged? The lady in green? VOICE. What the A. & P. managers on their top staif is saying is very nice, but whether it comes down to the stores we deal with-I live in. East Harlem. My mother lives in what they would call south Bronx and she happens to work up in the Kingsbridge area. She does most of her shopping up there. She is 62. She carries it down and brings it home because the store in her particular area does-not charge the same prices. Not only that, when she makes a comment to the manager about it, he knows her now so he says to her, "Shop in that area where you can get it at thai; price." They might have very good po'icies but I think it shouldn't be made, so much so, ~uot be macic to he called the scapegoat when they ask about prices. There should ~he a sign in the door stating where the consumer can get in touch with the main oflice to report these managers and clerks or whatever, The consumers should have this opportunity. If they are saying they are running their store this way and their managers and their little stores are like their children, a consumer `should have a plate to write to explain to them so they can check this. Mr. REID. Might I ask whether you had any problems with avail.. ability of chuck steak, or whatever is advertised in some stores? VOICE. These are some of the complaints we had. They advertise chuck steaks on sale all the time. Go in in the morning, the trucker is not there. Go in the afternoon, he didn't come. Go at night, they are sold out. [Laughter.] This is very fine. Many a day- Mr. GALLAGHER. Could you identify yourself? VOICE. I am Mrs. Mason. I worked with the consumer program. Many times I went there to get a chuck steak. They didn't bave it, I bought other items. Not that I really needed them, but I was in the store. It hurts me because I didn't get what I went out to get. Mr. ERLENEORN. Since we had the testimony here about the rain- check policy at A. & P., are you referring specifically to A. & P. when you talk `about the availability of the chuck steak? Mrs. MASON. Right. Mr. ERLENBORN. Have you on any occasion- Mrs. MASON. I have a raincheck in my pocketbook. When I went back the next day, I didn't think about it or I didn't get it, but if they say their policy is they want `this done and this `should be `done, they should have a large `sign in the `store for a consumer: "If you `have any problems in this store, these are the places or this is the address to' write a letter or call or `complain." The average consumer does not know who else to contact after they speak to the manager. PAGENO="0174" 168 Mr. GALLAGHER. I would like to say `before we adjourn that I think you ladies `have performed a useful service in making these `suggestions to the management here and- Mr. M0INERNEY. Obviously, we are not the entire management. We will have to take these suggestions under `advisement, which we cer- tainly will do. I would like to point out the organization that Mrs. Mason represents, MEND, has already testified h'ere that an A. & P. has uniform prices as near as they can determine. Mrs. MASON. I am just giving certain instances outside of areas- Mr. `GALLAGHER. Can I let the gentleman testify ~ Thank you. Mr. MOINERNEY. The price audits, the results of which are attached to our statement, are audits totaling well over 200 audits of well over ~,000 items. Comparing those with the way I can only assume are isolated in- stances-we don't deny them. They may very well occur. But the overwhelming majority of these reports are the same with respect to area, with respect to whether they were overpriced, or underpriced, or so on. Instances, I am sure, where human error does result in this. In- sofar as any such arrogance by store employees, I am sure that is worth looking into, but we have no direct knowledge of it. Mr. GALLAGHER. The Chair would like to announce ,we will now stand adjourned until 2 p.m. (Recess 12:55 p.m.) (The complete prepared text of Mr. Vitulli's remarks appears below:) ?Iu3PAnim STATEMENT `OF WILLIAM VITULLI OF THE GREAT ATLANTIC & PACIFIC TEA `Go., INC,. ~My name is William Vitulli. I am `assistant general superintendent of A. & P. stores located in the Bronx and Manhattan, and I am responsible for the general supervision Øf `some 115 stores in those areas. With me here today is Louis Van Lenten, director of sales for A. & P. eastern division, covering the metropolitan New York area and the New Bngland States, which is divided into seven units, including the Brooklyn-Long Island unit `and the Bronx-Manhattan unit. With us is Denis Mclmerney, a member of the firm of Cahill, Gordon, Sonnett, Reindel & Ohi, counsel for A. & P. At the outset, I would like to say that I am very happy and proud to represent my company on this occasion because I feel that A. & P. has made a real con- tribution to the health of this Nation by its policy of selling at prices so low that they yield only about a 1-percent return on sales. As a result of that pricing policy, and of A. & P.'s insistence on selling the best quality food available, mil- lions of people in the poorer areas in this country are able to get `better food at lower prices than they would otherwise be able to obtain. I know of no private organization, and certainly no profitmaking organization, which has done a bet- ter job in helping the poor to obtain high-quality merchandise at the lowest pos- sible prices. A. & P.'s merchandising policy is carried out in this area by Mr. Van Lenten, who is here with me today. He is responsible for setting the retail prices for all products in all of the stores in this' division and has followed the practice of having completely uniform prices in all of our stores in Manhattan, Brooklyn, Bronx, Westchester, Queens, Nassau, and Suffolk, which I will call the Metro- politan New York area. These prices are the same in the approximately 450 A. & P. stores in that area, regardless oce whether the store is located in a high-, low-, or middle-income' neighborhood. Some variations from these uniform prices may arise in particular competitive situations~ or with respect to perishable commodities. However, and I canno't eniphasize this too strongly, `all of those variations would be in a form of a reduction in price rather than an increase. Similarly, store managers have no authority over prices except to reduce them on food that might spoil if not ~ x~romitly. In other words, they have no authority to increase prices. PAGENO="0175" 169 As soon as the divisional sales department makes any change in our retail prices, those changes *are communicated to the store managers immediately. They are instructed as a matter of general policy to change those prices' which are reduced before they proceed to mark any increases in prices. Store personnel are periodically reminded, by bulletins to the store managers, of the necessity of strictly adhering to the company's policies on accurate pricing. I have samples of such bulletins here with me today. These bulletins are followed up by our store supervisors, who generally are responsible for a group of abo~r 15 stores and who periodically spotcheck prices to be sure that they are correct. Within the limits of the space available, we try to keep every A. & P. store ëompletely stocked with every item and size of item that our customers might want. As a result, there are some 5,000 to 7,500 items stocked in A. & P. stores, and virtually all of these are individually price marked. Making sure that each~ of these thousands of items is properly marked with the appropriate retail price in each of the thousands of A. & P. stores is a monumental task. We rec- ognize that 100-percent accuracy is not possible because of human error, but I am happy to say that we have approximately p9.8-percent accuracy. ~ou may wonder how I am able to make such a statement with such confidence. The answer is that A. & P. has for decades followed a very exacting and expensive but worthwhile procedure of having audits taken `of the prices in its' stores. This is not done only for purposes of inventory (which are taken about three times a year in each of our stores in this area) but also by ways of unannounced or surprise price audits at ieaet twice a year. These audits are not taken by the store personnel theinselves~ but by a staff of field auditors who report to our unit office managers. The store managers have absolutely no jurisdictio~i over these auditors. As you kno'w, Mr `Chairman, A. & P. received notice of this hearing only this week, and it was only Thanksgiving Eve that we received any particulars as to the matters that would be discussed. In this short time we have not been able to do all the research that we would like to. We have, however, surveyed the results of the regular and surprise audits in the Bedford~Stuyvesant area as compared with the Flatbush-Bay Ridge area in Booklyn and of the Harlem, area as compared with a like number of stores in middle- and h~gh-income areas in New York City and Westchester. This survey shows that the average number of items' found erroneously priced on each audit was o'nly about 10 items out of more than 5,000 items which are subject to these price checks, so' that our percentage of error is less than one-fifth of 1 percent, and those errors included underpricing items as well as overpricing them. As the attached survey show's, we have a very high degree of accuracy in pricing in all of our stores. Not only does A. & P. insist `on strict accuracy of retail prices, but there is no reason fo'r the store manager or anyone else to increase the prices in A. & P. stores. There i's no compensation or bonus system which might possibly re'w'ard any such misconduct at A. & P. stores. I mentioned earlier that space limitations will not permit us to carry every conceivable itenl that any customer may want, and yet our prices are advertised in newspapers serving the metropolitan area. As a result of these' facts, o'r of unexpected demand, it sometimes happens that a customer is unable to obtain t~n advertised item at her local A. & P. store. When this happens, we have a well- established and well-advertised proc'edure known `as our raincheck policy. The raincheck i's simply a receipt given the customer allowing her to' secure any advertised item at the advertised price the next time she visits her A. & P store during the following week. We are proud of this policy and insist that all our stores prominently display signs describing it. These signs, incidentally, are in both English and Spanish, and I have examples of both here with me today. In additio'n~ our newspaper ads containing specially priced items frequently contain a statement of the raincheck policy, `and I also have an example of such ads. To put it very briefly, gentlemen, there is absolutely no truth whatever to the allegation that A. & P. discriminates against the poor in any way. Quite the contrary, we are proud of our history `of over 100 ye'ars~ of service to' the American people of all income groups. On behalf of A. & P., I want to express our appreciation for this opportunity to state the facts concerning A. & P. record on this important issue. Thank you. PAGENO="0176" 170 SURVEY OF PRICE AUDITS I I.-HA'RLEM AND OTHER COMMUNI1~IES (taken from Aug. 30, 1966, through Aug. 9, 1967) Average Number Of Tracling area Number of errors Prices over Prices under of audIts per audit per audit per audit 9 Harlem stores 54 10. 3 7. 5 2. 8 9 stores in middle and higher income areas 2 - - - 54 10. 8 7. 9 2. 9 II.-BEDFORD'STUYVESANT AND OTHER COMMUNITIES (taken from Aug. 1, 1966, through Oct. 27, 1967) 10 Bedford-Stuyvesant stores 51 10. 8 7. 5 3. 3 10 Flatbush-Bay Ridge stores 50 8. 7 5. 4 3, 3 `er~5~00tl itOms are subjoct to price Ohecks, a~d errors average levs thanoiie-flfth Of 1 peruent. 2 These 9 stores were selected at random. The are located at Hartsdale, Scarsdale, Tuchahoe Bronxvllle, Yonkers, and New York City (6th Ave. at 11th St., 3d Ave. at 70th St., Zerega Ave. near Havemeyer Ave., and ~ruckner Blvd. at Tremont Ave.). AFTERNOON SESSION Mr. ROSENTHAL. The subcoiumittee will be in order. We apologize for being late. We made a little shopping tour of the A. & P. store at 119th Street and Third Avenue. One of the questions Mr. `Gallagher asked before we adjourned is, Who couldone complain to if one had a compiai~t involving A. & P.? a~id I think you wanted to respond to that. Mr. MOINEENEY. Yes, sir. As part of A. & P.'s "we care" program, we have from time to time listed A. & P.'s telephone number and said that any grievances could be communicated by using the phone. We had a question before the recess as to who, specifically in these areas one could talk to. Now, in the Bedford-Stuyves~ant area and in the rest of Brooklyn and Long Island the gentleman's name is Robert Phelan, at PT 10-500. In Harlem and in the rest of Manhattan and the Bronx, the gentleman's name is Edward Gilbert, at O'Y 22-300. We wanted to give that for the benefit of anyone who has any complaint and we do want to hear these complaints, because we want to- Mr. ROSENTHAL. Good. I have one for you. In the A. & P. store at 119th `Street and Third Avenue a couple of things were observed. First we examined meat, packaged meat, and in the lower ieft~.hand corner of the label is a code number from 1 to 5 which is supposed to indicate the day the meat was pa~kaged. We had some meat, all the meat in the counter as far as I could see, was marked No. 5, which means Friday. We asked both the manager of the store and the meat manager what is done with the meat if it is left over as of store closing tomorrow afternoon, and it looks reasonable; that is it doesn't lay moldy or green or black? They both responded that the meat would be repackaged on Monday. And we asked them what number do you put on it, and they said No. 1, which would indicate, which would leave the im- pression that is was packaged for the first time on Monday. I have two suggestions. First, why does there have to be a secret code system whereby only people in the industry or in the store can under- stand the date. This would apply also to milk, perishables. Why can't you on the meat label put down, if it was packaged Monday put down Monday. Put down Tuesday, Wednesday. Let everybody in on the secret. Point 1. PAGENO="0177" 171 Point 2 is if meat is to be repackaged on Monday that was originally packaged on Friday, you can't, in all honesty and fairness, repackage it and let people think it was packaged for the first time on Monday. This is what the whole truth in labeling law was all about. Mr. VITUI~I4I. Mr. Rosenthal, the package, the merchandise that is repackaged is often the best buy that you ~an get i~i o~r stores. Fre- quently, I can cite many examples. The meat starts to discolor. We put a aew pork r~ast out. As you know,, moat gets better with age. When that is brought back in, I hope you don~t misunderstand that it's repackaged as is. The meat butcher or the department head faces that meat off and trims it. Most of what he -takes off that cut of meat would ordinarily be a wasteful piece of meat. After that is repackaged, it is the equivalent of a iaew piece. of moat. It has appeal and it's still priced at ~the same price per pound, with considerably less waste. You will find a steak that is tarried over say on Tuesday, every morning they must go through the c~se ~and bring in merchandise, in order to make that presentable for sale, be- cause no housewife will purchase a piece of meat that doesn't look appetizing. That means they must trim more o~ the fat, more of the waste, and cut it down to a better piece of meat. This has~- Mr. R~&ENTJIAL. And they rewe'ighit? Mr. VITUI1LI. It's reweighed and repackaged. Mr. RosEN~1\HAa But it's not nearly as fresh as it was 3 or 4 days ago. Mr. VITtrr~r~I. Three or 4 days-this is quite an exaggeration. We don't-~when we talk about meat, if we can't sell a piece of meat in 2 days, there must be something drastically wrong with the particular store. For example, anything in that meat case today that is retrimmed and put in the case tomorrow, that will be sold. You must have con- stant turnover with\perishables. Mr. ROSENTHAL. Let me give you another complaint. Congressman Reid bought a lot of frozen food, but none of it was frozen. He was standing around out in front of your store shaking the cans of orange juice, and it felt like water. lie bought a container of ice cream that was just completely liquid. Mr. VITULIJI. That, to me is- Mr. ROSENTHAL. i~very vegetable he bought, you~could take the pack- age and crush it in your fingers like this. Frozen vegetables, Mr. vituili. Mr. VrnJLLI. May I ask this-was that merchandise back beyond- this is our re~sponsibility. We have a very, very strong policy that they are not to go over the refrigeration line for two i'easons. No. t, it's detrimental to the equipment. It blocks circulation and the equipment will break down. No. 2, the merchandise will defrost. I-f they pile it too high. However, under ordinary circumstances that such a thing wouldiiappen- Mr. Ros~TMAL. It was low down in the case. Is there a `health problem if food becomes unfrozen and then is ref rozen? Mr. VrrULLI. With meats; yes, very definitely. Mr. ROSENTHAL. How `about with orange juice and ~ce cream? Mr. VrrULLI. No-well, we don't know. This is contrary to what should happen. is this particular piece of equipment functioning prop~riy at this time? Did you speak to the manager? Did he say this is a commonplace thing? 88-532-68-12 PAGENO="0178" 172 Mr. ROSENTHAL. They were selling it to everybody else. Mr. VITuLri. What I mean is this. Any time we cheek our refrigera- tion equipment, we check our refrigeration equipment daily, the first thing a manager does automatically, because `a refrigeration break- down is costly and involves a lot of work. That means everything has to be taken out and thrown out when you have a refrigeration break- down. Now, if that merchandise is not freezing, then he must put a call in immediately to our maintenance department. Perhaps it does need recharging. We do have breakdowns in refrigeration equipment, and coincidental with your visit this might have happened, but it certainly wouldn't be logical to assume that we would allow our merchandise to continually- Mr. ROSENTHAL. I'm sure you wouldn't, but it would be highly coincidental. Mr. VITEJLLI. Yes, sir. Mr. ROSENTHAL. The manager told us you will start `altering that store on Monday, so maybe- Mr. VrrlJlLI. We would have `started months ago, but it was a mat- ter of getting bids and-yes, this store, we will spend between $80,000 and $100,000 in that store and the store just below it on 110th, and within the last year the nearest supermarket to this building, at 132d Street, and Fifth Avenue, we spent very close to $100,000 remodeling that. (The subcommittee was advised on January 4, 1968, that remodel- ing of the A. & P. store at 119th Street and Third Avenue will be com- pleted at the end of January `at a co'st in excess of $85,000.) Mr. ROSENTHAL. This A. & P. on 119th and Third, you have no com- petition from any other supermarket except one one `block north of A. & P.-and they're not in the same league with you in terms of purchasing power or flexibility. So virtually, for `all practical in- tents and purposes, you have no competition. Mr. VITULLI. Yes, sir. Mr. MCINERNEY. That wa's one thing we meant to. supplement this record on. Concern had been expressed earlier about the number of stores, or the lack of stores, in these poorer `area's, as well as the condi- tion of the stores. Of the 115 stores over which Mr. Vitulli has juris- diction, some 29 of them are in the South Bronx and Harlem and similarly in other poorer areas. We wanted to ofFer, as an exhibit, a letter received from Governor Hughes' office in New Jersey at the time of the Newark riots, as to the work the A. & P. men did in manning those stores throughout the riot. I think you will find that very few of A.. & P.'s competitors compete with them in this way. Mr. ROSENTHAL. Without objection, it shall be included in the rec- ord. Without my having the benefit of reading the letter, I commend you for it. I think it's `a useful thing. I think y'ou probably agree with me that more can be done. (The letter referred to above follows:) STATEOF Nnw JERSEY, O~rcn o~' i'n~ Govnnxon, Trenton, Ji~ly 27,1967. Mr. WILLIAM WALSH, River Va7e, N.J. DEAR. Mn. WALSH: Now that things have calmed down a little bit, I would like to take this opportunity to express my personal appreciation, as well as PAGENO="0179" 173 that of many other people in the State, for the fine cooperation of your company, which resulted in the operation of six stores in the area of the recent disturb- ances in Newark on Sunday, July 16. Not only did your company make sure that all the stores which normally would be open on Sunday v~ere operating, but in addition you kept a store which nor~ally closes at 1 p.m. open all day and all your stores open for an additional hour until ~ p.m. This off ect was significant in helping to return the city to normalcy and I want you to know I am grateful to you. I would appreciate it if you wotild call my thanks to the attention of the appropriate officials of your company, and would hope that you could also advise them of bow helpful the manager of your Spruce Street store, Mr. William Scbweikert, District Manager Harold B. Cohen, and all the others engaged in this operation were. Sincerely yours, ItIOHARD J. HUGHES, Governor. Mr. MCINERNEY. We're trying very hard. One other thing, this "raincheck" ad_commencing as soon as possible, we are going to put on all our ads that if the customer is unable to purchase any item, please request a raincheck, so it's clear to the customer that this merchandise, even if it wouldn't normally be available in the store, that that merchandise can be had within the following week. Mr. ROSENTHAL. I also want to say we saw the "raincheck" ad posted in the back against the wall in this store. It would seem to me it might be more useful if you hung it on a wire above the cash register. Mr. ERLENBORN. It was there. Mr. Vrnrr~ia. We have two in some stores. Mr. ROSENTHAL. That's very good. Mr. M0INERNEY. May we include in the record these "rarncheck" signs in English and Spanish, as well as the policy bulletins we spoke of earlier? Mr. ROSENTHAL. They shall be printed in the record at this point. (The information referred to above follows:) AuGusT 22, 196T. To the manager, Bronx unit, New York City stores only. DEAR Six: For your information and compliance, we are directing your atten- tion to the following article which appeared in the Modern Grocer publication on August 18. "STORES STIlL FAILING To Pxicx MARK, Is WARNII~G "Spot checks by consumer volunteers indicate that many local chains still fail to price mark all items. Clerks are still careless and managers are falling to follow through when clerks are ordered to price mark. "SEVERAL WARNINGS "While the department of markets has issued several warnings and Commis- sioner Wiesberg, himself, is on the record, with a st~tement that far too many consumers have registered complaints about food store items not price marked, little corrective action has been taken, according to the information. Many stores may have avoided being bro~ight up sharp on failure to price mark, because the department of markets is seriously understaffed it admits. Commissioner Wiesberg has been trying to augment his number of inspectors; but be also is relying on volunteers among women shoppers as did his predeces- sors. They may bring to the attention of the markets department stores missed by the salaried inspectors. COMPLAINTS CONTINUE "If complaints continue, it was stressed, the markets department will have no alternative but allocate more inspectors to certain areas to check certain stores. Once an unmarked item is detected in these stores it will bring unpleasa~it publicity and penalties in its wake." PAGENO="0180" 174 New York City Department of Markets' regulation No. 49 requires that any commodity. whethe.r edible or Inedible, sold, expesed for sale, or offered ~for sale at retail, shall have Conspicuously, plainly, and clearly displayed the price per unit of weight, dry or liquid measure, ~r numerical count by a stamp, tag, or label or by a sign at the point af display. Very truly yours, H. BOESENBERO, sales Manager. To the manager, Long J$land un'it: PRIOR MARKING From time to time it becomes necessary to solicit your particular support in an effort to maintain and improve our standards on the topic of price marking. This is an important function of our store operation and needs your constant followup if we are to present an acceptable image. First of all, your equipment must be in good order. Check this to satisfy yourself such is the case. Make sure the tips are clean and make a legible, distinct, impression free from smears and blurs. In the ease of advances and reductions, the old price must be completely obliterated or removed before a new price is marked on any article of mer- chandise, or if a kum-kleen label is affixed thereto, it must entirely obscure the prior retail. Under no circumstances are two retail prices to appear on any item offered for sale. Finally, prices must be checked with the official price book to insure accuracy, and shelf tickets, floor displays, and shelf stocks must be in conformity with respect to the price structure at all times. Your cooperation is again requested. SALES DEPARTMENT. Thn GREAT ATI~N~O & PACIFIc Tr~ Co., INC. To the manager: COMPANY POLICY CORRECT WEIGHTS AND PRICER Company policy regarding accurate pricing and we~ghlng of merchandise is of prime importance. It is therefore essentidi that al no time should any letdown be permitted in surveillance of this phase of our operation. Correct price marking involves the following five fa~tars: 1. Pare. 2. Price per pound. 3. Extension. 4. Identification. 5. Accu~te seale~. During any part of this operation, the smallest oversight or carelessness can lead to unnecessary embnrnassmeut, Please inform all personnel involved in pricing merchandise to be alert to prevent mistakes. Have case attendant look at price labels when displaying merthand~se. Frozen poultry, not displayed in low temperature case, but prepared the night before should be rechecked in the morning for loss of weight through partial defrosting. This also applies to frozen fish items on alsplay. Phase who handle our pricing also handle our reputation, and should be fully aware of this responSibility. It is abSolutely necessary that all packaged merchandise be weighed and priced correctly before being placed on sale. Also be sure all scales are in good working order. Check scales periodically throughout the day. Remember, 1G ounces to the pound and correct retail. Be sure to reset the "tare" when you change the item being scaled. Review weighing and scaling policy With all scalers. Every scaler must use their own assigned code number or letter, whatever the case may be. SALES DEPARTMENT. PAGENO="0181" 175 THE GREAT ATLANTIC & P4ADTh'IC TEA Co., INC~, EASTERN Divisiox-Baoxx OTFICES, Brona~, N.Y., NoDember 1, 1967. To: The supervisor; the manager, Bronx unit. Subject: Price marking. DEAR Sm: Prices must be clearly marked on all items except those indicated on the exempt list. All merchandise bearing a "cent off" label must be price marked the deal retail-the retail the customer is to pay. The price tag must agree with the price marked, on the item. Floor displays must be price marked. Recent reports have indicated that some stores have been delinquent in behalf of carrying out this procedure properly. This must be corrected at once by way of your covering the subject with each employee to insure that all merchandise is correctly price marked and price tagged at all times. Very truly yours, IT. BOESENBRRG, &~les Manager. THE GREAT ATLANTIC & PACIFIC T~iA Co., INC., To the manager: Attention first meat man, l3roiiz unit. (Copy to supervisor and meat specialist) IMPORTANT You are familiar with our everyday A. & P. company policy that customers must receive 16 ounces to the pound and be charged the correct price. It is the responsibility of the store manager and the meat department head to see that our instructions for the proj~er and accurate weighing of all meats are carried out. Please review the following scaling operation with everyone. PROPER WEIGHING AND SCALING Each meat department must have a sample tare of each foodtainer with the proper size paper included, wrapped in cello or pliofflm. Each meat department has a cabinet or rack to hold sample tare foodtainers aad wrapping materials. These should be over or ad~jncei~it to scale, within reach of all personnel doing the scaling. A sample tare of all packages ahotrld be ava1labl~ at ai~ times~ Prior to scaling any package, place sample tare corresponding to item to be weighed on scale, then set scale to zero position. Before removing sample tare from scale platform eject one label from scale by pressing start button. If scale reads zero all across you may remove tare and proceed to weigh. If further settings must be made repeat until you get a zero reading across and only then are you to start weighing. These blanks may 1~e placed in empty 5-pound cheese box, or a bag provided for that purpose. This sequence must be repeated prior to weighing the next `item, even though the next item to be weighed has the same tare. This method of scaling must be followed by everyone without exception. Any failure to allow tare will lead to a weight violation. GUARD OUR GOOD WILL AND YOUR JOB Every morning the scale should be set for the day of the week and the scaler's letter, which has been assigned to employee scaling. If another employee is assigned to scaling, the letter must be changed. Do not precode. Do not place label over label. Seal packages tightly and thoroughly. When other than the Hobart No. 2000 Scale is used for special orders it is advisable to weigh unwrapped, then boat wrap. Post in meat department. SALES DEPARTMENT. PAGENO="0182" 176 ,-we care we never ~ out" onasale! We never advertise a special sale item unless we have an ample supply. Once in a great while, the special is more popular than we imagined. So occasionally, wedo run mit Qf the item. But we never "run out" on a sale. If the item is sold out, just ask the managerfóra "RAIN CHECK". We think that's the fair thing to do. We think that shows "WE CARE". Not every store can care that much. A&I' can.. and does. Shouldn't A&P be your store? o Check is a certificate outobuytheitem at the same special price, the following week. PAGENO="0183" 177 The Great Atlantic & Pacific Tea Company, Inc. ~ Three Hundztd Se~ty Southern Boulevard &onx, N, Y. 10454 OfOC~ O~th~~N$that November 3, 1967 TO THE MANAGER Dear Sir: I ~m sealing this letter, which includes the Company Pledge, to be signed byyou and each of your employees. IT IS THE A&P POLICY: ALWAYS: Do what is honest, fair, sincere and in the best interest of each customer. Extend friendly satisfying service to everyone. Give every customer the most good food for her money. Assure accurate weight every time - - 16 ounces to the pound. Give accurate count and full measure. Charge the correct price. cJheerfully refund customer's money if for any reason any purchase is not satisfactory. After you have read this letter, please sign it yourself and have each of your employees do likewise (including Part Time). Please take care of this request immediately and return the sighed letter to - Miss A. Schinzel, Bronx Sales Department, no later than Wednesday, November 8th. Very truly yours, Dear Mr. Whittaker: I have read your letter of November 3rd, concerning Company Policy. I am in full accord with this policy aed will do everything in my power to see that it is carried out. STORE STAMP Manager's signature (Employees sign on reverse side), Mr. BARASH. If I may ask a question or two : How would the state- ment which you intend to insert in your ads relative to rain checks be responsive to the allegations of the prior witness, Mr. Press, that these items are simply not available week after week after week ~ Mr. MOINERNEY. Sir, I `think if you look at the list Mr. Press had, you will understand that not every size of every item will be m each store. For instance, he claims that on l1~th Street and Third Avenue, the store you visited, they don't stock bagels. Well, I think that that is perfectly understandable. If anybody requests bagels, they can get them the following week. Mr. BARASH. The staff has been advised that A. & P. stores and other stores in low-income areas, stock ite~ns that are peculiar to the tastes of the individuals in that area. PAGENO="0184" 178 Mr. ROSENTHAL. The opposite of the bagel story. Mr. BARASH. Items `frequently and almost exclusively found in stores in Negro areas, are such foods as chitterlings, pork skins, pig ears, pork feet, pork kidney-I won't read the entire list, Mr. Chair- man, but with your permission I would like to insert it in the record at this point. Mr. ROSENTHAL. All right. (The list referred to follows:) FRESH PRODUCE (Jollard greens Mustard greens Turnip greens Kale MEATS AND MEAT PRODUCTS {iliitterlings Pork neckbones Pork maws Pork skins Melts Pork lips Pig ears Suouts Joints Pig feet Tripe Pig tails Pork liver Brain's Salt bellies Pork kidney Souse Fatback Mr. BARASH. The staff has done a little price sampling on its own and I was wondering first of all if I might ask you, are the margins on the items like those mentioned in your A. & P. stores in Negro ghettos the same approximately as the margins on comparable items ~that you find in all stores? Mr. MOINERNEY. I think one of these other gentlemen would be better qualified than I, but I think you already heard the testimony that prices are the same all over regardless of the area. Mr. BARASH. I am referring to those items that are not stocked in your stores in Scarsdale or Garden City- Mr. MOINERNEY. Wherever there is a demand for them. Mr. BARASH. Would you stipulate they are not carried in those areas? Mr. MOINERNEY. I don't know. I'll have to ask. Mr. ROSENTHAL; The thrust of the question, is whether the mar- gins on these items are higher than in comparable foods or meats sold throughout the chain? Mr. VAN LENTEN. I think you have to be more specific. If you take the total line I could answer that it's the same. If you take, for instance some of this merchandise would be considered the offal items. Beef liver is also an offal item. Mr. BARASH. Your answer then is, as far as you know is, that the margins on the items:th~t I have read would be the Sam~e as con~parable items, pork chops, steak- Mr. VAN LENT1~rc. 1?ork c1~iops wou]td' be another 1~ind of cl~ssifica~- tion. Mr. BARASH. With your permission, Mr. Chairman~-weil, let me ask the witness. If I furnished you with a list of items, would you furnish the subcommittee with the retail prices of those items in some of your A. & P. stores in the Negro ghetto areas? Mr. VAN LENTEN. This price would be the same all over. I~i oti~er words, what you would be asking for would be our regular price list. Mr. BARASH. That's correct, but you will agree that you don't carry these items in all your stores or in stores outside of the ghetto areas. Mr. VAN LENTEN. Excuse me-but what would happen-we publish PAGENO="0185" 179 a list of available items through the warehouses and each store man- ager or in the ease ~f the meat depe~rtment, the meat department het~d[ would decide what he wanted to merchandise. if we have sufficient dew- mand for anything on that list, he gets it. Mr. BARASH. The question, specifically, is this: On those items, such as chitterlings, pig ears, pig feet, pork kidney, pork neckbones, tripe~ pork lips, pigtails, fatback, on those items which are not carried throughout the chain, but are limited, so far as I am aware, exclusively to certain areas, would you furnish us with the retail prices of those items where you do carry them ~ Mr. VAN Li~rEN. Yes. (The information was furnished, as follows:) Items Retail Iter~s Retail Fresh produce: Meats and meat products-continued Collard greens 0. 19 Pork kidney 0. 39 Kale 0.29 Pork neck bones 0. 29 Mustard green5__~ 0.19 Snouts -- 0. 3~l Turnip greens 0. 19 Tripe 0. 39 Meats and meat products: Bra(ns (frozen) 0. 49 Chitterlings 0.45 Pork maws 0. 29 Pork skin 0.~3 Pig tails - 0. 25~ Pig ears 0. 89 Salt bellies, light 0. 59 Pig feet (forefeet) 0. 29 Fat back, thick 0. 35~ Pork liver .0. 45 Eeef liver 0. 49 Melts, pork lips, souse, joints, 5-7# spareribs, salt bellies, heavy and fat back~ thin are not sold in this area. Mr. BARASH. I might say for the record, Mr. Chairman, at this; point, that we have done some pricing of our own, not in A. & P.. stores I would like to ~nakë clear at this point, and have found that whereas the average margin in the meat department of the average supermarket is 22.1 percent, according to the National Commission on Pood Marketing study published in June of 1966, the average margin on the kinds of items that I have just enumerated are approxi- mately 60.1 percent, and we will be very interested in seeing whether the prices you furnish u~ correspond to some of the findings that we have made in other stores. Mr. MCINERNEY. Just for completeness, that doesn't pertain to~ A. & P. as far as you know ~ Mr. BARASH. I think I made that clear. Mr. ROSENTHAL. Did you resolve .any of the factual discrepancies between yourselves and Mrs. Aponte's survey findings during the lunch hour ~ Mr. MCINERNEY. We weren't able to get a complete fiscal inventory of what Mrs. Aponte's group bought and I think during the noon hour she wanted to use those graphs for some other purpose having to do with another witness to appear before us. Mrs. APONTE. I would like to mention that the items we brought here were the items we bought, generally speaking. They don't correspond at all to the A. & P. supermarket. We didn't come here prepared. We came here with an example of the items that we bought in the different five chainstores in Bedford-Stuyvesant on the 14th and on the-in Flatbush on both days. In other words, 20 items on the 14th in Flatbush and Bedford-Stuyvesant, the same 20 items on the 16th in Flatbush ancl[ Bedford-Stuyvesant. PAGENO="0186" 180 Mr. ROSENTHAL. Two questions and we want to thank ybu gentlemen for spending so much time with us. Are all of your stores in, for ex- ample, Bedford-Stuyvesant, run at a profit? Mr. VAN LENTEN. This I am not in a position to be able to say off- hand. I really don't know, exactly. Mr. ROSENTHAL. If a store doesn't run at a profit, do you keep the operation going or do you close it down? Mr. VAN LENTEN. This would be dependent on many conditions such as lease term, certainly. What you can do to make it profitable. Reno- vation is something. You have to upgrade- Mr. ROSENTHAL. Mr. Van Lenten, we hear a lot of stories that in slum areas excessive pilferage is a problem that one has to accommodate to or make up for in prices. Do you find that a problem? Mr. VAN LENTEN. Let me say this, Mr. Chairman. We find that we have-you can put the definition to it as you may think of it-as good, but we have good stores in all areas, we have problem stores in all areas, and a lot of it is dependent on the management within the store itself. You can have a good manager that can take a poor store in any area. We don't think of the poor area as a poor area as such. All stores get merchandise as they come up to be selected. They are all in the same price schedule. As far as we were talking about upgrading stores, we can't upgrade a store unless we certainly have enough protection, police protection and so forth, to protect the investment. This applies to all stores. So we don't segregate-we do a very fine job on many items of our own line which we are very proud of in areas where \ve say we have working type people who shop for value. We are very proud of our A. & P. products as pointed up in the many "Who Cares" ads that we have. Mr. ROSENTHAL. In other words, you don't feel that in stores located in ghetto areas, there are special things you have to take into account such as high insurance risk or other social phenomena? Mr. VAN LENTEN. No. We can have a good store in say a poor area, as you mention, and we can have inventory problems in one of the wealthiest towns. Mr. ROSENTHAL. Some sources say that it is a problem. You are not necessarily impressed by that? Mr. VAN LENTEN. Not too. VOIOE. They are self-insured it should be noted, because of their resources. Mr. ROSENTHAL. Someone from the audience volunteered you are self-insured. That doesn't make much difference to me, because it would be the same ratio of cost, regardless of whether you pay it to a private carrier or insure it yourself. Mr. MOINERNEY. May we have the gentleman identified for the record? VoIcE. Irving Stern, Greater New York Labor Food Council. Mr. ROSENTHAL. Thank you very much. The next witness will be Mr. Samuel Mandell, Key Foods. Mr. Mandeli, thank you for appearing. You are the president of Key Foods. PAGENO="0187" 181 STATEMENT OF SAMUEL MANflELL, PRESIDENT, KEY FOOD STORES COOPERATIVE, NEW YORK, N.Y. Mr. MANDELL. Congressman Rosenthal, gentlemen of the committee, ladies and gentlemen I am Sam Mandell, president of Key Foods, which is a cooperative and individually owned. It comprises about 147-448 stores, depending on how many drop out and how many we take in. They are independently owned, and I am elected by the board, which in turn is elected by the general members. In order to acquaint you-I am sure you probably are-the working of a co-op is that all independent members have banded together, put up a certain amount of `money, and we in turn operate together as a voluntary chain. Mr. ROSENTHAL. Let me ask you one question. Key Food runs fill- page ads in papers so you do advertise jointly. Mr. MANDELL. Yes. The specials. Mr. ROSENTHAL. When you run those ads, do you represent to the public `that all Key Food Stores have all of the items in the ad and will sell them at the price in the ad? Mr. MANDELL. Absolutely. The same as the chain. I might add, the basic difference between us, we are in a chain, the warehouses own the stores, and in our case the stores own the warehouses. Outside of that, when we advertise we expect the members, because-to explain the whole operation would take me a whole day. It's quite complex, our food business is-however, we have ways of enforcing and we are very much concerned with- Mr. ROSENTHAL. That is what I was going to ask. Do you have disciplinary powers over members charging more than the ads? Mr. MANDELL. Yes. The disciplinary powers are based only on the specials. We have no policy. Anybody who wants to charge less are welcome to it, but they can't charge more. If we are `apprised of the condition and we take that very seriously, if a member is brought up on charges and we have cases-I don't want to mention the cases, but we have them-if they don't follow up these rules, we take away their franchises, which is very serious. Mr. ROSENT~IAL. Without mentioning names, has this happened where you have taken away a Key Food franchise? Mr. MANDELL. Yes. Mr. ROSENTHAL. How many times in the last 5 years? Mr. MANDELL. I don't know about the last 5 years, but I would say in the last year we took away about four franchises and look upon that as very serious. Mr. ROSENTHAL. Was that for reasons- Mr. MANDELL. Basically, it's for reasons that they didn't comply with the image which we are trying to create. We, as a co-op, more so than anybody else, we are very much aware of public opinion, and we know the dearest thing we can do is lose a customer. Mr. ROSENTHAL. What was the character or thrust of the violations that they failed to comply with? Mr. MANDELL. That they don't honor the ads. If we get enough complaints, we take away the franchise and take away the sign. Mr. ROSENTHAL. These four stores that were expelled in the last year, were they in any particular area of the city? PAGENO="0188" 182 Mr. MANDELL. Yes. You are referring to-you are referring to as to the blighted area? Mr. ROSENTHAL. Any economic level. Mr. MANDELL. Not necessarily. No. The Key Food Stores are, I would say, about 60 to 70 percent of the stores are primarily in Jewish neighborhoods, and we have a certain amount of the Bedford-Stuy- vesant area, and the rest are out in Queens. If I may, Congressman, to give-as I said, I trade in groceries. I don't trade in speeches. This comes hard to me. I have no notes or prepared speech. But, as a grocer, I think what I have heard here, I mean it seems that everybody is trying to simplify a very complex subject that would take maybe months and months just to explain it. I heard gentlemen get up and imply that they have all the answers. The truth of the matter is, we have a situation in New York City where companies-of course, in our business there isn't too much margin for error, as I hear the gentlemen from the A. & P. say, that is the largest operator, and I am not here to blow their horn, and they are operating close to 1 percent, so you can see there is no margin f or error. Mr. ROSENTHAL. One percent on $5 billion a year. Mr. MANDELL. That is true. [Laughter.] But I wonder how many people realize. We have experienced- when we ask a checker when they ring up a $20 order, lots of times we say, how much you think we make on it? And they will say, $2 or $3. One percent of $20 is Only 20 cents, whether it's $5 billion or $10 billion. So we still don't have too much margin, because all our overhead and problems have to be within that 1 percent. Mr. ROSENTHAL. I don't want to go too far afield, but you don't base your profit on percent of sales. You base it on your investment, percentage of investment. The food industry is doing very well, based on percentage of investment. Mr. MANDELL. I don't know about very well, because we have a situa- tion here with the largest local chains losing money, such as we have a situation when Safeway came into New York, and it's the second largest, and they had to pull out, because they couldn't make it pay. I don't know if I a,m correct in mentioning names, but these are public figures. Mohawk, $200 million business, is losing money. Hills Corvette is losing money. It's not as simple as we try to make it out. When some- body comes up with all the answers-I sympathize~ with the customers and with the people. I can understand them not understanding the problem, because the biggest minds in the industry sometimes don't understand it. Mr. ROSENTHAL. We have a very narrow problem, and I want to direct both of us to it. Without letting the record go unchallenged, the fact is that the latest figures we have, 1966-67, show that retail food- chains are making about 11.55 percent on its investment after taxes. Are you doing that in Corona? Mr. MANDELL. Again, I want to-I don't think consumers under- stand the 10-percent investment between 1 percent on gross, because when somebody says 10 percent on investment, they are under the im- PAGENO="0189" 183 pre~sion when they buy $10 worth of stuff you make $1, but you only make 10 cents. It still boils down to these being very misleading figures to the aver~g~~ person. Mr. ERLENBORN. I think the referene~ `to profit as a perceiit of sales is valid in the context of these hearings. We are talking about pricing of food. If you price something at 99 cents and you should price at $1.01~ you are losing money on it. That 2 cents could represent the difference. Mr. ROSENTHAL. Between break even, loss, or the 1-percent profit. Mr. MANDBLL. I am happy you brought that up, because I think this will add-we as a co-op always welcome these exchanges of ideas be- tween the consumer and the merchants, because we feel this will lead to better understanding and might do away with some of the hostility, because, God knows, everybody is under plenty pressure. Mr. ROSENTHAL. Mr. Mandell, if I could interrupt for just a mo- merit- Mr. MANDELL. I am coming to your point. Mr. ROSENTHAL. I wanted to expand on my point a~ bit. If the items should be priced at 99 cents and it's sold at $1.05, you may be making 6-percent profit instead of 1 percent; isn't that right? These pennies mean a great deal. Mr. MANDELL. That is true, `but I wish it was as simple as' that. If it was just a question of the food business, but we got everything in, and if our cost of the operation is 20 percent, all we `have to do is mark up everything 21 percent, and we make 1 percent. Bearing out what you say, it's simple. Unfortunately, it's not that simple. It has been customary in our business to sell loss leaders. When we do that-and it's getting worse ~nd worse because of the pressure of competition-we come out with items such as Maxwell House coffee where we sell it for 69 cents-I use that as an example to bring out a point-j-it costs us 79 cents and we lose 10 cen'ts. If you are going to make one sale and lose 10 cents on a 79-cent sale, which is about 14 percent, roughly-and you expect to come out with an 18-percent overall, because the national figures throughout the whole country cost us between 17 and 18 percent to operate, it"s only- you have to understand that you must mark up other items by about 25 or 30 percent in order to come out with `an overall of 18. So that is why it's so hard for consumers to understand why they ~can come into one store and if he features Maxwell House at a loss, they go to another store and pay 89 cents-not `being overcharged. There is a 20-percent spread. It's hard to understand. Mr. ROSENTHAL. You are saying in some stores the mix varies to bring `out a profit? Mr. MANDELL. In all stores. Our staying in business depends on how we come up with this mixture which we call merchandising. Mr. ROSENTHAL. Let me ask you a very precise question, so we get down to the issue quh~kly. Could you explain to the committee how it is that `on November 14 in `a Key Food sto're in Bedford-Stuyvesant the market basket was $12.60, and in Flatbush the same day, the exact same 20 items was $11.82? It `was $12.60 in Bedford-Stuyvesant, $11.82 in Flatbush. Mr. MANDELL. The same items? PAGENO="0190" 184 Mr. ROSENTHAL. Exactly. On November 16 in Bedford-Stuyvesant, the same 20 items were $12.78, going up a few cents, and in Flatbush it was $11.78. The same 20 items were $1 more in Bedford-Stuyvesant. Almost 8- to 10-percent difference. Mr. MANtELL. I cannot explain it. Again, as I said, this sounds simple when you read it off, but it isn't simple. Our whole business- our whole economy is based on images and impressions, and every merchant tries to create an image that he is cheap. Basically, all the stores. When I talk about all the stores, I talk about the legitimate, which is 99 percent, the same thing as I know that all the customers, no matter what neighborhood, are legitimate. A lot of merchants feel it's about time we got out of this business because everybody wants everything. I am not under that impression. I appreciate everybody's position. So, basically, what we call mer- chandising, we can find a million fancy names, is creating an image. If you have a store in a Jewish neighborhood, if you want to create an image you are cheap, you wouldn't feature pigs' feet and pigs' ears and pigs' knuckles- Mr. ROSENTHAL. Unless you sell them cheap. Mr. MANDELL. And it won't mean anything. You will come out with Manischewitz borscht for 10 cents. You lose exactly 11 cents a jar. If you are in Flatbu~h, that is what you feature even though you are a Key Food store. Mr. ROSENTHAL. Was Manischewitz borscht in your 20 items? Mrs. APONTE. Of course not. Mr. MANDELL. When you come to Fulton Street, which is the Bed- ford-Stuyvesant area- Mr. ROSENTHAL. She had 20 items. The exact same items. Mr. MANDELL. That is what I am trying to get at. Depending on the neighborhood. If she walked into a Key Food Store, Manischewitz borscht will be sold at a loss, where in Bedford-Stuyvesant and on Fulton Street it would be sold with the average markup, which would be about 27 cents. She will overpay. However, she will find Quaker's hominy grits for 19 cents, because that is an item that creates an image in Bedford-Stuyvesant, but they might not have it in Flatbush. She will get-we also find that naturally-it's very easy to hang someone if you want to hang them. If they look for items, they will only point out the items overcharged. They won't point out the items undercharged. Mr. ROSENTHAL. We have to have order here. What you are saying is, you don't have to be Jewish to like Manischewitz borscht. [Laughter.] Mr. MANDELL. I want to simply point out,I don't mean to be funny- maybe it sounds funny at times-and I do want to feel that we think a lot of our customers. The very fact that we have our stores-after a lot of major stores gave them up-this in itself-we can all talk fancy, but I talk facts. I operate a store. We have a store on Junction Boulevard and 37th Avenue. `We have a lot of confidence in the consumers. We invested a lot of money. We can't be a success by overcharging. I maintain in the long run if the consumer itself is a pretty good judge, all she has to do is stop buying in a store that doesn't treat her right. PAGENO="0191" 185 Mr. ROSE~TI1AL. Ca~ you explain t~us, based on the testimony Mr. Press gave us this morning, that in the Key Food Store at 110th and Third Avenue based on an ad run in the New York Post on October 25, 1967, Chock Full of Nuts was 69 cents in the ad and was sold for 79 cents in the store? Nestle's chocolate bars were three for 89 cents in the ad, but sold at one for 39 cents which is three for $1.17 in the store. Key tea bags, 100, was 75 cents in the ad and 93 cents in the store. Del Monte peas, two for 43 in the ad, two for 49 in the store. On and on and on. Item by item. Can you explain that to us? Mr. MANDELL. I can't explain why any customer should want to go into a store like that. [Laughter.] I can't explain it-if this was brought up in front of our board at Key Food, we would develop- Mr. ROSENTHAL. Based on what I just told you and what Mr. Press testified to today, what do yoi~i intend to do about it? Mr. MANrxI~LL. We intend to call the member down and warn him- usually we give him a warning. If it happens again, we take the fran- chise, away. Mr. RQSENTIL~L. Will you do that in this case? Mr. MANDELL. This is a possibility. I don't want to say something and not be able to back it up. Of course, there is always two sides to a story. There is a possibility of, help being what it is, sometimes the checker, sometimes we have a checker that was just put on, the specials are changed the day before. We have a terrific help problem, which sounds easy here. We have 10,000 items in the store. It's understandable that a checker that is put on 3 days ago, no mat- ter how much training you give him, these specials were put on yester- day, part-time workers, might have charged the regular prices. Mr. ROSENTHAL. Why doesn't that happen in Flatbush? Mrs. APONTE. Yes, that is the question. Mr. MANDELL. I don't mean to be facetious, but they happen in Flat- bush. They happen all over. Let me tell you the problem. Isn't this understandable? When we have that many items~-we are caught in the squeeze. In order to do these things properly it means we would have to increase our cost of corporation, which in turn would mean higher prices. Sometimes we try to cut corners. When we come out with a special, don't bother changing the price, but we give him the list. This means money. Mr. ROSENTHAL. So you don't bother changing the price on the can. You tell the checker-you give him the list. He doesn't change the price on the can, but the checking-out person has the list and if the housewife if lucky- Mr. MANDELL. I wouldn't say lucky. Every housewife is interested to see she should get charged properly. Mr. ROSENTHAL. Will you do this: Will you look into this problem concerning your store at 110th Street and Third Avenue and will you let the subcommittee know what action you took, if any? Mr. MANDELL. We certainly will. Mr. ROSENTHAL. Mr. Mandell, we will furnish you with all the accu- sations that have been made. Mr. Press will give you a copy. I will give it to you right now. You look into this and you tell us what you have done. Will you do that? Mr. MANDELL. Thank you. Sure will. PAGENO="0192" 186 (The following information was subsequently received, as follows:) Krv FOOD Snoans Co-OraRATl~E INe., Brooklyn, N.Y., Dooe~nber ~t, 1W~. 1~Ir. I. WARREN HARRISON, ~peciai Inquir~j Into Consum~er Ji~epresrntcl/ti0n in the Federal Governn~ent, Rctyburn House Office Building, Wa~hington, D.C. EIONORAnLE SIR: I acknowledge receipt of sour communication dated tile 13th ~day of December 1967. Please be advised that on November 24, 1967, at the time I attended the hear- ing, the owner of the store in qtiestjon was directed b~v Ke~ :JFoed Stores Co-Opera- tive, Inc., to attend and make biu~self availabte to the conunittee, if necessary. The owner, by his attendance is now fully aware of the seriousness of tile matter. On December 4, 1967, at a meeting of the board Qf directors of Key Pood Stores ~Co-Operative, Inc., I reported to the meeting that I bad attieaded tile bearing and the subject was fully discussed and conside~e4. jintsm~cb as tile store in ~uestlon bad not been guilty of any prior offense~ the owner, despite ills prQte5ta- lion of his innocence or willful wrong doing, was, nevertheless, put on notice that any future infraction of Ke~v policy regarding advertised Items, specials or other ~conduct not consistent with Ke~ policy, etc., the sign and franchise would be taken nway from the store. Key Food Stores Co-Operative, Inc., will, at its next regular stiarellolders' meeting devote considerable time to the discussion of tile subject matteI~ and such other efforts as may be in our power, will be exerted to prevent any of the occurrences. Respectfully submitted. MANI!RXA President. Mrs. APoN~rJi. I don't want to interrupt you, but I want to bring up ~ point that is very important at this stage. We have two di~erent Key Food stores in Bedford-Stuyvesant. We have the slips of whnt we bought. As a matter of fact, we have them initialed by the manager because we wanted to make sure that nobody could say, that doesn't belong to our store. This was done on November 3 as one of our routine comparison shopping surveys, and on Bedford-Stt~yvesant Key Food, 1043 Broadway, we had Plymouth Rock-this is bologna for 39 cents in Bedford-Stuyvesant. Then we had the same Plymouth Rock in another store in. Bedford- Stuyvesant, same Key Food but in another place, in andt~her address in the same Bedford-Stuyvesant area-for 35 cents. But it happens that the same date in Flatbusb, Key Food in Flatbush, we have Ply- mouth Rock, the same item, and the evidence is here, for 33 cents. Mr. MANDELL. Were these items advertised in the paper? Mrs. APoN~i. No. Has nothing to do with it. We went over there. We bouotht it- IlVi'r. ROSENTHAL. You can't have too much of a crossdialog. Mr. MANDELL. If it wasn't advertised we have no control. These are independent operators. Unless it is advertised, the Key Food okfice has no control. Mr. ROSENTHAL. At least on the material I gave you at 110th Street it was advertised in the New York Post and you will take disciplinary action if you find it is necessary, and you will let us know what you Mr. MANDELL. We certainly will. Mr. ROSENTHAL. Thank you very much. I think the gentleman from Waldbaum's, Ira Waldbaum or his rep- resentative, is our next witness. * PAGENO="0193" 187 STATEMENT OP DAVID CARON, EXECUTIV1E VICE PRESIDENT, WALDBAUM'S, INC.; ACCOMPANIED BY ERNEST BROWN, VICE PRESIDENT; AND GEORGE BROW~t, VICE PRESIDENZ WALD- BAUM'S, INC., NEW YO1~X, N.Y. Mr. CARON. I am David Caron. I am the executive vice president of Waldbaum's. With me is Ernest Brown, vice president of our' com- pany, and George Brown, also a vice president of our company. They have been with our company for the past 30 years. Ernest Brown is in charge of operations for our entire company, and George Brown, on my left, is in charge of the entire Brooklyn area. With reference to this meeting, I `want to explain to everyone con- cerned that we have been in operation for the past 64 years. Our one store in the Bedford-Stuyvesant area is our original store, and we are very proud of it. We have gone along with every committee in the area, with every service group in the area, with the city fathers who asked us to stay. Not only did we stay in the area because we are very proud of our original store, but we enlarged the store and made it a complete super- market, not yesterday or today but 10 years ago. We moved it across the street, and you have a complete supermarket in the area. Mr. ROSENTHAL. Let me compliment you on one thing. Looking at this chart based on Mrs. Aponte's survey, your prices went down- went from $9.60 on November 14 in Bedford-Stuyvesant to $9.58 on November 16. Every other store we had went up after the 15th. Mr. CARON. I would like- Mr. ROSENTHAL. I assume that is an accident. [Laughter.] Mr. CARON. Sometimes we say God takes care of everything and if He doesn't, it's an accident. I can only state one thing: all of our prices are the same in every store and at no time would we ever change prices for checks that come in on the 15th or the 1st or any other date. Mr. ROSENTHAL. The only reason we asked you to be here was that Mrs. Aponte's study did show a discrepancy between Bedford-Stuyve- sant on November 14 of $9.60 and in Flatbush of $9.21, and on Novem- ber 16 in Bedford-Stuyvesant it was $9.58 and in Flatbush it was $9.09. Mr. CARON. I can only say I don't know the items. I knew nothing about it. I received a telegram just the Other day. We are very happy to be here. I can only state that we don't change our prices. There is such a factor as human error. Whatever that may be, it could exist. Mr. ROSENTHAL. We must have order here, please. This is a congres- sional inquiry. You have a book price for all your stores? Mr. CAnON. Yes, sir. We have a book price for all the stores. It comes off an IBM machine and is printed every 4 weeks so they have a con- tinual running of prices, a continual updating of prices, and this book is continuously carried on through the 4-week period. Mr. ROSENTHAL. Do you check the Brooklyn stores yourself? Mr. GEORGE BROWN. Personally.' Mr. ROSENTHAL. Ho~W often? ~ Mr. GEORGE BROWN. On a weekly basis. Mr. ROSENTHAL. Could ~ou explain this report? This difference? Mr. GEORGE BROWN. No. I am at a loss. Mr. ROSENTHAL. Have we shown the item~-~-- Mrs. APONTE. We didn't bring physically the items, but we have the pictures here on this list. 88-532-68-13 PAGENO="0194" 188 Mr. ROSENTHAL. Could we do this-apparently we wouldn't be able to do it this afternoon, and we frankly regret the limited time we gave you folks. We realize the pressure you were under. We didn't know when Congress would have a day off. We finally concluded we wouldn't have a day off, and that is why we made it today in New York and tomorrow in St. Louis, so there was not an opportunity for anyone to really properly respond to all the things that would be brought up. We will do this: We will have Mrs. Aponte give us, give the com- mittee staff, a list of all the items involved in this market basket. Would you check it against your records and let us know what your explana- tion is for the record of what the discrepancy is? Mr. CARON. Absolutely. Mr. ERNEST BROWN. I will say this, Mrs. Aponte or anybody else, if they find a difference in price, they can notify us immediately. Ask my manager and they will give the home phone number of our office and we will take action right away, because we only have one price and only sell at one price. Mr. CARON. I doubt if there is any problem that any customer would ever have trying to get hold of our main office or speaking to our managers. Mr. ROSENTHAL. What is the telephone number to call for somebody who wants to complain? Mr. CARON. They can ask the manager in the store. They can have the direct line right there, or call. That is our number at the office. When Dr. Costello spoke of these areas and would like to have local talent in our stores, I want to make certain the people un- derstand that our stores, that particular store, has a Puerto Rican as the manager, and 80 percent of his staff is Negro, and I don't say that just because the two Brown gentlemen are here with me. This has been our policy for 64 years. This is not as of today. We haven't changed any prices. We don't intend to change prices. There may have been a mistake. I will agree. Could be. Human error. Could happen. But- Mr. ROSENTHAL. Are the managers on an~y kind of bonus incentive arrangement? Mr. CARON. Absolutely not. Mr. ROSENTHAL. Strict salary basis? Mr. CARON. Yes. They all belong to the union. They are on a strict salary basis. Mr. ROSENTHAL. Is that common throughout the industry here in New York? Mr. CARON. Yes, sir. Mr. ROSENTHAL. What we found in our hearings in Washington, for example, was that Safeway store managers could earn a 60-percent bonus. They would get a salary and up to a 60-percent bonus based on the profit of the store. You have no such arrangement? Mr. CARON. No, sir. VoIcE. That is the only chain nationally that has a bonus basis. Every supermarket in New York City, and we represent labor, we are from the Retail Clerks and the Amalgamated and local 338, you will find everybody is on a basic salary. No one working percentages. The only time there might be some pressures is on short stocks to our peo- ple, and then the problem comes in on the price changes. PAGENO="0195" 189 Mr. ROSENTHAL. When you advertise specials, what happen.s if the customer comes into the store and the special is no longer available? Mr. CARON. We have a raincheck for all the customers that come up and say they haven't got the special. Our specials run from Monday through Saturday and are advertised in newspapers on Sunday and also on Wednesday in every newspaper. We were the first ones ever to advertise in the New York Times. Mr. ROSENTHAL. Do you have a sign in the store the way A. & P. does about a raincheck special? Mr. CARON. No. Mr. ROSENTHAL. Could you do something about that? Mr. CARON. Surely. Mr. ROSENTHAL. Will you? Mr. CARON. Absolutely. Mr. ROSENTHAL. In the A. & P. store on Third Avenue, we observed a big sign in the back and front, and this is useful for the people to see. Mr. CARON. We made a note of it, and we will take care of it. (The following information was subsequently furnished:) WALDBAtTM'S Garden City, N.Y., December 21, 1967. Hon. BENJAMIN S. ROSENTHAL, Chairman, S1pecial Inqairy Into Consumer Representation in the Federal Gov~ ernment, Rayburn House Office Building, Washington, D.C. DEAR `Mn. CHAIRMAN: In reply to your letter of December 13, I am enclosing a `copy of our `raincheck form which is now available at all of our stores. Under separate cover we will mail to your office a copy of our new Day~Glo sign's which will be prominently posted in each of our stores on or about January 5, 1968. Very truly yours, DAvID CAnON, )3Ja~eeutive Vice President. ~ RAIN CHECK DATE ISSUED.. ..STORE ~ Dept._____ ISSUED TO: NAMF~. ADDRESS, Valid ~or two weeks from date issued. Customer may purchase following item ~n acc~rd~~ with advertised limits. ______ LQTYJPRICE.JrI STORE NGR'5~ SIGNATURE.. ... .. . . . . * PAGENO="0196" 190 Mrs. APONTE. Mr. Chairman, someone just told me something. I understand that if a particular store makes good profit, the manager, whoever it is, gets raises faster. Would that have something to do with the overcharging in low-income areas? Mr. ROSENTHAL. Do you want to address yourself to that question? Mr. CARON. I think I answered it a moment ago when I said that our managers all belong to the union, and they get their increments as the union provides. They don't get any raises faster, and they don't get any bonuses. Mr. ROSENTHAL. You have one basic price that all managers are supposed to charge? Mr. CARON. Yes, sir. Mr. ROSENTHAL. What happens if you, Mr. Brown, were to find that one of the stores under your jurisdiction in Brooklyn, charged a price higher than the book price for that day? Mr. GEORGE BROWN. The first time, I would allow for human error. The second time, I would take disciplinary action. Mr. ROSENTHAL. Have you ever done that? Mr. GEORGE BROWN. Yes. We have let a manager go for not follow- ing principles of pricing. Mr. ROSENTHAL. What would the circumstances be? Why didn't he follow the principle? Mr. GEORGE BROWN. I attribute it to laziness. He took the price without watching his price changes, or, as Mr. Caron said, we h*w'e a run every 4 weeks. He didn't change his book. Just stayed with the old book. Mr. ROSENTHAL. Do you find that it requires a lot of help-one of the questions Mr. Reid was pursuing this morning, do you find it requires a lot of alert, responsible help to keep changing the prices in accordance with the specials and book price changes? Mr. GEORGE BROWN. It's not so much a lot of help. When we run our special from Saturday, from Monday to Saturday, our special prices are changed on Saturday night. The new specials going in. The old ones coming off are changed that Monday night. Mr. ROSENTHAL. Do you cross out the prices on the cans, or what? Mr. GEORGE BROWN. We eradicate the old price. Mr. ROSENTHAL. how do you do that? Mr. GEORGE BROWN. We have a Lysol spray remover which will take off the ~rnetal, and we have gum labels to put over the old price on packages. Mr. ROSENTHAL. Is this done during the day or at night, or how? Mr. GEORGE BROWN. Most stores do it at night, after hours. Mr. ROSENTHAL. How about the Bedford-Stuyvesant store? Mr. GEORGE BROWN. Follows the same pattern. Mr. ROSENTHAL. We have some testimony here today from A. & P. that they do it on Saturday during business hours. Mr. GEORGE BROWN. That is A. & P. To each his own. Mr. ROSENTHAL. You haven't found that a useful way to do it? Mr. GEORGE BROWN. I find it best to do it after hours on `Saturday night for the pricing going on the coming week. You can't change during the day on that preceding Saturday if you are still running a special, because you want the people to get the same price you advertise for. PAGENO="0197" 191 Mr. ROSENTHAL. Do you find any special problems in low-income areas in the operation of a store-pilferage, insurance rates, or any of these things we have been hearing about but never have been really able to confirm? Mr. GEORGE BROWN. No. We only operate one store in Bedford- Stuyvesant. Mr. ROSENTHAL. How does the overhead of that store compare with the overhead of other stores considering these factors? Mr. GEORGE BROWN. That is out of my category. The overhead of the store. I operate them all the same, all 40 units. Mr. ROsENT1I~L. Have you ever, either in your store, your chain, considered the possibility of posting in a prominent place in the store the current book prices for that day on all items? Mr. CARON. It would be impossible. There are anywhere from 7,000 to 10,000 items. I think we, during the course of the day, we said we advertise our prices. We circularize. We have it in the newspapers. People don't read and people don't follow. The signs are in the windows. Mr. ROSENTHAL. Here is what I am trying to get at, Mr. `Caron. We just had a gentleman who preceded you, Mr. Mandell from Key Food. He said that sometimes-I think I understood his testimony clearly-. sometimes when you have a special, you run an ad, that some of the stores and some of the clerks may be sluggish in changing the prices and are not quick enough and that the customer has to rely on the diligence of the checker to pick up any discrepancy between what the new reduced special prices as compared to the price on the can. Mr. CARON. Sure. They are in the window in bold signs 6 feet high and 4 feet wide. Mr. ROSENTHAL. Every special item? Mr. CARON. Yes, sir. Mr. ROSENTHAL. In other words, I visualize myself as a shopper going into the store and I may have been induced to go into your store because Del Monte is three for 29 when it's usually three for 43, and the cans still have the old price on it, three for 43, and when I go, out with the wagon full of the cans, I am busy trying to keep my kids from knocking over the other bunches of cans. Does the checker, if he sees three for 43, does he go three for 43 or three for 29 as advertised in the paper? Mr. CARON. We want him to go three for 29 as advertised in the newspaper. Mr. ROSENTHAL. Do you think he ever misses it? Mr. CAnON. Could be. Human error. Mr. ROSENTHAL. What can we do to prevent that from happening? Mr. CAnON. Change human beings. Mr. ROSENTHAL. We can't do that. What else can we do? Mr. GEORGE BROWN. We price mark with the special price all our items. Mr. ROSENTHAL. Say that again. Mr. GEORGE BROWN. We price mark with the special price all our sale items. Mr. ROSENTHAL. In other words, you physically have a man, a- Mr. GEORGE BROWN. Physically change every can with the sales price. PAGENO="0198" 192 Mr. ROSENTHAL. Have you ever found, in your own inspection, that some employees have missed that? Mr. GEORGE BROWN. Yes. Mr. ROSENTHAL. I am trying to find some way that we can prevent that from happening. I can well believe-you have young people there. They are busy talking about last night's date instead of today's stamp date, and they may miss some cans. How can we make sure the cus- tomer gets the advantage of the advertised price? Mr. GEORGE BROWN. There is no physical way you will do it 100 percent, because if you had a stack up to that ceiling of tomato juice i~t 10 cents a can and somebody took the same can and put it somewhere else on another shelf and somebody sees this doesn't belong here and they put it back in the same place, it could be done by a customer or elerk, that can marked with the normal price would be in the midst of 10,000 cans marked 10 cents, and this would probably be marked 15 cents, so there is no way you are going to do it 100 percent. Mr. ROSENTHAL. How about the quality of food, meats and perish- ables, between the Bedford-Stuyvesant area and the Flatbush store? Mr. GEORGE BROWN. We have one quality. Mr. ROSENTHAL. Do you yourself personally check that? Mr. GEORGE BROWN. Definitely. One quality. Mr. ROSENTHAL. Have you had situations where customers have come back to either of you gentlemen or anyone at the management level and said, "Here is a can, the price on here is more than what the advertised special was"? Mr. GEORGE BROWN. Yes. It happened. They got it for the adver- tised special price. Mr. CARON. They can buy it for 10 cents and bring it back next week and say, "I don't want it," and ask for 15 cents and we give them 15 cents, not the 10 cents. Mr. ROSENTHAL. I am not worried about them competing against you. [Laughter.J Apparently in your chain there is no real incentive for the manager to do some of the things that happen where a guy gets a bonus. Now we can eliminate human error, because people believe this problem exists? It may exist. So long as they believe it, they are unhappy. If your customer is unhappy, then you are really not making a useful contribution to society. Mr. CARON. I know, but when you bring up the subject of useful contribution to society, people have to understand we can't be in busi- ness without our customers, and every chain or every store is interested in keeping their customers and gaining new customers and not out to gyp customers. Mr. ROSENTHAL. That is good. That is very good. But when you take a situation where there is a supermarket with no competition, all those old-world cliches fall by the book. Mr. CARON. That is not so. That does not exist. Mr. ROSENTHAL. It may not exist in your store, but there is, in the area between 116th Street here in Manhattan and-in a large square block area, there is only one supermarket. The people either buy there at conditions that exist there or they have to travel 10, 12, 14, 16 blocks. Mr. CARON. I can only tell you on DeKaib Avenue at the Bedford- Stuyvesant area we have a big, beautiful supermarket. Our competi- PAGENO="0199" 193 tion has every little huckster on the street. We have air conditioning in the summer and heat in the winter, and we still have to compete and we still have to have the prices to bring these customers in. Mr. ROSENTHAL. Do you have any supermarket competition? Mr. `CARON. Yes, of course. Mr. ROSENTHAL. How close? Mr. `CARON. Within on~or two blocks away. Mr. ROSENTHAL. I mean- Mr. CARON. They have changed. Many have changed. A. & P. Royal Farms-there is always competition. If there is business, there is super- markets or people there to serve the customers. Mr. BARASH. I am just interested in your response to the Congress- man's question relative to the posting of book prices. Could you explain to me in somewhat more detail the reasons why it would be impossible, as you put it, to- Mr. CAR0N. You said to post. To post a book of 100 pages written on both sides is an impossibility, but I will say this: The book is there, and any customer who wants to see it can see it. It is available. It is right there. Mr. BARASH. Have you ever said that publicly before? Mr. CARON. Absolutely. To any customer in the store. Any customer who questions the price we will open the book and that is the price. Mr. BARASH. Do all your managers understand that? Mr. GEORGE BROWN. Yes. Mr. BARASH. In other words, any customer with a problem could look at the book and find out the correct price? Mr. GEORGE BROWN. That is right. Ask to see the book. Mr. MANDELL. There is one thing we haven't taken up in the way of prices, the normal changes of prices aside from the specials. We also have a book and the prices on that book change from day to day, be- cause the nature of our business, especially the perishables such as eggs and butter and chickens, the market changes, so although we have a book price sometimes even the book has the wrong price be- cause the book is usually printed-you can't print a book overnight. It's printed a month in advance and by the time the book goes out, it's already outdated, so even looking into the book will not give you the whole story. One other thing I would like to mention, because I don't like it to ap- pear very simple. A lot has been said about the quality, about different quality items. Ninety-five percent of our items are nationally adver- tised items. That other 5 percent is getting less and less. There is very little we sell that we have control over quality, because it is all na- tionally advertised items, and our Campbell's Soup and Carnation Evaporated Milk and 10,000 items, baby foods are the same in every other store. I, for the moment, can't think of anything that can come in from one store and say your soup is not as good as `the next soup. A's far as that 1 percent on perishables, that might be sometimes if something goes wrong, but the margin for error must be in human nature for everybody. Mr. ROSENTHAL. Anyway, you will do two things: You will make a vigorous effort to reduce the margin `for error, and you will post a sign saying if you are out of a special, a raincheck will be issued. PAGENO="0200" 194 Mr. CARON. Absolutely. Mr. ROSENTHAL. Thank you very much. Mr. Stern, did you want to say a word or two? Mr. STERN. Yes, sir. I would like to, if I may. Mr. ROSENTHAL. Sure. Mr. STERN. My name is Irving Stern. I am director of Local 342, Meat Outters Union, and president of the Greater New York Labor Food Council, representing 17 unions operating within the super- markets in Metropolitan New York. We welcome very much this investigaition, and we think that vigi- lance is the catalyst of progress. We believe that consumers have to be represented and since we comprise over a hundred thousand em- ployees in the supermarkets, we consider that we, too, are a formi- dable source of consumer power. The problem of food prices and pricing is a complex one. I think we can't expect to find simple answers or simple solutions at a 1-day hearing. I would suggest, and I'm sure this committee is fully aware, the Na- tional Food Commission spent many months and a considerable amount of money making a study of the whole food industry. I would suggest that this ought to be part of this hearing. There is a need for more expertise in discussing the whole problem of the supermarket and all marketing procedures since it is an integral part of what happens to the consumer at the end source; namely, when she goes through that checkout counter. It's not my purpose here to discuss this, even though I think it's relevant to the problems. If I can make a contribution, it would be in discussing a problem which I think deserves Federal attention and Federal action. That is the whole problem of what can we do in the total community to encourage the building of supermarkets so that those in the ghetto areas are in a position to obtain what is generally considered are the values which the supermarket industry can give. One must ask, really in all frankness, why it is that there are no supermarkets, if, indeed, the supermarkets can profiteer in the ghetto areas? One must ask, Why is there such an absolute shortage of super- markets in these areas? Certainly, being merchants, they would want to take advantage of the opportunity to make money, since that is the name of the game. Mr. BARASH. If I might interrupt there, you are not suggesting, are you, that supermarkets in the ghetto are losing money; that it's a poor economic venture? Mr. STERN. No; I don't say that at all. Mr. BARASH. You suggested that if supermarkets could profiteer, why is it that there is a shortage of them? But I just wanted the record to indicate whether or not you were implying that the reverse is true that it's simply not a good economic venture to do business in a ghetto area. Mr. STERN. Well, that it is not a profitable thing I think is self- evident. If it were, then certainly those who could profit would want to operate in that sphere. At least it seems to me it would be a logical conclusion. The mere fact that you don't have the supermarkets would suggest to me that there are problems in terms either of operating or in terms of making what is considered the normal profit. PAGENO="0201" 195 I'm not suggesting the normal profit is the proper profit. Mr. BARASH. It may be true, might it not, that it's merely a question of it being more profitable to do business in Scarsdale or Garden City or in Long Island somewhere, than it might be in Bedford-Stuyvesant and in Harlem? Mr. STERN. That might be a point, surely. I wouldn't know. One can't deal with the specifics unless you have the specific facts in front of you. I couldn't make a judgment as to whether a store operating in Scarsdale is more profitable than the store in Bedford-Stuyvesant, although it has been suggested here, I think, or it's implicit, that there is profiteering, ipso facto, it's more profitable to operate in ghetto areas than in Scarsdale, and I pose this question: namely, if this is so, one must ask why is it that there are no more-why is it no supermarkets are being built? I direct myself to that question because I think it is really an in- tegral part of this overall problem of food and food pricing. One of the things which is omitted, and I think not deliberately because the consumer groups are well-motivated, but they don't have the resources or the expertise to conduct these surveys. It's a matter of fact. Where I say they are well-motivated, but they simply don't have it, It does require certain insights, certain knowledge- Mrs. APONTE. Come on now. Mr. ROSENTHAL. We must have order here. Let me say this, Mr. Stern. I was a member of the National Commission on Food Marketing and Mr. Jerome Stein here was one of the staff there, and we spent $2'/2 million looking into this problem and came up with no real answers. What this subcommittee is faced with is that we have been advised by people in two dozen American cities that the poor pay more. The people in the ghetto pay more. Mrs. Aponte and Mr. Press are typical of people in Chicago, San Francisco, Los Angeles, Charleston, W. Va., St. Louis, Dallas, Houston, Austin, everywhere else. Why should this happen? Why should we get these reports that this nationwide event is taking place in a society where everyone, from the President on down, is committed to breaking the cycle of poverty? Now, there has been much testimony by sociologists that "Yes, we should do something about housing and education, but among the other things we can do is take what money the ghetto economically deprived person has and make it go further." Why is it that the five Safeway stores in Watts were burned down and the three ABC stores remained unchallenged? Congress is faced with an urgent request to look into this matter. I wouldn't expect these people, consumer groups and the rest, to go into the deep prob- lems that the Food Commission, spending $21/2 million, couldn't solve. We have a narrow, simple problem. In every situation, major chains, it is reported, have charged more in ghetto areas than in outlying areas. What should we do about that in your opinion? Mr. STERN. If this is true, and I would assume on the investigations, the November 14 and 16-obviously, this is something which has to be dealt with and rectified. There is no question we certainly would not support-beeause we, too, are a large consumer group-we would cer- tainly not support any gouging in any form, but there is a degree of PAGENO="0202" 196 gouging which is not being dealt with here, and it seems to me really bears investigation. It seems to me, and this I know from firsthand evidence, that the smaller operator, the small store, for a host of justified reasons, charges a great deal more than some of the larger chains. Mr. ROSENTHAL. That raises irrelevant questions, because Congress has to deal with people involved in interstate commerce and all of the chains and people that we have called to appear in Washington, New York, and St. Louis, are people who deal in hundreds of millions or billions of dollars across State lines. As little as we know about the food industry, we recognize that the "mom-and-pop" store and the individual operator can't buy in the quantity and the style that Safeway and A. & P. does, or even as Key Food hopes to do in a cooperative venture, so we can address ourselves to the social question and deception, if there be any. Mr. STERN. That's right. And there is somsthing further that Con- gress can address itself to, Mr. Rosenthal. That is the whole question of assisting the smaller merchants to develop supermarkets within the ghetto area. Assisting and training them to get the management tech- niques to be able to compete with the larger chains. I'm interested in that phase. Deputy Mayor Costello was kind enough to mention our union in connection with a project concerning the training of the smaller merchants and Negro merchants in the first instance to develop and build supermarkets in the ghetto areas. Here is where you have the real problems. Obtaining real estate, ob- taining insurance from insurance companies, obtaining loans to estab- lish these businesses, obtaining credit, and I think it's in this area that there might be some profitable investigations. Why is it so difficult to obtain insurance in the ghetto areas? Why is it so difficult to get credit so that the smaller merchant can compete on an equal basis, so that in the first instance he can establish himself? A few of the more progres- sive supermarket operators, it must be said, within this city, are coop- orating with the unions in the first case to train management so that they have the skills of running the largest supermarkets to provide help in getting at the sources of supply, because in monopolized Amer- ica control of sources o'f supply is a key factor, and getting the proper merchandise and the proper mix, enables you to compete with the larger chains. There are a few in this city, including Waldbaum's, it must be said, and including one of the Brown brothers, have sat with us and con- sulted with us and helped us, and we have a number of people training in various supermark~ts to become managers and hopefully, in estab- lishing co-ops which will operate in the ghetto areas. Mr. ROSENTHAL. I don't see any area of disagreement. These are things we have to consider. I think they have to take a secondary role only for the moment, and we want to address ourselves to what appears to be nationwide pricing discrimination. If this can be stopped, No.1, we ought to get moving pretty quickly with No.2. VOIcE. Harlem area, we are sitting right now in Harlem. I represent the Retail Food Clerks of the Harlem area. Not a single merchant has been here this morning to testify before this committee out of this here where we are sitting. They are not here. Not one of them. They would really tell you the story. PAGENO="0203" 197 Mr. STERN. I know the purpose of this investigation, and we com- mend Congress and commend the consumers' groups, and we pledge our support in any effort to eradicate gouging, price variance, any- thing that will take advantage of consumers in this part of town or any other part of town. Certainly, as workers in the stores and in many cases, we contend, underpaid, many of our members are part time and don't get an adequate amount of wages and they are harassed and overworked. Certainly we have an interest in supporting consumers in their effort to get the right prices, but I think it wOuld be a disaster if we leave it simply on just this level of the price variances. I think we do a disservice if we don't dig into this industry as you did in the National Food Commission, and I don't think you wasted time. I think you did a great service, because much of the facts are of value to this industry. We support all these efforts and we want to offer our cooperation of the unions in Greater New York with your- Mr. ROSENTHAL. Let me just ask you one question and I want to conclude. I heard what this gentleman said. It's been said many times before. Yet every man who appeared here today on behalf of the supermarkets, when I asked them if there were any special problems in the ghetto areas, they all said "No." Mr. STERN. I think-I doubt whether you're getting the complete story. I think there is a great concern about discussing some of the sensitive areas, and I think that candor is called for, and I think you can't solve a- Mr. ROSENTHAL. If the giants of the food industry won't be candid with us, how will we get to first base? Mr. STERN. I can't speak for them. VOICE. The gentleman from the food industry here this morning has rio stores in Harlem. They can't speak for Harlem. Mr. ROSENTHAL. Thank you very much. Do we have anyone else that wants to be heard? VOICE. I would like to make a comment. Mr. ROSENTHAL. Identify yourself. Mrs. HILL. Lorraine Hill. I'm with the African American Teacher's Association, as well as United Bronx Parents. The only result I can see of these smaller stores getting support to become supermarkets is that you have a lot of independent stores with no control, kind of gouging people. As Mr. Mandell said abottt the Key Food stores, where they are all independent and they all have their own franchise, and there isn't that much control that you can have. You hopefully want control, but you can't guarantee that you can get their price fix that you talked of and Mr. Stern's suggestion is going along the same line. And I certainly can't see that it will help a poor community. Mr. MANDELL. What control are you referring to? Mrs. HILL. The kind of control you might very well have with a store like Waldbaum's or with a store-that you might have with A. & P. But you certainly won't get it with the kind of thing Mr. Stern was talking about, orthat you gave, because I certainly was not comfortable with the kinds of things that you said were going on in your stores. PAGENO="0204" 198 Mr. MANDELL. I just want to get one thing clear. I don't understand what sort of control you would want us to have that would improve our- Mrs. HIlL. You can't get it because your stores are independent. Mr. MANDELL. Does that mean that all independent stores have to go out of business at present? Mrs. HILL. I didn't say that. I was directing my remark specifically to what Mr. Stem said about making smaller stores larger, and I say to make the smaller stores supermarkets would simply give them more areas in which to overcharge. That's all. Voice. I would like to say- Mr. ROSENTHAL. Could you identify yourself? VOICE. Yes. I'm Florence Rice. I would like to say here I feel that what has to be done in this community and every other low-.income community generally, is to certainly have more cooperatives~-encour- age more cooperatives, `and certainly when you have cooperatives owned by the people-I don't mean outside coming in-certainly s~hat we are doing up at Espianade now in which we have a cooperative that will be owned and run and controlled by the people, this is certainly my recommendation to help. This is a longtime doing, but this-we need to encourage and then you have the people who are concerned. We know about the theft which you brought up. We take our store over in Moruingside, and the thefts there have been at a minimum, so I know this isn't the problem. Mr. ROSENTHAL. What can the Federal Government do to help you in this effort, Mrs. Rice? Mrs. RICE. They could see that we have some seed money to help us along, which they haven't done. We at Esplanade didn't get any seed money. We, the people interested, grassroots, put our $10 and `$20 in and we will be having a 10,000-square-foot store up there by February 1. That's only one. But more and more this needs to be encouraged. I'm not one of the ones advocating for outsider super- markets any more, to come into low-income areas, and this is my recommendation. Mr. Piwss. I think the idea of a merchants cooperative is a good idea. I think it is one way to bring down prices and it can be just as effective to the people in the community as to the merchants. I know I'm talking about something different, but I don't think-when this question was discussed with Mr. Mandell, I think maybe a false im- pression was given. I think you talked about one store. Why talk about one store? We went to four Key Food stores and all four Key Food stores had the same problem, and if we went to other merchants' cooperatives in New York, we would find `the same thing. In this question of control, there is no control, and the stores do whatever they want. They ad- vertise in the newspapers that they are selling goods at a particular price and they don't do this. `They don't sell it at the price they adver- tise at. Mr. ROSENTHAL. If the Federal Trade Commission made them, by getting restraining orders against deceptive advertising, this would stop it. PAGENO="0205" 199 Mr. P~m~ss. If the Federal Trade Commission would act in many areas relating to advertising this would be a good thing. I think false advertising is one of the big problem areas, whether it's foodstores or furniture stores, and there is nobody-there is complete vacuum in that area-from the city government right up to the Federal Government in dealing with the problems of false advertising. Mr. ROSENTHAL. This young lady bark there. Miss OWEN. My name is Yetta Owen. I am employed with Con- sumers Mart. I want to make a statement. I'm sorry I don't remember the name of the gentleman that made this statement that people weren't capable of checking out the advertised items, and so forth. I don't think it takes such tremendous skill to read "Babo, 11 cents" and see it's marked 13 cents, and be able to cheek it out. This is what we did when we checked prices. We checked all advertised prices and then checked the price that was marked on the items. I think this is an insulting kind of remark to say we were incapable of checking out the item. Mr. HILDEBRANDT. I'm William Hildebrandt, the executive director of the New York State Food Merchants Association. You will forgive my standing prematurely. I have a bad bauk and had to get up. As I promised you when I spoke on the phone the other day, I would not ask to speak unless I felt there was something that might have been missed that I could contribute to your hearing today. I note in this afternoon's discussions that references have been made again, as we've heard it so often in the past year or so, to the difference between net profit and the rate of return on investment. Apparently the committee and your staff are reasonably well aware of the fact that the net profit in the supermarket industry is 1.3 per- cent, nationally, and you speak of a 10.6 rate of return on the most recent national figures. I call to your attention the extreme differences that exist between the New York market and many or most of the major marketing areas in the country. The national figures most reliably reported are those of Cornell Uni- versity, who have rated last year as high as 12½ percent as the rate of return on investment in the food chain industry. Just 1 year ago when New York City Councilman Troy was planning his nationwide boycott a week before Thanksgivirg, 1 was able to persuade him, in a public debate on radio, to cancel his plans. Because I made similar ref- erences to rate of return, by showiii~ him the evidence wh~h J would offer to this committee, too, ard it ir~ nubhicly available, that the rate of return on supermarket chains in this area of the country doesn't resemble the 10.6 that you referred to this morning, or the 12.5 of Cor- nell in the past year, but, as somebody previously pointed out, one major chain with almost $200 million volume, is losing money. I'm sorry we must protest it publicly, but it's a fact. The rate of return more closely resembles a range between 6 percent arid possibly ~½ percent with an average, if I can quote- Mr. ROSENTHAL. Let me say for the record- Mr. HTLDEBRANDT. I would like to complete the last sentence. If I have the contribution to make, I think at least your record should show the facts. PAGENO="0206" 200 The rate of return in this community is closer to 61/2 percent which is pretty much what the banks are paying, with far less risk than the average supermarket operator, regardless of type of ownership. Mr. ROSENTHAL. Let me just put into the record then, the net profit after income as a percent of net worth, the latest figures the Food Com- mission had, which was 1964: for A. & P. it was 9 percent; Safeway was 14.7 percent; Kroger was 11.9; Acme was 8.4; Food Fair was 9.3; National Tea, 8.9; Winn-Dixie, 21.3; Jewel Tea, 12.1; First National 5.7; Grand Union, 10.7; Colonial Stores, 11.6; Allied 11; Stop and Shop, 13 percent; Mayfair Markets, 10.6; Red Owl, 19.3; Lucky Stores, 11 percent; Thrifty Mart, 16.8; Von's Grocery is missing; Bohack is 2.7. I guess that is why they're not doing so well. Giant Food is 10.3; Winegarten is 11.2; Thorofare Markets is 10.2; Daitch-Kris-Kaldairs, 10.4; Big Bear Stores, 14.9; Fisher Brothers is 2.5; Food Mart is 13 percent; March Food Line is 8.8-making a total weighted national average of 11 percent. VOICE. You mentioned six chains that operate in the Metropolitan New York area-Grand Union, you referred to Bohack with 2.7, you referred to Daitch Shop Well with 10 point something. I can tell you a much more recent figure is closer to 6 percent. You mentioned First National with something resembling 3 percent. These are the figures for stores operating in this area. Safeway, Kroger, Winn-Dixie, Barnes, none of the others you mentioned, only six that you mentioned, operate in this marketplace. The proof is there if you will bear with us and realize when you speak of rate of return on investment on a national scale, you are not referring to the marketplace we live and work in, and the figures are far less than the 10 percent you referred to. Much closer to 6 percent. Mr. ROSENTHAL. Does any rate of return justify anyone charging more for the same item in a ghetto area? Mr. HILtEBRANDT. Absolutely not. We heard the testimony delivered in rebuttal to a rather dubious suggestion that this is taking place on some systematic basis. Evidence is in to you of Waldbaum's and A. & P., which are both corporate-owned chains, of their prices, books available, of one price zone for Brooklyn. Everybody in the place is meant to charge the same price. Apparently, someplace along the line you give far too little weight to this wide area of human error. It isn't only happening in the food industry, you have it in your own problems with your own people, anyplace in our world and society. We are having more difficulty getting good people. Mr. Stern makes a sound, worthwhile contribution with his sug- gestion of what he is doing. We are working with the city, meeting with the commissioner of markets next Wednesday, to discuss exactly what you have talked about at great length today. How do we correct the human errors that occur in changing price specials? Mr. ROSENTHAL. How would you address yourself to the question of human error in every case? One hundred percent of the human errors come down against the ghetto residents. Mr. HILDEBRANDT. These are based solely upon singular reports, and I think you would agree with me this is not a reasonable way in which chain organizations or independent grocers must be placed on public trial to answer questions that were delivered to them in a vague telegram, delivered only 2 days ago, and then expect that they PAGENO="0207" 201 can answer immediately and quickly here today the charges made against them in singular instances. I think it has been totally out of proportion, a~id has no total con- tribution to what I know must be your honest objective for trying to resolve the problems of the poor or lower income people in our coun- try. And so is this industry doing it every hour they work. This is what I try to deliver to you. You are not dealing with dis- honest people or consciousless people. You are dealing with men who have their lives and their careers totally involved in a business. Even the people with A. & P., the giant of them all. Mr. Mandell worked all his life in this industry. You just can't scourge us and say we are dis- honest, and thieves, and mean, to do nothing but cheat, because we deal with repeat customers on a penny profit, and unless we can satisfy them a lot more times than we dissatisfy them, we can't be in business. And that's what happens to our major national operators. VOICE. Mr. Rosenthal, I want to bring out a speciflo- Mr. ROSENTHAL. Would you identify yourself? VoICE. Jon Tricolli. I represent local 15. I represent 15,000 people in the metropolitan areas, and all the counties as far as Poughkeepsie. You will find your problem of your specials, that your consumer delegation have brought to this table today in this committee, are not only found in the ghetto areas, but all over. And there are companies that have sat at this table today that shyed away from an important factor, destruction of merchandise in different areas. And we can prove ~ `point with the Shop Rite Markets ~ho have `recently `come `out `of the Jersey area into New York. On Bruckner Boulevard, where we have 132. people in union contract working under that one roof, aside from the meat department which belongs to the Amalgamated Meat Cutters Union, we set a program up where-we call it the Bruckner Plan-to overcome the pilferage, to overcome the destruction of merchandise in the stores, and that hap- pens every day, and how we worked it out, we call the people together, with all the unions involved, and said that anybody making over a cetr- tam amount of salary on a basic 40-hour week would receive a $5 bonus per week, and anybody over that would receive $2.50. For two impor- tant objectives-to curb the destruction of the merchandise in the store and to curb the pilferage. Mr. ROSENTHAL. Could you explain that a bit more? Mr. TIacoILI. Destruction of merchandise, when a consumer goes in they'll take an item off a shelf, and `by the time she has gone through that whole supermarket, decides not to use that item or buy it. She'll drop it anywhere in the store, whether it's on the floor or on the shelf. They'll take frozen food items, take it over and drop it in the produce department. They'll take containers of ice cream `and drop it in the appetizer department. They'll take certain items that don't go back- Mr. ROSENTHAL. Does this happen across the board in all si~per- markets? Mr. TRIc0LLI. All over. No matter where you go. Your problem here today was how to compete with the problem of the items on the advertising, as Mr. Press brought in. I don't care where you go, whether it be the ghetto area or the outlying counties-Westchester, Dutchess, Suffolk, Nassau, Rockland, Kingston-anywhere you go, you will find this problem a great deal, because of your labor shortage. PAGENO="0208" 202 We have tried every way possible-Mr. Stern has instituted in the city of New York schools for people to become butchers. We have participated in every program that has come out of any organiza- tion that was built in the city of New York. The labor unions were right behind them to fill them, to see what we can do to curb them. We want people coming into this industry. What has happened? When you run a special you have to understand this business, that it's an impossibility to change all your prices on every particular can on your special, so this is the program that supermarkets know they are saving their customers-on your cash register there is a chart and your specials are put on this chart. There are some people that are lax in their job. But every supermarket operator has gone into another phase, where they have given an additional title in the union contract which they call a front-end manager. Any consumer or any customer that goes into a market who is not satisfied or dis- believes the price that is being sold on that can can go up to the front-end manager and he has the price book and will open it right there in front of him. The problem that was brought today as I discussed with Mr. Stern and Mr. Julius Sums while we had lunch, they, they bought items but never questioned them. They bought items that maybe had three prices on them, but I know and we have seen during our respon- sibility, during tours of our stores, customers come up and tell the managers and the operators of the store that they are a penny over or under, and we have seen it. The problem I'm trying to bring out, and the point I'm trying to bring out, anybody has a right to question them. We can't tell a supermarket operator how much he can get for his merchandise. 1-Te can charge $1.10 as long as it's not a special. The problem they brought forth today, that they felt they were being beat and cheated on the specials and that they can always com- plain about it, because you can't tell a supermarket operator if he buys something that is not on special- Mr. ROSENTHAL. We have to give the ladies equal time, and then we will adjourn for the day. Mrs. MASON. I have been into stores where I have seen one item- this is one instance-pancake syrup was marked 69 cents and I went to the manager and said to him, "You have the wrong price there," He says to me, "Oh no, that's the correct price." I said, "That size is 43 cents, because I pay it all the time." "No, no," he says, "That's the correct price." So I said, "Get your book out." He went and got his book. Sure enough, when he looked in the book it was 43 cents. What did he do? He wiped mine off and he wrote the correct price on it. I said to him, "What about the others?" He says, "Oh, I'll get someone to change it." The next time I went in the supermarket about a day later, they were still on the shelf for 69 cents. This manager had been wrong, and I spoke to him and said, "If you don't change that price, I'll call down- town, because everyone that buys that bottle of syrup is paying much more than they should pay." It's not always a matter of human error. Sometimes they know this. Mr. ROSENTHAL. At the cost of being impolite, would you give us the name of that manager, not publicly, but later on? Mrs. MASON. I don't know his name. He `s not there anymore. PAGENO="0209" 203 Mr. ROSENTHAL. The store~ Mrs. MASON. I'll give you that. But sometimes you tell these man- agers that these things-their attitude is very nasty. This is some- thing else you have to come in contact with in these stores, is the atti- tude that the managers and people take when you speak to them, as if they are the end. There's no one else over them. Mr. ROSENTHAL. We have a few phone numbers of people you can call today. Let's try and put them to use. Mrs. MASON. We had a girl come into our education program and told us she worked for one of the chains and was told by the manager to add on 69 cents to every big purchase. We are dealing with people in our particular area where they have from five to 10 in the family, so when this person goes to the store they won't buy just a few items they can really check and which the time they take their things out and put it on this register and this fellow's eyes just going like this, it's hard to even keep up with him and the prices. Mr. ROSENTHAL. I'm aware of that. What you are saying is that puts a special burden on the stores to make sure that the prices on the cans are up to the minute and correct. Mrs. MASON. Because a person will buy three cans instead of one, so he's charged three times the higher price. Mr. HAIL. My comment, of course, is that we kind of get confused, because we are as fighting two sources, management and union. Cer- tainly the union representative had much more to say about our problems-the terrible things we do and that we don't pay attention and the fault is ours and just like in every other situation, here we are fighting management and union, and I wonder why. Mr. SuMs. I'm Julius Sums. I represent the union. We have in this Harlem area most of the stores that are still here are' members of our union. One store mentioned, the Morningside Co-op, is one of our shops. We have our men who have been working there. The facts are that we had to take members of ours that worked in this area and find jobs for them in different areas. Many of the stores here close and never reopen. There is much more to check, as my friend Stern says, president of our council in New York, than just the price structur~ alone. The reason why do people run away from here and don't open any stores. The Food Family stores, our stores, had three markets. One burned. Then they remained with two. One is there willing to give up and close. There is much more reasons. We took half of our membership out of this area right here and placed them in areas, Columbus Avenue, Broadway, in different areas to place them on jobs. It's a union organization of mixed elements, Negro and white. Our top officials, two of them are Negro. Some Puerto Ricans. We are intermixed, and our men work in union shops all over the city. Local 342, Brother Stern is our president. All the locals cooperate with each other and make jobs for people. Our people are consumers. They don't want to be cheated as much as you don't want to be cheated. This is not a fact. Our locals, we represent a great majority. Mr. ROSENTHAL. Thank you very much. Without objection, I would like to insert into the record at this point, a statement and a letter by the Honorable Percy E. Sutton, president, Borough of Manhattan, and a statement by the Fort Greene Community Corp. 88-532-68-14 PAGENO="0210" 204 (The statements and letter referred to follow:) STATEMENT BY THE HONORABLE PERCY E. SUTTON, PRESIDENT OF THE Bonouou OF MANHATTAN CIVIL EIGHTS FOR THE CONSUMER Congressman Rosenthal, and distinguished Members of the Special Inquiry on Consumer Representation in the Federal Government. A congressional investigation of pricing and marketing discrimination against the poor of our cities is long overdue. You are to be highly commended for launch- ing this historic inquiry into one of the most significant but least explored ways in which the residents of our urban ghettos are oppressed. For too long, the interests of American consumers, who are the foundation of the American economic miracle, and especially the interests of poor consumers, have gone unrepresented in the Halls of Congress. Congressman Rosenthal, you are to be especially commended for having chosen to bring this important congressional investigation directly to the people of the ghetto by holding these hearings here at Intermediate School 201. By holding these hearings at Intermediate School 201, you are giving the victims of price discrimination the opportunity to speak out against oppression of the consumer and to help generate the legislation which will help end that oppression. Recently, carefully conducted studies in New York City and across our Nation have proven conclusively what housewives in the ghetto have suspected for years-the poor pay more for everything. They pay more for food, more for furniture, proportionately more for rent, and more for credit than is spent by middle-income and upper-income consumers. The sad truth is that economic discrimination is all too common in the Nation's slums. Indeed, more than a little of the smoldering resentment that has exploded in cities across the country can honestly be attributed to the victimization of the consumer poor. You already have in your possession a battery of facts and figures, gathered in survey after survey, which offer conclusive evidence that those least able to afford it pay the highest prices for food. The poor pay more because they must shop in small and often inefficient food- stores rather than in the large supermarkets available in middle-income city neighborhoods and in the suburbs. The fact is that the large supermarket chains are reluctant to serve ghetto neighborhoods, and that when they do serve ghetto neighborhoods, it Is all too frequently with small and obsolete units selling inferior-quality food at elevated prices. A marketing revolution has swept across our Nation in the last two decades, bringing to the consumer a greater choice of food products and a substantial savings in food-handling costs, but the poor have not been allowed to share the benefits that other consumers are now able to accept as a matter of course. The excellent survey conducted by Deputy Mayor Timothy Costello has dis- covered that the greatest form of discrimination by supermarkets against the ghetto consumer is not the price differential or the quality differential, but the lack of any kind of supermarket service at all. Intensive investigation by the consumer protection unit of MEND, the East Harlem community action program, seems to indicate that systematic discrimina- tion against Harlem and East Harlem consumers is part of the operational policy of certain large supermarket chains. MEND has also uncovered several instances where food stores have flagrantly raised prices on the days when welfare clients receive their checks. A. common form of discrimination against the ghetto consumer is in the sale of fresh, perishable food. The housewife shopping on 125th Street or on Lenox Avenue may pay the same or more for a head of lettuce or a cut of meat than does the shopper on the middle East Side. Yet for her money, the woman on 125th Street is likely to receive a wilted head of lettuce and a tough, old, and hard to digest piece of meat while the East Side consumer will receive a product of considerably higher quality. For too long, the supermarket chains have dumped their lowest quality perish- able goods into the slum areas. Discrimination against the poor consumer by food merchants is but one of the hundreds of ways in whicih the weaknesses of the poor are exploited for PAGENO="0211" 205 economic advantage. Consumer exploitation is a tragedy which is daily repeated over and over among the urban poor. It includes credit exploitation, where credit today is readily extended at ex- orbitant cost to those who can least afford it, including those on welfare. And yet, it is these low-income people who are often worst equipped in terms of education and experience to cope effectively with the mysteries of the credit system and to choose rationally between the various sources of credit offered to them. Any remedy to the problem of food price discrimination must be part of a total attack on the economic exploitation of the consumer poor. It must be an attack fought on three fronts: (1) efforts by Government to en- courage additional large supermarkets in low-income neighborhoods; (2) Gov- ernment prohibition of specific forms of price and quality discrimination; and (3) a massive program of consumer education to enable low-income people to make the most effective use of their economic resources. There is one positive way to get new supermarkets and to insure that consumers will not suffer price or quality discrimination. This solution is for the poor con- sumers themselves to own the supermarket where they shop and to participate in the management of such a supermarket. The people of Harlem increasingly are turning to the co-op market as a solu- tion to food price and quality exploitation. Recently I attended a meeting of Harlem citizens involved in organizing a cooperative supermarket in the Esplanade Gardens housing development. It is difficult in Harlem to bring large numbers of people out to a meeting and I ex- pected to find perhaps 20 or 30 people. I walked into a room packed with over 400 people and found out that these were not just people who had come out of curiosity-most of them had paid a $5 fee, the first step in becoming shareholders, co-owners of the new co-op market. In West Harlem, the Morningside Consumer Cooperative has been successful in providing large numbers of low-income consumers with good-quality food at low prices. Many sophisticated consumers from all over the ghetto, including a distin- guished assemblyman, shop at this co-op market and carry their food home in a taxi in order to avoid the inferior quality and higher prices of ghetto foodstores. As a first step in allowing low-income consumers to benefit from modern tech- niques of food marketing, I urge that the Federal Government and city govern- ments take steps to encourage the establishment, growth, and operation of co- operative supermarkets in low-income neighborhoods. Such asssitance must include long-term loans at low interest rates to provide part of the capital needed for construction and initial operating costs. It should also include providing community groups seeking to establish a cooperative food market with expert technical assistance in food retailing. In this area, perhaps the expertise developed `by the large `food chain could be employed and the Federal Government could contract with the food chains to provide assistance to low-income people in setting up `cooperative supermarkets. But more than co-op markets will he needed for the poor to protect them- selves from economic exploitation. What is most needed is a massive program Qf consumer education. Exploitation will end only after the would~be exploited become sophisticated consumers and `are able to recognize when they are being exploited, and then know what they can do ahout it. Green power-the power of the sophisticated consumer to spend his money only where quality food is offered at reasonable prices-is the best answer to those who would seek to exploit. In the Manhattan Borough president's office, we are seeking to organize a consumer protection and education program which would operate under the direction of our local community planning hoards. Such a program could aid in organistug cooperative supermarkets, could con- duct comparison shopping surveys and communicate the results through a `local newsletter, and could conduct classes for Manhattan consumers in how to organ- ize a family budget and how to shop effectively~ On a national scale, this kind of a massive consumer education program should be undertaken by the antipoverty program. The best device which Government has yet developed for involving the poor and enabling the ghetto resident to guide his own destiny, is the cemmunity action program, funded by the office of Economic Opportunity. PAGENO="0212" 206 A community action, consumer protection program would directly involve the poor by training low-income pec~ple as paid consumer education specialists to conduct sniiall community dis~ussion groups on such topics as how to shop for the best price, how to avoid credit pitfalls, and how to plan a budget. MEND in East Harlem `has developed a highly effective consmner protection program under its consumer education director, Stephen Press. I urge you to acquaint yourseives with What MEND is doing. This program deserves serious consideration as a model for the kind of nationwide program that I have recommended. If this inquiry is to have a major impact `on the ghetto consumer, it must `sug- gest more than merely regulating the price practices of supermarkets. My sug- gestion in the area of providing cooperative markets and a massive consumer education program are two of many possible ways in which Congress can `act to protect the low-income consumers in our society. Congressman Rosenthal, I `salute you and your colleagues for conducting `these very important hearings and I thank you for indulging my appearance. PRESIDENT OF THE BOROUGH OF MANHATTAN, CITY OF NEw Yon~, New York, N.Y., December 21, 1967. Hon. BENJAMIN ROSENTHAL, House of Representatives, Washington, D.C. DEAR CONGRESSMAN ROSENTHAL: Earlier this month I was privileged to submit testimony before your special inquiry on food prices in the ghetto areas. At that time I suggested that the Government aid supermarket cooperatives as one method of ending the food price and quality discrimination in low-income neigh- borhoods across our Nation. All too frequently, the large supermarket chains are reluctant to serve ghetto neighborhoods. When they do offer service to low-income communities, it is often with small and obsolete units selling inferior-quality food at inflated prices. I am convinced that there is one positive way to get new supermarkets and to insure that consumers Will not suffer price or quality discrimination. This solution is for the poor consumers themselves to own the supermarket where they shop and to participate in the management o'f such a supermarket. I have completed further research in this area and am now able to make specific recommendations concerning how such a program might be carried out. It seems to me that the proper vehicle fo'r stimulating the formation of con- sumer cooperative markets in ghetto areas is the Small Business Administration. In order to involve the SBA in loans to cooperative supermarkets it is likely that additional legislation is needed. Assistance by the SBA must include long term loans at low interest rates to provide part of the capital needed for construction and initial operating costs. It must also include technical assistance in food retailing for community groups seeking to establish a neighborhood co-op. There are apparently two reasons why the Small Business Administration presently will not make loans to consumer cooperatives. First, consumer co-ops are not profit-seeking businesses even though they exist for pecuniary motives and second, they would not meet minimal financial requirements. The Code of Federal Regulations, title 13, section 120.1(a) (4), states: "Financial assistance will not be granted by SBA: if the applicant is an ellemosynary institution or other non-profit enterprise: Provided, however, that this provision shall not be construed to bar financial assistance to a cooperative if it carries on a `business activity' [quotations added] and the purpose of such activity is to obtain pecuniary benefit i~or its members in the operation of their oth'erwise eligble small-business concerns." The Small Business Administration states that supermarket cooperatives are not "business activity" within the meaning of the regulations since their primary motivation is not profit. The `act is now Interpreted `to apply only to, say, coopera- tive purchasing `agencies for profit~seeking businesses. This must be statutorily modified. In addition, according to IS `tJ.S.C.A. 682(a), each applicant must have a paid- in capital and surplus equal to at least $300,000. Since all loans are, to a degree, discretionary with the Small Business Administration, `there is no reason for such a high minimum. Rather, the minimum should be dropped-at least for cer- PAGENO="0213" 207 tam programs such as this-so long as the ~pplicant is financially secure in the opinion of the Small Business Administration. I hope that my `suggestions will prove of some assistance as you prepare legis- lation for the upcoming congressional session. Your comments and criticisms are welcome. Sincerely yours, PERCY E. SUTTON. PREPARED STATEMENT or JosE A. CARABELLO AND AIDES, Fowr GREENE COM- MUNITY CORP., BROOKLYN, N.Y. As a result of a great many complaints from our immediate community, Fort Greene, concerning high food prices especially in A. & P. on Myrtle Avenue near Ashland Place in Brooklyn, and in Fin'ast Supermarket on Myrtle Avenue near Prince Street in Brooklyn, the consumer protection department of this agency, of which I am supervisor, has undertaken to try and prove this complaint and take action along those lines. One other major complaint was that prices were being fixed at will, particularly on days welfare recipients received their checks; the 1st and the 16th of every month. Essentially, this department's objective is to make consumers more `aware of their shortcomings in the marketplace, instructing them as to their rights, and arming them with as much related data as possible, for his protection; so that they may enter the marketplace causing the seller to be aware rather then the buyer to be aware. The `aides from this department did most of the comparison pricing surveys which were conducted in order `to document proof of the discrepancies previous- ly stated. These supermarkets in this community were compared to those same stores in other middle-income areas such as Flatbush and Bay Ridge. Bear in mind that this survey is limited to a few supermarkets and not a's large scale or scientific `as has been done by other groups throughout the country. But never- theless, the facts `are as follows: A. & P. [In cents[ Products June 13, 1967, Myrtle Ave. June 13, 1967, Flatbush Ave. Gold Medal flour (2 pounds) Hunts tomato sauce (15 ounces) Del Monte canned corn (12 ounces) 33 1 35 1 53 39 1 29 1 43 FINAST SUPERMARKET [In centsj Products Apr. 26, 1967 Myrtle Ave. Apr. 26, 1967 Bay Ridge, 93d and 3d Ave. Duncan Hines cake mix (1 pound) Jiffy corn mix (10 ounces) Aunt Jemima (2 pounds) Uncle Ben's rice (2 pounds) Carolina rice (medium) Parks smoked sausage (1 pound) 39 11 41 69 39 79 37 12 45 69 41 75 KEY FOOD [In centsj Products June 20, 1967 Fulton St. June 20, 1967 Flatbush Ave. Ajax cleaner (14 ounces) Beacon wax (1 pint 11 ounces) Minute Maid orange juice (6 ounces) Campbell soup (103'~ ounces) Kellogg's corn flakes (12 ounces) Del Monte canned peas (1 pound) 1 33 89 139 1 39 33 149 1 31 85 1 35 53 31 1 49 1 Price for 2 items. 2 Price for 4 items. PAGENO="0214" 208 In addition to the stores previously named, a survey was done on Key Food Supermarket on Fulton and Washington Avenues in Brooklyn and the same store in Flatbus'h near Grand Army Plaza. KEY FOOD Products Myrtle Ave. Flatbush Ave. Eggs grade A (brand name) large (1 dozen) Elmhurst milk (1 quart) Freestone peaches (sliced medium) Scott toilet paper (1 roll) 49 1 55 33 1 27 49 30 31 1 49 1 Price for 2 items. You note that in this survey that although most of the items compared were higher priced in Fort Greene, which is a low-income area, there are a few items that are of higher prices in the middle-income area. This is pointed out to `show that prices are `usually higher in low-income areas, `hut not exclusively. In addition, the person that surveyed this store also maci.e note of the fact that aisles were cluttered with boxes throughout the day, and in her opinion the produce was not fresh and the quality of meats was much better in the middle- income-area stores. Another type of `survey that was done was one of the same store on 2 different days to see how prices varied in that short space of time (one day after another). FINAST SUPERMARKET Products Myrtle Ave. Myrtle Ave. June 13 June 14 Canned snap beans (1 pound) 33 29 Ivory soap (large) 1 39 1 35 Scott toilet paper 13 1 49 Maxwell House coffee (1 pound, 10 ounces) 75 77 1 Price for 2 items. Here we have a few items with no consistency of prices in a difference of 1 day, again, price changes in a matter of 1 day. A. & P. Products June 13 June 14 A. & P. brand milk (1 quart) 27 1 55 A. & P. Brand Tropicana orange juice 23 25 Bumble Bee tuna (7 ounce) 43 39 Quaker Oats Cooked Breakfast (1 pound, 2 ounce) 1 49 29 Dole canned pineapple (chunks) (1 pound 4~~2 ounce) 37 39 Del Monte canned bean soup (1 pound) 21 1 49 I Price for 2 items. This discrepancy is constant and as you can see, and is not limited to one particular store. None of these days were sale days. These are the facts. Now, gentlemen I say to you, What do you propose to do? I certainly hope you will provide some effective means to do away with some of the unscrupulous tactics and maipractices that occur in the marketplace. One final note on unscrupulousness. On June 15, 1967, this department in conjunction with the department of markets, conducted "Operation Lamb- Chop." Ten stores were surveyed. Of the 10, five were found to be cheating consumers. Violations were issued for shortweight and unmarked goods. Fortunately or unfortunately, no spoiled meat was found. This is an average of 50 percent of the store surveys. If one were .to project this percentage, one could imagine that of all the stores in Fort Greene, at least 50 percent are sponging off con- sumers, it would be a sad thought indeed, Mr. ROSENTHAL. The committee stands adjourned. (Whereupon, at 4:45 p.m., the hearing was adjourned.) PAGENO="0215" CONSUMER PROBLEMS OF TIlE POOR: SUPERMARKET OPERATIONS IN LOW-INCOME AREAS AND THE FED- ERAL RESPONSE ______ SATURDAY, NOVEMBER 25, 1967 HOUSE OF REPRESENTATIVES, SPECIAL CONSUMER h~QUIRY, SPECIAL STUDIES SUBCOMMITTEE OF THE COMMITTEE ON GOVERNMENT OPERATIONS, St. Louis, Mo. The subcommittee met pursuant to notice, at 10 a.m., in St. Nicholas Community Center, 182'~ Lucas Street, the Honorable Benjamin S. Rosenthal (chairman of the subcommittee) presiding. Present: Representatives Rosenthal and Myers. Also present: Peter S. Barash, professional staff member; I. War- ren Harrison, legal assistant; William Copenhaver, minority staff member; and Veryl L. Riddle, tT.S. attorney, St. Louis, Mo. Mr. ROSENTHAL. The subcommittee will be in session. We are delighted to be here in St. Louis this morning. We believe we have an important function to perform. Today's hearing by the Special Consumer Inquiry of the House Committee on Government Operations continues and broadens an investigation begun last month in Washington, D.C., on charges that certain supermarket chainstores discriminate in their pricing and marketing practices against the poor. Subsequent to our Washington, D.C., hearing numerous reports of similar practices in other cities, including New York and St. Louis, have been received. Hearings were held yesterday in New York City. We are confronted, therefore, with allegations that there may be ex- ploitation of the poor in their most essential human activity, the consumption of food. Whether or not the charges being heard today are sustained, events of the last month lead us to the conclusion that consumer problems of the poor in our society have not received the kind of attention that they deserve. No less than five Federal agencies have either a legal responsibility or a moral obligation, or both, to confront the types of consumer injustices to be alleged here today. Federal responsibility in this area is clear: The Federal Trade Commission has broad legal responsibilities to safeguard the consuming public by preventing unfair or deceptive acts or practices and also has a responsibility for putting the spot- light of publicity on economic developments adverse to the public in- terest which may fall short of specific law violations; The Office of Economic Opportunity represents the institutional embodiment of U.S. policy to eliminate the paradox of poverty in the midst of plenty in this Nation by opening to everyone the op- portunity to live in decency and dignity; (209) PAGENO="0216" 210 The U.S. Department of Agriculture, in its administration of the food stamp program, has a responsibility both to the beneficiaries of that plan and the fiscal integrity of the food stamps themselves; The Welfare Administration of the Department of Health, Educa- tion, and Welfare underwrites a large part of the costs to the States for welfare assistance to needy families spending approximately a third of their income on food; The Bureau of Labor Statistics of the Department of Labor has re- sponsibility for identifying and developing family-budget studies, including budget studies for the low-income consumer. The House Committee on Government Operations, of which this subcommittee is a part, under the Rules of the House of Representa- tives, and under the Legislative Reorganization Act of 1946, has responsibilities and duties which cover a wide range of Government activities. Primary among these duties is our statutory mandate to study the operation of Government activities at all levels with a view to determining its economy and efficiency. Whether the operations of the agency activities described above are efficient relative to the prob- lem being discussed here is the long-range question we seek to answer. We are here today to examine into the nature and extent of the problem itself and to express our concern that these allegations and many others like them can exist and to understand how our Govern- ment can address itself properly to them so that solutions may be properly and rapidly found. Equal justice in the marketplace is hardly less important to the poor than equal justice before the law. Price discrimination is intolerable under any circumstances, but par- ticularly so because food expenditures account for about a third of the income of the urban poor. I do want to say this, that we have had assistance and cooperation from Congresswoman Sullivan and Congressmen Frank Karsten and Mel Price, in the preparation of this meeting here today and all of them have been very helpful in some of the preliminary work associ- ated with this investigation. I also want to say that Mrs. Sullivan, who is chairman of the Con- sinner Subcommittee of the House Committee on Banking and Cur- rency, is presently involved in the very important consumer-oriented truth-in-lending bill and has been meeting daily on that matter. There is one personal note that I am go'ing to mention. I came here because the clarion call for Federal action appeared evident, but I also came to find the house that my grandfather occupied from 1859 to 1872 at 1427 Morgan Street, which is now a highway they tell me, and so I suspect the next investigation is why they build highways over people's houses. [Laughter.] Our first witnesses will be Mr. Harry Nadler and Mr. Eugene Baum `of `the Human Development Corp. of Metropolitan St. Louis. STATEMENTS OP HARRY NADLER AND EUGENE BAUM, HUMAN DEVELOPMENT CORP. OP METROPOLITAN ST. LOUIS Mr. BAUM. Mr. Nadler will begin our presentation with a detailed findings of the survey, and I will follow with my interpretation and analysis of the results of that study. From time to' time Mr. Nadler PAGENO="0217" 211 will use the screen to our left, so we'll probably have to shift arouncl a bit to see it. Mr. Nadler began the initial food price survey on his own, and up to the present time has worked voluntarily with HDO. He has given his full time for no pay at all up till now, and he has done a very fine job in collecting data and arranging it, and now we'd like to hear from Mr. Nadler. Mr. NADLER. I want to giv~ you just a brief history of how I got in- terested in food price discrimination. I was a graduate ~student at George Warren Brown School of Social Work at Washington University and I was doing field work at King- dom House, which is in a poverty area in St. Louis on the near South Side. In March I went out to buy some food for a party there and I found that the prices were much higher than what my wife, Ellen,. had been paying for the same kinds of food, and I got permission from the agency to go out and do a survey to see just bow imiversal this was. When I found the results, I took it to HDC, and from there we worked a much larger survey of which we are going to be reporting today. I want to make clear that there were two different surveys. The survey that we are going to be talking about now is primarily the survey that was conducted in October. For this purpose, we want to go over very briefly the methodology of how we did the survey. We started with our compiling a list of different items that we'll show on the screen over here. This is what the survey list looked like. There is a list of items, a section for prices, quantities and amounts ate stated. These were handed out to several people to go into the stores and obtain the prices for those items. The lists were compiled inde- pendently. In March I had gone around to several people in the pov- erty area, asked them to give me items for the kinds of things that they thought would be in a typical market basket. Independently, Gene went out and did the same thing. We obtained two price lists and then when we got together for the survey, we brought the two lists together and they were almost identical. We made a couple of re- visions for purposes of research and came up with the list that you see up there~ We decided that we needed a fairly large number of stores, so we selected stores in the poverty areas representing five different chains or organizations. Now, I think we'd best define what we meant by chains and organizations. A grocery chain was any group of stores that is cor~orate~ly owned, has the benefits of joint advertising and joint costs, joint buying, this sort of thing. The organizations, a grocery organization is the same thing to us except they are not corporately owned. They do have the benefits of joint advertising and the benefits of joint purchasing. Mr. ROSENTHAL. You mean somebody like A-G stores? Mr. NADLER. A-G and IGA are the two organizations we dealt with. The chains that we dealt with are Kroger, National, and A. & P. We selected stores in three different sections of St. Louis. We had had an idea that price zones existed and we wanted to make sure that we were selecting stores from different areas for the best possible rep- resentation. We selected stores from far north county, far south county and Metropolitan St. Louis, intercity, rather, and that is this map> PAGENO="0218" 212 here [indicating]. The stores in red are the A-G stores, stores in green are Krogers and in blue are National, and you will see the poverty area outlined by the solid red line. Mr. BARASH. Could you identify the types of stores in the poverty area? It is a little difficult to discern the difference between the green and the Mue. Mr. NADLER. This blue store [indicating], this store up here is a National and the one in the corner over here is a National in the poverty area. These other two are Kroger stores, the one a little bit to the top is the one across the street from Pruitt-Tgoe housing project. This A-G store down here is about a block from Darst-Webbe public housing. Mr. ROSENTHAL. Could you tell us how far aJ?art each of these stores are so we can relate to the question of competition? Mr. NADLER. The two Kroger stores are the closest ones, and I would say they are about a mile and a half to 2 miles apart, maybe a little bit farther. I didn't check those in terms of mileage. Otherwise, they are pretty far apart. So the question of competition would be very relevant as compared to the outlying areas where these stores are located in the same shopping centers in many cases or within a block or two of each other. As soon as we had the stores selected and the lists ready, a team of four went into these stores, always at least two in the same store. The team consisted of Mrs. Baum, a friend, James Smart, and Gene Baum and myself. We went over a period of three different days, October 19 through the 21st. However, all stores within the- Mr. ROSENTHAL. Is that this year? Mr. NADLER. Yes; this year. All stores within the same chain were sampled within a 24-hour period of each other. For instance, all Kroger stores would have been sampled from the evening of the 19th through the afternoon of the 20th. All Nationals may have been sampled the evening of the 20th through the afternoon of the 21st, but all stores were within a 24-hour period if they were in the same chain. All stores were sampled within a 48-hour period. The results were analyzed entirely by Gene Baum and myself and two research assistants that work for HDC. The findings are very indicative to us that there is price discrimination. The first chart that we'll see shows the prices for the totals on the different lists. [This chart appears immediately below.] This [indicat- ing] is a graph representing the totals for the five different stores. Now, the numbers may be a little difficult to read, but the point to re- member is that the lines that are slashed are poverty-area stores, the solid lines are non-poverty-area stores. PAGENO="0219" `~19.03 ~19.17 #4 A&P #1 L»=~~\~ ~ D0I~ ~S `.47 __- 7 18 19 20 The five stores at the top are Kroger stores, and the line in the center [identified as store No. 3], is the store across from Pruitt-Igoe, a large public housing project. Now, you see the extreme difference between that store with a total of $18.67, this represents the total list, as com- pared to the store in the far north county which bad a total of $17.18. Mr. ROSENTHAL. Let me just recount that for a moment. There are five Kroger stores there, all shopped on the same day; is that correct? Mr. NADLER. Right. Mr. ROSENTHAL. How many items were in that shopping basket? Mr. NADL1~. Twenty-nine items. Mr. ROSENTHAL. All the same' 29 items were priced at all five stores? Mr. NArnAER. All were brands and all were the same quantity and all were priced at those five stores. 213 S~TQI~ ~R~C~S ARR~.N~ED ~ CILLIN, ,OCTQBER 22. 196~T Poverty store--~ s~ro~s ~onoverty-~---.~ ________ 18.67 .74 A~G PAGENO="0220" 214 Mr. ROSENTHAL. To make it nice and simple, they were the same identical items purchased in every store? Mr. NADLER. Exactly. Mr. ROSENTHAL. And in one upper income Kroger store it was $17.18; in another it was $17.36. In this Pruitt-Igoe Kroger store the same items were $18.67; in another low-income innercity store it was $17.74. Then in another middle-income outlying Kroger store the market basket price was $17.54? Mr. NADLER. Right. Now, the second group is the National stores, there are five stores sampled, again the identical list, the same list that we used for the Kroger store for that matter, and you will see that the poverty-area store, while not much higher, was the highest of all, and there is about a 35-cent difference between the county store, the extreme county store and the poverty-area stores. Two of the three higher priced areas were in the poverty area. The A-G stores, the two are represented in the extreme poverty areas, Kinloch is one of the, probably the, what, most poverty- Mr. BAUM. It is an area of extreme poverty in north St. Louis County. Mr. ROSENTHAL. Those A-G stores are individually owned? Mr. NADLER. They are individually owned but they do buy jointly and have common advertising. The Vincent's store [identified as store No.3] is across tue street from Darst-Webbe public housing which has about 7,000 or 8,000 people in it, and it is one of the few stores in the immediate area. The Delmar Loop or the University City store is in a Jewish middle-class area, and it was about $2.41 cheaper than Kinloch for the same items. A. & P. was fairly consistent~ and IGA was; there was some variance,. again with the county stores being cheaper. Mr. ROSENTHAL. Now, you have~in your testimony the list of items that made up this shopping basket with the prices in each store; is that correct? Mr. NADLER. Yes. Mr. ROSENTHAL. And we shall include that in the record at this point. (The lists referred to appear immediately below:) PAGENO="0221" 215 Store location Store No. Description of area (1) Associated Grocers stores: 6500 Delmar Carson Rd 10th St. and Park (2) Independent Grocers Association stores: Delmar and Euclid Olive and Shulte Dunn and Graham Rds (3) Great Atlantic & Pacific: Olive and Hanley 1 New Ballas Rd. and Olive 1 Russell and Gravois I 9651 Manchester 8500 Watson Village Square Shopping Center 470 Dunn Rd .(4) National Food Stores: 9901 Manchester 440 North Highway 140 Debaliver and Kingsbury Jefferson and Stoddard 9955 Manchester 2 9501 Watson Rd.~ 770 North Highway 140 1 Middle-class, Jewish, county. 2 Kinloch City, Mo., County, all Negro low income. 3 Near south side of city, serves public housing, and transient white lower income. 1 Central city, lower middle income, mixed Negro and white. 2 Far west county, upper middle income area, all white. 3 Far narth county, white, upper middle income area. 1 Middle income area, central county, Jewish. 1 Do. 2 Near north side of the city, lower income Negro area, not public housing. 3 Across the street from Prultt lgoe public housing, all Negro, lower income. 4 Middle to upper middle income area, far south county. 4 Do. 5 Far north county, upper middle income. I The above 3 stores had the identical prices. 2 Prices were identical. I Middle class, white, Jewish, county. 1 Upper middle income, far west county. 1 Near south side, serves public housing and white lower income area. 2 Far south county, German population, white, middle to upper middle income. 3 Far south county, upper middle income. 4 Far north county, all white, upper middle income. 5 Far north county, all white, upper middle income. 1 Far south county, white, middle to upper middle income. 2 Far north county, upper middle income. 3 Central west part of the city, serves mixed Negro and white, lower middle income. McKnight and Delmar 4 Central county, middle income area, Jewish. 4250 North 20th St 5 MIxed Negro and white, lower middle income. ~(5) Kroger Food Co.: Olive and McKnight Rd.~ Olive and Purdue 2 2162 North 13th St A-G STORES, ASSOCIATED GROCERS, OCT. 19-20 Price Item No. 1 No. 2 No. 3 Amount Brand Ham (canned) 4. 95 5. 29 5. 29 5 lb Mayrose. Hotdogs . 59 . 69 . 59 1 lb Hunters, Mayrose. Chicken (fryer) . 23 . 29 1 lb Pork sausage . 59 . 59 . 63 1 lb Hunter, Krey. Canned corn . 25 . 28 . 29 1-lb. can O-M, A-G, Stokely. Canned peas . 25 . 28 - 29 1-lb. can Green Giant. Frozen peas . 24 . 17 . 22 1 lb. 10 oz Bird. Frozen corn . 25 . 25 . 25 1 lb. 10 oz Birds Eye. Frozen lima beans . 25 . 35 . 35 1 lb. 10 oz Do. Idaho potatoes . 79 . 69 . 59 10 lb. 5 lb. Tomato soup . 13 . 16 . 15 j03% oz Campbells. Vegetable soup (vegetarian) , 15 . 17 . 22 103% oz Do. Bananas . 20 . 20 . 18 2 lb Chiquita. Tomato juice .25 .39 .39 46oz Hunts. Orange drink .33 . 39 . 39 46 oz Hi-C. Milk 1. 05 1. 10 1. 07 1 gal Sealtest. Bread . 39 . 39 . 38 Sandwich loaL_ - Wonder. Cooking oil . 93 1. 00 . 89 1 ot. 6 oz Wesson. Eggs (large) . 51 . 55 . 59 1 dez Grade A large, Salt . 13 . 14 . 15 1 lb. 10 oz Morton. Margarine .31 .39 . 45 1 lb Kraft Miracle Whip. Flour . 63 . 75 . 69 5 lb Gold Medal. Sugar .59 .69 .59 SIb C. &H. Cheese . 94 1. 09 1. 09 2 lb Velveeta. Coffee . 79 .93 . 79 1 lb Folgers Manhat- tan, old Judge. Cereal . 49 . 49 . 55 103/a Special K. Spaghetti . 29 . 29 . 29 1 lb R-F. Jelly (grape) . 31 . 29 . 35 Smuchers, Kraft. Baby food . 18 .19 . 18 73% oz Gerbers Juniors. Total 16.76 19.48 19.03 PAGENO="0222" 2 -4 0 2 I- 0 0 0 C,, -4 0 0) 0 C) 0 C) C) 0 C*) o I* ~ C,, 0 C) CD 3*CQ 0OO~~~CC) ~ ~-. CD CQ3 ~ *~ CO~CD C7C~~ ~ ~;) ~ a=~C3~,C,- 3 ~. -~ CD ~ = 0 CD 0 0~ ~ ~(#C ~ ~ CD~>P'~ pg pp~p~= ~ a *~ ~ ~ ~ -U CD ~Q3 =~ C CCCCCCC~C,CCC.CCC C ~ =0 3 a -~ ~*~- CD C0 CD CD CD ~ CD ~0 ~ 0 CD ~ C?CCCC)~. ~P;0p~ pg PP~p~= ~ ~ SD ~. ~. i~ .3, 2 2 2 2 2 ) PAGENO="0223" -l _CDCD~ ~ ~ CD ~ CD3~~ ~ ~CD ~ ~CC ~ co ~ ~Qo(~> ~ C~) - W P~) ~N~N) N3 00 ~ ~ OC.flCD(J1 C) 3 >>> -~ :o'~ ~: ~ ~ ~. -~ *~&~ ~- 2~ ~CD 3 0 2 2 C, C, C, C, (C, 0 C, -1 -~ ~ CD -~ ~ ~ ~ CD ~ ~W~o ~0~CC) W~C0C~CO 0) ~ ~ 3 QOQDQD ~. ~. ~ g ~. ~ -~ ~- 2 2 F~) 2 2 2 3 20 C) 0 C, ~ -C ~ 0 co. 0 C) > 3 PAGENO="0224" 218 Mr. NADLER. Yes; they will be shown shortly. Would you like to see the map again locating those particular stores? Mr. ROSENTHAL. Yes; if someone would point them out to us. Mr. NADLER. The Kinloch A-G is right here [indicating]. There wasn't a major grocery store anywhere near it. It is the only grocery store, major supermarket in Kinloch. Mr. ROSENTHAL. How far is the closest competing-type supermarket? Mr. NADLER. Several miles. Mr. ROSENTHAL. Of any chain? Mr. NADLER. Several miles. We didn't sample any others anywhere near it. The county stores for all chains that had the lowest prices were out here in this section [indicating], north county. A. & P. and IGA are not on this map because they weren't represented today, hut they also had the cheapest stores within a few blocks of these two' stores up here [indicating]. The Vincent's A-G which was second highest is this store right down here [indicating] by Darst-Web'be public housing. The Pruitt-Igoe Kroger store is right here [indicating] and the other Kroger store which had the second highest price was this store right here [indicating]. Mr. ROSENTHAL. Can you tell us how close the nearest competing supermarket is to the Pruitt-Igoe store? Mr. NADLER. I don't know of another one in the immediate area. I may be wrong. I didn't find another one. They were several blocks away at least, most likely out of waiking distance for a person that had to carry bags of groceries. Gene, do you know of any others through there? Mr. BAUM. The nearest store would definitely be out of reach in terms of carrying groceries or wheeling along in a basket of some type. Mr. NADLER. Now, we have spoken to different chains about this matter and they have indicated that they do not have stores there in the immediate areas. Mr. ROSENTHAL. Well, they will have a chance here today to explain to us their view of how far a person can walk. It may be different than your view. Mr. NADLER. Right. We have found, as a restdt of the bar graph that you saw just a few minutes ago, as much as 15-percent difference for an individual or- ganization. A-G stores was over 15 percent, between the highest and the lowest stores that we surveyed. The total for all poverty stores that we surveyed, versus all non- poverty stores, was about 6 percent. Mr. BAUM. Six percent. Mr. NADLER. Was 6-percent difference with the higher stores being in the poverty area. Mr. ROSENTHAL. Do you have a percentage difference computed as to A. & P., NationaJ, and Kroger? Mr. NADLER. A. & P., a very low percent, in fact, it was like about a tenth of a percent. They had very little difference within the total five stores we surveyed. The National again was very low, less than 1 percent, also. Kroger was 8.6 percent, I believe. It was over 10 percent between the highest and the lowest. PAGENO="0225" 219 Now, I would like to go over the- Mr. BARASH. Mr. Nadler, let me interrupt you a moment. One of the definitions of poverty for a family of four speaks in terms of about $3,150 a year; and we have also been told that an average urban poor family spends about a third of its income on food. That would mean that the average poor family of four would spend approximately a thousand dollars a year on food. You spoke just a moment ago of a 10-percent di'fferential, `at least as far as Kroger is concerned. This would amount, thee, to about a hun- dred dollars that the poor inner-city family purchasing from Krogers, as alleged in your testimony, would have to par, above what someone living in a particular suburb would have to pay. In your experience in working in this field, how far would this hundred dollars carry a family of four, in terms of days or weeks or months, for purchasiiig food? Mr. NADLER. Well, if they were spending about a thousand dollars a year for food, an additional hundred dollars would be an additional, about a month and a half almost. I would like to go over the individual items for the three stores that we are dealing with. The first group is the National Food Stores, and the five stores that we sampled there were a few items that did have different prices with the poverty area stores being the ones with the higher prices, and particularly those items, such things as flour. Five pounds of Gold Medal Flour was 59 cents in. two of the poverty area stores and in the county stores it was 49 cents, the same item. Mr. ROSENThAL. Why `do you mention flour? Is that a staple item that has some special significance? Mr. NADLER. It was one that had an extreme difference, a higher percentage of variation than most of the other items, but it is an im- portant item for most households, it did appear on our list which was obtained from several hundred women who were questioned. I'd like to flash the prices for the A-G stores. While they are a little difficult to see, the circled items include some of these differences. Mr. CO1~ENHAVER. Mr. NacUer, before yot& ~o on to the A-Cf stoNs, with regard to National, did you find any items which were lower priced in the poverty areas stores than in the more wealthy areas? Mr. NADLER. There were some items. The items, however, did not carry as much of a percentage difference as this did. Let's see if I can find-as a matter of fact, there was no item in the poverty area stores that was cheaper. In most cases the prices are the same as the items in the outlying areas, for National, that is. I believe you have these charts up there also. The A-G stores, here are some of the extreme items that we found some extreme differences. Mayrose 1-pound hot dogs, 59 cents in two of three stores; 69 cents in Kinloch. Chicken, 23 cents a pound to 29 cents a pound at Kinloch. Canned corn, Del Monte, 1 pound, 29 cents at Vincent's; 28 cents at Kinloch; 25 cents in University `City. Canned peas, the same story. Frozen peas, no, sorry- 88-532--68----15 PAGENO="0226" 220 Mr. ROSENTHAL. These are all national brands; these are Bird's Eye you are talking about now? Mr. NAILI!at. Yes. Idaho potatoes, 10 pounds in University City, 79 cents; 5 pounds for 69 cents in Kinloch and 5 cents for 5 pounds at Vincent's. Tomato soup, Campbell's, small can, 16 cents in Kinloch; 15 cents an Vincent's; and 13 cents in the county. Campbell's vegetable soup, 22 cents at Vincent's; 17 cents in Kin- loch 15 cents in the county. Milk, which is a very important item, $1.10 in Kinloch; $1.05- Mr. ROSENTHAL. All the same brand milk? Mr. NADLER. Yes, Sealtest. Coffee, 93 cents for 1 pound of Folger's coffee, ground coffee, at Kinloch; 79 cents in the other two stores. Cereal, Special K cereal, 55 cents at Vincent's; 49 cents at the other two stores. These are extreme differences. The list goes on with a variation in almost all items. Mr. BARASH. Were any of these items that you surveyed, on adver- tised special at the time of the survey? Mr. NADLER. We did not check advertising because there are several different places that they may advertise that we aren't aware of. We just checked the prices on the shelves or on the items or, you know, whatever source we had. Mr. BARASH. You say several different places. What do you mean by that? Mr. NADLER. Well, University City stores may advertise in a county paper, whereas the stores in the poverty areas might not. All stores naturally advertise in the Post-Dispatch or the Globe~Democrat which are the two larger papers for St. Louis. Poverty area stores may advertise in newspapers that come out in that area, such as the Argus, the American, Crusader, any of these carry advertising for stores in their areas. Mr. BARASH. With your permission, Mr. Chairman, would you Mr. Nadler go back and look through the various papers you have de- scribed for the dates on which you surveyed the A-G Stores and furnish the committee with any instances in which the items covered in your survey were advertised in any of the papers or publications that you mentioned? Mr. NADLER. Well, ~ve wouldn't know that because we don't have the advertisements from those papers. We didn't check the advertise- ments. We checked the prices in the stores. Mr. BARASH. Is there a place where you could find back editions of those publications? Mr. NADLER. I would imagine there are, yes. Mr. BARASH. Would you do that and furnish us that information, send it to us in Washington? Mr. NADLER. Yes. Mr. BARASH. Thank you, Mr. Chairman. Mr. NADLER. There were a total of 29 items that were checked, and for A-G there is only one item, two items, sorry, that had the same price for all three stores, two out of 29 had the same price. The rest were higher priced in the poverty areas. PAGENO="0227" 221 Now, the Kroger store. Now, for Krogers we found again that the Pruitt-Igoe store had a total of $18.67; the north county store had a total of $17.18, a difference of $1.49. Mr. ROSENTHAL. Do you know what that is in percentages? Mr. NADLER. Just 1 second. It was 10 something. I'll figure it real fast; 8.1 percent. The items circled in red are poverty area stores, and those prices, as you can see, are higher than the items circled in blue which are the nonpoverty area stores. Some examples, if you can't see them too clearly, canned ham, $6.65 for 5 pounds of DuBuque, as opposed to $5.81 in every other store. Hot dogs, 69 cents at Pruitt-Igoe for Mayrose; 59 cents for all other brands, for the ~J~ae brand in all other stores. Pork sausage, 59 cents, sorry, wrong one, the canned corn was 23 cents versus 20 cents in the county. Frozen corn, 23 cents versus a low of 17 cents in two of the county stores. Mr. ROSENTHAL. Campbell's vegetable soup is the same everywhere. Mr. NADLER. In Kro'ger's, yes, and tomato soup had two different prices, 13 cents and 12 cents. Those are about the extremes. The only other major difference was sugar which was 59 cents in three of the stores, 39 in one store and 55 in the other store. Fifty-nine cents was the standard price for quite awhile. Now, these other two stores may have had an ad in the paper at that time, we don't know. Mr. ROSENTHAL. It is interesting if you just take Campbell's vegeta- ble soup. You can buy it at many different prices on October 19 in St. Louis. You can buy it at 15 cents, 17 cents, 22 cents, 14 cents, 13 cents. Mr. NADLER. For most of the items you will find that there are different prices depending on where you shop, even for national brands. Salt, for instance, Morton's salt ran from 12 cents to 15 cents through- out the city. Now, the total list of 29 items for Kroger's, 15 of them had different prices, 15 out of 29 items had different prices in one or more stores. Of these 15 different prices, 14 of them were higher in the poverty area. The nonpoverty area was higher on only one out of 29 items. This would not be true of all poverty area stores, but if you compare the highest to lowest or something like this, but poverty area stores ranged higher on a vast majority of them. We will have more information about this shortly. The final point to be made from the analysis of the data, as indicated by the map which you saw earlier, is that we do believe that there are at least three price zones for most of the chains and organizations in St. Louis. The data that we are using to back up this fact is that in all cases the lower prices for the chains or organizations were in the north county as I indicated, the second highest prices were in the, I mean second lowest prices were in the south county and the highest prices were in the intercity. We would suspect that these at least represent three different zones because the prices were pretty uniform within those areas. Gene now will talk about what has happened after the survey was made in discussions with the different store representatives. PAGENO="0228" 222 Mr. BAUM. Mr. Chairman, for the record, I'd like to enter our defini- tion of food organization and food chain. For the purposes of our study, organization, a food organization is defined as any group of stores enjoying the prerogative of common purchasing from a mutual wholesale market and benefiting from the coverage of pooled advertising efforts. A retail food chain is defined as a group of retail outlets which en- gage in purchasing foods from a corporation-owned wholesale market, received benefits of corporation supported advertising, and, here, the distinguishing feature, abide by a set maximum price for each item in each store. Mr. Nadler and I held our round of talks with store representatives of A-G, Kroger, IGA, National and A. & P. from November 8 to No- vember 21. We were received with widely-varying des of coopera- tion and willingness. We asked each of the representatives for reasons justifying the dif- ferences in prices between poverty and nonpoverty area stores. For the most part, price differences were attributed by the personnel inter- viewed to error of the store employees in marking food, or in the case of the independents, the individual right of store owners to charge any price they wished if their store was not a member of a regulated chain. Mr. Conreaux of the A-G food independent organization told us he was a wholesaler with no control whatever over the prices the A-G stores charged. However, after we questioned him somewhat, he men- tioned a price guide service which the A-G organization gives to mem- ber stores to guide them in setting their prices. Mr. ROSENTHAL. If they choose to violate that price guide, they aren't bound by it~ are they? Mr. BAUM. That's what I understand. Mr. ROSENTHAL. How about the Kroger people, did they tell you they had a book price that every manager was required not to price over? Mr. BAUM. Yes, sir. The A-G service consisted of employees shop- ping other competitors' stores for comparable items. The competitors' prices were analyzed and sent to A-G stores for their voluntary use, Mr. Conreaux told us. At our November 8 meeting with Mr. Conreaux, Mr. Nadler and I asked for a sample of any part of this price guide service but we were not allowed to see any old lists or even examine the blank format for the A-G suggested price service. At our meeting Mr. Conreaux men- tioned a weekly price bulletin of wholesale prices, but he refused again to allow us to see even an outdated bulletin. Mr. ROSENTHAL. At any rate, without going into all that detail, did he acknowledge that he had no control over the prices individual A-G stores sold at? Mr. BAUM. Yes, he did. Mr. ROSENThAL. That's n matter we'll take up with them directly. What about Kroger, what did they tell you? Mr. BAUM. Kroger, the meeting with Kroger was the least satis- factory as far as getting information from them was concerned. We met with a Walter White, manager of operations, and Mr. Stern, vice presi- dent. We offered our report for their examination, and they could find PAGENO="0229" 223 nothing wrong with our research approach to their stores. The reason why there was a price difference in the Kroger stores we were told time and time again in the Kroger meeting was that there were errors in store marking personnel in their activities. Mr. IROSENTHAL. Did you ever ask them the question of why the error always happened in this fashion? Mr. BAUM. Yes, and they responded they couldn't really under- stand it, but that in some sense the workers in the stores may be re- sponsible for this, or the supervision in the stores may not be up to par, and in response to that I asked him why his audit team wouldn't be spending extra time in those inner-city stores and there wasn't real substantive response to that question. Near the end of our conver- sation I asked would there be any instance in shipping one merchan- dise package from one store to another within Kroger's and this re- lates to the quality question, and Mr. Stern said in no case was there any shipping from one store to another, but he was immediately cor- rected by his manager, and there was intershipping between stores-P-- Mr. ROSENTHAL. Of perishables? Mr. BAUM. No, he said not of perishables. But the discrepancy between what the vice president told us and the manager of opera- tions was immediately apparent. Mr. ROSENTHAL. You gave them the list you have made public here today? Mr. BAUM. That's right, the list and our pricing data results. Mr. ROSENTHAL. Did they say that you were in error in any way, did they challenge your results? Mr. BAUM. On the canned ham, on one of the stores we visited, they stated we had not the correct price, and in fact in that store we asked an employee for the correct price of that item because it was not on the shelf, and that was the only case that I recaH they challenged our findings. Harry reminded me they said they hadn't carried the item for a month and a half or so. Mr. ROSEN~rHAL. Did you see the item in the store? Mr. BAUM. No, we didn't. We asked the store employee for the price of the item and he gave us the price-canned ham may have been in freezer, we learned. The book price that you mentioned before is an established highest charge that the Kroger managers are allowed to set for their ~tems, They showed us a listing of the Kroger book prlee items, and Mr. Nadler noted the existence of a different number of asterisks behind some of the items on the book price list. Mr. Stern and Mr. White used about four different explanations for the markings behind the book price items. First we were told that they did not know why the marks were there. Then Mr. Stern asked his secretary about the special marks, and ~he told him they were just typographical errors. The third ex- planation for the specially marked items on the list was that the secretary chose to use the number of asterisks in an arbitrary way, she just liked to add them in we were told. A fourth explanation was that they marked price changes from previous weeks' book listings. [Laughter.] Mr. ROSENTHAL. What kind of items were the asterisks next to? Mr. NADLER. I will answer that. We did not have the book long PAGENO="0230" 224 enough to check. There were about 8,000 items in there, and I raised the question hoping to get a response from them and I didn't have time to do any checking in terms of what items were checked and what weren't. There appeared to be a list of varying prices. * Since that time we also got a price book from IGA, and they also had markings, different kinds of markings in their prices, this was an old book. Those we did run a sample on to see what kinds of items were checked and what the three different marks represented, if any- thing. We were not able to figure out what they represented. They were by many different items, and I suspect that it may have been the same for, there may have been varying numbers for Krogers also. Mr. BAUM. Mr. White of Kroger told us that if we were looking for different price zones, this is not what the asterisks represented. Mr. ROSENTHAL. Did he deny that they had different price zones? Mr. BAUM. Yes, within St. Louis. According to Mr. White, there was one price and one quality zone in the Kroger chain. We were told that the policy of Kroger is for their store managers to check this weekly list of book prices. Mr. Stern stated that it just didn't make sense to him that there would be as many different prices as we found in the different stores. Mr. Stern said that although it might be hard for us to understand, in an operation of Kroger's vast size, it was never possible to get 100 percent perfection in pricing matters, and he reminded us that the established price structure is the same for the entire St. Louis Kroger district. One of the interesting points in our discussion was about two stores which had the same prices. The two stores, one of which was a newly opened store, and one of which was a well-established store, should have, according to Kroger policy, different prices because of the promotional sales in the newer stores we were told, but Harry and I found that each item had the same price in these two stores and we were told again by Mr. Stern that if the prices were the same, this too would be due to error of store personnel in marking items. Neither Mr. Stern nor Mr. White attributed the higher prices in the poverty area stores to higher operating costs. Kroger insures their stores against theft, we were told, but Mr. Stern did not even know, direct quote, what the insurance rates were when we were there. Mr. ROSENTHAL. He didn't tell you they were self-insured? Mr. BAUM. That's right, they said they were self-insured. Mr. NADLER. They did. Mr. BAUM. Again and again they told us that the major reason or the only reason for the food price differences would be due to store personnel marking error. There would be no intentioflal price differ- ences ever within poverty and nonpoverty area stores. The other meetings that we had with the representatives of the various chains and organizations can be summarized quickly by saying that in no case were the higher prices in poverty areas allocated totally to higher cost in the poverty areas, because the operating costs are bal- anced within the chains. The insurance rates are the same, they are covered by a company-written policy- Mr. ROSENTHAL. Now you are getting into a field that you are really not qualified to discuss. Mr. BAUM. I can echo their answers to our questions though. Mr. ROSENTHAL. Is this what they told you? PAGENO="0231" 225 Mr. BAUM. Yes, sir; everything here that I am reading from my statement is exactly what they told us. They told us that labor costs and insurance would be the same for all stores within a chain with a com- parable number of personnel because of the same union structure in St. Louis and because of the chain-administered policy. No chain or organization admitted the existence of different price zones. No rep- representative stated that any food of inferior quality would ever be shipped from one store to another. None of the executives we inter- viewed admitted that prices on days following issuance of welfare checks would go up. In summary, t.hen, our meetings with the store executives boiled down to the fact that the differences we found in poverty area prices would be due mainly to errors of the store personnel. Mr. NADLER. At this time we would like to call up Mrs. Slavin who represents a group of women in Clayton who did an independent sur- vey which we did not know about until after one week of the survey was finished. She has turned the data over to us which we will explain the analysis of when she is finished with her presentation. Mr. ROSENTHAL. Would you give us your name and address for the record? STATEMENTS OP MRS. RAYMOND SLAVIN, HOUSEWIFE, AND MRS. JOAN POSTER DAMES AND DONALD FRANKLIN, REPORTERS FOR THE ST. LOUIS POST-DISPATCH Mrs. SIAvIN. Mrs. Raymond Slavin, 631 East Polo Drive, Clay- ton, Mo. Mr. ROSENTHAL. You made a survey independent of these two gentlemen? Mrs. SLAVIN. That's correct. Mr. ROSENTHAL. At the time you made your survey, were you aware of the fact that they had done a similar survey? Mrs. SLAVER. Not when we originated our survey. We had discussed in about mid-October the fact that we were paying prices for food here that was documented to be third highest nationally- Mr. ROSENTHAL. What stimulated you into making this survey? Mrs. SLAVIN. We had read articles published in the St. Louis Post~ Dispatch by Mr. Eugene Bryerton which put St. Louis food prices third highest nationally according to figures made public by the Bureau of Labor Statistics. We couldn't understand this because Boston and San Francisco were the only cities which outranked us, and we felt by virtue of their geographic location and ours it didn't make a great deal of sense that we should be paying this high a price for our food. Mr. ROSENTHAL. Did you do the survey with any.other people? Mrs. Sr~vIN. Yes; we contacted friends of ours who lived in various areas of the community, prepared a list of our own which included approximately 65 food items which we considered more or less basic to our cupboard. We had a brief initial meeting with those who could attend, and we mailed the lists to the other people who were willing to shop and asked them to shop these food items for 3 consecutive weeks beginning on the week of October 23. Mr. ROSENTHAL. About a month ago. Mrs. SLAVIN. That's right. PAGENO="0232" 226 Our study included what has been described here as chainstores~ Kroger, National, A. & P., smaller chainstores possibly, Bettendorf's,. Schnucks, TGA, and independent markets and a discount foo'dstore. Do you want any other information? Mr. ROSENTHAL. No; just tell us what you found. How many ladies actually did the survey? Mrs. SLAVIN. We had approximately 25. people who were willing to shop and we only recorded results on 20 stores, six of which were Kroger, four A. & P., three National, two Bettendorf's, two IGA, one Scimucks, one independent store. Mr. IROSENTHAL. The Kroger stores, were they in any special areas or neighborhoods? Mrs. SLAVIN. Yes, we did have a distribution. We had a store that is noted by Kroger to be their discount store called Gem, we had a Clayton store, we had a store in the poverty area, at Jefferson and Stoddard; we had a Clayton store on Maryland, a store on Lindell,.. 4147 Lindell, which has been defined to be in the poverty area; and one~ in University City, Olive and Purdue. Mr. ROSENTHAL. Tell us what you found. Mrs. SLAVIN. Specifically at Kroger stores? Mr. ROSENTHAL. Well, begin anywhere you want. Mrs. SLAVIN. All right. What we did was ask people to send in results of their shopping each week as it was completed. In the second week of our survey, information was published in the Post-Dispatch of the surveys being conducted by Mrs. Joan Foster Dames of the Post-Dispatch and Mr. Baum and Mr. Nadler of the Human Development Corp. Therefore, we thought that possibly our efforts were being duplicated, considered the possibility of withdraw- ing, but proceeded with our original goal. We had first set out t& comparison-shop items for store and brand names and after the first week we eliminated the store brands because we found that these were usually less expensive than brand names, corrected what~ errors we could see in our shopping list in terms of brand names, and asked the ladies to proceed. Then we recorded the second-week survey. In the meantime, the mayor had announced that he was forming a. committee to look into the problem of food pricing and that an in- dependent survey would be conducted by the Better Eusiness Bureau. At this point, we were really sure that we were not needed but we went on, and then received the tally of our third week's study. We had actually considered that this community of concern would be reflected in the third week if not the second week in lower prices: across our board. It didn't turn out this way. We saw actually no major change in our results, with the exception of a few stores in the poverty areas which showed a decline, and this decline indicated a decline to the level of pricing that had been consistent in other stores throughout the chain during our 3-week period. Mr. ROSENTHAL. Can you tell us in summary fashion what your findings were beginning on the first week, second, and third weeks? Mrs. SLAVIN. Well, in terms of specific price data here, we have items which include produce and meat. We have processed and pack- aged items, flour, sugar, canned items and some frozen foods, and. then some cleaning materials. PAGENO="0233" 227 Mr. ROSENTHAL. But facts, we want facts. Mrs. SLAVIN. 1?acts. OK. You mean actual prices? Mr. ROSENThAL. Precisely. Mrs. SLAVIN. Well, Mr. Nadler has analyzed the results of our survey in terms of the reflection of the poverty area stores in more precise terms. I wouldn't care to make that discussion. We are looking for the housewives in terms of lower prices throughout the St. Louis area. I turned my data over to Mr. Nadler after we had tabulated our own results for our own purposes and they have analyzed them. Mr. ROSENThAL. Had you ever known Mr. Nadler before this price meeting? Mrs. SLAVIN. No. No, I called him somewhere toward the middle of our survey, I called Mr. Baum after reading the article in the newspaper, and at the end of our third week we had a meeting with some of the people who had worked and invited them and members of the Better Business Bureau and the Post-Dispatch if they would like to come. Mr. Baum was able to come as was Mr. Nadler. We gave them the material to analyze it if they wished. Mr. ROSENThAL. Can you tell us what the survey showed? Mr. NADLEE. Yes. The reason that we had Mrs. Slavin here was because the data that she presented us was very much in support of what we found. The chain that we did select from their data that was useful was the Kroger stores. The other stores are not represented today, so we did not deal with them. (The Slavin surv~iy follows:) A TOTAL OF 61 1~OOD ITEMS SURVEYED EACH WEEK FIRST WEEK SURVEY (BASED ON 43 ITEMS AVAILABLE TN STORES 3 AND 4) Store 3 (poverty) market basket, $14.32; store 4 (upper income) market basket, $12.60; 13.6 percent higher price in poverty store. Pcrenty items higher priced in poverty store, 46.5 percent. Eight items lower priced in poverty store, 18.6 percent. SECOND WEEK StJRVE~ (BASED ON 42 ITFIMS AVAILABLE IN STORES 3A AND 4A) Store 3a (poverty) market basket, $16.64; store 4a (upper incotle) market basket, $15.96; 4.2 percent higher priced in poverty store. Sixteen items higher priced in poverty store, 38.09 percent. Five items lower priced in poverty store, 119 percent. PAGENO="0234" c:~. C3N) C)C~)' CO(~) O~)O~)Q~(~)N) ~ ~ CO'~JN)-' Q1~-J(~ C~O ~ -3J~-~4 ~Ju~DGoCOOO D())c~-~ ~U'C~C~) S N)Q~ ~-J~O ~) 00 ~ (0 COO) (0 Q C) C300~ (0(0' .~(0N) ~00~ (0(0~ .0~M() ~~0~ N) (0- N) (~) ~ (~) (~)~ 0)))) (00) 0)N)~ C0~ N)(0 ~ -.J, ~c~- N))-_ ~ ~N))))C))N)o))N)~ - 0~ (0-J0).~C)) ,~00) 00000)00 -JO) ~))) U) U) (0(0 (0N)(0 Ulo))(0 (00(0(0 U) U) U) -J 000)0)0) .~ N)))) (0 Ufl0~U)U) (0(0(0(0 N)(0 -~ ~oU N) ~ -~00~(0 ----U, N) o))-~ C,, U~- (00000(0 ~N)' U)(J)000)0)N) 0_) ~ U) U) ~-J 0)U~ U) I - ~O0~ 0) C0-J~-)O) (00) (0))) N) ~o))N) N) I -~ - ~ I ~-J ç)1(Q ~U)C~ ~(0(-Jy) 09~(O - PAGENO="0235" 229 DESCRIPTION OF FOOD Item Size Name brand ~ Produce: Bananas Apples Onions (white) Potatoes (red) Carrotts Lettuce (iceberg) Celery Staples: Catsup Mustard Mayonnaise Peanut butter Jelly (grape) Salt Rice Baby food: Fruit Meat Soup: Tomato Chicken noodle Canned: Peas Corn Baked beans Peaches Spaghetti Coffee: Ground Instant Cocoa Flour Sugar: Granulated Powdered Brown Cake mix (chocolate) Jello Tuna Canned milk Cookies Crackers Cereal: Oatmeal Corn flakes Frosted flakes Captain crunch Dog food Meat: Chicken: Whole Cut up Ground beef Ground chuck Chuck roast Franks (per package) Bacon Stew meat Pork: Roast Chops (loin) Dairy: Eggs (grade A large) Butter Margarine, sticks Cottage cheese Cheese: American Cream Frozen: Peas Beans (green) Juice: Orange Small can Do. Lemonade do Realemon. Miscellaneous: Toilet tissue 2 rolls Northern. Detergent: Dishes Laundry Paper napkins Cleansing powder 1 lb Chiquita. 1 lb Jonathan. 1 lb 5 lb Cello bag Head Stalk l4oz Heniz. French's. Large jar Hellmafl's. 1 lb. 2 ~ Skippy. 20 oz Welch's. 1 lb. 10 oz Morton. 1 lb. 12 oz Uncle Ben. Small Gerber. Do. Regular Campbells. Do. 15/~ oz., No. 303 153/2pz 1 lb 1 lb 10-oz 2-lb .10-az Regular 5-lb 1-lb - ...do Small 63~-oz 12-fluid-oz 3 rows Small Regular Medium-size - -. do Small Del Monte. Do. Van Camps. Del Monte. Franco-American. Maxwell House. Do. Nestle's. Pillsbury. C. & H. Do. Do. Pillsbury. Jello. Starkist. Pet. Oreo. Saltine. Quaker. Kellogg's. Do. Quaker. Ken-L Ration. Per pound _~do __....do - ~.do Package Mayrose. Per pound Krey. - -- do Dozen 1 lb Land o'Lakes. 1 lb Fleishmans. Small Devely. 12 oz./16 slices Kraft. 8 oz Philadelphia. Small box Birdseye. - -- do Do. Giant (6 fluid oences)___ Joy, 3 Lb. 2 oz Tide. 200 Hudson. Medium Ajax. PAGENO="0236" 230 Mr. NADLETL The Kroger store, however, the story goes the same as what you heard a little while ago. The JefFerson-S'toddard store that Mrs. Slavin was talking about is the Pruitt-Igoe store, 4141 Lindell is also a poverty area in St. Louis, while Lindell itself is not a poverty area street, the area surrounding it and the people who shop there do live in the poverty areas. For the first week, as she explained, there were 3 weeks that the survey was done; the first week the totals go something like this. Out of 61 items, 48 had different prices, which would- Mr. ROSENTHAL. These were the same items in the same chain store? Mr. NADLER. These are the same items, yes, in the same chain stores. These are not the items `that we sampled, these are the list that she has drawn up, but they are controlled for brands and quantities and they are national brands. Mrs. SLAVIN. That's right. Mr. NADLER. In fact, we have adopted their list with a couple of modifications for future surveys because it is much more extensive. At any rate, out of 61 items, 48 had different prices, which would indicate that this may not be due to human error. Mr. ROSENTHAL. This is all within the Kroger chain? Mr. NADLER. Yes, this is within four different Kroger stores, 61 items, 48 of them had different prices, of which 44 were higher priced in poverty area stores, one or more poverty area stores. The second week, of the same 61 items again, 44 items had different prices, 39 ot these 44 had the highest price in the poverty area. The third week which caine out roughly 3 days after the articles appeared in the Post-Dispatch, the two articles, the Post-Dispatch article and the Human Development Corporation article, only 28 items varied, of which 23 were higher priced in the poverty aree~. The items did vary in some systematic way which would indicate again that this was not due to human error. There in some cases would be as many as four different prices for the same item. Now, I fail `to see how this~ you know, could happen, but items such as chicken noodle ~oup, in the two poverty area stores- Mr. ROSENTHAL. What brand? Mr. NADLER. Campbell's. The two poverty area stores the price was 18 cents and in the two non-poverty-area stores the price was 16 cents. For powdered sugar, C & H powdered sugar, the price in the two poverty area stores was 20 cents, in non-poverty-area stores, 18 cents. Brown sugar, the same brand 20 cents in the two poverty area steres and 18 cents in the two non-poverty-area stores. This is the kind of story that this six pages of data reflects for the 3 different weeks. We could go on doing the same kind o'f thing we did with the data, that we had and you would see the same story. There is something else that `their survey revealed, and that is the store Gem which is supposed-. Mr. ROSENTHAL. Did you have any percentage differential in each week's survey between the poverty area store and the non-poverty-area store? Mr. NADLER. We have percentages for individual stores which is a chart that I believe you have up there. For the 48 items varying in price, and the 44 items in the poverty area, 27 varied over 10 percent. Of these 27, 18 were over 20 percent, 30 were over 12 percent, 12 were PAGENO="0237" 231 over 30 percent, eight items were different in price by 40 percent, seven by 50 percent, four by 60 percent and two were over 70 percent higher. Mr. ROSENTHAL. Mrs. Slavin, let me ask ~QU a question. Of the 61 items, did you ever find a case where the price in the poverty area stores was cheaper than the other store? Mrs. SLAVIN. I believe there was. Mr. NADLER. The first week had four items, the second week had five, the third week had five. They weren't lower than any non-poverty-area store but they were as low. Mr. ROSENTHAL. The same? Mr. NADLER. Yes. Mr. ROSENTHAL. Then you didn't answer my question. Did you ever find a case where the poverty areaS store had the same brand item cheaper than in one of the outlying stores? Mr. NADLER. No, I don't believe so. As low, but never lower. I would have to recheck for that, but there were only five items that were as low. Mr. ROSENTHAL. How about bananas on the first week. Is that cheaper in store No. 3? Mr. NADLER. Store No. 1 had 15 cents, store No.3 had 16 cents. Mr. ROSENTHAL. Store No. 1 is which one? Mr. NADLER. Gem. Mr. ROSENTHAL. Did you at aff-take into consideration the ques- tion of quality? Mrs. SLAVIN. No, we did not shop quality. Mr. ROSENTHAL. Do you have any observation at all? Mrs. SLAVIN. We asked people to note quality if they so desired but we were principally interested from the standpoint of the survey on stamps, games and specially priced items. We asked everybody to shop top quality items whenever possible. Mr. ROSENTHAL. Mr. Nadler, do you know whether or not any of these stores involved here are food stamp recipients? Mr. NADLER. I believe the two intercity stores are. I know that the Pruitt-Igoe store is. I'm not sure about the other one but I believe they do. Now, the Gem store is particularly interesting also from this data. Gem is claimed to be a discount store, their advertising which I believe you have received a copy of states that there is a 7 percent savings on your total food bill. This IT percent savings, this sign that says 7 percent appears throughout the store in several places as well. They go on further in the ads to explain what that 7 percent savings means in terms of total dollars and cents. This is the findings from this exact same list of 61 items from the first week. Gem was missing three of the 61 items, so only 58 items appeared in the first week. Of these, 17 items were higher priced in Gem than in any outlying Kroger stores, 17 were lower in Gem than other Eroger stores, and the rest were the same price as other Kroger stores. In terms of totals, of the 58 items checked that we had corresponding prices for, the total price for Gem was $23.25, and the total price for the lowest Kroger store in the county was $22.83, or a savings if you don't shop at Gem of 42 cents. The same kind of thing appears for the second and third week. The second week we didn't run totals on them because we didn't have PAGENO="0238" 232 enough time to get into that, the second week 56 items were compared, 21 were higher priced at Gem, 20 were lower priced, and the third week after the Post-Dispatch articles, 55 items checked~ 16 were higher and 21 were lower. We have serious question as to whether or not indeed there is a percent savings at Gem stores. This is the findings of the study done by the women in Clayton. Mr. ROSENTHAL. Is there anything else that you wanted to tell us? Mr. Copenhaver has some questions. Mr. COPENHAVER. I have two or three short questions, Mr. Nacfler. You mentioned that your survey was between October 19 and 21, and on your ~hart it shows the survey conducted on October 19 and 20. Mr. NADLER. Which chart is that? Is that the one showing the totals? Mr. COPENHAVER. Yes, the first, second, third weeks. Mr. NADLER. What chain is that? Mr. COPENHAVER. All chains are shown to have been surveyed on October 20. Mr. NADLER. See, what we did is all Kroger stores were shopped in a 24-hour period, all Nationals within a 24-hour period, all A-G within a 24-hour period. The 24-hour period was not the same for each chain though. Mr. COPENHAVER. But your charts all show the same date. Mr. NADLER. You may have the original mimeographed copy. Mr. COPENHAVER. The reason I ask you this question is did you in talking to the managers of the various stores seek to determine whether during the 24-hour period that you were surveying, a time period inter- ceded in which it was the normal policy for the store to change prices? For example, in testimony we have heard earlier, we have been told that Saturday is a normal day for changing prices or a Wednesday. Mr. NADLER. Well, we checked with Krogers and Krogers operates on a weekly period. Their prices go into effect on Monday, their week starts on Monday. Mr. COPENHAVER. Therefore, if I am correct, this survey was done on a Thursday, Friday, and Saturday? Mr. NADLER. Right. Mr. COPENHAVER. Therefore, there would be no possible conflict because of a price change interceding? Mr. NADLER. There should be none, unless they send out, you know, lists during the week or something. Mr. BAUM. Not only were we told in our meetings with Kroger that their prices, book prices for that week were set on Friday to go into effect Monday morning, but we did not receive any comment whatever on our results which they had regarding the sales. Mr. NADLER. They should have known what their prices were for those particular days and they did not question the results that we had. They were shown to them. Mr. COPENHAVER. In this regard, the price change being on a Friday, did you notice any significant variation in the actual marking of prod- ucts between a store in a poorer neighborhood and a store in a more affluent neighborhood? For example, did you find more multiple markings in a store in a poorer neighborhood as opposed to a store in ~ more middleclass neighborhood? Mr. NADLER. We found contrary evidence in not only the poverty stores but all stores. There would be mismarkings, multiple markings, PAGENO="0239" 233 two different displays of the same item with two different prices, gen- erally the higher priced one in the closer part of the store as you walk in with the bigger savings in the back of the store hidden someplace, this kind of thing was existent in poverty areas as well as nonpoverty. Mr. COPENHAVER. And you found no pattern there between the two types of stores? Mr. NADLER. We did find on a couple of items that we did know to be a sale item, which was even claimed by the store personnel, par- ticularly the Hi-C orange drink which was selling for three for 89 in the poverty area stores and was so marked three for 89; in the non- poverty-area stores they were marked 32 cents each. Mr. COPENHAVER. You see, my line of questioning is that Kroger apparently indicated to you that if there were errors it was due to human error and the question could be, well, could there be more hu- man error in, say, a poverty store which failed to remove an old price and stamp the new price correctly? Mr. NADLER. Well, you would expect with human error that half the prices would be higher and half would be lower. Mr. COPENHAvER. That's the question. In addition to this, when you went into a store in either area and you found a multiple marking or a multiple pricing, did you find cases where you were charged the higher price and if so- Mr. NADLER. We didn't buy these items. We priced them. Now, we took these items, in some cases where we did find mismarkings, to the personnel in the store, and we would get several answers for this error, such as, it is on sale when really it wasn't on sale, that the price had changed that day and they didn't change the whole display, that' they changed only part of it, or that the prices on the shelves were in the wrong place, that they belonged down the aisle with another item. Mr. COPENHAvER. Did you go to the manager or the checkout person to inquire of the price? Mr. NADLER. In one case we did take it to the checkout person and she charged us the price on the item which was higher and we told her we didn't want the item but we took it to the manager and he said that she should have known that the price had dropped, and this was like 8 o'clock at night, and I assume she had been there a few hours and several of these items may have gone out already. Mr. ROSENTHAL. Mr. Nadier, did anyone ask you not to testify here today? Mr. NADLER. No. Mr. ROSENTHAL. Did anyone make any suggestions to you? Mr. NADLER. No. Mr. COPENHAVER. The final question I have, Mr. Chairman, is did you find any incidents of increased prices at times that welfare checks were issued? Mr. NADLER. We didn't survey on the days that the welfare checks went out. Mr. COPENHAVER. That's all. Mr. ROSENTHAL. What were the findings? Mr. NADLER. I said we didn't survey. Mr. ROSENTHAL. Thank you very, very much. (Complete text of the HDC statement follows:) PAGENO="0240" 234 PREPARED STATEMENT OF EUGENE L. BAUM I feel the results from our foo&price surveys indicate a substantial difference in prices for individual items and for market~basket lists of food. These differ- ences tell me that food co~npanies need to become more aware of their responsi- bility in helping to solve inner city problems, These price differences require an increased level of inten'siv,e self-examination among the various St. `Louis food retailing organizations. Mr. Nadler and I held our round of talks `with store representatives of Asso- ciated Grocers, Kroger, Independent Grocers Alliance, National Tea Co., and The Great Atlantic & Pacific Tea `Co. from November 8, i96'T, to Novembcr 21, 1967. We were received with widely varying degrees of cooperation and willingness to sincerely discuss our findings. We asked each of the representatives for reasons justifying the `differences in pri'ces between poverty- and non-poverty-area stores. For the most part, price differences were attri'biited by the `personnel interviewed to error of the store employees in marking food, or in the case of independents the individual right o'f sto're owners to `charge any price they wished as members of a non'regulated organization. Mr. Conreaux of the AG independent food organization, told us `he `was a powerless wholesaler with no control whatever over the prices the AG stores charged. However, after questioning, he mentioned a `~price guide service" `which the AG `gives to member stores to guide them in `setting prices. This `service con- sists of AG employees shepp'ing other competitor's stores for comparable Item's. The competitors~ prices a're analyzed and sent to AG `stores for voluntary use. At our November 8 meeting with Mr. Co~reau~, 1~Er. Nadler and I asked for a sample of any `part o'f the "price guide `service" but we we're not allowed to `see any old lists or even examine the blank format for the AG supported price service. At our meeting, `Mr. Conreaux mentioned a `weekly price `bulletin of wholesale prices but refused to allow us to see even an outdated bulletin. The price difference of 15 percent between the lower price's at the Loo'p market in University City and the higher prices in the Kinloch AG store, for our standard list of items, was explained as mainly due to differences in volume of sales. Mr. Conreaux saw himself as an innocent wholesaler `with no recourse to help the situation in any way. In a November 16 discussion wit'h Mr. Clinton Poe'rtner of IGA, M'r. Nadl,er and I were tol'd that the differences in prices listed on our forms `were eithe'r our errors or errors in store personnel marking Items. He stated that some differ- ences were `due to slightly different operating costs o'f the independent stores. Since storea were individually owned (as wa's the case with AG), he stated he had no price `control an'd "could not tell them to charge certain price's." However, (again, as was the case with AG), there is in standard IGA marketing practices, a device known as a "suggested price" which is the mechanism for the recom- mendation of prices to IGA store's. Reluctantly, we received a copy of a year-and- a-half-old list of suggested prices for each item in `IGA stores. We as1~ed Mr. Poertner why we found prices on many items higher in poverty- area stores, and he Initially ascribed all differences to store personnel marking errors. He said that sto're owners were "on their, honor" not to charge above the IGA-suggested prices. Later in our discussion, Mr. Poertner remarked that some operating costs were higher in poverty areas but he could not give us even an estimate of how much higher they might be. He stated he did not know If in- surance rates were higher in poverty areas and he also stated he did not know percentages of theft of various stores. He said that as far as be knew "insurance rates and pilferage rates in the Euclid and Delmar IGA store were no prOblem as far as insurance coverage was concerned." Mr. Poertner doubted that any IGA-suggested prices. Later in our discussion, Mr. Poertner remarked that some that each store was left alone to set prices. His general response was that "higher prices in poverty-area stores were justified in the face of higher operating costs" but be did not kno'w what operating costs would be specifically higher in the poverty-area store we surveyed. He also defended the higher prices we found by saying they were the result of our and store error, but he did not repeat the charge that we had faulty data when we told him we personally had done the survey. When we asked him for even a general picture for whatever he called higher operating costs in poverty areas, he "could not offer even a guess." On November 21, Mr. Mark Harrington, a research analyst from HDO, and I discussed the findings of our survey with A. & P. personnel. Mr. Engstroin, `the sales manager, stated that A. & P. sto'res are all covered by one pricing district, that prices are never higher because of issuance of welfare checks, and that there PAGENO="0241" 235 is absolutely no intershipping of older or less quality food from one store to another. However, he `stated that the quality of foods found in A. & P. stores could vary because of the marketing skill and public concern and general quali- fications of the store manager. A. & P. does not set limits as to how long a store manager may offer perishable goods for sale. A. & P., we were told, has little or no food quality audit. Mr. Engstrom could see no real difference in the oper- ating costs of inner city and outlying area stores because labor costs are covered by the same unions, insurance costs are the same because of a chain-sponsored coverage plan, and efficiency of city stores was Improved by remodeling programs. I asked Mr. Engstrom if there would be any possibility at all of establishing a special poverty-area-store person to check prices and quality. He stated he had "no feeling at all on this question." I asked him why the average prices for nationally advertised brands are higher in the A. & P. stores when placed in com- petition with A. & P. company brands. He "did not know what to tell us about this situation." Mr. Nadler and I met with Mr. O'Neill of the National food chain on the morn- ing of November 21. We were told that National operates a one-price and one- quality district for 33 stores in the metropolitan area, of which 10 or 12 are in the city. National store maximum prices are set each Friday morning to be ~f- fectlve the following Monday in all stores. The compliance is audited by a special team of National personnel. According to Mr. O'Neill, there is absolutely no movement of food from one National store to another, there are never higher prices on days following issuance of welfare checks and all lower quality food. is thrown away and never sent to any other store for resale. Mr. O'Neill noted that operating costs would be about the same in poverty-area stores and county stores. Labor costs may be higher because people buy in smaller quantities in the city, but this would be balanced by higher niaintainence of parking lots in the county. Overall, there would not `be "notably higher operating cost problems" due to insurance rates for pilferage and damage because National stores are self-insured. In our discussion with Mr. O'Neill, it `became clear to me that National more than any other chain seemed interested in hiring a full-time', pov- erty-area self-checker for quality and prices of food. In addition, a program of consumer education is of interest to them. Our discussion with Kroger personnel were the least satisfactory or informa- tive to me. On November 9, Mr. Walter White, manager of operations, and Mr. C. B. Stern, vice president of Kroger, met with Mr. Nadler and me. As in the cases of all HDO store personnel discussions, we offered our full report to them for their full examination. Mr. Stern began the talk by telling us that "Kroger had nothing to hide." He emphasized that "products are definitely not selected when of inferior quality to go specifically to poverty-area stores. The 16 Kroger stores In the city, according `to Mr. Stern, are all in one price district. St. Louis is covered by one district manager. Kroger sets, he told us, the highest prices the stores may ask. Mr. Stern stated that "there was absolutely no shipping of merchandise from county areas to city areas," but Mr. White, his manager of operations, corrected him by saying, "In some cases there are times stores over- buy and then the items are transferred to another store." The pricing practices of Krogers' stores were confusing to me. The produce merchandising department of Kroger uses surveys of competitors' stores, analysis of advertisements, and personal judgment to arrive at Krogers' book price. This "book price" is the highest charge the stores may levy but the stores may lower their prices as they see fit. At this point in our conversation, Mr. Stern showed us a listing of Kroger book prices for items. Mr. Nadler noted the existence of a different number of asterisks on some of the items on the "book-price list." Mr. Stern and Mr. White used four different explanations for the markings by some of the book-price Items: first, we were told that they did not know why the marks were there, then Mr. Stern asked his secretary about the special marks and she told him they were just typo- graphical errors. The third explanation for the specially marked Items on the list was that the secretary chose to use the number of asterisks In an arbitrary way, they actually told us that "she just liked to add them in." A fourth explanation, offered was that these marks noted price changes from other book-price lists. A final comment which came from Mr. White was that, "if you are looking for differ- ent price zones, that is not what these different numbers of asterisks represent." We were told that the policy of Eroger is for store managers to check this weekly list of book prices. Mr. Stern stated that it "just didn't make sense to him that there would be as many different prices `as we found In the different stores." lIe 88-532-68------16 PAGENO="0242" 236 continued by saying "although it mig~ht be hard for you to understand, in an operation of our vast size, it is never possible to get 100-percent perfection in pric- ing matters." However, he reminded us that the established price structure is the same for the entire St. Louis Kroger district. He specified two stores on our list, one of which had just opened for business and the other well established, which should have bad different prices because o~ the new sales promotions for lower prices in the new store. However, Mr. Nadler and I found identical prices on each item in the two stores. Mr. Stern stated, if the prices were the same, this too would be due to error of store personnel in marking items. Mr. Stern attributed all differences in prices of items we found to store marking error of Kroger personnel. Neither Mr. Stern nor Mr. White attributed the higher prices in the poverty- area stores to higher operating eosts. In fact of practice, Kroger insures their stores against theft, and Mr. Stern "did not even know" what the insurance rates were. Again and again, the Kroger personnel told us that the major reason for food price differences within the chain was due to store personnel marking er- ror. Mr. Stern stated there were no intentional price differences' between poverty and non-poverty~area `stores in the Kroger chain. A summary of our discussions with food chain and organization personnel indicated to us that first, operating costs do not vary widely enough in the case of chains to account for price differences. Second, we were told that labor costs and insurance rates would be the same for all stores within a chain. Third, no chain or food retailing organization representative admitted the existence of different prize zones between poverty and nonpoverty areas. Fourth, no representative stated that any food of inferior quality is ever shipped from county to city stores. Fifth, all retail food organizations and chains suggest maximum prices to mem- bers with chains enforcing these maximum prices. Sixth, prices in stores are sup- posedly never higher on days following issuance of welfare checks. Finally, we were consistently told that most if not all differences in food prices are due to error of store personnel in marking the items to be sold. Personal oomments.-Related to findings of other surveys, FTC statements, ete: I believe our research and that of other independent groups shows that retail food chains and independent organizations must help solve social and economic problems encountered by the poorer residents of the inner city instead of adding to those difficulties. In place of merely making monetary profit from, the inner city area, retail businesses and `specifically food retailers must answer the chal- lenge of entering into efforts to upgrade the lives of inner city residents. Increasingly, food retailing organizations are becoming targets for a national expression of discontent. But in the presence of criticism and the threat of food buying cooperatives organized by resident groups, the major food concerns should realistically plan to meet the challenge of both increased consumer awareness and the growing needs of the inner city. Long ago American business recognized that its interests and those of the community which it serves are in the long run iden- tical. Food companies and all inner city retailing organizations prosper in direct relation to the social and economic advancement of the people who work in the stores and who purchase its goods. Commissioner Mary Jones of the Federal Trade Commission has stated that major food organizations can respond to inner city problems in ways that will mu- tually benefit themselves and the community. Large food retailers must, however, be prepared to identify themselves' with the inner city and make meaningful con- tributions to area needs. The specific ways which food retailers can help further the future of the `inner city residents are many. First, and by far, most importantly, major food organizatioi~s and chains can respond to inner city problems by offering ghetto residents the same producis at comparable prices to those good available in the more affluent communities. More than anything else, I believe from the results of the survey, that residents of the city should be entitled to equal prices for equal food. A second contribution food companies can make in the city concerits job oppor- tunities. The very presence of the supermarket in the inner city has and should increasingly mean more job opportunities for ghetto residents. The more em- ployees particularly on the managerial level which the food organization hires from the local community, the more potential they will have for being regarded by the community as an integral part of the `area r'ather than as a profitmaking outside interest. Third, there is a great need for food retailers to sponsor consumer education programs. Educational efforts should be guided toward easily read labels telling PAGENO="0243" 237 amount of food inside cans and packages, learning about value and quality in various products, healthful ways of cooking low cost foods, and in general, to lead people to regard the retail food store not merely as a place to purchase les~s food of lower quality for higher prices but as a place where they can come for in- formation and assistance in consumer matters. A fourth area which stores could use to enlist community support is to ade- quately publicize a lowering of prices on essential items on day~ following is- suance of welfare checks by offering meaningful food specials. Sales volume would increase and residents would effect substantial savings. Other possible projects stores might sponsor include, the establishment of community bulletin boards for free use of residents, maintenance of babysitting services for shopping mothers, and special training programs for potential em- ployees. Implementation of some of the above projects, along with equal prices for equal food would profit both the retailers and the community and produce a stronger more stable inner city community and economic life. Mrs. ROSENTHAL. Our next witnesses will be Mrs. Joan Dames and Mr. Donald Franklin. STATEME~1T OP MRS. JOAN POSTER DAMES, REPORTER, ST. LOUIS POST-DISPATCH Mrs. DAMES. I'll start if that's all right. I think we have given you a copy of the article we carried in the Post-Dispatch on October 30. There is one error in that which is my fault. In the opening paragraph it says, "At one supermarket the center cut pork chops were priced at 79 cents a pound just as advertised but at four other stores," now that should read "three other stores in the same chain." That's an error. We carried a story on the small survey that Don Franklin and I made of prices in the poor intercity areas compared to the prices in the suburbs. This was in response to complaints from individuals, antipoverty and other groups, that food prices in the poorer inner-city ~f neighborhoods were higher than the prices for the same items in the- Mr. ROSENTHAL. What date did you do this, October 13, Friday the 13th? Mr. BARASH. Could you speak up just a little? Mrs. DAMES. We drew up a list of 14 items, half staple and the other half were accommodations or produce, meats, and dairy. One item, baby foods, we subsequently dropped, because since a baby required a well-balanced diet, too, we felt we had not chosen enough items to rep- resent this and therefore dropped it. So of the 13 items, a background of the shopping expedition was this. The same store chains were shopped on the same day for the same food list. We used identical brands and quantities. The difference in the staple items was noted, and in meat, dairy, and produce where quality is a factor in the dollar buy, samples were purchased and brought back to the newspaper for inspec- tion. We shopped four stores in one chain on the first expedition, I did this myself, Don Franklin did the other chain. When I analyzed the notes, five of the 13 items were priced higher at the inner-city store, five of the items from the intercity store were of lower quality. Later examining what we had done, I think we should have added a third thing. We should have added choice to things we were considering, because in many cases on a staple item, such as flour or sugar, an all- purpose item like that, it doesn't really matter what brand you buy, you are really shopping for price. PAGENO="0244" 238 Mr. ROSENTHAL. Could you describe to us briefly what you mean by poorer quality? Mrs. DAMES. Well, this was in the produce and meats. For example, we had bananas, green peppers, lettuce, hamburger, and pork chops,. and this was pretty startling, because besides-now, bananas were both priced higher and of lower quality. Grade 1 at the inner-city store' was 21 cents a pound, this is the better grade, and it was 20 cents a pound or 2 pounds for 39 cents at the suburban store. Now, the differ- ence in the quality was that the suburban bananas were much better,. they were just much better bananas. In grade 2, two for 39 `cents at the inner-city store were quite old. A banana has a limited shelf life and you would have to use these things right away and even so they were `beyond that peak of freshness, I think they say flecked with brown. Well, these had gotten pretty brown and bad and bruised, they were not good bananas. I don't think most housewives would buy them, so this was two for 39 cents. Gr'ade 2 were' 15 cents a pound- Mr. ROSENThAL. Did you tell us what stores these were? Mrs. DAMES. This particular chain was the National store, 4231 Natural Bridge, serving a low-income area, 630 North McKnight, a suburban store were the two we compared. There were so many things~ we decided just to compare these two and stick to two stores that we' actually surveyed. On the lettuce many of the lettuces in the inner-city store were old and wilted and some of them had wedges cut off of the heads and were rewrapped after having a wedge cut out. You could see the rotten por- tion had been removed. In addition to this, on many of these heads of lettuce, the price sticker of 33 cents had been placed over the old price' sticker of 29 cents, which was the price perfect heads of lettuce were selling for in the suburban store. On green peppers, now this was something I don't understand, I can't figure it out, I can give no explanation for it since the chainstore' officer said it can't happen. Each pepper was individually stamped in the inner-city store. Prices were either 15 cents or 19 cents. Many of them were wormy, they had gone past their point of freshness, the skin begins to get soft and n'ot firm any more, and they were obviously older. Some were gashed, they had been dropped or gashed and had gashes and indentation in them2 the skin was broken, and they were of different sizes. Some were quite small, some were quite large, some were-there were some good within this batch, but they were all dif- ferent size, and I would assume were different grades. In the suburban store, they were all perfect, they were even nearly uniform in size, as uniform as you can expect any product which grows to be, but there was such a startling difference, and they were' sold at 15 cents apiece, which is lower, o'f course-it would be the same price that the worst peppers were available at the inner-city store but lower `than the best peppers which were, as I said, all individually marked. Now, of course, subsequently I spoke to the chain manager and he' said this was his best produce man at the Natural Bridge store. But then when get to the meat, the hamburger, hamburger is ground at each store individually by the butcher. One of the things you can tell about hamburger is how much fat is showing. There are certain limits.. PAGENO="0245" 239 The city, I think, puts 30 percent on the outer limits of fat to lean, yet the individual stores have their own self-limiting policy. At Na- tional store I believe it is 20~percent fat to 80-percent lean. At I~roger this is the same and at A. & P. I think they have 10-percent fat to 90-percent lean. So we saw much fat showing, and the color of the meat was not fresh and red as you would look for when you ware buying hamburger. At the suburban store, at 630 North McKnight, they had an excel- lent grade of ground beef for the same price. The pork chops, good chops I am told by our food authority are looked for leanness today, so when you buy pork chops this is one of the things you look for in quality. The pork chops in the inner-city store were very fatty and did not have as much proportion, as big a proportion of lean meat as was available at the store at 630 North McKnight, and yet the price was 10 cents higher a pound, which sur- prised us. I am off the little thing I had prepared, so I'm rattled. We noted-well, what it works down to is that five of them, were higher priced, five of them were of lower quality, and since there was an overlap there, seven ot~t of the 13 items, then, were a poorer buy or ~a better buy in the suburbs, depending on how you look at it. Only two items, canned early June peas and Campbelis chicken noo~Ile soup were treated absolutely identically. There was another thing that we found, eggs in the inner-city store were priced the same as in the suburban store, but in the poor shopping area there were two additional grades of eggs being offered of super- quality. One was a siiperjumbo egg and the man said they had double yolks. Well, I suppose this would be a good buy in the amount of egg you are actually buying for your money, but I don't think any sensible housewife would buy this since all recipes would have to be altered. I thought it was a questionable thing to offer in an area where people are poor, so it worked out in inner~city We had nine items of higher co~t, poorer quality, or limited choice, if you would include flour and sugar. One questionable thing, this egg buy, I didn't know how tQ rate. Peas and soup were the same at the inner-city store as at the `suburban store, and one item, corn flakes, was a better buy. You could get that for a penny cheaper at the inner-city store than you could ~t the suburban store. Mr. IROSENTUAL. You are talking about National now 9 Mrs. DAMES. This is National; yes, right. If you look at it the other way, though, at the suburban store there was only one item of higher price, the corn flakes. They had no' ques- tionable egg buy, I didn't know how to rate that, but it was a buy nOt offered, and the same buys were available on peas, soup, audi eggs as at the inner-city store. The better buys totaled nine. In addition to these things, we noted that many of the canned goods were unmarked. To find the price, you had to a~k store personnel. Several canned goods were on special but still bore prespecial priôe. When I askedithe clerk, sh~ gave the special price. Mr. ROSENThAL. Did ~ou buy these goods 9 Mrs. DAMES. No. I purchased only the fresh produce and the meats. Quite commonly in the city store was the selling of damaged canned goods at the regular price. In several instances, cases of goods were PAGENO="0246" 240 stacked at the end of the aisle, the place normally used to display sale goods. However, although dented canned goods were placed there, leaving me, and I think any other homemaker, to assume that they were sale items. The clerk showed that these dented goods were not being sold on sale, this was the regular price. Damaged produce was sold at the same or even a higher price. Mr. BA1wH. Mrs. Dames, you said that the dented cans were stacked at the end of the aisles; the assumption that you made was that these were sale items? Mrs. DAMES. Yes. Mr. BARASH. Were the same identical items in undented cans avail- able elsewhere in the store. Mrs. DAMES. Yes. Mr. BARASH. So that they had segregated the dented from the un- dented cans? Mrs. DAMES. Yes. Mr. BARASH. But you don't have an explanation as to why? Mrs. DAMES. No; nor did they give me any explanation when I asked about this. They said they didn't know how that could happen and they again talked about human error. Well, Don Franklin surveyed inner-city and suburban stores of an- other chain on the following Friday, October 20, and we surveyed it on Monday. At this time we were approaching it from a little different emphasis and I think he will tell you about that, but when he brought back the shopping samples we noted again that the hamburger and pork chops appeared to be of inferior quality to those which were purchased at the suburban store. This was the Kroger chain, and what are those addresses? Mr. Fn~NKLIN. One in the Pruitt-Igoe housing development and the other was in Clayton out on Maryland Avenue, 8100 Maryland. Mrs. DAMES. We took those, after our food editor, Dorothy Brainerd, said these were of lower grade and the hamburger having much higher proportion of fat, we sent them to Dr. Val Johnson of the City of St. Louis Public Health Laboratories to be analyzed. Samples were marked "A," "B," "C," and "D." He had no' way of knowing what store they came from and we put these results in the story. Mr. ROSENTHAL. Briefly, can you tell us what those results were so our record is complete? Mrs. DAMES. Yes. The hamburger from the inner-city store was 26.5 percent fat, which is well over the self-imposed ceiling that Kro~er has of 20 percent fat, but within the 30 percent limit set by city ordinance. The hamburger bought outside of the slums was found to contain only 18.5 percent fat. The pork chops purchased from Clayton contained 15.5 percent fat and 16.5 percent bone, a total of 32 percent waste. Chops bought the same day at the same store, at the low-income area store contained 2~.5 percent fat, 13.4 percent bone, or 42.9 percent waste. In addition to that Dr. Johnson said this was definitely an inferior cut of meat as Dorothy Brainerd had said. The store personnel were questioned about this, the divisional man- ager, I believe he is called. He said that all meats were sent from a warehouse and there was no way of discriminating. PAGENO="0247" 241 We talked to Robert Miller of the customer relations department, as the division manager was out of town. At the Kroger chain we talked to the advertising manager, Eugene Fanger, because the di- visional vice president was out of town, and at National Food Stores, Division Manager Robert O'Neal was in town and we spoke with him. All three chain spokesmen denied that there was any discriminatory policy followed. All three claimed that their chains followed the practice of using a uniform price list within a given warehousing area. They said there were no price zones used. Prices cannot be above their uniform price list, but they may be reduced at the discretion- Mr. ROSENTHAL, This is what they all said? Mrs. DAMES. Yes; at the discretion of the store manager to move perishable goods and in order to meet competition. These were the only two reasons that they could be reduced, but there were no com- peting chains in the inner-city stores nearby, so there was really nothing for them to compete with. Mr. ROSENTHAL. Continue. Mrs. DAMES. All three spokesmen claimed that their chain policy was to cut prices on dented cans and discount distressed produce or throw it out, but this was not what we found in the store. The three chain spokesmen were asked if the higher cost of food in the inner city could be caused by higher operating costs, greater insurance, more theft. Each spokesman said that to their knowledge prices in the inner- city stores were the same as in suburban stores, and when we mentioned that we had not found this to be so, they thought human error would be the only reason. Chain officers said no discriminatory policies were intended and although our survey was quite small it was honestly made and it does suggest to us that the inner-city shopper got considerably less for his shopping dollar, seven of 13 items, and that's conserva- tive because we could have taken nine out of 13. If you would like to know more about what Don Franklin saw in f the Kroger chain. Mr. ROSENTHAL. Yes, I would. Thank you. S'TATEME~T OP DONALD FRANKLIN, REPORTER, ST. LOUIS POST-DISPATCH Mr. FRANKLIN. I surveyed two stores, Kroger stores on two differ- ent occasions. The first occasion was the Friday of the 20th of October of this year and the second occasion was Monday the 23d and again I went to the Kroger stores, one in the inner city and the other in Clayton. Mr. ROSENTHAL. Identify the address for us. Mr. FRANKLIN. The inner-city store is right near Pruitt-Igoe housing development, the address is 2625 Stoddard Avenue. The Clayton store is at 8104 Maryland in Clayton, Mo., a suburb of St. Louis, of course. I used the same list developed by the Post-Dispatch and Mrs. Dames, and I found that there was some difference in prices, however the main differences that I found occurred in the quality of food rather than in the price. I suppose mainly that is because of the limited amount of items on the list. PAGENO="0248" 242 Now, some of the differences in price I will indicate right now. On Friday, the 20th of October, I found that bananas at the Clayton store sold at 2 pounds for 29 cents, at the inner-city store, the same 2 pounds sold for 39 cents, a 10-cent difference in price. Mr. ROSENTHAL. The same quality, same No. 1 or whatever it is? Mr. FRANKLIN. Right, top quality at both stores. There was oniy one quality of bananas at the two stores. Peas sold for 22 cents a can at the Clayton suburban store, or three cans for 65 cents. In the inner-city store the one can of peas sold for 25 cents or 3 cents more, which indicated a significant price difference in the peas. Mr. ROSENTHAL. Would you break for just a moment. We are delighted to have my colleague from Indiana, Congress- man John Myers, join us. These peas, were they the same brand? Mr. FRANKLIN. The same brand; yes. Early June peas. Now, these were the significant price differences that I found, and I later looked at the articles that I had purchased. I incidentally purchased all of the items that were on the list, and some of the items showed great discrepancies in quality, and I will talk about that now. The green peppers sold two for 25 cents in both stores, but in the i riner-city store the peppers were older, they were wormy, and to me there was a lot of dirt on these peppers, they hadn't been cleaned seemingly and many of them had been crushed to the point where there were breaks and gashes in them. In the Clayton suburban store the peppers were fresher and they were firmer, of course, also. The lettuce was the same so far as the cost was concerned. How- ever, after examining the lettuce closely, we found that in the inner- city store the leaves on the outside of the lettuce, the leaves were wilted and they also were decaying. If one were to take off these leaves one would find that the inner~city buyer would get a smaller head of lettuce as opposed to the Clayton buyer, who would get a larger head of much fresher quality seemingly. Mrs. Dames has already pointed out the pork chops and the ham- burger differences we found. The same price, however, was true in both cases, but there was a difference in the quality and she has already indicated the differences. In buying the items I notice that the vegetable bins and the meat counters of the inner-city store, the temperature of these bins was not as cold in the inner-city store as opposed to the Clayton store, and the inner-city store didn't, the produce there didn't have the water that one seems to use on the items to keep the freshness up, whereas the Clayton £tore, the produce had been drenched with water seemingly to keep the freshness up in those items. I thought that was very important. Also, I found that the inner-city store had on display a number of sugar dry cereals as opposed to the Clayton store. This indicated to me that one could buy five boxes of sugared cereal and at the same time pay for a 5-pound bag of sugar if he didn't buy the sugared items. Now, this is what happened ~the first day, of course. Now, on the second day, that was Monday, the 23d, I ~vent back to the same stores and noted a difference in some of the prices of some of the items. The PAGENO="0249" 243 peas in both stores sold for the same price on Monday following the weekend. That price was 25 cents per can. Also the bananas sold for the same price. They had gone up 10 cents in the Clayton store to 39 cents, which indicates to me that the person or buyer in Clayton seems to have advantage of a sale that's going on on the Fridays, or let's say a shopping day, as opposed to the person in the inner-city store, she has no opportunity to take advantage of a sale on a Friday or a regular shopping day. Also I notice that the vegetables and other fruits, such as oranges, apples, cabbages, cucumbers, all of these seemed to be much older and dirtier in the inner-city store; grapes and plums, also it was indicated. that they were poorer quality and they were not as fresh and as clean as the items in the `Clayton suburban store. My conclusion is that there is a difference in the quality of the vegetables and the meats, whereas in the inner-city store the quality is much poorer as that in the Clayton store, suburban store. Mrs. DAMES. There was one thing else. When I talked to' the store managers they said too that foo'd was not shipped from one store to another and that produce was not shipped from one store to an- other, and they said that there was no deliberate intent to send poorer quality to the inner-city store, and yet since there is no competition there available in these areas, whereas in the suburban stores there are often groups, several stores o'f competing chains. There is no com- petition, the very thing that built the supermarkets. In the inner city there is no competition going on so it seems to me that perhaps these price discrepancies, w'hile following the uniform price list that they use, it would be a question that the `people in the inner city, the very poor people who need it are not being given the benefit of `the com- petition that the `better-to-do people in the suburbs are getting. I don't know if that came ou't in this, but at least this was my private~ view. Mr. ROSENTHAL. In other words, the two inner-city stores that you shopped had iao competing supermarkets within physical walking dis- taaice by your ju4gment? Mrs. DAMES. That's right. And for example, someone living on A.D.'C. in the S't~ Louis area, a wo'man with three children will have $114 a month to provide everything. I noticed earlier the A.D.C~ people were talking about savings, how much a person could save shopping one store over another, and he said something like if they spend $1,000 a year on food-well, if a woman only has $114 a month she is not going to be spending even $1,000 on food, and these prices, I think, are very important. Mr. ROSENTHAL. Also I assume she doesn't have transportation readily handy to travel outside? Mrs. OAMI~IS. Our bus fare in St. Louis, is, I think, 40 cents, 35 cents one way for an adult. She's not going to be able to afford a babysitter for the children. Mr. ROSENTHAL. In simple language she has no choice but to shop at that store? Mrs. DAMES. ,She really doesn't and what is available there, she prob- ably does not even have knowledge of what is available in other stores because she is- PAGENO="0250" 244 Mr. ROSENTHAL. From what you say, even if she did have the knowl- edge, from a practical point of view, there is nothing she could do about it? Mrs. DAMES. That's right. Mr. MYERS. I'm sorry I was late. In fact, I guess we are lucky to be here, we had equipment failure on a plane this morning and guess where, Cincinnati. We shouldn't laugh about that, but glad to be here. Now, you are Mrs. Dames. Mrs. DAMES. That is correct. Mr. MYERS. You wrote an article, didn't you? Mrs. DAMES. Yes. Mr. MYERS. Did you write it personally yourself? Mrs. DAMES. Yes. Mr. MYERS. You were aware of all the facts, you personally experi- enced the facts you stated in your article? Mrs. DAMES. Except for the one at the Kroger store, Mr. Franklin here went to the Kroger store. For purposes of comparison, the Kroger meats were judged objectively by Val Johnson of our city public health department health laboratory, though Dorothy Brainerd, our food editor, had looked at the meats and had already told us they were of poorer quality. You see, the thing is, the chain people, the officers say there is no way this can happen and it does happen so something is wrong some- place. Mr. MYERS. Well, I read your article, I'm sorry I wasn't here to hear all your testimony. You have no prepared statement, is that correct? Mrs. DAMES. Well, I did but it was pretty bad. Mr. MYERS. I have a few questions here about your article. You talk about here, on the first page of your article about the scientific analysis you made of certain meat. Was that by this Dr. Val Johnson? Mrs. DAMES. That's right. Mr. MYERS. Which was as far as the fat content is concerned? Mrs. DAMES. Yes, and you see again this is a touchy problem because the stores say they have a trim policy on meat, but this is left to the jurisdiction of the individual butcher. I don't think trim policy alone accounted for the difference. If you take two chops, I think we have a picture in the article that shows more eloquently than many words could the differences in the actual edible portion of the meat. I would, if I were using words, say that there is twice as much meat on that chop to the right, which was purchased in the suburban store. Both of these chops came from the same chain, both of them came four to a package, pound weight was identical but you look at the meat available and you can see that's twice as much to eat. If I were preparing a dinner for my family from these chops, I think it would take me, it would take 12 chops of the smaller kind, where you could get by with one chop a person, I feed six, you could get by with one chop per person. Mr. MYERS. This was indicative, then, of all the quality of the stores you investigated these were average samples that you took? Mrs. DAMES. ~Yes. Don Franklin picked up these chops, and he just picked up what was there. Mr. MYERS. You think he is a pretty good shopper, then? Mrs. DAMES. I think he is a terrible shopper. I think he just picked up what was there. PAGENO="0251" 245 Mr. Mmns. Does your wife let you shop? Mr. FRANKLIN. I'm not married. Mr. MYERS. You also speak about the heads of lettuce seemed to be smaller? Mrs. DAMES. Now the heads of lettuce were definitely smaller. The ones we brought back to the office, if you looked at the two heads of lettuce before the outer leaves were stripped they seemed to be the same size, but as any housewife can tell you, lettuce comes two ways, peeled and unpeeled. The better stores will peel lettuce before they sell it to you sometimes, I mean if they care more about the preparation of it. What you are actually using, the outer leaves of lettuce will fluff out a little bit because they are loosening at the base and will make the lettuce appear larger, but those leaves have usually dried out and you wouldn't use them, you would peel them off before you would use this lettuce for a salad. So when you peel off the outer leaves of a lettuce you wind up with something perhaps a third smaller, maybe that's too high, I would say a fourth smaller. Mr. MYERS. Actually it is just appearance rather than actual quantity? Mrs. DAMES. Right, when you get down to what you can use. Most of the good stores peel the lettuce and wrap them and they are pro- tected so you don't lose your outer leaves. Mr. MYERS. We do at our house. In the closing couple paragraphs of your article you say in some instances merchants in slum areas defend higher prices on the grounds that the risks of operating costs are greater than elsewhere. Could you tell us, the committee here, what you mean by that? Mrs. DAMES. Now, this, I beg your pardon, this was in relationship to Congressman Rosenthal's hearings in Washington. This article fol- lowed another article we had had on the hearings in Washington and it was part of a general series.' This did not have to do with St. Louis. Mr. Myr~s. I don't recall that ever coming up that this was proven either in Washington. Mr. ROSENTHAL. I don't know that anything has been proven yet. Mr. MYERS. There was a generality. No merchants said this in his testimony. Mr. ROSENTHAL. Incide~ta1ly, we had that testimony yesterday in New York. Mr. MYERS. The merchants said they did this. Mr. ROSENTHAL. Yes. Mrs. DAMES. I'm frankly~~-this may have come-you see the policy when you write a story, you write a story, it is your story, but some- one will rewrite it and conform it to style. Now, this was not my paragraph but it probably came from Jean Briarton's previous article. Mr. MYERS. Then all the article was not yours? Mrs. DAMES. Well- Mr. MYERS. You told me earlier it was. Mrs. DAMES. In a sense that any article is mine is yes, because anytime you write an article you turn it in to an editor, and then a copy editor reads it, because they make great effort to check every- thing and make sure it is absolutely accurate, and anytime you read any article in the newspaper, chances are some portion of it may have come from a prior story which you did not write, but which is-that's the best way I can explain it. That's newspaper policy. PAGENO="0252" 246 Mr. MYERS. Do you think that, your survey that you made in the stores, the two of you, was it comprehensive? Mrs. DAMES. Oh, no; absolutely not. Ours was a small survey, it was a small, honest survey which contained the main food groups- Mr. MYERS. And there could have been mistakes made in your survey and article, then; is that correct? Mrs. DAMES. No, there were no mistakes made in my survey and article. Mr. MYERS. You don't think it was conclusive, then, you don't think that really you had this si'tuation well in hand,? Mrs. DAMES. What do you mean by conclusive? Mr. MYERS. Well, is this a general trend? Do you think that really you went into it deep enough to say yes, this is fact, that this is what is actually happening? Mrs. DAMES. I went into it deep enough to say it is fact insofar as to say any housewife doing her food shopping can be said to say-~-in other words, a housewife is not going to go out and compare 8,000 items which change daily and try to make an intelligent use of her food money in the sense that HDO did. We didn't try to prove any more than we said here, that there does seem to be a difference in food prices, and I think that we honestly did a decent job on it. Mr. MYERS. I read one article that you wrote and one that, what was his name, someone else wrote, and he isn't here today, is that right? Mrs. DAMES. Gene Briarton has been writing on food costs in general. Mr. Mr~ns. You had, son eompJ4aints or'iiow did you come about it? Mrs. DAMES. We had had many complaints and we didn't know whether or not the complaints were justified. Many times people call the newspaper, contact a newspaper, and they have an ax to grind and we went out and took our survey just trying to see if there were some truth in this and this is what we found.~ Mr. MYERS. You didn't name the chainstores. Did you go to different stores? Mrs. DAMES. Two chains. I went to one, Mr. Franklin went to another. Mr. MYERS. Did you go to various stores within the chains? Mrs. DAMES. I went to four stores of the National food chain, Mr., Franklin went to two stores of the Kroger food chain. Mr. MYERS. You spoke. about the green peppers here. All the green peppers on the display were spoiled. Mrs. DAMES. No. I think you missed this. Here's another thing. The officers of the foodstore ~hains-~---well,, let's talk specifically about National, süice it was National's peppers that I noticed particularly. There was a slightly different situation with Kroger's peppers, but in National's peppers they had what I would call three grades of peppers. I checked with the USDA. Mr. MYERS. Three price ranges, too? Mrs. DAMES. No, they had each pepper individually stamped. Now, I haive to say this loosely because I am not a vegetable authority. I checked with the Government and I said2 the USDA vegetable man who talked to me off the record, and he said that anything that grows you can't have absolute similarity on, but that peppers are graded. Now, and this was also borne out by the National foodstore people PAGENO="0253" 247 who said that there is some sort; of an automated grading so this thing ~cou1dn't happen, but it did happen. There were tiny peppers, big pep. pers, twisted peppers. Most of the p~ppers were not very fresh. There were good peppers within this, but when you moved out to the county you didn't see this. You saw just good peppers. Mr. MYERS. But there were good peppers on the tray, too? Mrs. DAMES. There were some good peppers. Mr. MYERs. The pictures you have here show brown spots on them? Mrs. DAMES. That's a fault of the color process. That's also true of the other stores' green peppers, that's just a flaw in the color. Mr. MYERS. Size is what you are trying to show? Mrs. DAMES. There is a gash in one pepper. There is one pepper here bought at a Kroger store. Mr. MYERS. Did you buy that one, Mr. Franklin? Mr. FRANKLIN. I found that over half of the peppers in the inner- city store were of poor quality. Mr. MYERS. You bought the cracked one. When you took it up to the checkout counter did you say this one is spoiled or this one is cracked, could I have a new one, or did anybody offer to exchange it for you? Mr. FRANKLIN. No. They charged me two for a quarter. Mr. MYERS. How about you? Mrs. DAMES. Yes. When I checked out with it-this is part of the reason Mr. Franklin went out-when I took the pepper out-he told me the bananas were good and he marked down on the one pepper a nickel in price; no, 4 cents in price. He did not on the other. Now, I wondered- Mr. MYERS. Where did he mark it down? Mrs. DAMES. He said, "I will only charge you this much," at the ~checkout counter. He didn't mark it down, he said only charge here, whatever it was, 11 cents. Mr. MYERS. But he marked the damaged pepper down at the checkout? Mrs. DAMES. Yes, but he didn't mark the other damaged peppers down and this had the price marked on the pepper, it was stamped on there. Mr. MThRS. Did you ask or did he volunteer to mark it down? Mrs. DAMES. I didn't ask for it. Mr. MThRS. What store is this we are talking about? Mrs. DAMES. National, 4331 Natural Bridge. As I walked do~vn the Risle he said, called out to the meat men and said, he was marking things down in the aisle, you know, before I got over to the vegetable counter, and he said, pass the word, and I thought oh, oh, since this i~ an all-Negro area he either thinks: (a) I am from the newspaper, (b) I am from the chain checking prices against their list, or (C) I am from a competitive store, because I think my white skin stood out. The only other white person in the store shop was an old lady in her seventies who was complaining to me about the food prices. It is an area in transition, there are not many white people still living around there or it has gone beyond transition, I would say. Mr. MYERS. But you did not tell them that you were a reporter, did you? Mrs. DAMES. No; I didn't, but I had a notebook, I was taking notes. Mr. MYERS. But you did purchase, though; didn't you? PAGENO="0254" 248 Mrs. DAMES. I purchased; yes. Mr. Mrnis. Thank you. Mr. ROSENPHAL. I have no further questions. Thank you both. The next witness is Rev. John Shocklee. Father Shocklee, we are delighted to have you with us. We will be grateful hearing whatever comments you have on the testimony you have heard here arid the experiences you have had in St. Louis and the work you have done. STATEMENT OP REV. JOHN SHOCKLKE, PASTOR, ST. BRIDGET OP ERIN CHURCH Reverend SIJOCKLEE. Thank you, Congressman. Later in the day you are going to hear from several ladies from our community who know a whole lot more about food and costs of food and quality of food than I do. However, I do have observations about the situation that having been a resident of the community for 7 years,. and that community is-I live in the Pruitt-Igoe area that you have heard of several times today. When you know the community, and you may have heard these statistics before this morning, that we do have about 70 percent of our people are on aid of one kind or other, ADC or the blind or the old-aged assistance or general relief, and of those that are living in the Pruitt-Igoe housing development, 62 percent of our people live on less than $3,000 a year. It is less than $3,000 a year as family income. It doesn't make much sense, it doesn't mean much until you read that we are the third highest metropolitan area in the United States as far as food costs are concerned, and most of us know that we are the 42d State in the Union as far as the size of welfare benefits t~ the individuals are concerned, so there is a discrepancy there that makes it quite a problem. My own experience in the neighborhood, and the complaints of the housekeeper that makes purchases for us, called it to my attention that it was costing us just a lot of money just to live there, and then the women from the community began reporting the difficulties that they were having of getting by on their limited budgets. I have heard many times about Kroger this morning. Kroger happens to be the only chain- store that we have in the neighborhood, and while I don't have stock in Kroger, A. & P., or anybody else, I don't know whether the situation would be helped if they left the neighborhood, so what my point would be is that something ought to be done to offer this competition and to offer this choice of some form of encouragement to other chains, other large groups to get concerned about this large number of people that do live in our community. Mr. ROSENTHAL. In your immediate area, Father, there are no other chains other than Kroger? Reverend SH0cKLrn. Nothing in the immediate area, and the only other Kroger store is 4200 west on Lindell or 4200 north on Grand. Mr. MTERS. How far would that be, Father ~ Reverend SH0CKLEE. Five miles, at least, each way. Mr. MYERS. Are there other stores that are chains? Reverend SHOCKLEE. There are other small stores, small markets, delicatessen, but again these are not owned by people who live in the neighborhood, they are owned by people out in suburban areas, but PAGENO="0255" 249 they are there. The only large store that we have, a typical national supermarket nationwide would be Kroger. The people were complaining to me about food and again I don't do the buying much myself, but I know the limitations of how hard it is to feed people on a limited amount of money. We didn't know what to do about~ it. If somebody raises too much cain about Kroger they might cancel their lease and move and we have added to our problems. But we did have an old bus that sat around the neighborhood that belonged to us, the bus was like the rest of us, quite deteriorated, but we were able to get the bus out on Saturday mornings, and there is in St. Louis a farmer's market in south St. Louis called the Soulard Market, it has been there since the 1780's, I think, and each wave of people that came to St. Louis seemed to end up at some time in their life at Soulard Market. We were able to offer the bus to the women of our community, if they so desired, if they would pay us enough to keep the bus running, we would provide a driver to take them to this market and then they could shop. At that time they also sent along a person who would teach them how to shop, not to buy the first items that they saw, but to take a walk around the market and see how much eggs were and how big they were, how fresh they looked, then on your second trip around make some purchases. It met with mediocre success as one of the ladies is going to tell you this afternoon. The mediocre success was due to a number of things, not that the people didn't want to use it, but we couldn't run it every day, we could only get a driver on Saturdays, poor people don't have money that they can write a check and go just when we say the bus is ready. Sometimes they have other obligations of rent, that food is some- thing that you worry about day to day. From the public image people can't tell when you are hungry but they can tell when you have been evicted by the furniture out on the sidewalk, so our people frequently pay their rent first, then trust it to luck as far as food was concerned. However, we did offer this one choice, if they wanted to come they could, we weren't compelling them in any way, but it is only mediocre. It is a smaller bus that's available now. I think the ladies this afternoon might tell you that it is the season of the year and the time of the month when they are best able to take advantage of this, but it was one effort made as far as giving people a choice. They have no choice in our community, as I heard someone else testify, and we do not have the automobiles available, the people do not have their own cars, and the cost of public transportation is also very high and quite irregular. So there was a difficult thing. Where do you go? So this was an effort, but I am quite sure that it is not adequate. It might be strengthened if we could get additional resources available if the extension services, Missouri University, and other homemaking programs could kind of join in on this and we join with them and possibly make it more available. Mr. ROSENTHAL. Father, neither you nor the ladies consider the small stores there a choice. Why? Reverend SOJI0CKLEE. Well, the price, I don't think it is something that's peculiar to our neighborhood, that small stores cost more, because they do not have the volume of business. Again, your choice is reduced. You buy this can of beans or you don't buy any beans at all. Or you buy this pound of butter, this' grade of butter, or this stick of PAGENO="0256" 250 butter because there is not that much choice of various types. There rare no sales in the small stores. They meet the needs of people as these needs arise. They are for the most part open on Sundays and they are open early in the morning, chainstores don't open till 9. The other stores are open earlier, some at 7 or 7:30. They are open on holidays. They are needed in the neighborhood, but most communities use these stores as emergencies, when somebody drops in and you suddenly realize you don't have enough food, which happens in everybody's middle-class family. But this isn't a question of dropping in, this is just a question of "Now we have a dollar and we are hungry," the only place that's open is the smaller market. Mr. ROSENTHAL. Why did you have to bus them out of the commu- nity, why didn't Kroger meet that choice or that need? Reverend SCIIOOXLEE. Well, I don't know why they didn't. Their prices, our people felt they weren't getting the opportunity to choose and they were complaining about the prices, so one thing that we could do was let people know what the prices are someplace else, and this is why we did it. Ii don't know why they didn't particularly-they do offer us a larger store, you can have a choice, a greater choice in Kroge; but if you aren't satisfied with that there is nothing else. The competition, then, is just not there. Frankly, I suppose in your hear- ings you certainly want to know what to do about it, and the thought occurred to me when I was asked to come, that maybe a recommenda- tion might be, from my view point of what I can see, is that the govern- ment might extend some kind of subsidy to business to move into areas comparable to ours all across the country. We aren't unique as you know, we are just a small town compared to the problems of àhicago, Detroit, and New York, and Philadelphia, but maybe the Govern- ment m~gIit be able to offer some kind of a subsidy to business, some kind of a tax concession or grant, subsidy of one form or another. It has done this in other areas of human needs, through the Hill-Burton Act, it has helped the hospitals to be built in areas where they were needed. I know that the educational offices offer additional funds to school systems when they are overburdened with Government instal- lations, or whether it is some kind of depressed area. It would seem to me that the question of food is even more basic than hospitals and edu- cation, and some kind of support might be given to the foods industry to encourage them to stay in neighborhoods like ours and to encourage others, other food chains to move in. Another thing that I think must be considered in the sense of as- sisting foodstore~ to stay in the neighborhood, and of a multiplicity of them to offer poor people a choice, would be the programs involving the o~rerniuent and various kinds of on-the-job training prog~rams that would involve people who do live in the ghetto and thereby in- crease the income of the ghetto, which is one of our basic problems. This, at the same time, would reduce the "we-they" idea we have, that everything we have in our community is owned by somebody on the outside. `There is not a store in our neighborhood that is owned by somebody who lives in `the neighborhood. Everybody has moved away whether they `be a local merchant or whether it be a chain. If the people could be prepared for managerial positions and strong training programs, not only training programs as to how to work, but also how to purchase, this might be a possible favorable reaction to the people of our community, that somebody is trying to help. PAGENO="0257" 251 We have this large number of people, we admit that our income is not the highest in the world, and we know that business is in business to make money. I don't think it is impossible that money could not be made if the Federal Government was able to offer some kind of lead- ership in promoting the types of things that I recommended, of some kind of concessions or subsidies or grants to enable this large segment of American people to be fed properly at a price they could afford to pay. `The answer, of course, would be competition, which is what we need. Poor people don't have much choice at anything. You have to live in a certain area, you work at a certain job, you buy in `a certain `store and that's the limit of it, which might give us an indication of why violence and rebellion enter into the picture occasionally. `This is my opinion, I am not the professional that goes around with a basket and compares prices. My observations were at the end of the month when the housekeeper told us we owed them a lot of money and we began to look closer. Mr. MYRn5. Father Shocklee, I'm not real sure, you aren't charging, then, that the store in your area, the chainstore that happens to be Kroger, is charging more than they do in other areas of the city; is that correct? Reverend SHOCKLEE. All that I can say is I have gone out to other areas in the suburbs to a store where the prices were much cheaper than we were paying across the street. Now, this was not another Kroger store, this was a different store where I happened to know the manager and he asked me to come out, which I did do, but this creates the problem, while the prices are much more reasonable generally at this particular chain, it is at a great distance and they have no stores in the city whatsoever, they are all suburban stores. `They do reach out to the people living in the suburban community, and if the people of our community, and frequently I do meet people from our neigh- borhood who have a car who go as far away to make purchases. Mr. MYERS. Are these general beliefs or did you look at specific items? Reverend SHOCKLEE. I checked out in the area of fruit juices. Mr. MYERS. Same size, same brand? Reverend SHOCKLEE. Del Monte brand, at sale at this store they were 22 cents a can, normal price about 27 cents a can, but frequently at our store 32 cents a can. Mr. MYERS. Is there competition out in the suburbs where you went? Reverend SH0CKLEE. Yes, sir. Mr. MYERS. You talk about subsidizing, we work up some subsidy for stores to come into your area. Why isn't there a store now, why isn't there some competition, can you give me a reason why? Reverend SHOCKLEE. I presume-well, I am sure the stores could tell you more about it than I can, they are there to make money, they probably feel they aren't going to make money. I don't know anything about the books, the annual report of Kroger, but I know they would have complaints of vandalism and the usual charges which may or may not be true. But why the others aren't coming, I suppose they feel they aren't going to make any money `at it. Mr. MYERS. If these charges are true, my gosh, there is a lot of money to be made there `then. 88-582-68-17 PAGENO="0258" 252 Reverend SHOCKLEE. The problem you have to understand, though, you don't get the vo1ume~ for the numbers of people. Pruitt-Igoe has 10,500 people living there. As we said, 62 percent have family incomes of less than $3,000 a year. Three thousand a year is about half the average, so for practical purposes we have 5,000 people who have a buying power, while there are 10,500 people living there, for practical purposes we have a buying power of 5,000 people, so this enters into the picture why another store might not come without some kind of subsidization, tax exemptions. Mr. MYERS. Don't they have food stamps in this area? Reverend SHOCKLEE. Oh, yes. Mr. MYERS. Isn't that subsidy right there, where it raises the food- buying power of the public? Reverend SHOCKLEE. The food stamps are limited to certain items, they have to be edible, they have to be from the United States, but where we think of food-- Mr. MYERS. That's subsidizing, it is purchasing power that's what it is intended to be. Reverend SHOCKLEE. There are lots of other things there. Frankly, the food stamps are sponsored by the Department of Agrictilture. Mr. MYERS. I am on the Agriculture Committee, also. Reverend SHOCKLEE. This is obviously to help the farmers. Mr. MYERS. No, not the food stamp. They had the commodity or~iginally, but it has gotten away from that now. This new act wasn't to subsidize the farmer, Mr. ROSENTHAL. Not to let the record be confused, when the food stamp program was started it was started to dispose of surplus prod- ucts. I was on the agriculture subcommittee that reported out the food stamp bill. We are all right on this one; since then it has been such a widely accepted program in the interest of improving the quality of life in the United States it is now fully accepted as being of help to low-income people and not necessarily the farmer. The farmer is still the residual beneficiary because he is moving more food. Mr. MYERS. Of course, farniing is-we aren't going to get into dis- cussion here of farming being a basic industry, but about anything you do will help industry, but this is really the design of our new pro- gram now which I hope will-is to help people rather because we still have some commodity programs. Reverend SHOCKLEE. Some subsidization, or increased food stamps made available. Frequently, you know, some people are so poor they don't have the money to buy the stamps to get the food, which doesn't help the situation whatsoever, But I am all for food stamps and I am glad to hear you are on the committee. I am for it 100 percent. I hope there are greater increases in them and more people took advantage of them. This is one form of subsidizing the industry to get people interested in the community, and they do have a choice, they can go to Kroger or they can go to any store which will accept the food stamps. Mr. MYERS. Where do they get the food stamps in your area? Reverend SHOCKLEE. We have to apply out at the welfare office and then- Mr. MYERS. Where is the welfare office? Reverend SHOCKLEE. Delmar and Euclid. About 4800 West. PAGENO="0259" 253 Mr. MYERS. Physically, how far in miles is that? Reverend SHOCKLEE. You have to go there to apply, 5 miles, then they have to go up on Grand Avenue to the food stamp office to get the stamps themselves. Mr. MYERS. How far is that? Reverend SHOCKLEE. About a mile. Mr. MYERS. So they do pass possibly other stores on the way to get their food stamps and so forth, they do pass other competitive stores, those people that do have food stamps? Reverend SHOCKLEE. Right, except that there would be no Kroger~ Mr. MYERS. Others possibly? Reverend SHOCKLEE. There aren't, though. Mr. MYERS. In 5 miles there are no other chainstores? Reverend SHOCKLEE. In thinking fast we don't have a chainstore between here and the food stamp office, from our area now. if you came from the south you might bump into different ones, but our pa~- ticular community-I don't know of another one-I stand corrected on this, but I don't remember another one. I am talking about the large stores. Mr. MYERS. You spoke about local ownership and managers. Your Kroger store, do they hire local people from your area to work? Reverend SHOCKLEE. Yes; they do. Mr. MYERS. Don't any of them ever work up to become managers someplace else? Reverend SHOCKLEE. I can't really tell you. There is a different policy in the stores. Some leave this up to the individual managei and. sometimes he never seems to find anyone he wants to hire in that par- ticular community, so that the hiring then might be done at the upper~ level of the administrative level rather than the local store, but I do know that they can get a good word from the manager in our neighborhood, because I have taken boys from our neighborhood out to the Kroger office, which is next to Lambert Field out on Lindbergh in my car so they could take some tests to be hired by the store in our neighborhood. Mr. MYERS. Were they hired? Reverend SHOCKLEE. One boy was and several others I think. I do know one that was particularly interested was hired. Mr. MYERS. But they do hire people from your cornmunby? Reverend SHOCKLEE. If you are strong enough to get all the way out to Lindbergh, if you can get 10 miles. Mr. MYERS. If you want to be a stockboy you ought to be strong enough to get out there. Mr. ROSENTHAL. I want to take this opportunity to commend you, Father, not really for your testimony, but because someone in your profession is so deeply involved in matters of concern to members of our profession. It is a very healthy sign and I think it is an important sign for America these days. Thank you very much. Reverend SHOCKLEE. Thank you. Mr. IROSENTHAL. The next witness will be Mr. Walter W~ White, manager of operations of the St. Louis division of the Kroger Co. When we complete this testimony we will adjourn for lunch. PAGENO="0260" 254 STATEME~iT OP WALTER W. WHITE, MANAGER OP OPERATIONS, ST. LOUIS DIVISION, THE KRO'GER 00. Mr. WHITE. I have a prepared statement. My name is Walter W. White. I am manager of operations of the St. Louis division of the Kroger Co., 6050 North Lindbergh Boulevard, Hazelwood. We operate the Kroger stores in Metropolitan St. Louis. I want to thank you for your invitation to our company to be present here today to discuss this very important matter. We are well aware of the concerns expressed to you by persons and groups who say that evidence of discriminatory practices can be found in the re- tail food industry in St. Louis. Although we do not agree with the conclusions they have reached, we share their civic interest and hu- manitarian concern. We hope that their energies, as well as those of the rest of us, can be mobilized in a constructive manner intended to continue to move this community forward. Published accounts of this matter, as well as the private and public statements of those associated with the reports discussed here today, have a pervading accusation that food chains deliberately cheat a par- ticular segment of their customers. Speaking for myself and for Kroger, I say to this committee and to all ~ho will listen that this accusation is absolutely false. Our company, since its inception 84 years ago, has built and main- tained its national reputation as an outstanding food merchant by ad- hering steadfastly to the principle of dealing fairly and honestly with our customers, no matte~r who they are and no matter where they live. This business creed is no less an ingredient of our corporate character today than it was in 1833. We resent the innuendo and implication of `the statements made on this issue in `St. Louis in recent weeks. We consider them unwarranted, unfair, and untrue. Now, permit me to address myself to the intricacies of just one aspect of our very complex business so `that you here today can judge the information presented to you in fuller perspective. On the shelves of our Kroger food `stores we stock approximately 8,000 different items. This array of merchandise, which affords our customers great freedom of choice, means that we keep on hand-and we `must price-about 200,000 separa'te cans, cartons, and containers in each of our stores. Like most other businessmen, we base our entire operation on the planned selling of these item's at the proper price, thereby enabling our customers to receive full and true value, and our shareowners to receive a fair return on their investment. Unfortunately, we're like any other organization run by human beings; we do make mistakes. We have developed, and we forcefully administer, a system of control's intended `to eliminate as many errors as it is humanly possible to eliminate. A wall-to-wall check of all prices in each `store is made regularly in connection with store audits. Additionally, an independent, profes- sional shopping `service is constantly checking prices in our stores, along with other aspects of store `operations. We also employ a man experienced in price checking to inspect our competitors' stores, and he keeps ta'bs on our prices, too. PAGENO="0261" 255 Furthermore, store personnel are expected to frequently and reg- ularly check prices in their store. Store managers and department heads, especially, are actively engaged in these frequent checks. In ad- dition, more than two dozen experienced management people spend much, if not most, of their time in our stores, and price checking is something all of them always do. But we are no different than anyone else in this room; we are human, and errors do occur, no matter how diligently we try to avoid them. It might be well to note that pencil manufacturers recognize this human imperfection when they put an eraser on each pencil sold to the public. So it's entirely possible that on any given day, in any given store, a particular item will not carry the price it is supposed to Qarry. This is not only possible, it is understandable. As an illustration, let us look at the week of October 15, during which the Human Development Corp. teams visited our stores. In that week alone, e'a~h of our store managers was responsible for carrying out approximately 380 price changes, some up, some down, on more than 5,000 pieces of merchandise on store shelves. For many reasons, these price changes occur with great rapidity and in great volume. Many of them are connected with implementation of our sales plans, which provide special values to the customers of all of our stores. Some are caused by cost increases made effective by the food manu- facturing companies which supply us with the merchandise we sell. Others are caused by changes in local competitive conditions which develop suddenly and unexpectedly. Still others may be caused by the need to obtain quick sales of perishable merchandise which is nearing the end of its shelf life with a large quantity still on hand. There are other reasons, too. A particular item may have been discontinued by the food manu- facturer because of a lack of customer acceptance. It must be marked down for quick sale. Merchandise offered at an advertised special price on the weekend sometimes is left over on Monday morn1ng. The special price then must be changed to the regular retail price. Market changes frequently occur so rapidly that the mimeographed pricelists prepared regularly in our division office sometimes are al- ready out of date by the time they are delivered to our stores. As a result, accurate pricing has become almost an hour-to-hour task and responsibility for our store managers and their employees. A further factor is this: Much, if not most, of our pricing is carried out by part-time personnel, many of whom are high school `students and other young people. It `takes time for them to be properly trained and `to become accustomed `to the mechanics of pricing. Frequently, just when they have reached an acceptable performance level, they leave us for college, the military service, or another job. It `becomes quite clear, then, that the speed and frequency and volume of price `changes create human working conditions under which inadvertent errors can occur, and we would `be the last `to deny `this. Certainly, we can improve. But we are not ashamed of our perform- ance as `human beings who have not yet attained perfection. Vital to the discussion here today, however, is the fact that, while these errors may occur, `they are not `by design. They are not delib- PAGENO="0262" 256 ~rately carried out as a part of a sophisticated conspiracy intended to cheat our customers. We simply do not operate our stores in `that fashion. In my judgment, this -fact is evident in the report of the Human Development Corp. itself. In listing the prices the HDC teams found on their visits to our stores on October 19 and 20, the report covers prices in two stores located in low-income neighborhoods and prices in five stores in middle- to high-income neighborhoods. On only three items, out of 29 checked, were the prices in the two low-income neighborhood stores higher than in all five of the middle- and high-income neighborhood stores. On all other items, the price in at least one of the low-income neighborhoQd stores was the same as the price in at least one of the stores located in the higher income neighborhoods. And in one instance, the price charged in the low-income neighborhood store was less than in the higher income stores. Certainly, if the price disparities reported to you today were the result of a deliberate effort to systematically deceive and cheat our customers in stores situated in low-income neighborhoods, there would have been substantially more uniformity in the differences. If we were intent upon cheating our customers in low-income neighborhood stores, - then it follows that we would be attempting to do the same thing in other comparable stores. At this point I'd like to briefly discuss the matter of the quality of the merchandise sold in our stores, which has been questioned by some of those involved in the store visits described for you today. Our warehouse consists of almost one-half million square feet of storage space. Through it each week move about 11 million pounds of perishable and nonperishable merchandise. It would be impossible for us to selectively single out any inferior merchandise in this rapid and voluminous operation, and send it into the low-income neighbor- hood stores, even if we wanted to. But the important thing is this We don't want to. Our business is based on repeated patronage. Unless we continue to satisfy our customers, no matter who they are and no matter where they live, they can quickly take their business elsewhere. And to most housewives, nothing is more important to them in selecting the supermarket of their choice than the quality of meats and produce. If they find low-quality goods, they simply shop at another store. This is why we pay so much attention to meat trim, which is a factor and an important one in the housewife's buying decision. As an example, in our store at Jefferson and Stoddard, listed in the HDC report as serving a low-income neighborhood, our head meatcutter trims off more of the excess fat on certain beef cuts than is called for under our rigid company policy. This is necessary if he is to sell the product while it is fresh, and still be able to maintain adequate variety for our customers. He has to be fussy, because he has customers who are particular about the food items they buy. Then, too, most of the fruits and vegetables in our produce depart- ment are prepackaged. This enables us not only to preserve the fresh- ness and quality of this merchandise, but to date the package on the day it is put on the shelf so that it can be removed when its shelf life has expired. Bulk displays, quite obviously, cannot be dated. PAGENO="0263" 257 Suffice it to say that all of our stores are served out of the same warehouse where orders are handled under an impersonal -assembly system. The quality of our goods is as uniformly high as it is possible for us to buy, and these goods are shipped indiscriminately to our stores without regard for what kind of neighborhood a particular store serves. The charges and allegations which have been discussed here today have been made before, and investigated before, and disproved before. Separate studies in Kansas City, Milwaukee, Jersey City, and Cin- cinnati, to cite just a few that have been brought to my attention, have been carried out by local citizens groups, university personnel, and official government bodies. Repeatedly, the charge that food chains discriminate against some of their customers by selling inferior merchandise at higher prices in low-income neighborhoods has been found to be baseless. The most recent comprehensive study of this nature, perhaps, was the one carried out less than 2 years ago by the Bureau of Labor Statistics of the U.S. Department of Labor at the request of the National Commission on Food Marketing appointed by President Johnson. I recognize that you, Mr. Chairman, are well acquainted with this study as a result of your service as a member of the Commission. The study covered six cities: Atlanta, Los Angeles, Chicago, New York, Houston, and Washington, D.C. The final report concluded: The Bureau of Labor Statistics has found no significant differences in prices charged by food stores located in low-income areas versus those charged by stores in high-income areas when the same type of stores (chains, large inde- pendents, small independents), the same qualities of foods and the same sizes of packages are compared. We expect the same findings to be forthcoming here. We hope, then, that those who now question our honesty will acknowledge publicly that we are, indeed, playing fair and square with all our customers. To do otherwise is to question the personal integrity of some 4,000 hard-working Kroger employees who are proud of their reputation as outstanding citizens of this community. That, in our humble judgment, would not only be unfortunate, it would be unfair. Mr. ROSENTHAL. Thank you very much, Mr. White. I do have some questions. I would like to say this first. You reference on page 7, the study of the Bureau of Labor Statistics, and you rightly point out that I was a member of the Food Com- mission, and I remember that study quite well. The Food Commission paid $15,000 and the Office of Economic Opportunity paid $30,000 to the Bureau of Labor Statistics to make that survey. It was probably the greatest waste of the taxpayers' money in history because of the way the Bureau of Labor Statistics made the survey. Before going into each store the stores were notified that BLS was coming. So that if the manager wanted to shape up the store he had about 2 weeks in which to do it. If I knew how to get that money back I would start an action to do it. I'm sure Kroger is more efficient than BLS was. PAGENO="0264" 258 Mr. WHITE. I'm not aware that they had advance notice; however, it is considered to be one of the most authoritative today. Mr. ROSENTHAL. I wasn't aware of it either until we had the head of the Bureau of Labor Statistics, Dr. Arthur Ross, testify to our committee and inadvertently it slipped out that they called the stores 2 and 3 weeks in advance and set up the date to come. This raised a serious question as to the efficiency of the study. Let me ask you a few questions. Do your managers work on a straight salary basis or is it a salary- and-bonus basis or is it some other arrangement? Mr. WHITE. Our managers work on a salary-plus-a-bonus base. Mr. ROSENTHAL. Could you tell us what that arrangement is? Mr. WHITE. Yes. They have a salary, a base salary on an annual basis, so many dollars per year, then they are eligible to participate in a bonus earning up to one-third of their base salary. Mr. ROSENTHAL. Is that common in the industry? Mr. WHITE. It is common in Kroger and in many other food chains; yes. Mr. ROSENTHAL. I know that Safeway does it in similar fashion. Their managers can earn up to 60 percent. A. & P., on the other hand, offers a straight salary with no bonus benefits so that if one were to analyze the difference between the operations, your managers and, for example, Safeway's managers, have a much stronger incentive basis for turning a profit in their store; in other words, it affects their actual annual income. Mr. WHITE. They can increase their annual income by participating in the bonus; yes. Mr. ROSENTHAL. Have any or all of the managers of your five stores surveyed here by E[DC reached their maximum one-third bonus? Mr. WHrn~. No, sir; I do not know those figures today, no. Mr. ROSENTHAL. Could you do this for us? We'll leave the record open-do you have anybody here who might? Mr. WHITE. Not to my knowledge; no. Mr. ROSENTHAL. We'll leave the record open and would you address a communication to the committee advising us, and refer back to the HDO study which I am sure you have a copy of, their stores are numbered for Kroger's one to five, and tell us which of these managers have reached their maximum bonus arrangement, or if any have reached any bonus? Mr. WHITE. Any of the seven stores involved? What they list under No. 1 and 4, they have two stores each, soit is a total of seven. Mr. ROSENTHAL. Frne. (In a letter of December 1, 1967, Mr. White advised the sub- committee that none of the managers of the Kroger stores included in the HDC survey "earned their maximum bonus so far this year." No information was received relative to whether any bonus was received.) Mr. ROSENTHAL. Somewhere in the statement you indicated that you do make checks on prices, and I know that all of your colleagues in the industry do that. How often does someone under your jurisdiction or your command make a check on prices in any of these stores? PAGENO="0265" 259 Mr. WHITE. Well, I am what we call manager of operations for the St. Louis stores division, as I stated. My responsibility is the operation of the stores within the division. I have supervisors who report to me who, they themselves, supervise a certain number of stores. On their regular visits to these stores, as I indicated with other management people visiting the stores also, they make arrangements for price checks as a regular part of their work. Mr. ROSENTHAL. How often? Mr. WHITE. They visit stores every week. Mr. ROSENTHAL. Are the supervisors or someone in their ranks ~directed by you to examine prices once a week? Mr. WHITE. That's correct; they are directed to examine prices as a regular part of their duties when they visit stores; yes, sir. Mr. ROSENTHAL. You have a book price for all your stores in the St. Louis area? Mr. WHITE. Yes, sir. Mr. ROSENTHAL. And all the stores in the St. Louis area are supposed to sell items at the same price unless there is a disposal or a reduction in price? Mr. WHITE. They are to sell merchandise at book price unless for competitive reasons, or an overstock or some reason such as that, then they have the prerogative of reducing the price of `that merchandise to sell it while it is still fresh and of value for the customer. * Mr. ROSENTHAL. What would you do if one of your intermediate supervisors reported to you that a manager was consistently selling over the book price? Mr. WHITE. If one of my supervisors reported that to me I would request that our audit department make a detailed price check of that store to determine the facts involved. Mr. ROSENTHAL. Within the past two or three years have there been any reports made to you that consistently there was higher book price being used in any one of your stores? Mr. WHITE. Higher than book price being used? Mr. ROSENTHAL. Higher than book price. Mr. WHITE. No. Mr. ROSENTHAL. Do you yourself go out at all to examine prices? Mr. WHITE. Yes; I visit stores, I attempt to spend approximately 40 to 50 percent of my time visiting the retail stores each week. Mr. ROSENTHAL. Prior to the October 20 survey, that is, prior to your being made aware that there had been a survey made, when had you visited any one of the Kroger ghetto stores that we have been talking about? Mr. WHITE. I would have to check my records to determine when that was, but that is a matter of record; yes. Mr. ROSENTHAL. Now, on page 6 of your statement you said that most fruits and vegetables in your produce department are pre- packaged. Is lettuce one of those items `that is prepackaged? Mr. WHITE. Yes. Mr. ROSENTHAL. How `about green peppers? Mr. WHITE. Green peppers are no't. Green peppers are generally sold bulk; however, on occasion they are packaged two, three, six to a package. PAGENO="0266" 260 Mr. ROSENTHAL. Is the lettuce prepackaged in all of the Kroger stores in this area? Mr. WHITE. Yes. Mr. ROSENTHAL. In other words, if we went to any one of your stores, all lettuce would be prepackaged? Mr. WHITE. They are directed to prepackage their lettuce. Mr. ROSENTHAL. Could we expect to find it prepackaged? Mr. WHITE. I would think so; yes. Mr. ROSENTHAL. Now, on page 5 of your statement you said that housewives can quickly take their business elsewhere if they for one reason or another become dissatisfied with your performance. This is a classic reference to competition-the heart of our free-enterprise system. Now, I think you were here when Father Shocklee testified that there is only one supermarket in that Pruitt-Igoe area. I think it can be readily accepted that the small independent stores generally charge more than supermarkets. Now, if a lady did become unhappy with prices at your store, what could she do about it? Where could she go, considering the geography of the area? Mr. WHITE. Well, we have no captive audience as far as the cus- tomer is concerned. We have no ties to them that they must absolutely shop at our store. Mr. ROSENTHAL. That's a conclusion that distresses me. I am inter- ested in the facts and then see if we can't both reach the same conclu- sion. You saw the map that was shown here. For the store in the Pruitt-Igoe area there are no other competitive supermarkets for how far away? Mr. WHITE. Well, I would like, if you would; to let me show you a map that I have here which we feel indicates more stores in the area than what was shown on the HDC map. Mr. ROSENTHAL. I'd be happy to hear about it. Mr. WHITE. This map is by no means complete; we feel it is approxi- mately 75 percent complete as time permitted us to prepare it. Mr. ROSENTHAL. Let me just ask you this. How far away or how close is the nearest competitive supermarket to your store in the Pruitt- Igoe area? Mr. WHITE. I would have to measure that on the map. Kroger stores are indicated by the large blue circle, the National stores are indicated by a large green circle, A. & P. is indicated by a large red circle. Mr. ROSENTHAL. The trouble with this map is that we can't relate, or at least I can't relate, to the Pruitt-Igoe area or what is defined as the po~rerty area. I am interested in specifics. You have a store in the Pruitt-Igoe area. How far away in terms of blocks or miles is the nearest large-scale competitive supermarket? Mr. WHITE. I am not qualified to specifically answer that question for you. Mr. ROSENTHAL. Do you have anyone with you who could help you answer? Mr. WHITE. Not to my knowledge. I think the nearest Kroger store we have one located on 13th Street, the Jefferson-Stoddard store is locøed on Jefferson Avenue and Stoddard, which is approximately PAGENO="0267" 261 10 blocks north of 13th Street, and then the other Kroger store is north five or six blocks from that location. There are competitive chain- stores in between those two stores, National in specific. Mr. ROSENTHAL. I hate to press the point, and I shall not. In other words, you cannot give us an answer in terms of something that we can all relate to, blocks for example, city blocks. We have to begin with the premise that the average housewife living in that area does not have private transportation to go shopping and it is questionable whether public transportation is a useful thing, so that she has to walk. Now, if she for one reason or another becomes unhappy with your store, how many blocks would she have to walk to find a large scale coin- peti.tive store? If you cannot answer that question, we will leave it open in the record so that you can fill it in. Mr. WHITE. We can measure it off and fill it in, yes. (The following information was subsequently received:) THE KROGER Co., Hazeiwood, Mo., December 19, 1967. Hon. BENJAMIN S. ROSENTHAL, House Government Operations Committee, House Office Building, Washington, D.C. DEAR CONGRESSMAN ROSENTHAL: During the special consumer inquiry hearing in St. I.guis on November 25, I indicated I would furnish additional information to you concerning two questions you raised during my presentation. That informa- tion is as follows: What other supermarkets are located near the Kroger Co. store at 2625 Stodclard Street? (a) A. & P., 2543 North Grand, 1.4 miles away; (b) A. & P., North Florissant and Montgomery, 1.5 miles away; (c) National, 14th and Montgomery, 1.6 miles away; (d) I.G.A., Easton and Sarah, 1.8 miles away; (e) Tom Boy, Sixth and Lucas, 1.8 miles away; (f) Bettendorf, Seventh and Olive, 1.~ miles away. I trust this information will complete the hearing record. Thank you. Sincerely, WALTER W. WHITE, Manager of Operations. Mr. ROSENTHAL. Now, there is a statement here that I want to go over carefully with you, but before I do that I would like to ask you your opinion of the credibility of the people who made the HDC study. Mr. WHITE. Well, I'm not prepared to comment on the credibility of the people. We do question the results of their study to some degree, and let me, if I may, make two or three examples here, and I am referring to their price check that they made of October 19 and 20 by the HDC group. Taking the first item on the list, the canned ham, Dubuque, 5 pounds; in store No. 3 this item is indicated to be $6.65. Now, this is the Jefferson-Stoddard store in the Pruitt-Igoe area. Mr. ROSENTHAL. Right. Mr. WHITE. Their own admission this morning, which is the first time I had heard it, indicated that this ham was not offered for sale in that store. In our checking, the records at the store indicate that it was not on sale at the time in that store. Mr. ROSENTHAL. I was not impressed by their answer to that ques- tion, so that, as far as I am personally concerned, I am perfectly willing PAGENO="0268" 262 to discount that. In other words, if I had been taking a survey I would not have listed an item that was not available in the store. Mr. WHITE. As you note in the totals, then, that makes a difference in the totals of approximately 84 cents, which is a sizable amount. Mr. ROSENTHAL. I have already done that. Let's go item by item, beginning with hotdogs and go down. How can you explain that hot- dogs, Hunter, May Rose; is that your own brand? Mr. WHITE. No, sir. Let me go back one and comment on the ham; not that one in specific, but our book price at the time of October 19 and 20 was $5.99, and we questioned how they can report that the other six stores surveyed were $5.81. This does `not appear to be logical to us. Mr. ROSENTHAL. You are making the same mistake they did. Do you have your book price with you for October 19 and 20? Mr. WHITE. No, sir; I do not. Mr. BARASH. Do you have the book prices on these items that were surveyed by them? Mr. WHITE. I have the prices that were in effect on those items and some of them were sale items. Mr. ROSENTHAL. As long as you have raised that issue, and I would be perfectly willing to discount this one, because I was not impressed by it, how can you explain that they found this canned ham at stores 1,2,4, and 5 for $5.81 when you say the book price was something else? Mr. WHITE. I cannot explain it. I was not in any of these stores on those 2 days, I did not see the price. Mr. ROSENTHAL. Were you in any of these five stores on those days? Mr. WHITE. No. Mr. ROSENTHAL. So that you are really not in a position to rebut any of this testimony? Mr. WHITE. Other than what appears not to be obvious to us. Mr. ROSENTHAL. Let's take them item by item down the list if we might. Hotdogs in store No. 3 were 69 cents and in every other store it was 59 cents. How do you account for that? Mr. WHITE. We know that at that time the Hunter hotdog, which is a different brand than the May Rose hotdog, the price of Hunter hotdogs, 1 pound, on those 2 days was 69 cents. The May Rose, 1 pound, hotdogs were on sale at 59 cents on those 2 days. The only assumption I can make, or conclusion, is that they may have checked Hunter brand in ~ne store and the May Rose brand in the other stores. Mr. ROSENTHAL. It sounds odd that the one store most identified as the ghetto store is the store they would make the mistake in. Mr. WHITE. Yes, it does. Mr. ROSENTHAL. I want to take canned things because they are easier to handle. Let me ask you about Birdseye frozen corn. That was 23 cents in Pruitt-Igoe, 23 cents in the other ghetto store, and 17 cents in two of your middle-income stores. How do you account for that? Mr. WHITE. Our only explanation for that that I know of or I am in aposition~ to make is that Birdseye frozen corn was on sale that week at six for a dollar, which would make the correct selling price 17 cents for an individual package. Mr. ROSENTHAL. Do you think maybe they failed to change the price at the Pruitt-Igoe store? PAGENO="0269" 263 Mr. WHITE. Two packages for 45 cents is the re~u1ar price; there-. fore, it appears that for some reason in store 2 and in store 3 the price had not been changed. Mr. ROSENTHAL. How do you account for that? Mr. WHITE. Somebody in the store did not follow the directions that were indicated in the price change sheets. Now, the twenties, the only way I can explain that is that there were other frozen food items on sale that week at five for a dollar. Mr. ROSENTHAL. What about Birdseye frozen peas, the item right above it. In poverty-area stores 2 and 3 it was 22 cents; in middle- income store 1 it was 17 cents; in upper-income stores 4 and 5, 20 cents. Mr. WHITE. Again six for a dollar was the sale price that week. Mr. ROSENTHAL. That would make it how much? Mr. WHIlE. Seventeen cents each. Mr. ROSENTHAL. Why is it they didn't change it in poverty-area stores 2 and 3? Mr. WHITE. I don't know why. Mr. ROSENTHAL. Why is it, and I say this very respectfully, because we have had this testimony in Washington and New York, that if there is any explanation-because there isn't any reason to assume that the ladies who did this or the men who did this are lying, nor is there any reason to assume that anyone is lying. Mr. WHITE. We have not made that assumption either. Mr. ROSENTHAL. Right; so that the only consistent explanation we have had is human error, and one of the things you cite, and I think it is true, and I am sympathetic, you have high school kids, inex- perienced kids changing these prices and sometimes they are not as efficient as you would like them to be. But why is it that when human error rears its ugly head it always brings the weight down on the side of ~he ghetto store? They are the slowest in changing prices. Why is that? Mr. WHITE. Well, I don't know that I am qualified to answer spe- cifically. We strive, as I indicated in my opening statement, to have the prices, correct prices in all stores at all times. Mr. ROSENTHAL. Now let's go down to orange drink, Hi-C, 46 ounces. That's an easy thing to compute. In poverty stores 2 and 3 it is 32 cents; in all the other stores it is 30 cents. Mr. WHITE. Orange drink was on sale; Hi-C orange drink was on sale that week at three for 89, which would make it 30 cents an in- dividual can. Mr. ROSENTHAL. That makes me believe that these people when they took the prices-in other words, the prices for stores 1, 4, and 5 are correct. Mr. WHITE. In that instance, yes. Mr. ROSENTHAL. So that it seems to me it affirms the credibility of their investigation; but now why is it that stores 2 and 3 were 32 cents? Mr. WHITE. Again the only thing I can say is that they did not fol- low the price change. Mr. ROSENTHAL. On the four items we have gone over so far there was a reduction in price in effect at the iime of the HDC study; and the customers at poverty stores 2 and 3, if the HIDC witnesses are telling the truth, did not get the benefit of the reduction in price. Mr. WHITE. Well, again I did not personally see these items. I was not with them when they made their check, so I have no~- PAGENO="0270" 264 Mr. ROSENTHAL. Assuming they are accurate, that is what looms as a potential explanation; that the store managers in stores 2 or 3 are sluggish in changing prices downward when a change is directed by your command. Mr. WHITE. Well, I don't know that I could agree wholly with that assumption. Mr. ROSENTHAL. That's a possible eicplanation. I am trying to find an explanation. In other words, if I were in your position, and people brought this to me, I'd want to find an explanation in a hurry. Mr. WHITE. Well, we have our stores audited by an audit team, as I indicated, wall-to-wall price checks, approximately every 13 weeks during the year. Now, at this time they checked the prices, both over and below what they should be, whether they be advertised or at book retail. Mr. ROSENTHAL. Do the managers know when your audit check is coming? Mr. WHITE. They may know 2 days in advance. Mr. ROSENTHAL. You've got to get your money back the same way we have to get our money back oii the BLS study. You can't check something and let somebody know you are coming. Mr. WHITE. Well, we make surprise checks also, as I indicated in the opening statement, by outside shopping services of our stores, not only for price, but for other operating functions that we perform. I would like to mention also the bread you see listed, the Wonder sandwich loaf. This item is not authorized for any of these stores. In that particular week we did not purchase from our suppliers that item by any of these stores. Mr. ROSENTHAL. How do you explain that? How do you explain it, Mr. Baum? Mr. MYERS. You didn't have sandwich bread in that store? , Mr. WHITE. We did not sell on October 19 and 20 Wonder sandwich bread in those stores at 38 cents or at any price. Mr. BAUM. We recorded what we saw, in teams at the time we saw these on the shelves, immediately. Mr. ROSENTHAL. Let me ask you a question. Other than the canned ham which you acknowledge was not for sale but you reported it, other than that, did you put anything down on this list that was not for sale in the store? Mr. NADLER. Not for Kroger's. Mr. BAUM. The answer to the question is "No." Mr. WmTE. I personally reviewed our direct store charging in- voices from the Continental Baking Co. which supplies Wonder bread in this market. For these two stores, for the week from the 15th through the 21st, and we did not purchase any Wonder sandwich bread. Mr. ROSENTHAL. What days of the week were October 19 and 20? Mr. Wiirni. That was a Thursday and Friday. We have what we call direct store delivery on contracts which are contracts with the companies that we purchase the merchandise from and that we offer for sale in our stores. We do not have one of these contracts for the Continental Bakery Co. for Wonder bread, sandwich bread for any stores in the Metropolitan St. Louis area. We do have a contract for Colonial sandwich bread. However, I also checked the Colonial invoices- PAGENO="0271" 265 Mr. ROSENTHAL. What was that selling at on the 19th a~d 20th? Mr. WHITE. If my memory serves me correct, it sells for 38 cents, but I did check the invoices for these same two stores and we did not purchase Colonial sandwich bread. Mr. ROSENTHAL. It is possible that in all these stores they were sell- ing last week's bread? Mr. WHITE. I don't think so. Mr. ROSENTHAL. Is it possible they had some left over from the week before? Mr. WHITE. I would say no, because they had no right to purchase it the week before or the week after. Mr. ROSENTHAL. Well, then, we have- Mr. WHITE. These are things that raise questions in our minds. Mr. ROSENTHAL. It raises questions in our minds. Mr. WHITE. As to the credibility of the results of the survey. Mr. ROSENTHAL. It raises questions on both sides. I really don't want to go into this, because our job as a committee is not to adjudge who is telling the truth. Our job is merely to find out whether this complaint is a national complaint and what is being done about it. But it does raise a question because you, of course, have a very real interest in the outcome of this. Mr. WHITE. Very much so. Mr. ROSENTHAL. These people have considerably less interest. Regardless of what happens here, I suppose they'll go about their business one way or another. Your career with Kroger is very much on the line. Mr. WHITE. Well, my purpose here today is to tell the committee, and as I said, anybody else who will listen, that we do not deliberately discriminate against any of our customers. Mr. ROSENTHAL. Let me say for myself I believe it, I honestly be- lieve that. I don't think any businessman does; but the thing that seems to be cropping up, in hearings in both Washington and New York, is that the system permits things to happen that shouldn't happen. In other words, everywhere we go people have told us, and yesterday we aheard from A. & P. and several others in New York, that human error comes into play-that high school kids don't shape up price changes the way they should. Now, one of the Congressmen who was with us yesterday, Congressman Reid, said that in the area that he lives in-Scarsdale2 in Westchester County, a high-income area of New York-they bring in teams at night to scrub off and change the prices. Another chainstore in which many problems were found said they don't do it that way, they have one kid doing it on Saturday dur- lug the day, and there seems to be a tremendous variance in the effort that each store manager or each chain has in changing prices and I think this is where the problem lies. If there is a change in price downward, when are your stores supposed to change the price and how? Mr. WHITE. The price is to be changed effective Monday morning of the week from when the price change is issued on Friday. Mr. ROSENTHAL. Everybody else has said about the same thing. Mr. WHITE. Let me explain just a moment. That is on those regular day, everyday shelf items. That is not on the feature sales and merchandise. PAGENO="0272" 266 Mr. ROSENTHAL. Let's just take the first phase of it and see how it works. If you have a price change on Del Monte tomato juice ef- fective Monday morning, when do you change the prices on the can? Mr. WHITE. This may vary slightly between stores. This could be late Saturday or early Monday morning, so that it is effective Monday morning. Mr. ROSENTHAL. When you say late Saturday, is it done during business hours or after the store closes? Mr. WHITE. Well, we are permitted to work our employees up until 10 o'clock, which is 1 hour after most of the stores close and a half an hour after some of the stores close. This is a restriction in our union contract. Mr. ROSENTHAL. In a large store like Pruitt-Igoe, how many people would there be changing prices on a Saturday evetiing, Saturday afternoon, or Monday morning? Mr. WHITE. Well, Pruitt-Igoe; the Jefferson-Stoddard stere in the Pruitt-Igoe area is not considered to be an exceptionally large store. There may be one, two, or possibly three, depending upon the number of price changes to be made. Mr. ROSENTHAL. Have you ever had a problem where you felt that these young people who were changing `prices, or anyone, didn't get all the work completed by the time the store opened Monday morning? Mr. WHITE. Yes, that happens on occasion. Mr. ROSENTHAl. What happens then? Mr. WHITE. Then they continue changing prices until they are com- pleted. Mr. ROSENTHAL. Supposing a customer comes along and picks up a can that has not had a price changed? Mr. WHITE. The price is to be effective Monday, which is stated on~ the price change sheet. Mr. ROSENTHAL. What happens if a customer picks up a can marked 43 cents but the correct price is 39 cents? How much does she pay for the can? Mr. WHITE. I don't understand your question exactly. Mr. ROSENTHAL. On Saturday, the price of a~ tomato juice is 43 cents a can and it is marked on the can 43 cents. You issue an order' to change it effective Monday morning to 39 cents, reducing it 4 cents, and some of the fellows in the store get busy changing the prices on that can. Assuming that they haven't finished making all the necessary changes and a customer picks up a can still marked 43 cents, you have already said the new price effective Monday is 39 cents. How much does that customer pay for the can? Mr. WHITE. I would assume she would pay 43 cents. Mr. ROSENTHAL. Well, that's bad. Mr. WHITE. Well, the price would be effective Monday so- Mr. ROSENTHAL. Let's assume the price had not been changed, some of these kids had to do their homework, they were busy with other' things and they missed some cans. Mr. WHITE. Well, there is no way that the cashier has of knowing' what the price is other than what is marked on the cans. Mr. ROSENTHAL. The cashier presumably has all the new prices at the register. PAGENO="0273" 267 Mr. WHITE. That is not correet. Mr. ROSENTHAL. That's a good idea for you to apply. Mr. WHITE. We'll explore that possibility. Mr. ROSENTHAL. That's what A. & P. testified to, that the cashier has the price changes, and the cashier has the responsibility for picking up these changes. What do you do about an item that you advertise, a special item, and when the customer goes to buy the item they are all out of it? I-low do you handle that situation? Mr. WHITE. We have a raincheck policy which entitles her to pur- chase the same item at the same price up to a period of 8 days. Mr. ROSENTHAL. Do you have a sign in the store saying that? Mr. WHITE. Yes, there is supposed to be a sign posted in the store. Mr. ROSENTHAL. Its there a sign at all of your stores? Mr. WHITE. I couldn't tell you physically at this moment today yes, the sign is posted. Mr. ROSENTHAL. Where do you post the sign? Mr. WHITE. Some place in the selling area. Mr. ROSENTHAL. Safeway has initiated a system where they post it right over the cash register where you can't miss it. Mr. WHITE. Well, some of our stores have them posted just as you come in the door, some of them just as you are going out the door, some of them at the manager's office, some at the back wall of the store. There is no one specifically designated place. Mr. ROSENTHAL. What about the testimony we heard here today from Mrs. Slavin that the Gem Kroger store advertises a market- basket saving of 7 percent, and the folks who checked that store found a market-basket cost of 6 percent more? Mr. WHITE. Again I'm not familiar with their study nor am I familiar with the items that they checked. I have not seen a report of the study. Mr. ROSENTHAL. Had you seen this report before today? Mr. WHITE. The only thing I have seen is the sheet of seven stores that HDC gave us and portions of the other report that we got through the Better Business Bureau. When Mr. Stern and I visited with Mr. Baum and Mr. Nadler we were shown the findings or report that they had and asked to review it and comment on it. The report appeared to be approximately a hundred pages long, and in our short interview session we did not have an opportunity to review it in detail, nor did they leave us a copy of the report or permit us to make copies of the report at that time. Now, I have also called Mr. Clifford Hackett, who contacted me from your office and told him of this when he and I talked last Tuesday. He said that he would speak with Mr. Baum about seeing that we got a con~plete detailed copy of their report. Mr. Hackett also sug- gested to me that I contact Mr. Baum myself so that we worked from both ends. I called Mr. Baum's office, he was not in, I left word for him to call and I had not heard from him today. Mr. ROSENTHAL. Do you have a quick explanation? Mr. BAUM. The explanation I have is that we sent results of the Kroger study to you about a week before the call from you came to make an appointment. We not only left you with a letter with the complete results a week before our meeting, but we also duplicated in S8-532-68----18 PAGENO="0274" 268 your office, with my permission, you duplicated a page 10 with limita- tions of our study, outlining reasons for price discrepancies, and to which you have not responded yet to me, and I did not receive any notice of a phone call that you made to my office. Mr. ROSENTHAL. Apparently there was a breakdown in communica- tions, regarding the price check that they made at the Gem store? Mr. WHITE. No, sir. We have seen no other price check. In fact, I was not aware until this morning that we were specifically a part- Mr. ROSENTHAL. I think that was Mrs. Slavin's study. You didn't send that to the Kroger people, did you? Mrs. SLAYIN. No. We just provided our data for analysis to Mr. Baum and Mr. Nadler and that was not until the week of, probably the week of November 13. When they came to our meeting they had re- ported to us that they had already met with Kroger officials. Mr. WHITE. The first I knew Mrs. Slavin was making price checks was when I read it in the newspaper, I believe it was last Sunday an article commenting that ~he was making price checks and cooperating with the HDC group. Mr. ROSENTHAL. Let me ask just a few more questions, because we are pressed for time. Are there special problems with a chainstore in a ghetto area, prob- lems different than other areas? Mr. WHITE, What do you mean by different problems? Mr. ROSENTHAL. Well, there has been talk that insurance rates are higher, pilferage is a problem, labor shortage is a problem, things of that nature. Mr. Wrn~n~. Well, I have no way of measuring what our pilferage rate is specifically, so I would not be in a position to comment on it. I'm not that familiar with our insurance rates. Sometimes insurance rates for real estate property are part of the lease, sometimes they are separate from the lease and handled by the chain operating the store. Mr. ROSENTHAL. At the Pruitt-Igoe store do you have a guard of any kind? Mr. Wiirn~. Yes, we have a uniformed man in the store, and this also occurs in other stores that we operate. Mr. ROSENTHAL. All your stores? Mr. WHITE. Not all of them, no. Some of them we rotate. Mr. ROSENTHAL. What factors do you consider before you reach a decision as to which stores should have a guard? Mr. WHITE. The evidence of pilferage that there may or may not be and, again, this is not any direct measure at all, as far as that is concerned, and we rotate them through different stores on different occasions. Mr. ROSENTHAL. At that store you do have an extra labor cost that you don't have in some of the outlying stores? Mr. WHITE. If for a given time it would not be a detective or a uniformed or armed man in the store. Mr. ROSENTHAL. How do you compensate for that additional cost in relation to the ordinary profit picture of the store? This is sort of an unusual labor cost. How do you compensate for it? Mr. WHITE. We make no compensation. Mr. ROSENTHAL. I haven't had the opportunity to see this store. Is PAGENO="0275" 269 this a large, well-lit, big-window store, or different than your other stores in any respect? Mr. Wm~n~. Not specifically, other than at the present time three of the plate glass windows have plywood on them and I believe that leaves one or one and a half of them exposed without plywood, because they were damaged and we had to make a temporary repair. Mr. ROSENTHAL. When were they damaged? Mr. WHITE. I do not know the specific date. That is a matter of record, however. Mr. ROSENTHAL. Was that just some unrelated act of vandalism? Mr. WHITE. I don't even know the time of the day or the night or when it was done or why. Mr. ROSENTHAL. Are you a self-insurer? Mr. WHITE. I am not qualified to speak on insurance to any great degree. My brief familiarity with it is I believe we carry some burglary insurance for moneys, holdup for moneys. However, as far as pilferage is concerned, to my knowledge, we carry no insurance. Mr. ROSENTHAL. Someone mentioned earlier today that you had certain asterisks next to your price schedules. Could you tell us briefly what that is? Mr. WHITE. Well, I would like to, if I may, correct Mr. Nadler's comment this morning. FIe said he looked at a price that had some 8,000 items, a price book that had some 8,000 items in it. Mr. Stern and I showed him a produce pricelist that was in effect the day or the time that he was visiting our office, and the asterisks in the lefthand column of this, some of the items had three asterisks on them, some of the items had four asterisks on them. They queistioned why three and why four. Mr. Stern nor I, neither one, could answer the specific question. We did tell them that an asterisk indicated a price change on that item from the last published pricelist. Mr. Stern got up, left his office, went to check with our produce merchandiser and his secretary, and his sec- retary said there was no specific reason for that, the produce merchan- diser said there was no specific reason. Sometimes as she hit the typewriter she put three, sometimes four, there was no reason for it. Mr. ROSENTHAL. Just one last question. Father Shocklee raised a very good point, one that was raised in New York and has been talked about for years. How can we get more supermarkets into the ghetto areas? Is there something we should be doing that we are not? What would you suggest, what would you recommend as to how we can better make available to the people who live there, the advantages of mass purchasing power and supermarket lower prices? Mr. WHITE. I think if you will refer to the map I gave you, which indicates the Kroger stores in the innercity area, and we have 16 Xroger stores within the city limits of St. Louis which we operate, that we give fairly good coverage across the city without attempting to discriminate one way or the other particularly. Approximately 2 years ago we just opened a new Kroger store, address of Broadway and Guyer, which is approximately three blocks from Soulard Market that Father Shocklee referred to that he had transported some peo- ple to the bus. That store has been open approximately 2 years, and it is in a low-income, from, as I recall, $3,000 to $5,000 income area. Mr. ROSENTHAL. Does that store turn a profit? Mr. WHITE. It has not turned a profit to date; no. PAGENO="0276" 270 Mr. ROSENTHAL. Do you expect that it will? Mr. WHITE. Not in the very near future. Mr. ROSENTHAL. Then why did you open it? Mr. WHITE. Our real estate estimation, and I was not in the division at the time it was studied and I did not come until after it was built, our real estate estimation at the time was that it was a good economic investment for the corporate company. My only responsibility now is to see that it is operated in an attempt to live up to the expectations. Mr. ROSENTHAL. But if it doesn~t turn a profit, if you can't make it manageable, will you keep the store there? Mr. WHITE. That is not solely my decision. That's a management decision and several of us would be involved in making it. Mr. ROSENTHAL. I was really questioning you not so much now on Kroger but just to get the benefit of your experience in the industry, because I think it is quite clear, and we had this testimony in every city, that there are not enough supermarkets in these areas, and I just wonder if there isn't something we both should be doing. Mr. WHITE. Well, my general comment would be that any business- man of a corporate chain nature such as we are would have a responsi- bility to show a return of some sort on his investment for the stock- holders. Mr. ROSENTHAL. Right. Mr. WHITE. And they make, I'm sure, as we at Kroger Co. do, a very extensive detailed research study and economic justification for every real estate property. Mr. ROSENTHAL. Well, Mayor Lindsay heads up an urban coalition, comprised of leaders of American businessmen who know how to make a profit. These men are trying to improve the quality of life in these low-income areas. From a consumer point of view, one way is to help them buy more food for their dollar, and the only way to do that is to have efficient supermarket operations in ghetto areas, and I want to~ pursue for only a moment the question: Is there something that Gov- ernment should be doing to help, such as Father Shocklee's suggestion of some tax abatement. Mr. WHITE. Well, again, I don't know. Mr. ROSENTHAL. Do you think that would be an incentive? Mr. WHITE. Here again I don't know that I am qualified to speak in that area. I am not familiar with what specifically is going on with other Government agencies now at this time. I don't really feel quali- fied to speak about what I feel the Government should do. Mr. ROSENTHAL. Congressman Myers? Mr. MYERS. I am still trying to find myself. Mr. White, I was interested in your salary and bonus relationship with your managers. I think you said that a manager could get up to 331/g percent of his annual salary, is that correct? Mr. WHITE. He can earn up to 331/3 percent of his annual salary; yes. Mr. Mv~RS. Is this figure on a sales basis for the year, annual basis, or how does he draw this? Mr. WHITE. Well, we, through a bonus committee of management people, estimate in our best judgment as to what the sales for a given store should be for the first six periods of a year that we operate within. We operate on 13 4-week periods every year. So we analyze this and PAGENO="0277" 271 figure what the sales should be, what the operating costs should be of that store, and the total operating statement, and what in our judgment we should be doing as far as a profit result for that store is concerned. Then we attempt to establish what we call a bonus base for that store manager based on the relationship of the profit that he is expected to earn in that store or what we feel he should earn in that store; theii he can earn up to one-third of his salary based on that at 10 percent of additional net profit over the bonus base. Mr. MYERS. You said that store. Then each store is independent. One store is not in competition with other stores in the Greater St. Louis area? Mr. WHITE. We like to think not. Actually there is cross shopping between Kroger stores. Mr. MYERS. I mean the managers are not in competition, the best manager doesn't make the most, a store over here made $10,000 and one made $2,000, so each store is independent, on their own quota, so tospeaki Mr. WHITE. Right. Mr. MYERS. Would it be possible for a store to operate in the red and the manager make a bonus? Mr. WHITE. The one that to date that has not made any money, we still like to have some incentive for the store manager to improve the operation of that store, the new one I mentioned before, and there- by re4ucing his loss in the store, which is the reverse of making the profit, then he also would be eligible for a bonus. Mr. MYERS. So he could do a good job and not necessarily make a profit-still make a bonus, though? Mr. WHITE. That is correct. Mr. MYERS. If I'm correct now, this Jefferson-Stoddard store is down in the so-called Pruitt-Igoe area ~ Mr. WHITE. Yes, which is a housing- Mr. MYERS. Is that the one right across the street from DeSoto Park? Mr. WHITE. I could point the store out specifically on the map. I don't know if it is across the street from DeSoto Park or not. This [indicating] is it. Mr. MYERS. Either I don't read a map-because within a mile and a quarter there are five other stores or six other stores, chainstores, from ~ that store; is that correct? If this map is correct and I can measure. Mr. WHITE. That map was prepared yesterday by our real estate department. Mr. MYERS. I don't know what your clue is, but there are three red stores, two green stores, and one other blue store within a mile-and-a~ quarter radius of this store. Mr. WHITE. Red stores are A. & P., green stores are National, black stores are Bettendorf-Rapp stores. Mr. MYERS. In this Jefferson-Stoddftrd store do you hire local people? Are your stock boys, are your checkout girls, are they local people or do you ship them in? Mr. WHITE. Some of them are local people and again I don't know specifically each one. I do kno* that the head meatcutter has worked in that area for 15 years, not all of which was with the Kroger Co., but we hired him as an apprentice meatcutter, we trained him as an appren- tice, made a journeyman meatcutter out of him in that store and then appointed him head meatcutter. PAGENO="0278" 272 Mr. MYERS. He is from that area? Mr. WHITE. Yes, sir. Mr. MYERS. Do you make any point that you try to hire people locally? Mr. WHITE. Yes. We feel that's good customer relations in any neighborhood store. Mr. MYERS. Then if the alleged charges here were true, the stock boys would know we have to go out and mark up prices in this store, they would know that? Mr. WHITE. Yes. Mr. MYERS. There seems to be a breakdown some place along the line about pricing, how you price and so forth. I notice here, Wonder bread is one question, but a lot of items are all the same. Let me go back. Would you explain, you said there were two stores under category I and two under category 3. What do you mean by that? Mr. WHITE. As I understand the survey was, it was given to us, listed under No. 1 two stores had all of these prices, Olive and McKnight and Olive and Purdue, which are two different locations. Mr. MYERS. Two different locations but all had the same prices then? Mr. WHITE. That is correct. Then under No. 4 they listed 995~ Manchester and 9501 Watson Road. Now, again this points up some question as to the value of this report to us because we know for com- petitive reasons the store on Watson Road has been given permission to reduce the price because of competitive reasons. On one example which would be sugar, he has it at 55 cents; 59 ceuts was the book price at that time, his price because of competitive reasons is 55 cents. The store on Manchester does not have that prerogative nor has he had that authority to reduce the price to 55 cents. So to the best of our knowledge, at that time the price in the Manchester Kroger store was 59 or should have been 59; the price in the Crestwood store should have been 55. Mr. MYERS. Well, a number of items are all the same. Folgers' coffee is the same in all your stores, I notice, the cereals always the same, baby food is the same, bananas were the same, breads the same. Are these staple items that the price doesn't fluctuate? Can you show why those were the same and others were not? Mr. WHITE. No; other than all stores, as I indicated earlier, are to price it at book price unless they have authority to reduce it for one of these other various reasons. No; because again I think the definition of staple is important. It doesn't necessarily mean that it is or is not ever advertised. We advertise most of these items at some given time or another, which at that time, then, it would be at a different selling price than the everyday price. Mr. MYERs. You made mention just a moment ago about dropping a price at a certain store. Does the store manager have authority to make requests to drop the price? Mr. WHITE. He has authority to make the request. However, he cannot do it without counsel from the respective merchandiser-meat, produce, or grocery. Mr. MYERS. He has to have someone approve the reduction, then? Mr. WHITE. We ask them to work with the merchandising depart. ments. PAGENO="0279" 273 Mr. MYERS. Does he have authority to up the price? Mr. Wnii'~. Not over book price. Mr. MYERS. You mentioned perishables briefly. How do you ship in produce? Is there one warehouse in St. Louis that supplies all of the stores or is there more than one warehouse? Mr. WHrre. There is one warehouse in St. Louis that supplies the stores with produce. Mr. MYERS. And the ratio breakdown in that warehouses how does it go out to `the stores? Mr. WHITE. Dep~nding on what they order. Mr. MYERS. The store manager orders then? Mr. WHrr1~. Or the respective department head of a department places the order and it is transmitted to our office. Mr. MYERS. Someone mentioned about the perishables this morn- ing, the peppers and the lettuce. Do all stores receive the same day? Do all the stores in your chain receive lettuce the same day? Mr. WHITE. No. We make four produce deliveries a week to most stores. We make three deliveries to some stores, again depending on the volume of produce they are ordering and the distance they are sometimes from the warehouse; such as a store in Fairfield, Ill., which is one of the farthest ones from the warehouse, we make three deliveries a week. Mr. Mi~rins. Gosh, you supply Fairfield from here? Mr. WHrrE. Yes; we operate approximately 150-mile radius from St. Louis. Mr. MYERS. That's a good strong 150 I think. How about the hamburger that Mrs. Dames mentioned about the quality; is that all ground at the stores? Mr. WHITE. All the ground beef is ground at the stores. Mr. MYERS. Do you have certain specifications so the quality is the same in every store? Mr. WHITE. We operate within the limits of the 30-percent fat content; yes. Mr. MYERS. That's, I believe, prescribed by St. Louis? Mr. WHITE. I believe it is a city ordinance or law of some type. I'm not familiar specifically. Mr. MYERS. You spoke about the supervision and inspection of your stores and the professional purchasing that you do, and you ~ made some reference about a report. Is a report made back when this is done? Mr. WHITE. Yes; a report is made to our security officer and he is the one that assigns the stores to be checked unannounced by the out- side service. Mr. MYERS. The manager doesn't know he is coming? Mr. WHITE. They do not know and sometimes they don't know when they have been there, so it is unannounced to the store and it is done by an outside service. Now, this is in addition to our own audit team which I indicated to the chairman here that they sometimes get about 2 days' notice. Mr. MYERS. Who do they report to? Mr. WHITE. The audit team reports to our division controller, who reports directly to Mr. Stern. He does not have any reporting func- tions to me at all, so it is independent from the operation of the store. PAGENO="0280" 274 Now, the outside service is subscribed to by our security depart- ment. The security man reports to the controller, the controller again to Mr. Stern, the division vice president. Mr. MYERS. But there is a report submitted? Mr. WHITE. There is a report submitted on every store visited by the outside service. There is a report submitted and filed by each audit of each store. Mr. MYERS. You made mention of something about customer com- plaints. If a customer complains, do they complain to the manager or where can they write? Mr. WHITE. They can complain to the manager, they can write me, they can write Mr. Stern, they can call our office, and most of our cus- tomer complaints, unless they are directed specifically to me or Mr. Stern, are channeled through our personnel department and they in turn then contact the supervisor of that store and he follows up with the store manager and with the customer. Mr. MYERS. How many complaints do you have? Have you had complaints about prices before or is this something new or what is your experience? What are most of the complaints about that you have, or do you have any? Mr. WHITE. Unfortunately we do have some; yes. I couldn't tell you exactly the number. I make it a practice of review- ing all customer complaints once each 4-week period. Mr. MYERS. You follow them up then? Mr. WHITE. I follow them up. We ask for a written report from the store supervisor as to what action was taken on every customer complaint. Mr. MYERS. The food stamps, do you have any figures on what per- centage of your stores' business is food stamps? Mr. WHITE. Yes; we do. Mr. MYERS. Do you have that? Mr. WHITE. I would like to check with supervisory before I would release it. It can be made available with the permission of my super- visors if the committee would so desire. Mr. MYERS. Oh, I don't think it is too important, really. Mr. ROSENTHAL. The committee already has that information. Mr. WHITE. We made a check this last period. Mr. MYERS. This canned ham affair here intrigued me a little bit, ~ along with the sandwich loaf bread. Did you follow up and ask your ~ manager why the price might come through at $6.65? Mr. WHITE. I not only asked the manager, I talked directly with the head meatcutter personally myself and he told me that he did not have the ham, he did not have any Dubuque 5-pound canned hams in the store at the time this was made, nor had he had it for several weeks before. Mr. MYERS. In store No. 3 the manager denied- Mr. WHITE. The head meatcutter, who is responsible for ordering and disnlaying this type product. Mr. MYERS. Are you familiar with this HDC, and I'm sorry I wasn't here to hear it1 are you familiar with that report? Mr. WHITE. I am familiar with parts of it. I have not seen the en- tire report; no. PAGENO="0281" 275 Mr. M~m~s. Do you have any explanation for their charges here? Mr. WHITE. Nothing other than what I have commented on this morning; no. Mr. MYERS. Do you have any comment about the activities here? Have they been beneficial and helpful to you? Mr. WHrn~. I don't know. They have pointed out things that I feel I have been concentrating on since my assignment to the St. Louis division as manager of operations. I have been assigned to this divi- sion now approximately 16 months. I have been concerned, as I was when I was a zone manager, which is a store supervisor, in the Cin- cinnati division, with the problems we have in getting merchandise priced properly, getting it displayed, not having out-of-stock condi- tions so that our customers can buy the merchandise they want at the lowest possible price we can sell it to them for. Mr. MYERS. What is your explanation for this variance in prices here? Mr. WHITE. I have no definite explanation. I have questioned several of them. Again, I did not see the item in the store on that given day. Mr. MYERS. But you have followed it up personally with the man- agers of those stores? Mr. WHITE. On some specific items; yes. As I indicated on the record, I followed up and looked at myself personally the invoices for those stores from those companies on that week, right. Mr. MYERS. Thank you. Mr. WHITE. I would like to also state that we, as has been our practice, attempt to follow up and see that things are properly priced in the stores. Mr. MYERS. I have one other question which I would like to ask. Do you display a price sheet in each store so the customer can see what he should be paying for these products? Mr. WHITE. No. We do display the price of the item on the shelf as a shelf price tag. Mr. MYERS. You do advertising, display ads in newspapers and so forth? Mr. WHITE. We display the ads in the stores, yes, and generally more than one ad in each store, so that the advertised items are posted by means of a copy of the newspaper ad in each store. L Mr. MYERS. Thank you. V Mr. ROSENTHAL. I have one or two further questions. This new store that we spoke about, I don't remember where it wasp it is still losing money, nonetheless the manager does make some bonus. How is it that if a store is not profitable a manager can still get a bonus? Mr. WHITE. I didn't say he was making some bonus. I said he was. eligible to earn bonus depending upon the degree he reduces the red figure. Mr. ROSENTHAL. A manager can make a bonus even if the store i~ not turning a profit? Mr. WHITE. If he improves upon the red figure of that store; yes. Mr. ROSENTHAL. So that even if these stores in the ghetto area were no~rofitab1e, nevertheless a manager is eligible to make a bonus? r. WHITE. That is right. PAGENO="0282" 276 Mr. ROSENTHALL. Now, does the produce manager, the meat manager also make bonuses? Mr. WHITE. No; they do not. Mr. ROSENTHAL. The only one in the store is the manager himself? Mr. WHITE. That is correct. Mr. ROSENTHAL. Thank you very much. The committee will adjourn for lunch. (Whereupon, at 1 :45 p.m., the hearing was recessed, to reconvene at 2:30 p.m., the same day.) AFTERNOON SESSION Mr. ROSENTHAL. The subcommittee will be in session. Our next witness is Mr. Robert; A. O'Neal of National Food Stores. Mr. O'Neal, if you are accompanied by counsel, we would be de- lighted to have him sit with you at the table. Mr. TREIMAN. It isn't necessary. Mr. O'NEAL. By his choosing, he chooses to sit back there. STATEMENT OF ROBERT A. O'NEAL, ST. LOUIS DIVISION MANAGER, NATIONAL FOOD STORES Mr. O'NEAL. Mr. Chairman, I have a prepared statement. I would like to say first that I am 45 years old, I started working at a grocery store when I was 14 years old as a clerk. I was a clerk for several years and I managed a store for several years, I was a district manager. I worked in sales and merchandising, produce operations, meat. I was a meatcutter at one time, and some times I pinched myself and wondered how I got to whatever degree of success you might call it, but, at any rate, I am here today. I might say that the statement is pretty much in my own words. Our general office is located in Chicago, Ill. They have no copy of this statement; they don't even know what I am going to say. It has not been read to anyone other than to my legal counsel, who made a few changes in it-in wording, not meaning. My name is Robert O'Neal, and I am the manager of the National Food Stores in the St. Louis division. I want to say, first of all, that my company was happy to accept your invitation to appear at this hearing. And one of the reasons was that it would give us an opportunity to tell not only your committee but also the people of our community the facts, at least so far as my com- pany is concerned, regarding the subject matter of your investigation. Because this is a public hearing and everything is being taken down by an official reporter, I think I can safely assume, and you can safely assume, that what I am about to tell you will be nothing but the simple truth. Let me begin by assuring you that my company has long been aware of the problems that confront the consumer in the low-income areas. We can't help being aware of them because we have stores in these areas, and we couldn't operate these stores without giving a lot of study, and a lot of attention, and a lot of sympathetic understanding to these problems. Incidentally, I would like to add that we have been fortunate in being able to have the cooperation of the Human Develop- ment Corp. We have worked with the Human Development Corp., at PAGENO="0283" 277 least a year, and we have been happy to work with them and glad to work with them to get these people that we could train and qualify them for employment within our organization. We have some fine people. We realize that a major problem for all consumers, and I say all consumers, and especially in the poorer districts, is rising prices, not only on food but on everything. We are not here to discuss that problem. What you, Mr. Chairman, and your committee, and our citizens would like to know, is whether it is true that people in the poorer districts have to pay more and have to buy food that is inferior in quality, higher in price by comparison with the food sold in higher income areas. I cannot, of course, speak for any company but my own, National Food stores division, St. Louis, and for my company I will state publicly, for the record, if necessary, under oath, that no dis- crimination is practiced, nor to my knowledge as the manager of the entire St. Louis division, which is 4 years come January, has it ever been practiced in this area. Indeed, it could not be practiced, and I will tell you why. First, as to prices: We operate 33 National Food Stores in the city of St. Louis and in St. Louis County. All of these stores are provided with an identical pricelist for all of the available merchandise, groceries, meat, produce, everything we sell. This list tells each store manager what price he must charge for each item. He is not permitted to sell any item for 1 penny more than what the pricelist calls for. He doesn't even have the authority to sell below that price, except in two very special situations. One is in the case of perishable merchandise, such as produce and meats. For ex- ample, if a store manager finds that he has overordered on strawberries and he has to move them quickly to avoid the loss, he is given the right to lower the price for that purpose. Also, a store manager will oc- casionally find himself faced with an abnormally competitive situation in his particular neighborhood that may require lowering of prices on some items in order to meet his immediate competition. Even then, however, we ask him first to get approval from the operating staff in our general office. This would be the meat operator, the sales manager, produce operator, whoever would be involved. In other words, Mr. Chairman, we have, subject only to these two exceptions, a policy of uniform pricing for all National Food stores in the entire St. Louis area. In this policy, the location of a store and the character of its neighborhood play no role whatsoever. This uni- formity you will find also in our advertising. It lies at the heart of our whole method and philosophy of pricing. Our business, as you know, is operated on a very small margin of profit. That means that all of our studies and calculations must be based on an overall picture of volume, and you cannot do this unless you can assume that certain factors will be uniform for your entire operation. Among these fac- tors, for example, are labor costs, and the cost of merchandise. The em- ployees in all of our stores are covered under union contracts. Their wages do not vary from store to store, and when we buy our merchan- dise, our suppliers don't vary their prices dependent on what stores we intend to sell the items in. Likewise, when we fix our selling price we do not and we could not establish different prices for different stores. PAGENO="0284" 278 Now, having said all of this, I must nevertheless admit that if some- one were to go in on any particular day and visit some one of our stores, or any number probably, he might find a few items on which the price in one store is not the same as in another store, and it may not be explained by one of these two exceptions which I have men- tioned. What then is the reason? Let me tell you. Some of you may not realize it, but price marking for supermarkets, speaking as a former store manager, is a tremendous, difficult, and tedious job. It requires the constant attention of district managers, field specialists, auditors, anti we have, unknown to our store em- ployees and managers, shoppers who visit our stores, check prices, not only do they check prices, they check quality, service, 1~riendliness,. cleanliness, many other items. We have regular auditing crews that check prices unknown, unannounced price checks. In a highly compe- titive business like ours, the correct price on the merchandise is an absolute must. Now, our pricing has to cover somewhere between 7,000 and 8,000 different items, and each store, assuming we will carry 40 pieces of each item, that means that there has to be a price mark put on approximately 300,000 individual pieces of merchandise in each and every store. Mr. ROSENTHAL. That is not the case at any one time; that is a. cumulative total? Mr. O'NEAL. That's right. That's an estimate of how many indi- vidual pieces of salable merchandise are in this supermarket. Mr. ROSENTHAL. And you might have months to do that? Mr. O'NEAL. That's correct, but it still has to be done and we are assuming that everything should be right all the time, so there are 300,000 pieces of merchandise out there that we would like to say are 100 percent accurately price marked. Then to complicate the matter more, there is the problem of price fluctuations. Food prices are highly sensitive to market conditions. They will vary in direct relationship to supply and demand. Every time the price on a particular item does change, we must mark this change on every piece of that item in every one of our stores. This is carried out physically by the people working in each store, anywhere from 25 up to a hundred persons, under the direction of the store manager and his assistants. Now, I leave it to any fairminded person, and I have heard this comment today about human error, and we are constantly working on it, and I might just interject here, I read the newspaper from cover to cover, and the Post-Dispatch I think is one of the finest newspapers in the country, but where do all of the typographical errors come from? Does the machine make these errors? Mr. ROSENTHAL. From those well-paid typographers. Mr. O'NEAL. That's right. These are human errors. Mr. ROSENTHAL. The only difference is that typographical errors in newspapers don't cost anyone money. Mr. O'NEAr.. Except I pay for the paper and I can't read the article. I have seen some errors that have cost people money, and I'm not indi- cating the Post-Dispatch. It happens to every newspaper, but it is a human error. With so many people involved, we cannot prevent the mistakes of human error. We constantly work on this, but of this one point I'm sure: If you had a staff large enough to examine each and every price PAGENO="0285" 279 mark in each and every one of our stores, and the survey was made over a proper period of time, I feel that you would find that for every mistake in price that was found to be in favor of a high-income area, there would be one that shows a lower price in a low-income area, and, in addition to that, I think you'd find that there are just as many that are low, and in most cases there are more prices that are low than there are high. I can only repeat, Mr. Chairman, that price differentials based on income character of a neighborhood has not been, is not, and cannot be within the marketing policy of my company. Now let me pass on to this matter of quality. I shall deal with it very briefly because, frankly, Mr. Chairman, the charge that we would deliberately sell inferior quality merchandise in low-income areas for the same or even higher prices than merchandise of better quality in the higher income areas is so revoitin~ that I am reluctant to dignify it with any answer except a simple denial. Mr. ROSENTHAL. I don't think anyone has charged that, have they? Mr. O'NEAL. We have been charged with this, but I know that there are always the skeptics. We have been charged with this by the Post- Dispatch. Mr. ROSENTHAL. Of deliberately doing this? Mr. O'N]~&L. Mrs. Dames-no; not deliberately. Mr. ROSENTHAL. You used the word "deliberately." Mr. O'NEAL. She did not say "deliberately." Mr. ROSENTHAL. No, no; but you say here that the charge of de- liberately selling is revolting and you won't dignify it, and I don't blame you, but I don't think anybody said you did it deliberately. Mr. O'NEAL. Maybe I misunderstood, but I know that there are always skeptics and suspicious doubting Thomases, many of them sincere and well-intentioned people, and to them I should like to point out a few facts that make it practically impossible for our oganization with the system that we have developed, in warehousing, to engage in any such discrimination, even if we wanted to. Our goods are distributed from a large new warehouse. It is just 2 years old. We feel that it is one of the finest, most modern warehouses in the Middle West. Incidentally, Mrs. Evelyn Buck, who, I believe, is scheduled as a witness here this afternoon, she is the home economist of the University of Missouri, and I believe Mrs. Rose Claman was present here this morning, and there may be many other people in this room who have been through our facilities. I wish it were possible for all of youth go out and take a look. Let me show you how it is laid out and how it works. I am sure you would soon be convinced, as I believe these ladies were, this was an un- announced visit, I was called 30 minutes prior to their arrival, just to make sure I was there so I could escort them around. Our warehouse, we have excellent refrigeration facilities, we have all refrigerated trucks for delivery, we operate on a highly mechanized iBM system, computer system, which I am sure many people are acquainted with today and many are not, that pays absolutely no atten- tion to whatever store or whatever item is involved, it deals strictly in numbers. To manipulate or to try to get this machine or this system to send merchandise into certain areas would be economically impracti. PAGENO="0286" 280 cal, and I think impossible. If there is any discrimination, it therefore could not come from the warehouse, not in the original shipment to the store. Where else could it come from? The insinuation has been made that when the merchandise is found to have deteriorated or to be of poorer quality in a store located in a high-income neighborhood that it will be transferred to a store in a poorer neighborhood. Meat items have specifically been mentioned in this connection. I wonder, Mr. Chairman, if your committee or many people in this room are aware of the fact that under our meat contract in St. Louis, which has been in existence for many years, that we have agreed, and we must abide by the union contract, that we are forbidden to make any such transfers of fresh meat. The union requires us, the union contract requires us to sell every item of fresh meat in the same store where it is cut, sliced, prepared, packaged, and weighed. Not only that, there is a city ordinance that also requires us to put on each package of fresh meat the address of the place where it was packaged. There is only one situation, so far as my company is concerned, where you will find an item that has been transferred from one store to another. It cannot be fresh meat, not sliced, prepared fresh meat, for the reasons I have mentioned. But occasionally a store manager might call another store manager to see if he has an item, a grocery item or some other item that he has run out of and someone is asking for, maybe it is a 20-pound turkey before Thanksgiving, I don't know, and this happens in all kinds of retail businesses, shoes, clothing, furniture, that kind of a transfer will sometimes be made at one of our stores. But a transfer made for the purpose of getting rid of inferior merchandise by sending it to a poor district, that charge, Mr. Chairman, my com- pany denies, and I personally deeply resent it from the standpoint of being a good businessman. Mr. ROSENTHAL. Has anyone made that charge against you? Mr. O'NEAL. That allegation has been made against the whole in- dustry, not by this committee, and I don't believe any specific organiza- tion, but it keeps cropping up for the last 2 years and I thought today is the day to bring it out in front. Mr. RosENTHAL. Has it ever been made against National in St. Louis? Mr. O'NEAL. Not specifically against National, but the reason for this city ordinance that was passed, some people thought this was be- ing done and this ordinance was passed. Mr. ROSENTHAL. Was there any testimony in support of the ordi- nance when it was heard by the city council or whoever heard it? Mr. O'NEAL. The ordinance was passed and became an ordinance and we knew about it, and I'm sure there are other foodmen in the room that maybe would know the background of it better than I do. Mr. ROSENTHAL. Your packaged meat, does it have a date sta.mped~ on there? Mr. O'N]~L. We have a dating system. Mr. ROSENTHAL. What is the system? Mr. O'Nr~L. It is a scale dating system. Mr. ROSENTHAL. Is it a code system? Mr. O'NBAI.. Yes, sir. Mr. ROSENTHAL. Would you want to make it public? PAGENO="0287" 281 Mr. O'NEAL. It varies by the kind of scale that you have in the store. Mr. ROSENTHAL. If you have meat that you package on Friday, let's say a steak, for example, you put a code indicating Friday packaging; right? Mr. O'NEAr~. Yes. Mr. ROSENTHAL. Supposing for one reason or another it doesn't sell out on Friday or Saturday, could you repackage that on Monday? Mr. O'NEAL. It is a goner. Mr. ROSENTHAL. Supposing it is still good, do you scrape off the black stuff and resell it? Mr. O'NEAL. It won't work. Mr. ROSENTHAL. It works for A. & P. in New York, they say. Mr. O'NEAL. It might work for A. & P., but it won't work for us. Mr. ROSENTHAL. Why? They say the meat gets better with age. Mr. O'NEAL. I have heard that for years, but it just won't woik. Mr. ROSENTHAL. You are confusing me now. A. & P. says that is the way to do it ; that is what they do in New York. Mr. O'NEAL. I don't know how it works in New York, I have never lived in New York, but in St. Louis it won't work. But this allegation has come up many times, and I wanted to get my statement in on that. I would like to conclude with a few general comments. I think that hearings and studies of this kind are very beneficial, but it seems to me that the real question that needs to be answered is, do the poor pay more for food, and if so, why do they pay more, and it doesn't help to solve this real problem by creating imaginary problems about discrim- inatory pricing. Some observations that I have made lead me to believe that in some instances the poor do pay more for food, more than they should, and in some instances they don't. I believe that the consumer who lives close to a supermarket that is owned and operated by a large chain or a large company, independent, buys her food at as low a price as anyone who might live in a suburban area. That is because the large companies can buy in larger quantities and do not sell on credit, provide special services such as home delivery, et cetera. We have also noted that in low-income areas the average customer buys in much smaller quantities, which perhaps they have to, they do not take sufficient advantage of the advertised specials in our stores. Advertised specials are normally available because there is a surplus on the market of a particular commodity. This could be meat, produce, especially meat and produce, and the cost prices come down and, in turn, the retailer can sell at a lower price. We also find that the con- sumer in the low-income area does not redeem coupons. These are coupons from the food manufacturers, 10 cents off on this, 15 cents off on this, these are items that people use, and they don't redeem coupons from the newspaper ads as much as the consumers in the higher income areas. I think there is a great deal of informative consumer educational work that could be done and that would help many people to lower their costs of food by taking advantage of these things. Father Shocklee touched on my next subject, and I thought he made a wonderful presentation. I think in the area of consumer education, how to buy, there is a tremendous amount of work that could be done in this. In a recent conference that I had with the Human Development Corp. we have promised our wholehearted support and cooperation in such an educational project. PAGENO="0288" 282 As you know, and most of us know, within the past few years there has been much, much discussion about food prices. Many studies and investigations have already been made. We in the retail food industry have been proud of the results of these studies up to this point, but we would again welcome and pledge our cooperation with any reputa- ble group or duly authorized body to make a study in depth of the entire problem, and particularly as it applies to the consumer in the poverty and low-income areas. I would like to touch on a couple of things here that bothered me just a little bit before I conclude. This is not in my statement, and I am not discrediting anybody's testimony or saying that they are wrong or anything like that, but the statement was made that our store at 4331 Natural Bridge did not have any competition. Natural Bridge is a main artery. Mr. .ROSENTHAL. I don't remember that. Who said that? Mr. O'NEAL. Mrs. Dames, the Post-Dispatch, the green-pepper incident. Mr. ROSENTHAL. It sounds like the title of a movie. Mr. O'NEAL. At any rate, you talk about competition now. Natural Bridge is six lanes wide going west, and then there is a cross street, Neustadt Avenue. We are one-half block east of Neustadt. We have a major competitor, equal-size store or larger, in a newer building; namely, Bettendorf, that sits one-half block west from our store on Neustadt Avenue. Mr. ROSENTHAL. I can't follow geography very well. Is that across this major highway? Mr. O'NEAL. They are both on the same side of the street. It is not a major highway, it is just a wide street. They are one block apart and they are on the same side of the street. Now, if that isn't competition, I don't know what we are looking for. Now, in addition to that, two blocks east of us there is a fine new IGA store that's 8 or 10 years newer than our store, and recently this store has, I don't know who operates it now, but recently the ownership of this store has changed and this man is trying to build his business, which I would too if I were him, and we have been forced to meet competition, and this is in the so-called low-income poverty area. So these things happen in the city as well as in the suburban areas. We are not running away from the city. I am not at liberty to dis- close the specific location, a1thou~h probably most of my competitors probably know where we are going to build it, but we are going to ~ build a new store in the Gateway district area. It will be a fine store, we'll stafF it with the best1 possible people we can come up with, it will be as competitive as we know how, it will be a complete food store in every respect, and I imagine that the gentleman of the Human Devel- opment Corp., Mr. Norman Saigh, who is present here today, will help us to acquire good, capable people to work in this store. I hope that I have been able to throw some kind of light on this problem, and I don't say my piece may be as well as some people, but, in any event, I hope I have been able to answer some of the questions and some of the suspicions that must have been raised in your minds by recent newspaper reports. PAGENO="0289" 283 By the way, I talked with Mrs. Dames on the phone, and here I go rambling, which I shouldn't do, my attorney will give me hell for this. Mr. ROSENTHAL. And rightly ~o. Mr. O'NEAL. But I enjoyed talking with her very much. I would guess that we talked for probably 30 minutes on the phone and I in- vited her out to our warehouse, or at least to my office, and I would have taken her to the warehouse~ I don't think anyone can appreciate the complexities and the problems and the tonnage. Mr. White men- tioned how many pounds-I guess he's gone-I think it was 12 million pounds of merchandise a week. Do you ever stop and think how much 12 million pounds of merchandise is? That's a lot of tonnage, and people have to do this. Our business is a people business. We are deal- ing constantly with people. That's about all we deal with is people and merchandise, really, employees and customers and merchandise. Mr. ROSENTHAL. Let me ask you some specific questions. We do have a time problem. Mr. O'Nr~kL. I'm finished with my statement. Mr. ROSENTHAL. Here is a nice, simple issue that a fellow like me can understand. A reporter, a disinterested citizen, went to your stores, one bein what would appear to be a poverty store at 4331 Natural Bridge, an one a middle-income store. Peach halves were 31 cents in the poverty store, 29 cents in the other store; green peppers were 19 cents in the poverty store, 15 cents in the other; hamburger was 65 cents a pound in the poverty store, 59 cents in the other; pork chops were 79 cents in the poverty, store, 69 cents in the other; Crisco was 89 cents in the poverty store, 85 cents in the other; lettuce was 33 cents in the poverty store, 29 cents in the other. How do you respond to that, particularly when you said without equivocation that you have a standard one-price policy? Mr. O'NEAL. We have a standard one-price policy, we have a stand- ard price list, let me qualify it that way. Now, I think when you are dealing-I have made this statement many times, I made it to Mrs. Dames. There are many sizes of peppers. You buy peppers by the bushel. Now, they call it a bushel because they used to be in a bushel basket, now they are in a box, but they still call it a bushel. You buy them by count. There is a 60 count, an 80 count, a hundred count, and so on. Mr. ROSENTHAL. Why do you have smaller peppers in the poverty store for 15 cents-well, let's forget peppers. How about Crisco, there is no difference in size between Crisco at 85 and 89, is there? Mr. O'NEAL. I can't explain that. What survey is this? Mr. ROSENTHAL. This is Mrs. Dames' survey. Mr. O'NEAL. I haven't heard anything about it. I don't know what stores we are talking about or anything, not Mrs. Dames' survey. I never saw it. Mr. ROSENTHAL. This is her survey. When you talked to her on the phone, didn't she- Mr. O'NEAL. I didn't know what stores she was talking about. She never identified any stores or any companies. She just was searching for information. Mr. M~n~ns. She did this morning. 88-532-68-19 PAGENO="0290" 284 Mr. O'N~L. This morning is the first time that I knew specifically that Mrs. Dames had made this check of our stores. Mr. ROSENTHAL. Let me ask you, then, the same thing comes up time and time again. Human error, I guess, is an enormous factor. Why is it that the error falls hardest on the poverty store? Mr. O'NEAL. You are looking at Mrs. Dames' survey and I have never seen it. I don't particularly agree that it does. I think if you make an objective study and survey of wall-to-wall price checking in stores, I don't think you'll find it that way. I think you will find a lot of mistakes in pricing. If you go out and check a store that has, say, eight, ten thousand items in it, I think you will find errors both ways in both stores. I think that the human error factor is certainly there and it is a constant problem and we have the same, basically the same system- Mr. ROSENTHAL. Are your managers on a bonus arrangement? Mr. O'NEAL. Our managers are on a bonus arrangement, but it is a much smaller part of their pay. I don't think we have any manager that can earn, in a year's time, 10 percent would be pretty well the maximum that he can earn. Mr. ROSENTHAL. When you change your prices, do you change them for Monday morning? Mr. O'NEAL. Price specials? Mr. ROSENTHAL. Or your prices? Mr. O'NEAL. Regular shelf prices are effective Monday. Mr. ROSENTHAL. When do you physically change the prices on the cans? Mr. O'NEAL. The manager receives the price change sheets in his mail on Friday. That's the last truck delivery to the store. In some instances we might have to U.S. mail them, which maybe again if the U.S. mail, maybe he doesn't get it until 10 o'clock in the morning. Now, we have never said, and you refer to this, price changes in my way of thinking, and maybe I'm thinking wrong, we make a price reduction-you are speaking primarily of grocery items now? Mr. ROSENTHAL. Yes. Mr. O'NEAL. A price reduction or a price increase of a grocery item, it is effective with Monday. This means that any merchandise, that from now on when you get this merchandise in your store it will be billed to you at this price and your price is this much. Mr. ROSENTHAL. Doesn't it also mean the merchandise that is still left on the shelf? Mr. O'NEAL. Oh, yes; up or down, either way. Mr. ROSENTHAL. So that the new merchandise the manager gets, he is getting it from the warehouse at a lower price when the price has been reduced? Mr. O'NEAL. Right. Mr. ROSENTHAL. And if he can sell the merchandise at the old prices, he is increasing his net profit? Mr. O'NEAL. He is violating company policy. Mr. ROSENTHAL. He is doing that but this practice has the potential of increasing his net profit picture? Mr. O'NEAL. Not if he is not competitive. Mr. ROSENTHAL. If he forgets to change the prices on those cans, he is increasing his net profit? PAGENO="0291" 285 Mr. O'NEAL. He better not forget very long. Mr. ROSENTHAL. But that is a built-in possibility; isn't it? Mr. O'NEAL. The same possibility exists in anythmg. Mr. ROSENTHAL. Is there anything you can do to change this system to prevent that from happening? You are depending too much on human possibilities here. He can cheat the customer and improve his own income by doing it. Mr. O'NEAL. I don't think so. I don't think he'll improve his own income. I just don't believe so, because our-maybe I didn't say-our bonus plan is not quite like that. The 10-percent bonus that the man- ager earns is based on sales and profits. Mr. ROSENTHAL. He also increases his gross sales if he sells it at 43 instead of 39? Mr. O'NEAL. It won't work that way. This is like, say that if Chev- rolet raises the price of Chevrolet $500 per car, they are going to make more money. Well, they would if they could sell as many Chevrolets, but they won't sell as many. Mr. ROSENTHAL. When a lady comes in to buy Crisco or flour, and if she needs it, she is going to buy it from National whether it is 39 or 43 and she is not going to walk three blocks away to find out if they are selling it for 39 or 43? Mr. O'NEAL. Mr. Chairman, I spent 30 years in this business. When I was a store manager, and it is no different today, the phone rings off the hook whenever we have a price that's too high, and our manager says, "Joe down the street or somebody has lowered the price of this or something, or he's got a circular out, what are you going to do for me, how am I going to protect my business?" Sales is the only way you make money in the food business. You don't make money by trying to take excessive markup. Mr. ROSENTHAL. What do you do when you have an advertisement with a lot of items on special and if the store runs out of an item, what happens? Mr. O'N~&L. We sell a comparable item. Mr. ROSENTHAL. Can the customer get a raincheck on that item? Mr. O'NEAL. We don't use the raincheck policy and I have a specific reason for it. We have experimented a little bit with raincheck policy. 1 did several years ago, and maybe my experience is bad, maybe I * didn't get-maybe I didn't make it work right or something, but what Vihappened, it became a built-in crutch for the store manager, and I'm not throwing rocks at anybody that uses a raincheck policy, but it became a built-in crutch for a manager to not order enough of an ad- vertised item, because then he could hand out rainchecks. Mr. ROSENTHAL. Well, that would be a pain in the neck to him to do that. Mr. O'N~L. It is not hard to do. Mr. ROSENTHAL. But the lady comes in and wants Wesson oil. Mr. O'NEAL. How many rainchecks do you think you get back the next week? Mr. ROSENTHAL. I have no idea. Mr. O'NEAL. We didn't get too many of them back. Mr. ROSENTHAL. If a lady comes in and wants Wesson oil, you have a big special, you run out of it- Mr. O'NEAL. We sell Mazola oil, a comparable item. PAGENO="0292" 286 Mr. ROSENTHAL. What percentage of the items in your store are your own brand? Mr. O'NEAL. Oh, I couldn't answer that question, but we don't have, in comparison with other national chains- Mr. ROSENTHAL. Did you ever stop to think- Mr. O'NEAL. Do you want me to answer the first question first or not? Mr. ROSENTHAL. Go ahead. Mr. O'N]~L. In comparison to other companies, we probably have fewer items under our own brand. We carry-certainly we have our own brands, but we carry a full line of the nationally advertised brands. Mr. ROSENTHAL. Now, did you ever stop to think that maybe when you advertise a special with Wesson oil or Mazola oil and if you run out of it and you sell a lady something else, that might be deceptive advertising? Mr. O'N1~&L. Well, I guess it could be construed as deceptive adver- tising, but if the lady is happy when she leaves the store, I think that's what is really important. Mr. ROSENTHAL. Congressman Myers? Mr. O'NEAL. I would like to make one more statement on this. This checking, price checking and quality checking of meats and produce, I think there is any woman in this room, or man, that can go to any supermarket in this city or any other city, and if you want to pick out the worst package of pork chops in the case, and you can go to any other store and pick out the best and you are going to have a complete different picture. I am sure that some of you gentlemen sitting at the table, and I respectfully say this, occasionally shop, and you go up to a display of 500 apples, I don't think you pick out the worst ones. We don't find that people shop this way. We find that if we leave inferior merchandise on display that it keeps us from selling merchandise because the very fact that you have a little hit of inferior-quality merchandise on display destroys the beautiful image of all of the merchandise. It has been our experience that a half ~ dozen bad apples laying on top of a display of beautiful Washington Delicious apples will reduce the sales tremendously, they don't look as good. It prevents you from selling merchandise and then, in turn, reduces your sales and reduces your profits. Another point I would like to make, and I don't even remember whoN brought this up, is on eggs. Someone made the comment, and I don't even recall who it was, that this particular store had three different kinds of eggs and this was confusing to the housewife. I think the other store was the one that was wrong, he only had one kind of egg, he had one size. Eggs are U.S. Department of Agriculture graded, the same as meats, USDA grades them. There are small, medium, large, extra large and jumboes, and depending on the supply, this week the medium eggs might be of the greater value, next week it might be the large. Now, if somebody only offers one kind, and this was one of our stores, I don't even remember which one ~t w~s, but she seemed or he seemed to think that this was right to only have one size of egg. I think it is wrong. I think the customer is entitled to make the choice of whether she wants small, medium, large or extra large, and I think the ladies in the audience would agree with me. PAGENO="0293" 287 Mr. MYERs. I agree, Mr. O'Neal, I don't do a whole lot of shopping, but when I do I look for price, and I have experienced also some of the irregularities on the same shelf items marked differently. Mr. O'NEAL. Absolutely. I have made stores and I have found the same items in our shelves with two different prices on it or prices I can't even read. Mr. MYERs. If I see apples for 15 cents that have a few brown spots and others for 20 cents, I will take the 15-centers. I am lookmg for the bargain, soif you mark down I will be looking in your store. The evidence here, that the chairman introduced here, that, I guess, was Mrs. Dames, is quite contrary to what HDC found for your stores. I find it confusing. I notice here that the variance in what HDC's report, and I assume you have read this report, was only 35 cents between your extremes in your stores, is that right? That isn't a very big variance. Mr. O'NEAL. That is the only one I have. I don't have Mrs. Dames' report. Mr. MYERS. I also notice in the hot dogs, the prices were exactly the same, 59 and 69. Why would you have the difference there between 59 and 69on hot dogs? Mr. O'NEAL.. Well, there is one point that-there are two or three things that I would like to bring up. The Human Development Corp. is a fine group of people. I think their intentions were well-meaning. There are some disparities in pricIng in here. I believe, if my memory serves me right, and this is not uncommon, I believe that Mr. White from Kroger made the statement, and I can't remember which meat- * packer it was, but one of these meatpackers chose to make available to all-which makes it legal-of the companies a reduced cost price on their frankfurters. Mr. MYERS. That is what he said, yes. Mr. O'NEAL. Yes, and I think the same situation- Mr. MYERS. You didn't check out the variance in prices? Mr. O'NEAL. No. Now we are going `back a month ago, and to call up a meat man-by the way, I didn't get this until this past Tuesday mormng. Mr. MYERS. That was sooner than I received mine. Mr. O'NDAL. You don't have to answer the questions, though. But I think that is where the disparity is there, anyway, but I be- lieve, and I could be `wrong, maybe we are just as guilty as can be, I don't know, but I think the disparity here is that they possibly might have dhecked one brand in one store and the other in the other store. Mr. MYERS. It could be brands, then? You spoke- Mr. O'NEAL. And I might point out if there is an inference here that we are doing this to poverty stores, of all the stores listed here, store No. 4 at McKnight and Delmare, this is a pretty dog gone nice area, the people of St. Louis that know their way around, this is a long, long ways from being a low-income area. Mr. MYRn5. You have gone out of your way a number of times here to compliment the Human Development Corp. You also say that they have helped you in getting new employees. Now, do you make it a point to hire employees within the area that your store serves? Mr. O'NEAL. Yes, sir, we try to. Now, it is hard to do that a hundred PAGENO="0294" 288 percent because it is hard to get those employees. Now, generally speaking- Mr. MYERS. What do you mean hard to get employees? Mr. O'NEAL. You can hang up signs in the stores, and to get qualified people, to get them to come in and put in applications it is not so easy. Mr. MYERS. In your so-called poverty areas it is easy there, isn't it? Mr. O'NEAL. Not as easy as you think. Mr. MYERS. Well, they are looking for jobs. Mr. O'NEAL. We hire them. Mr. MYIEn5. Are they looking for jobs or not? Mr. O'NEAL. Well, I think they are just like all the rest of us, we are all human beings, some of us want to work a little harder than some of the others and some of us don't. I don't think that has anything to do with race, color, creed or- Mr. MYERS. I would rather be at a football game this afternoon, but I am concerned about the probiem~ Mr. O'NEAL. Now, we had quite a problem. We went to Mr. Norman Saigh of the Human Development Corp., and we recognize him as be- `ing in the educational field. At the time we first became acquainted with him was 3 or 4 years ago. At that time, I believe- Mr. Saigh, are you here `anyplace? Mr. SAId. I am here. Mr. O'NEAL. You were the principal, I think, at Kinloch? Mr. SAmIT. I was the job coordinator for the Ford Foundation project. Mr. O'NEAL. That's right. Within the last year, and through this gentleman, we have asked him to search out people, especially young men and young ladies, and I say young, anything under 45 is young as far as I am concerned. Mr. MYERS. Yes, that is right. Mr. ROSENTHAL, Th~tt is right. Mr. MYERS. You are sure right on that. Nobody is going to take exception to that. Mr. O'NEAL. Aftd during the last year we have had quite a problem in acquiring cashiers, so with the help of Mr. Saigh, and we have a checker-trainer- And Mrs. Esterlene Hayes, would you please stand up? And this lady has worked for our company how many years? Mrs. HAYES. Ten years. NJ Mr. O'NEAL. She is a very highly capable, qualified cashier. She trains all of our checkers. We have a school underneath our office, and through her hard efforts and Mr. Saigh's help and our personnel de- partment, we bring in a group of six, maybe eight young Negro gals and we start from scratch. We pay them, and we made this arrange- ment with, in case anybody would wonder, we made this arrangement with the sanction of the Retail Clerks Union. Is that right, Mr. Rand? You are around here some place. Mr. RAND. That is correct. Mr. O'NEAL. We paid them $1.40 an hour while we trained them, and we start from scratch. We tell them what kind of shoes to wear, we tell them what is maybe proper dress, how do you get back and forth to work, and Mrs. Hayes trains these girls, and some of them-- we pay them while we train them. PAGENO="0295" 289 Mr. Mii~ns. Let me get to the point. You do try to hire, then, in your local- Mr. O'NEAL. We not only try, we hire them and we pay them while we train them. We follow up afterwards to see if they are gettrng along all right. And I might add that many of them that we have trained and spent time and money with, and especially so in males, we bring them along and we think, gee, we have really got something going here, he is going to be an assistant manager, he is going to be a store manager, and then he winds up he is out here selling new auto- mobiles and he is one of the best automobile salesmen in St. Louis. Mr. MYERS. Every industry has that problem. Thank you, Mr. O'Neal. Mr. ROSENTHAL. Thank you very much. Our next witness is Mr. Jack Conreaux, president of Associated Grocers. STATEMENT OP JACK C. CONREAUX, PRESIDENT OP ASSOCIATED GROCERS CO. OP ST. LOUIS, MO. Mr. CONREAUX. Mr. Chairman, members of the committee, I do not have a prepared written statement. My name is Jack C. Conreaiix, president of Associated Grocers Co. of St. Louis, Mo. We are a wholesale food distributor. We are a co- operative in the sense that we have sales to our member stores who are our stockholders and own our company. Mr. ROSENTHAL. Do you yourself own a store? Mr. CONREAUX. No, sir, I do not. Mr. ROSENTHAL, Have you owned a store? Mr. CONREAUX. I have never owned a grocery store. Mr. ROSENTHAL. How long have you been president of A-G? Mr. CONREATJX. Twenty years. Our method of distribution is to serve some 750 stores in the States of Missouri, the eastern half of Missouri, the western half of Illinois, and in the western half of Kansas. We have a warehouse in St. Louis that services in a radius of 160 miles of St. Louis, and we have a Wichita division of Wichita, Kans., serving the Kansas stores. We attempt to give services, help, aid, and assistance to our members. One thing we do not do we do not at any time tell our members at what price they should or should not sell their merchandise, from the fact that spread over three States in farm communities, small towns, large cities, different geographical areas, ranging in stores from $2,000 a week on up to $50,000 to $60,000, we would not actually have the know- how if we were able to do so. That is our operation. We are not in the retail business, have no legal ownership of any retail store. Mr. ROSENTHAL. To make a long story short, your stores are in- dividually owned and operated? Mr. CONREAUX. Yes, sir. Mr. ROSENTHAL. Do you have recommended prices? Mr. CONREAUX. We do not have recommended prices, no, sir. Mr. ROSENTHAL. Is it purely accidental that some of your stores charge similar prices? PAGENO="0296" 290 Mr. CONREAUX. No, sir. I will tell you what we do. In order to be of service, we hav~ a price guide. We. obtain this by checking competitors in the St. Louis area. We give this information out as a price guide, it appears on the right-hand side of the invoices that go out. Mr. ROSENTHAL. You do have certain joint ventures, you advertise together? Mr. CONREATJX. We have an A-G ad that appears in the St. Louis Post-Dispatch only. Mr. ROSENTHAL. If any of your stores charge more than the ad- vertised special, or if they are out of a commodity, there is nothing you can do about it? Mr. CONREAUX. We do do something about it, at least we try. Mr. ROSENTHAL. What do you do? Mr. CONREAUX. We have a complaint for a store that does not follow our advertised price. First, to the complainant we tell them not to buy any more at that store and give her at least two names of stores whc~ are close to that store and suggest she go there. Second, we contact that store and tell him to take down that A-G store sign, if he has one. Mr. ROSENTHAL. How many stores have you disciplined in the last year or two? Mr. CONREAUX. I would say, to my knowledge, in the ia,st 3 months we have had four or five, and within the last month we have sent a notice to every one of our members to that effect for the simple reason that the State law indicates that you cannot have that sign if you don't follow that law, and we have so advised our members. Mr. ROSENTHAL. In other words, if one of your member stores, A-G stores, which are individually owned, sells at a price above your recommended price or above an advertised price you take disciplinary action against them? Mr. CONREAUX. We would only know this, though by a complaint. We don't go in to check those stores for that. Mr. ROSENTHAL. The four stores you did discipline, where were they located? Mr. CONREAUX. The last one, I think, was in the county, and we have had two, to my knowledge, in the area which was defined this morning. We have had in the last- Mr. ROSENTHAL. Defined as the ghetto area? Mr. CONREAUX. As the inner circle. Mr. ROSENTHAL. Innercity area? Mr. CONREAUX. Different places. There is just as much trouble one place as the other. Mr. ROSENTHAL. It is your intention as president of A-G to make sure that your stores do all sell at one price and at the recommended price? Mr. CONREAUX. It is my intention to go further than just that, if we can possibly define some method of doing it. I believe there is a much stronger approach we can take. Mr. ROSENTHAL. In other words, you feel very strongly about it? Mr. CONREAUX. There is another way of doing this, too, entering into an agreement and advertise for only those stores who agree to do this. We are asking our attorney to check that out, too, sir. We have an obligation even though we are wholesalers, because without retailers we don't have any wholesale business. PAGENO="0297" 291 Mr. ROSENTHAL. Any of the charges that 1-IDC made against A-G, did you check them out? Mr. CONREAUX. No, sir. Mr. ROSENTHAL. As far as you are concerned, if they are true, and if you become aware of it, you intend to discipline the store? Mr. CONREATJX. I would say that we will continue to discipline as we do now, and if we can find some better way of disciplining and stay within the law, we would try to do so, yes, sir. Mr. ROSENTHAL. Very frankly, I think you ought to be commended for it. Mr. Myers? Mr. MYERS. I have no questions, Mr. Chairman. Mr. ROSENTHAL. Is there anything else you want to say? Mr. CONREAUX. No. Mr. ROSENTHAL. Are Mrs. Etta McGowan and Mrs. Jackson here? While they are getting ready why don't we get Mr. Shampaine, is he here? Why don't you ladies sit over here and let's get Mr. Shampaine up. STATEMENT OP H. ROBERT SHAMPAINE, CHAIRMAN OP MAYOR'S COMMITTEE POR DEVELOPMENT OP CONSUMER VALUES Mr. SHAMPAINL My name is H. Robert Shampaine. I am the chair- man of a special committee appointed by Mayor A. J. Cervantes of the city of St. Louis to delve into this question of food prices and variation in quality as it may effect the people of St. Louis. This group will be officially known as the Mayor's Committee for Development of Con. sumer Values. It is an outgrowth of earlier reports in the press and a meeting called by Mr. Cervantes with top people from the local war on poverty agency, Urban League, Labor Council, Department of Welfare, and Council on Human Relations. The latter two are official agencies of the city government. I met with the mayor on the day following this meeting and agreed to become chairman of his ad hoc committee. Members of the committee are still being selected and I am not able now to offer all of their names, but they will include repre- sentatives of food distribution organizations, retail unions, a practicing home economist, a member of the State legislature, a neighborhood community leader, and the business community. Mr. Edgar Sargent, president of local 655, Retail Store Employees Union; Mr. Sydney Jacobs, assistant to the dean, Washington Univer- sity School of Social Work; and Representative DeVerne Calloway have accepted membership on my committee. There will be no dearth of facts, figures, and recommendations flow- ing from the groups that you have already heard from. We will en- deavor to become the catalyst for the information and recommenda- tions and hopefully put action behind the findings. Our committee will; in the meantime, concern itself with learning why food prices in St. Louis are generally high enough to place us No. 3 among the 12 major U.S. dities. Parenthetically, I might say I have learned unofficially that we have earned the dubious distinction of having gone up to No. 2 for the month of October. PAGENO="0298" 292 We feel that St. Louis is a good labor town from the standpoint of the workingman and his employers, we feel that St. Louis benefits from a variety of retail chains both nationally anl locally opera~ted, and we know that we are in an advantageous geographical loèation from the standpoint of fast economical proximity to the major food producing areas of our country. We know that our people should not be penalized in this living cost item that already consumes a major percentage of families' income, particularly among the poor where the percentage spent for food climbs to an almost unbelievable por- tion of take-home pay. We plan to provide a public forum where the people of St. Lows, representatives of the food industry, and other affected organizations can respond to any reports developed by the groups now condUcting the various investigations and any preliminary report that your com- mittee might produce as a result of what it learns. With the full weight of the mayor's office and individual contribu- tions of the members of our committee, any legislative action that would be beneficial and warranted 1~y the various reports, as they affedt St. Louis, could be introduced. Mr. Chairman, we would like to request that we be placed on your mailing list for any preliminary findings or data that might be made available by your subcommittee and, of course, any final report that you produce. We assure you that we will keep you advised o1 our work. Again I thank you for the opportunity to appear before your coin- mittee and congratulate all of you for devoting your time and effort on what is traditionally a long holiday weekend. Mr. Brown, who is commissioner of human relations for the city of St. Louis and who is coordinating the efforts of our small staff, which is being gathered from his people and other local functions, will be in contact with your Mr. Hackett from time to time and establishing our liaison with the St. Louis groups. Mr. ROSENTHAL. Mr. Shampaine, you are not an employee of the ~ city I noted. Mr. SHAMPAINE. No; I am not an employee of the city. Mr. ROSENTHAL. You are a businessman ~ Mr. SHAMPAINE. I am a businessman, I am an employer in the city. Mr. ROSENTHAL. I want to commend you for accepting the respon- sibility that you have, the important responsibility as chairman of ~ the mayor's committee for the development of consumer values and I want to commend the mayor for appointing you. It is the kind of thing that we need so much more of-for businessmen to assume this type of public responsibility-and I congratulate you for the work you have done and tell you that we look to you for a good deal more. Mr. MYERS. Thank you for your fine presentation. I have one question. You say hopefully put action behind the find- ings, and then you further define this as possible legislation from the city, is that correct, is that what you are anticipating here? Mr. SHAMPAINE. This is a possibility. I would hope that we would get the desired results which is to eliminate the inequities in quality, in price, so on and so forth. I would hope we would get it by voluntary action, because I feel that it would come much more quickly, it would be much more effective than through legislative action. PAGENO="0299" 293 Mr. MYEI~s. You have not really set up your guidelines yet; the whole committee will do this, you have just now started to appoint the committees because of these. Mr. SHAMPAINE. The first thing we really want to do is find out what the facts are, analyze the facts, then determine policies and pro~ gram and proceed from there. Mr. MYERS. You expect to have hearings similar to what we are having here and go further into the detail; is that correct? Mr. SHAMPAINE. As far as the local situation is concerned, yes. Mr. M~s. Thank you very much. Mr. ROSENTHAL. Mrs. McGowan, maybe you can begin. STATEMENTS OF MRS. ETTA McGOWAN AND MRS. DELLA JACKSON Mrs. MCGOWAN. My name is Etta McGowan, I am a resident of the Igoe project. I have heard the reports coming from the different organizations and agencies, and I wanted to say that everything that you heard is true. It is all true and we the tenants that are here repre~ senting Pruitt-Igoe today go along with the reports as being true, be- cause we are victims of some of the things that have happened in our community, that is, in the store that we trade. We only have ont~ chain- store there, that is Kroger. That's the only chainstore that is in our vicinity close enough for us to get to, other than transportation, which you know we don't have too much of, other than the bus service that has been offered to us through Father Shocklee. Mr. ROSENTHAL. How far is the nearest supermarket other than that one Kroger store? Mrs. MCGOWAN. Fourteenth Street. Mr. ROSENTHAL. You have to tell us in blocks. Mrs. MCGOWAN. Well, I'd say it is about a mile, mile and a half, something like that. Mr. ROSENTHAL. Is it your opinion that the average housewife is not prepared to walk a mile to do her shopping? Mrs. MCGOWAN. Yes, sir; especially for shopping, because you have to think on the terms of bringing your groceries back home. I don't know even what transportation we could use. It is bus service but I don't know what bus service we could use because I haven't been over there to shop, but we do know that that is the closest one. Mr. ROSENTHAL. Mrs. Jackson, did you want to say anything? Mrs. JACKSON. Well, I have four children and I have an elderly aunt that I have to `buy for, and she is on a special diet, and there is only one chainstore where you can buy some of the special foods and that is Kroger. About 3 years ago I had started buying completely out of the area. Mr. ROSENTHAL. Where do you buy? Mrs. JACKSON. I go out in the county to the stores to shop, Foodtown. Mr. ROSENTHAL. How do you get there? Mrs. JACKSON. I have `brothers that have cars that I ask to take me. Mr. ROSENTHAL. Why do you do that? Mrs. JACKSON. I feel I can't afford the prices in our area and then some of the foods aren't what I would want to feed my people. Mr. ROSENTHAL. Where do you go shopping? PAGENO="0300" 294 Mrs. JACKSON. I go to Foodtown. That's out in Cool Valley, I think Then we go to Soulard to get our produce and vegetables. Mr. ROSENTHAL. How often do you do that? Mrs. JACKSON. We have been going to Soulard Market twice a month. The buses is provided through Father Shocklee. Mrs. MCGOWAN. I would like to ask this question. Since you heard the report and the comments of what have been said, I would like to know what can be done about this for us that live in that area. I am only interested in the people that live in this particular area where I live. Mr. ROSENTHAL. We haven't found the answers yet. We have to go to a number of other cities and meet with other members of the com.~ mittee besides those who are here and maybe we'll find an answer, maybe we won't. Mrs. MCGOWAN. We as tenants do feel that we need more chain- stores in the area because there is only one there, and we have always felt we need more than one, even not that `but department stores and all could be used in there because it is just a little city by itself. Mr. ROSENTHAL. Have you ever spoken to the manager of' the Kroger store that's there and told him some of the things you have just said? Mrs. MCGOWAN. No; I haven't. Mr. ROSENTHAL. How about you, Mrs. Jackson, have you done that? Mrs. JACKSON. Well, on an occasion I was in there with a friend of mine and she was shopping for beef, and the beef that was out on the display at the time, it was a greenish color. She took the meat out and laid it on the counter and told them they could throw this away and we were politely ushered out of the store. Mr. ROSENTHAL. Have you been back there since? Mrs. JACKSON. No; I haven't. Mr. MYERS. Mrs. McGowan, or Mrs. Jackson, you live in the housing, development; is that right? Mrs. JACKSON. I live in Pruitt, she lives in I~oe. Mr. MYERS. Neither one of you own automobiles? Mrs. MCGOWAN. No. Mrs. JACKSON. No. Mr. MYERS. How many people do own automobiles there? Mrs. MCGOWAN. That would be hard to say. Mr. MYERS. Do any of them form auto pools, if you say this Kroger~ store is too high, do you form auto pools, do other people invite you to go? Mrs. MCGOWAN. So far there haven't been anything like that. Mr. MYERS. Well, I'll be quite honest with you, if I was getting gypped I'd walk a mile. Mrs. MCGOWAN. Since we have this busing service from Father Shocklee we have a chance to go to other stores, we can go to any store we want, that's all we have to do is tell them. Mr. MYERS. Do many people use food stamps? Mrs. MCGOWAN. Yes. Mr. MYERS. How do they go the 5 miles to get food stamps? Mrs. MCGOWAN. I guess they go by bus. I don't use stamps. Mr. MYERS. I think Mr. Shampaine may have an answer to some of your problems. PAGENO="0301" 295 That's all I have. Mr. ROSENTHAL. Thank you very, very much, ladies. Our next witness is Mr. John O'Brien of the St. Louis Better Business Bureau. STATEME1~T OP JOHN L. O'BRIEN OP THE BETTER BUSTh~ESS BUREAU OP GREATER ST. LOUIS, INC. Mr. O'BRIEN. I do have some copies of a prepared statement, gentlemen. Mr. Chairman, and members of the committee, you have the pre- pared statement to which I have taken the liberty of adding some marginal notes as a result of this morning's hearing. My name is John L. O'Brien. I am president and general manager of the Better Business Bureau of Greater St. Louis. I live on Wash- ington Avenue, St. Louis, Mo. I have occupied that position since September 1959. For 13 years previously I had a similar responsibility in Akron, Ohio, and prior to that 6 years in Cleveland. In 1964 I served as a member of the White House panel on consumer education for lower income families under the direction of Mrs. Esther Peterson. The better business bureau in St. Louis is one of 130 such private, nonprofit corporations, each autonomous in its own community, gov- erned by a board of businessmen directors. Our entire support comes from membership subscriptions from the business community. In St. Louis we enjoy the membership of some 2,400 firms for a total income of approximately $245,000. Of that amount we have 35 retail and food distribution members supplying $2,480, about 1 percent of our gross income. Membership in the better business bureau in no way exempts any firm from any action the bureau may take with reference to its advertising or selling, or may any firm exploit the fact of bureau membership in advertisement literature, letters, reference, or in any fashion. I would like to just read a part of our purpose clause into the record so that we are established. It is quite long here but I will establish the orientation, if I may. This association is formed for educational purposes, including the following: To promote truthfulness in advertising, buying, selling, and soliciting, to protect the public through public edification against the impositions of those engaged in unfair and untruthful advertising, soliciting and merchandising, and to maintain fair competition and dependability in advertising, soliciting, and merchandising, and so forth and so on. And we accomplish such purposes using methods that are not contrary to the provisions of the constitution or laws of the State. Now, in carrying out our purpose, we have a staff of 25. Our bureau here in St. Louis is the third largest in the Nation. New York, Chicago are larger in terms of membership dollars and staff than are we. How- ever, we are second in volume of consumer traffic of about 130,000 instances of service per year, exceeded only by Metropolitan New York with a rate of around 200,000, so our consumer impact on the com- munity is substanfial. We keep track of the inquiries, complaints, and what we term instances of customer service, customer relations, we PAGENO="0302" 296 keep track of those in 42 different categories; that is, such as home remodeling, applia~nce problems, automotive and all the discount things and things of that sort. In the food field, we have exhibit A attached. In no case in the last 5 years have our problems involving food matters exceeded 1.5 percent of the bureau's total traffic, and a table is attached to substantiate that. Specifically, in the first 6 months of 1967 we recorded a total of 596 instances of service involving food matters, of which 317 were in- quiries concermng business firms or their conduct, presumably prior to the sale, 264 were what we term customer relations, cases which involve matters not formally jacketed complair~ts. We accept com- plaints only in writing. We had 15 complaints against the food in- clustry in writing. Of this total traffic of 596, the majority of them involved what we call freezer food plans wherein someone is going to get you the food wholesale and freezer free if you sign on the dotted line in the wee hours of the morning. This is apart from our present concern. The other majority of cases were in the question of the sale of bulk meat. These are the fellows that offer a side of beef for 29 cents a pound which is a little cheaper than baloney bulls on the hoof in Chicago, and we have worked with these groups for some time now. We developed a set of advertising standards working with the industry and with advertising media on a voluntary basis which required that they discontinue selling you the meat hook along with the side of beef, so forth and so on. Four of those five firms are now out of business, possibly because of the advertising standards. One of them is currently in hearings before the Federal Trade Commis- sion-that's Bruens of Elkhorn, Nebr.-they have left St. Louis some year and a half ago. The only one we have here is Hutchinson Meats out of Bradbury, Tex., and their advertising and selling practices have not come into sharp focus from our viewpoint since the advertising sys- tems have been developed. That's merely by our effort to bring about certain kinds of improvements. Our basic job in this field, we have developed advertising and selling'~ standards for the freezer food field which is a relatively active industry. We have worked with the food industry that we are meeting here today with on problems involving comparative price claims among stores. We have, with the cooperation of the industry, gotten them to voluntarily eliminate comparative price claims in advertising, largely\ based on the FTC comparative price rules of 1958. We have from time to time disagreed rather strongly with the mem- bers of the industry in certain of their promotional advertising. We don't always succeed in those debates. Now, we have read newspaper reports and magazine articles alleging the discrimination and pricing quality of various types of food stores in the poverty areas. Up to now the better business bureau has made no formal investigation of this matter. My reason for the perspective above is the reason for this. Our volume of traffic has not warranted a direct investigation. With the reports of recent inquiries and the concern expressed in the District of Columbia, the subsequent news articles appeared in the St. Louis Post-Dispatch concerning their own reporters' examina- tion of the problem, supplemented by certain examinations by repre- sentatives of the Human Development Corp., we, the Better Business PAGENO="0303" 297 Bureau, were formally requested by representatives of the food dis- tribution industry to make an examination in depth of the problem and report our findings to the industry and the oeneral public. We have accepted this request as of November 3, 196~. We have defined the problem and commenced the preliminary steps of the investigation, assisted by the volunteer women's advisory council of the Better Busi- ness Bureau, a group of 13 ladies representing various segments of the economic strata of the community. The list of the ladies is at- tached hereto for reference, reference B. We have defined the purpose of our investigation as follows: To examine the policies, practices, and procedures of major food chains and food distributors in distributing and pricing food in the various areas of the metropolitan area, to determine the relative con- sistency of price and quality between various areas of differing in- come level. We have agreed upon 15 steps to accomplish this purpose, and have proceeded at this point only through the preliminary evaluation areas. A copy of our 15 steps as reference C is attached for examination. Briefly, our procedures are as follows: One, interviewing the organizations and individuals who have raised the complaints about the price and quality of grocery and food products; Two, examining the food industry at the source of distribution of dry groceries, meat, and fresh produce to determine the policies of the distributors and the condition of the goods when it leaves the warehouse; Three, specific shopping and purchase of a specific list of items in a broad sampling of stores; Four, we have opened a special food telephone line to the general public, answered by one of our trained staff members, to discuss food problems only. This telephone line opened on Monday, November 6, and recorded 55 calls on that day. However, since that time the traffic has fallen off considerably. Persons whose telephone call is pertinent to the purpose of the investigation are mailed a form to be completed and returned to the Better Business Bureau as a part of the permanent record for investigation. Another marginal note here. Several years of close cooperation with the Urban League and with the Extension Service of the University of Missouri, and with that record of cooperation we have sent special bulletins in quantities of 1,000 to those organizations for subsequent distribution to their representatives. In our store shoppings we, will actually make the purchases, we will detail the shopping, we will purchase in every opportunity of produce or meat, the finest and the worst examples that our visual examination can be found by our shoppers, we will photograph those in colors, we have already undertaken some of those. We are planning at a date in the near future public hearings in the poverty area in cooperation with some of the recognized leaders in the area in order that they may at first hand report to the Better Business Bureau their grievances, et cetera. This may be a little redundant, too, in view of the several public hearings, including this one. All matters will be placed before the individuals concerned in the industry. The final report will be drawn from the findings and the answers from the industry and the specific recommendations which the Better Business Bureau, from its PAGENO="0304" 298 findings, may see fit to make other industry, as has been the bureau's practice over the past half century. A final report will be made public. Mr. ROSENTHAL. Thank you very much, Mr. O'Brien. From what I can quickly read of the material you have given us and what you have told us, I am very much impressed by the activities of your organization. This new consumer fraud law that you have in Missouri, could you tell us a little bit about it? Mr. O'BRIEN. That is a law not unlike the one you have in the State of New York, it is similar to the one in Ohio and Illinois, and I believe Missouri is now the 25th State to enact such a law which gives the attorney general a direct line to the consumer, a direct re- sponsibility for implementing some of the investigations and privileges over some of the consumer maipractices. Up to now it has been indi- vidual county prosecutors. Mr. ROSENTHAL. Any of the organizations or firms who have tes- tified here today, are they members of your Better Business Bureau? Mr. O'BRIEN. Yes, sir; two of the three are, sir. Mr. MYEii5. Mr. O'Brien, you spoke about the open line that you have, that you have advertised it and about your complaints, and you say 55 the first day and it has dropped off since then. Are you still receiving complaints? Mr. O'BRIEN. A trickle. Mr. MYERS. Are they about food prices? Mr. O'BRIEN. Yes; if you call about a hardware store problem you have to call a different number. Mr. MYERS. Do you know where they come from? Mr. O'BRIEN. We were startled to find that we are not reaching the people in the poverty areas with this telephone line. We are reaching people in the middle-class area who have different kinds of food concern than we have out here. Mr. MYERS. Has the Human Development Corporation advised them that they should call you? Mr. O'BRu~N. We have asked the Urban League and the Univer- sity Extension Division to do that; we have not requested it of the Human Development Corporation, although one of our- Mr. MYERS. Would one care to answer? Mr. BAUM. I sent out a memorandum, to our coordinators inform- ing them of the opening of this line in the very beginning. I guess that must have `been the first 2 or 3 days; N Mr. O'BRIEN. For the record, that line is CHestnut 1-7362 and it is answered from 8:30 until 4 o'clock. Mr. MYERS. I wouldn't be surprised if business doesn't pick up, but it hasn't up to this time. Mr. O'BRIEN. No, sir. Mr. BAUM. There is a problem with publicity of getting to the peo- ple in the neighborhood, even from our neighborhood station and, in addition, many of the people would not have telephones or would not really be interested in calling in. They'd want action immediately instead of a calling in and registering kind of thing. Mr. MYERS. Yes, but this is where you come in. We can't do things overnight. PAGENO="0305" 299 Let me ask you one other thing here. On page 2 you say you were requested by the food distribution industry. Mr. O'BRIEN. Yes, sir. Mr. MYERS. No one else, the HDC here did not request you? Mr. O'BRIEN. No, sir. Mr. MYERS. No one else requested the Better Business Bureau, you didn't get any complaints until the food industry itself asked? Mr. O'BRIEN. Fifteen out of 67,000 calls were complaints on food in the first 6 months of this year. Mr. MYERS. But none of these agencies that have come before us today have asked you to do anything? Mr. O'BRIEN. No, sir. Mr. NADLER. Last March with the original study that I did it was brought to the attention of the Better Business Bureau, at which time they said no laws were being violated and could not do anything about it. Mr. MYERS. Do you recall this? Mr. O'BRIEN. No, sir. I say we have a staff of 25, I don't mean to hide behind them, but I do not recall the incident. I would like to say in our 42 categories, food has never been in the top 10. They are such things as home remodeling, automobile purchases, traffic education, things of that sort. Mr. MYERS. I have been somewhat familiar with the BBB and f a- miliar with how they operate because I have utilized them quite often in helping people, and I don't think you always worry only about whether a law has been violated but also are you protecting the in- terests of the public, too. You are also concerned about this, too, aren't you? Mr. O'BRIEN. Yes, sir; we are. Mr. MYERS. It seems like it would be kind of a frail excuse to use, I have never been told that by Better Business Bureau. I just don't understand why they would say that. Mr. N~nLEn. I spoke to some woman there, and I don't have her name with me now `because I just buried it. Mr. MYERS. But through letter form you did not notify them? Mr. NADLER. No, over the phone, I spoke with her, she was most receptive to the information and wanted to call me back as soon as she could, she'd talk with her supervisor, which she did, and said she was sorry she couldn't be of any help `because no laws have been violated. Mr. MYERS. I want to compliment you. I want to compliment the job you are doing, and let me hasten to suggest if you do find errors and irregularities notify the Better Business Bureau, they are right here in St. Louis and this is their job. T'hey are here to police themselves. Thank you very much. Mr. O'BIUEN. ~1ay I say just one word in rebuttal of the violation of law? I share your feeling, that~s no excuse. Our job is a little bit in the area where the law does not reach and we respond to that some- times like a Congressman; we are spread out too thin and we do look at our top 10, the most urgent squeaky wheels first, sir. Mr. MYERS. We never say "No." Mr. O'BRIEN. We try not to. Mr. MYERS. Some days I wish I had. S~-532-68----2O PAGENO="0306" 300 Mr. O'BRIEN. Our failure to reach people by telephone, the people we'd like to reach on this problem, this goes back to the basic problem of consumer education and the apathy of the very people- Mr. MYERS. But that's what they have these agencies for, to try to help them. Mr. O'BRIEN. Try to reach them with some form of consumer edu- cation and how do you do it? Mr. ROSENTHAL. Could you explain-I guess the supervisor who told our friend here that they couldn't do anything, was that person acting under your instructions? Mr. O'BRIEN. Every person in my office is acting under my instruc- tions; yes, sir, and I am solely responsible for every action in that office, therefore we were wrong at that point. Mr. ROSENTHAL. In other words, you disagree with that decision that she or he made? Mr. O'BRIEN. Yes, sir; although here again we might see yours as being a mañana problem. We have others right now, with our limited staff and income, including a deficit last year, we are unable to respond affirmatively to every request. Mr. BARASH. Mr. O'Brien, let me ask you one question relative to this special food telephone line. Is it manned by a single individual at all tinies? Mr. O'BRIEN. Yes, Mrs. Beverly Brian who has been with us 7 years. She is an experienced person. Mr. BARASH. What is her background, very quickly? Mr. O'BRIEN. She has a degree in government and she has been our fabrics person. We have a rather substantial fabric care in our office; we work with the drycleaners and retailers trying to evaluate experi- ences with fabrics after they have been cleaned and if they are un- satisfactory in cleaning perhaps it should be rolled back to the manufacturer. Mr. BARASH. The reason I ask is this, and it is relative to the state- ment made by Mr. Nadler that he was told that this practice wasn't ~ illegal, therefore the Better Business Bureau couldn't help. Have you considered, and I in no way am suggesting that the woman you have assigned to this problem is not totally competent, but have you con- sidered the idea of putting someone on this line who may be particu- larly, especially familiar with the problems of the poor consumer; who might be in a position to empathize with the poor consumer? N Mr. O'BRIEN. All of our people are in that position, sir. Fully 50 percent of our walk-in traffic are from the poverty area and they get service in our office immediately, and Miss Brian is a person corn- petent, she has worked in the food field. When we have had specific food problems with freezers up or down, or bulk meat up or down, it has been with her experience. Mr. BARASH. Thank you. Mr. ROSENTHAL. Thank you very much. (The full text of Mr. O'Brien's statement follows:) N STATEMENT xr JOHN L. O'BRIEN, PRESIDENT, BETTER BusINEss BUREAU OF GREATEn ST. LOUIS, INO. My name is John L. O'Brien. I am president and general manager of the Better Business Bureau of Greater St. Louis, 901 Washington Avenue, St. Louis. I have occupied that position since Septemher of 1959. Previous to that time I had a PAGENO="0307" 301 similar position with the Better Business Bureau of Akron, Ohio, for 13 years and was a staff member of the Cleveland, Ohio, Better Business Bureau for 7 years prior to that. The Better Business Bureau in St. Loius is one of 10 autonomous, nonprofit private corporations in the Uhited States and Canada. Our bureau here is a Missouri nonprofit corporation founded in 1917, supported entirely by member- ship subscription from private business firms. We presently have membership support from approximately 2,400 business firmsin the metropolitan area for a total annual income of $245,000. Of this number, B3 are retail food stores or food distributors, supplying a total of $2,487, of approximately 1 percent of the bureau's total annual support, Membership in the bureau does not exempt any member `for many action the bureau might take, nor may the fact of membership be exploited or advertised in any way. The corporate purpose clause of the Better Business Bureau reads a's follows: "This Association is formed for educatirtal `purposes including the following: To promote truthfulness in advertising, buying, selling, and soliciting, to `protect the public through public edification against the impositions of those engaged in unfair and untruthful advertising, soliciting, and merchandising, to maintain fair competition and dependability in advertising, soliciting, and merchandising, to increase public confidence in advertising and in merchandise, `securities, and service offered for sale, to educate the public to a knowledge of how to detect and avoid deceptive `advertising and questionable practices in selling and soliciting, and to cooperate and affiliate with othe'r Better Business Bureaus to promote such other educational purposes as tend to the well-being of the people in the areas `served, or to the public advantage in relation to any of the `purposes and objects above enumerated, and to do any and all acts incident to such purposes and objects that are not contrary to the provisions of the constitution or laws of this State." In carrying out these purposes, we have a staff of 25 and presently handle some 130,000 inquiries, complaints, and instances of service to the general public each year. We classify these services by some 42 different types of business and industry and keep records accordingly. Against this total, requests for informa- tion and assistance with reference to matters involving food from the general public are very minor, having in no case in the last 5 years exceeded 1.5 percent of the bureau's total traffic, A. 5-year table is attached for further detail. (Refer- ence A.) Specifically, in the first G months of 1967 we recorded a total of 596 instances involving food matters, of which 317 were inquiries concerning business firms or their conduct, 264 were what we term "customer relations," which involve mat- ters of question or concern from the public that were not formerly jacketed as complaints and 15 were complaints which followed no set pattern but were at random against various types of retail food businesses. We have from time to time read newspaper rej~oi~ts and magazine articles alleg- ing the discrimination in price and quality by various types of food stores in the poverty areas, but up to now have made no formal investigation of the matter. With tbe reports of `the recent hearings and concern expressed in the District of Columbia, the subsequent news articles appearing in the St. Louis Post- Dispatch concerning their own reporters' examination of the problem, supple- mented by certain examinations by representatives of the Human Development Corporation, we were formally requested `by representatives of the food distri- bution industry to make an examination in depth of the problem and report our findings to the industry and the general public. We have accepted this request as of November 3, 1967. We have defined the problem and commenced the pre- liminary steps of the investigation, assisted by the volunteer Women's Advisory Council of the Better Business Bureau, a group of 13 ladies representing various segments and economic strata of the community. The list of these ladies is attached hereto for reference. (Reference B.) We have defined the purpose of our investigation as follows: "To examine the policies, practices, and procedures of major food chains and food distributors' in distributing and pricing food in the various areas of the metropolitan area, to determine the relative consistency of price and quality between various areas of differing income level." We have agreed upon 15 steps to accomplIsh this purpose, and have proceeded at this point only `through the preliminary evaluation areas. A copy of our 15 steps, as reference 0, is attached for examination. Briefly, our procedures are as follows': PAGENO="0308" 302 (1) Interviewing the organizations and individuals who have raised the complaints about the price and quality of grocery and food products. (2) Examining the food industry at the source of distribution of dry groceries, meat, and fresh produce to determine the policies of the distributors and the condition of the goods when it leaves the warehouse. (3) Specific shopping and purchase of a specific list of items in a broad sampling of stores. (4) We have opened `a s~eeial food telephone line to the general public, answered by one of our trained staff members, to discuss food problems' only. This telephone line opened on Monday, November 6, and recorded 55 calls on that day. However, since that time the traffic has fallen off considerably. Persons whos'e telephone call is pertinent to the purpose of the investigation are mailed a form to be completed and returned to the Better Business Bureau as a part of the permanent record for investigation. (5) We are planning on a date in the near future, public hearings in the poverty areas in cooperation with some of the recognized leaders in the area in order that they may at firsthand report to the Better l~usiness Bureau their grievances, et cetera. (6) All matters will be placed before the individuals concerned In the industry. The final report will be drawn from the findings, the answers from the industry, and specific recommendations which `the Better Business Bureau, from its find- ings, may see fit to make to the industry, a~ has `been its practice over the past half-century. This final report will be made public. FO 00 INDUSTRY, 5-YEAR PERIOD Inquiries Complaints C ustomer relations Total 1967 (6 months) 1966 1965 1964 1963 317 1,048 1,127 828 713 15 36 11 37 11 264 686 544 245 204 596 1,770 1,682 1,110 942 Note: Includes food plans (those not including freezer), majority; bulk meat companies, majority; grocers, very few; et cetera, few. CONSUMER ADVISORY COUNCIL The better business bureau will maintain a special food grievance telephone line from 9 a.m. to 4 p.m. The number is OH 1-7362. (1) Mrs. Carrie Bash, St Lonis Urban League. (2) Mrs. Pierre Grace. (3) Miss Esther Lee Bride, consultant, (4) Mrs. Kitty Dickerson, University of Missouri Extension Division. (5) Mrs. Donald Gunn, wife of the president of the Board of Aldermen. (6) Mrs, Gilbert Harris, former president of the St. Louis Board of 1~lducation. (7) Mrs. RoSe Kiamon, president of the St. Louis Consumer Federation. (8) Mrs. Lois Laster, home economist, Division of Welfare at Pruitt-Igoe. (9) Mrs. John E. Tobin, south county unit, Webster Groves League of Women Voters. (10) Mrs. Walter G. Kiosterman. (11) Mrs. Evelyn Buck, University of Missouri Extension Division. (12) Mrs. Garnell Deramus, volunteer coordinator, Human Development Corp. (13) Mrs. Jane Straeter, chairman of Business and Civic Committee, Women's Ad Cln~b; head of adult education, Downtown YMCA. BEE INVESTIGATION OF CUARGES OF FOOD PRICE AND QUALITY DISCRIMINATION IN THE POVERTY AREAS IN GREATER ST. LOUIS Purpose To examine the policies, practices, and procedures of the major food chains and food distributor~ in distributing and pricing food in the various areas of the metropolitan area, to determine the relative consistency of price and quality between various areas of differing income level. PAGENO="0309" 303 BBB Procedures (1) Familiarize BBB staff and volunteer women's advisory council with the problem. (2) To examine the specific charges currently leveled at the food industry by the Human Development Corp. and articles appearing in the St. Louis Post- Dispathh, alleging that the industry pursues a policy of selling lower quality goods at discriminatory prices in the lower economic areas in Greater St. Louis. (3) To open and publicize a special food telephone No. (CH 1-7362) to the general public, inviting them to report food marketing problems pertaining to thes~ charges: (a) Develop special BEB food survey form. (b) Staff this phone line with. trained BBB trade practice consultants. (4) Press conference with women's advisory board and BBB staff to announce these steps. (5) Examination of specific charges with those who brought them, jointly by the BBB staff and women's advisory council: (a) With newspaper reporters Dames and Franklin. (b) With Human Development Corp. representatives Baum and Nadler. (6) Preliminary evaluation of charges, both group and individual. (7) Unannounced visitation to food distribution plants. (a) To receive from food industry management groupsi, statements of food distribution and pricing policies, and implementation thereof. (8) Continuing investigations of specific public complaints and evaluations of food industry policy and practice findings. (9) Public hearings in poverty areas, to hear complaints only. (10) Investigation of charges raised a~t public hearings. (11) Broad comparison sho~pings of various stores in different areas, on a statistical sampling basis. Purchase of goods as required. (12) Presentation of documented statement of complaints and charges to the industry. (13) Public hearing for industry. (14) Continual spot check of areas where corrections seemed necessary. (15) Final report, based on statement of charges and finding of fact. Mr. ROSENTHAL. Our next witness is Mrs. Evelyn 0. Buck. STATEMENT OP EVELYN C. BUCK, HOME EcONOMIST, UNIVERSITY OP MISSOURI EXTENSION CENTER Mrs. BUCK. I am Evelyn C. Buck, home economist from the tIni-. versity of Missouri Extension Center. I am now home economist in family economics and management, director of consumer education program in Headstart. Prior to this I worked 2 years in the consumer education program that was under EIDC program. This program is no longer in existence, but the only program in consumer education is the one that we have now with the Headstart program. Most of the speakers prior to me have really done quite a selling job on consumer education, so I will give you some information that I have written out here. I might make certain comments as I go along if it is permissible. In working in the consumer education program prior to the program I am working in now, and in the program now, we find that in the areas, in the city itself, information that is important, at least the pro- grams that are important seem to be the development of skills in order to increase the people in this area's earnings or certain cultural education that will enrich their lives. Most people today are more con- centrated on income earning rather than income spending, and as a result of this, little emphasis has been placed on consumer education PAGENO="0310" 304 itself. This phase of education has been neglected and I feel that it is important. After listening to the speakers this morning and the talks and every- thing, I find that I am more impressed with the importance of con- smner education, especially in the inn~r city. We think of people increasing their income and the living standards will be increased be- cause of an increase in income and this is not necessarily so. It has been proven statisticwise that management is really important, re- gardless of what income level that you are on, and, of course, consumer competence also is an important phase going along wi'th management. Even though we increase income earnings we still, are faced with a number of problems, and some of the problems we have listened to this morning, and with an increase in the income we may still' have a limited amount of money to be spent for the needs of the people. A number of bankruptcies and other financial problems may result. Unwise decisions in marketplace, and, of course, in this inner city people cannot afford any mistakes' as far as their money is concerned or as far as consumer competence is concerned. In working with people of low income it is important not only to educate these people as far as buying not only food, we are not just interested in purchasing food, but we are interested in consumer com- petence in all phases of buying, whether it is food, clothing, househQld furnishings, or whatever the family might need. Let me talk a little bit about some of the experiences that I have had in relation to foods. While working with the consumer education program I was asked by the neighborhood station ~ha't I was working, in to do some. con- sumer information for the people in the area, do some checking as far as food prices are concerned, and to come up with some type of answer to some of the problems. Of course, what I started was not finished because not long afterward the program was discontinued, but I will give you the benefit of some of the experiences that I did have. In teaching consumer education we not only have to teach consumer education in the line of food, but we have to teach other phases of food as far as nutrition for the family, we have to change certain food habits. We find that people buy according to their established food habits. For instance, in certain areas of the country pork and chicken would be the main meat I found. Consequently, if pork is 75 cents a pound and veal and lamb was 42 cents a pound, the people in this area. would buy the pork because they did not have, according to their food habits they didn't like lamb and they didn't like veal. So it was our job to really educate them in the preparation, the nutritional value of this particular meat in order that they could take advantage of whatever particular food was at the best price at that particular time. Another problem that we had was actually buying meat according to the price per pound. For instance, we know that bony meat does not yield the same number of servings as meat without any bone and fat, but according to the food habits and according to the food buying of certain people, if a bony piece of meat was 25 cents a pound and you would need four servings, you would only get one serving per pound, 25 cents a pound seems to be a very low price; whereas hamburger which would be 49 cents a pound, looking at it poundwise, would seem PAGENO="0311" 305 to be very expensive. So, consequently, this uninformed consumer would purchase the bony meat in which he would only get one serving per pound at 25 cents a pound opposed to hamburger which was 49 cents a pound and which he gets four servings. I heard also this morning concerning eggs, and we found that it was quite a need for education as far as purchasing eggs, other produce. Eggs are usually thought of as being a best quality according to size and the large eggs the best buy is thought by a lot of people because they don't understand that eggs really should be purchased by the pound and that grade A eggs, whether large, small, or medium, have the same food value, but, of course, you would buy pricewise according to the pound rather than the dozen. I thought I would share a few of the experiences to let you know that in my estimation consumer education is needed. Some of the prob- lems that we find in the inner city in purchasing foods could be alle- viated if the purchaser or the consumer knew exactly how to buy and what to buy and the quality to buy. Now in our teaching of consumer education it is our aim to let the consumer make the choice, but we feel that the consumer should know what he is purchasing. There are a number of neighborhood stores where a consumer feels he will get a better buy because he can charge his food or he can get other services that he couldn't get at the super- market, but regardless of what reason the consumer uses for purchas- ing at any particular market, and if there were a competitive market in the area, would the consumer be able to avail himself of the best buy according to the price of the particular merchandise. The uninformed consumer would not know how to do this. I also found that many of the people are not aware of legislation that are available to protect them. They don't understand certain or- ganizations that are here to protect the consumer. For instance, in one particular store a quality of meat was purchased and the meat was spoiled. The consumer took the meat home and when she came to class she said I purchased some haiuburger at X store and it was no good. I said, "What did you do with it?" She said, "I threw it in the gar- bage." I said, "Why didn't you return it?" She said, "I didn't know that I could return it." These are some of the problems that I think are very pertinent in the inner city, that they need consumer information, consumer education, and know their rights as a consumer. Thank you. Mr. B0SENTHAL. Thank you very, very much, Mrs. Buck. Congressman Myers? Mr. MYERS. I think you have hit on the head exactly what some of the others have been trying to sum up here. In your consumer educa- tion that many have proposed and that you are proposing here, in your extension work are you developing any plan now to further this education? Mrs. BUCK. At the present time we are not developing any plan to further the education. Moneywise we don't have any money to further consumer education. Mr. MYERS. Well, in your extension work isn't that really what you are supposed to be doing here in Missouri? Mrs. BUCK. We only have three home economists in the extension and we are working the city of St. Louis and no home economist is PAGENO="0312" 306 actually concentrated in the poverty area. The only consumer education program that we have now, which is in the process of being refunded, is the one that we have three home economists working with the Head- start program. Mr. MYERS. Have you worked with HDO? Mrs. BUCK. We have worked with HDC, we have done some train- ing of volunteer workers to do consumer education programs. Mr. MYERS. The problem is we talk about it but we don't do any- thing about it to really help about it. We can talk about it, we are aware of the problem, but we must get the information out to where it is needed, so that's why I was wondering if you were doing anything ubout it. Mrs. BUCK. We have worked with volunteer workers from HDC. Mr. O'NEAI4. Could I make a passing comment? Mr. ROSENTHAL. Are you going to offer to fund some of this? Mr. O'NEAL. Well, I am going to offer some of the ideas and suggestions. Mr. ROSENTHAL. They need money. Mr. O'NEAL. I think we had better have a tax increase then to pay for the war. An interesting point I think, Mrs. Buck brings out, I was told by one of the gentlemen, I believe it was either-Mr. Nadler, I think, told me in my office, and this is true, there are many people today that can't read in this area, and they identify what they are going to buy by brand by the can. They recognize this can of Del Monte peaches or Maxwell House coffee or whatever it is, and this lady has bought this Maxwell House coffee or whatever brand it might be for years and years, and then an item is maybe reduced in price or it is on special this week through a promotion that's available through the supplier to every food merchant in the country, but she doesn't know or recog- nize that this brand of peaches is just as good or this kind of coffee is just as good, and I'll wave a flag a little bit- Mr. Myrns. You know, I can read and I don't know that either. \ Mr. O'N1r~L. Why shouldn't she switch? She won't switch because she doesn't have the ability to read the label to know that this can of peaches is grade A, fancy, cling, California sliced peaches and they are just as good as the brand that she has been buying for the last year. Mr. ROSENTHAL. What is your recommendation? Mr. O'NJ~L. I have no recommendation but I think this is a big part of the problem. Mrs. BUOK. This is not only true with the consumer who can't read, this is true with consumers who can read who buy by brand names because they do not know the difference. Mr. ROSENTHAL. Thank you very, very much. I think we have one more witness who asked to speak for 3 or 4 minutes, Mr. Blassie. STATEMENT OP NICK BLASSIE, EXEcUTIVE DIRECTOR OP LABORERS POOD COUNCIL OP GREATER ST. LOUIS Mr. BIAS5IE. Welcome to St. Louis, Congressman Myers. My name is Nick Blassie, executive director of Laborers Food Council of Greater St. Louis. PAGENO="0313" 307 I spent my entire lifetime in the retail food business, in the meat business, and I have followed this investigation on the part of people that are inexperienced, our writers for some of the newspapers. To my great amazement they did in their humble way the best job that they knew how to present to this committee. They know there is something wrong but they don't know what it is and it appalls me to see an industry that's being indicted that is the most highly competi- tive industry in the whole world. That's the food industry and I spent my entire lifetime in it, in fact, 42 years of it. In officiai executive capacity managing the affairs of 3,000 people, closely associated with, directly and indirectly with 70,000 people in the retail food, wholesale food industry, forward and backward, and still privileged to represent that organization because the various trade unions that are directly and indirectly affected by la~bor contracts or were affected by one or another labor contracts that we make. I think that Mr. Robert O'Neal with the National Tea Co., he prob- ably hit the nail on the head, and I am going to try to make this as brief as possible, but I think I ought to bring this to your attention. You have to be an imbecile or out of your mind, if you've got the right kind of a mind, to make an investment, build a supermarket that would be competitive to the Kroger store in this highly poverty area here on Stoddard Street, something that I know something about, and I'm one of the men that's responsible that that store is in existence. I am the man that's responsible that the National Tea Co~ the successor to the Food Center Corp. that built and established a ~75,00O super- market and had to put the key in the door a year later because they couldn't make a quarter. I think if Mr. Walter White had his way about it, with the Kroger Co., and he doesn't have, he'd put a key in the door tonight on Stod- dard Street in the Kroger store. He'd have to. Actually that store is being subsidized by customers that are patronizing the other Kroger stores to keep this one open, and I have no sympathy for Kroger and I'm not on their friendship list, but in all fairness I think this is right in bringing this out, that this company is maintaining this store because 20 years ago the Urban League, and I am a member of it, we the labor officials, the representatives of the Urban League, representatives of the Catholic church, the Baptist church, we got this company to origi- nally establish and open this store and build it, and against their better ~judgment. They knew that this wasn't the right thing to do from the profit standpoint, but a store of this type was needed. Now, when the housing programs were developed and built and slum areas were torn down and new areas were being built, hundreds of our stores and hundreds of our jobs disappeared as meatcutters in these markets in all of these housing areas, these jobs completely dis- appeared and these jobs weren't picked up in the industry any other place; they were absolutely destroyed. Many of our small market opei~ators, successful market operators, and some of the markets that I personally worked in as a journeyman meatcutter and head meatcutter and managed the affairs of certain markets in this high poverty area here back in 1925 and 1926, suc- cessful markets, many of our men, members of ours that grew, opened up and operated their own stores, were destroyed, not only by competi- tion, by the community. They were out of business, and 50 percent of them in this area that went out of business went out of business broke PAGENO="0314" 308 because of giving credit to people that weren't able to pay their bills because they are poor people. Now, the poor people have always suffered this and I think they will continue suffering until we, the captains of labor, the captains of industry, the captains of government, do something about it. Now, Father Shocklee brought out here this morning the easiest thing to say is "I want more." I was `born and raised in the ghettos of St. Louis, one of 16 children. Nobody gave us aid to dependent chil- dren, but our skin was white, we got a better chance. Nobody brought us a paycheck every month for nine children at one time and nobody working. We were born and raised on Third Street in the city of St. Louis but we were given the opportunity because our skin was white, picked ourselves up by our bootstraps and did something about it. You've got the same situation in this area here, and the only answer to this thing is, with the exception of the mayor of the city of St. Louis waking up now, and he came out of the poverty area, Cervantes did, and he knows something about it. The young man here that he appointed as chairman of his committee, Robert Shampaine, he came out of the poverty area with holes in his shoes and today is a successful businessman in this community. I have seen many of them grow. I have seen these chain companies grow from one store to hundreds, from one store to $15 million corporations. I have seen these men come out of the poverty area, but their skin was white. That's the reason they got a break and we haven't recognized this. It was my privilege to take the first 15 Negro women into my union, an all-white union, 25 years ago, and we were able to help them. We got the same benefits, same wages, same conditions of employment, same health and welfare program, et cetera, and we maintained through labor contracts we had to get that in this area. The only concessions we gave in our contract was that in a particular type of area like this where you have one man operating, we permitted him to work 5 hours a week longer, and we permitted him to work for $25 a week less because the dollar sale per customer was not there and\N the profits weren't there because the employer didn't have the cash register to pay. That's a concession that our union did make and we had it in these areas, and I had some 450 meatcutters working in poverty areas. Now, some of these things that were brought out here this morning about stores in poverty areas, this is a joke. The Kroger store o Lindell Avenue that they were talking about, it is on the fringe of the poverty area. That's millionaire row in St. Louis if you don't know it, from there west on Lindehl Avenue. Kroger built that store and I doubt whether they made any money there for a while, and the poor Negro in this area that's got any commonsense at all and might have a little better paycheck, say the common, ordinary Negro laborer that might be making a hundred and a quarter a week, he'll trade over in that store. He won't trade in these small stores here because the small store in this area doesn't have any volume. His labor costs, a meatcutter's labor costs in this small store is 10 percent higher than it is on Lindell Avenue because he doesn't have any volume. Mr. MYERS. Are you speaking about Kroger smaller stores? Mr. BLASSIE. Yes, this one that's a small one compared to the big one. PAGENO="0315" 309 Mr. MYERS. Their testimony this morning was that they are paid the same. Mr. O'NEAL. Rates are the same. Mr. BLASSIE. And the rate of pay for a meatcutter in this area has got to be higher because he doesn't have dollar sales. You may have a 55-cent customer average here and you may have a dollar and ten or a dollar and fifteen over there. It makes it that much easier for a meatcutter to make his gross profit. I don't think that the industry has recognized the serious problem in the city of St. Louis. They are going their own way. Everybody is going to look out for themselves and the captains of industry ain't gonna put themselves out, we aren't going to get involved, we'll get called bad names or get our name in the newspapers. I care less whether the newspapers put my name in the paper. They can put it in every day as far as I am concerned. Mr. MYERS. They will tomorrow. Mr. BLA55IE. My name has been in the newspaper many times, but this innuendo here, this advertisement of the pork chops, this lady that was sitting here that brought the newspaper publication in didn't know, she is not informed, she is not qualified, she is not an expert at it, but she is indicting my friends the meatcutters. The pork chop that she is talking about that she thought was the best, I don't buy them and eat them, I buy the other one. Now, when you buy a pork loin that weighs ten pounds, that pork loin costs you 50 cents a pound whether it is from New York or whether it is from Indiana, it is 50 cents a pound, so the meatcutter has to determine, and then he becomes the last answer, not this man sitting behind me because he is the boss, that guy out there in that meat shop had better know what to do with it if he is stuck with it and if it hasn't moved he had better move it by Saturday night or he'll have himself a new meatcutter in that job Monday morning, and he's not going to tell me or tell you that he is the sole guy to determine that, because the meatcutter knows the quality of the merchandise, the freshness of it and when it's got to be moved, and he's got to know how to rotate. The head meatcutter is responsible for the efficient management of the market. That guy out there had better do a job, better have a gross profit, better have sales, better take care of that market, better have a rotated inventory, and he had better be up to snuff when income comes. Mr. ROSENTHAL. I have given you three and a half minutes more than I promised. Mr. BLASSIE. You had me for three and a half minutes. You should have me for three and a half days and you'd learn something about this business. Mr. MYERS. I think I agree with that. Mr. BL~ssIE. Now, here you've got another committee which is going to start. The mayor is going to have a fine committee. What the hell does Robert Shampaine know about the food industry other than he sits down and eats it? Mr. MYERS. He is looking for it, why don't you volunteer? Mr. BLASSIE. I have a lot of friends that are reporters for the Post and the Globe. What do they know other than when they got it on their plate? PAGENO="0316" 310 Mr. ROSENTHAL. We have about 2 minutes to get ready to make an airplane. What remedies do you have? Mr. Br~ssIE. If you want to do the right thing, if the industry doesn't come forth and do it, let the U.S. Government subsidize supermarkets in this area, let them do the same thing that they do under the urban redevelopment program downtown for free taxes for 10 years and maybe you'll get some supermarket operators to build in there. Let's give these poor people the same break that we give the captains of industry that are building the Mill Creek Valley. This is the recommendation. Then we are on the right track. Mr. ROSENTHAL. The committee stands adjourned. (Whereupon, at 4:40 p.m., the hearing in the above-entitled matter was adjourned.) PAGENO="0317" OFFICE OF ECONOMIC OPPORTUNITY: CONSUMER ACTION AND THE WAR ON POVERTY MONDAY, OCTOBER 10, 1966 1 HousE or REPRESENTATIVES, ExEoua~IvE AND LEGISLATIVE REORGANIZATION SUBCOMMITFEE OF THE COMMITTEE ON GOVERNMENT OPERATIONS, Washington, D.C. The subcommittee met, pursuant to notice, at 10:05 a.m., in room 2203, Rayburn House Office Building, Hon. Benjamin S. Rosenthal (chairman) presiding. Present: Representatives Rosenthal, Reuss, and Erlenborn. Also present: Peter S. Barash and Jerome Sollins, majority pro- fessional staff menthers, and J. Phillip Carlson, minority professional staff member. Mr. ROSENTHAL. The special inquiry will be in order. This marks the first hearing of the recently established special in- quiry on consumer representation in the Federal Government. The responsibility of the special inquiry is to examine the extent to which the various Federal agencies are carrying out their responsibility to protect and promote the interests of the American consumer. The conflict within our governmental system and free enterprise economy between consumer interests on the one hand and producer influence on the other, is not new to the country, the Congress, or this committee. And yet, while the interests of producers, farmers, laborers, or small businessmen are easily grasped and effectively represented, the consumer interest is complex and often subordinated. We intend to approach this important subject deliberately and im- partially. And yet, we cannot help but view with concern a Federal consumer protection apparatus which is proliferated among 33 depart- ments and agencies. We hope to work together with the executive branch and to develop ways in which consumer representation in the Federal Government can be strengthened and made more meaningful. We think it particularly fitting and proper that the Office of Eco- nomic Opportunity be the first to testify before the special inquiry. While rich and poor, educated and uneducated alike are victims of sharp practices and general uncertainty and confusion in the market- place, the poor are most frequently and tragically victimized. More- over, unwise consumer habits and sharp consumer practices not only contribute to the plight of the poor but also help to perpetuate poverty itself. 1 This bearing, conducted in October 1966, relates to the efforts of the Office of Economic Opportunity In behalf of the low-income consumer. (311) PAGENO="0318" 312 Our first witness this morning will be Prof. David Caplovitz, asso- ciate professor of sociology, Columbia University. Professor, good morning. We are delighted that you are able to take time off from a very busy schedule to spend this morning with us. Professor, if you have a prepared statement, we would be pleased for you to begin. STATEMENT OP DAVID CAPLOVITZ, ASSOCIATE PROFESSOR OP SOCIOLOGY, COLUMBIA UNIVERSITY Mr. CAPL0vITz. It will take perhaps 15 or 20 minutes. Mr. ROSENTHAL. That is fine. Mr. ERLENBORN. Mr. Chairman, if I might explain, I am a mem- ber of the conference committee on the Department of Transportation bill and there is a meeting of the House conferees this morning, and I want the witness to understand when I leave it is only because I had to and it is not because I am disinterested. Mr. REUSS. Mr. Chairman, unfortunately I have to join in explain- ing that I, too, must absent myself for awhile. Mr. ROSENTHAL. You may proceed. Mr. CAPLOVITZ. My remarks will bear upon the problems that low- income persons face as consumers in our society. Until recently the "war on poverty" was focused exclusively on the earning power of the poor and how to expand it through education, job training and the creation of jobs. But the inability of the poor to earn a decent liv- ing is only one side of their economic plight. Equally important is how the poor spend what little income they have; that is, their situation as consumers making major buying decisions in the marketplace. To the extent that the poor pay more for the goods they buy-and I am convinced that they do-then to that extent they are deprived of the benefits of their earning power. They are forced to live in a world of inflation that our more well-to-do citizens are able to escape. The tendency has been to assume that since the poor have little \ money to spend, they cannot possibly be consumers of costly merchan- dise. But this reasoning overlooks the role of installment credit in ~ur society. Through the mass media, Americans in all walks of life are bombarded with messages to buy now and pay later. "Easy pay- ments" and "no money down" are the slogans luring even the poor into the marketplace. Nor is it very difficult to lure the poor into mak- ing costly purchases, for in some ways the ownership of goods takes on even more significance for low-income persons than for those in higher income brackets. Since the poor have little prospect of greatly improving their low social standing through occupational mobility, they are apt to turn to consumption as at least one sphere in which they can make some progress toward the American dream of success. Ap- pliances, automobiles and the dream of a home of their own can become compensations for blocked social mobility Whatever the motive, there is increasing evidence that the poor are consumers of major durables My own study of almost 500 low income families, living in public housing projects in New York City, showed that these families owned many expensive appliances. Fully 95 per- cent owned at least one television set; almost two-thirds owned a phono- graph, almost half owned a sewing machine and almost half owned PAGENO="0319" 313 an automatic washing machine. Most of these families had spent con- siderable money furnishing their apartments. The typical family bought sets of furniture for at least two rooms when it moved into public housing and had spent approximately $500 for furniture. Some 16 percent had paid more than $1,000 for furniture bought at the time of the move. The prices they paid for appliances were quite high. Forty percent paid more than $300 for their TV set and 13 percent had paid more than $400. A number of families owned expensive combination tele- vision and phonograph sets and one family reported paying $900 for such an appliance. Partly because they are so dependent upon credit and partly because they are intimidated by the large downtown store, most of the families buy their major durables from neighborhood merchants or from door-to-door peddlers rather than going to the large department stores and discount houses. Symbolic of the narrow shopping scope of the poor is the practice of buying from door-to-door credit peddlers, the men with the traditional slogan of "a dollar down, a dollar a week." Fully half the families surveyed had made at least one credit purchase from these door-to-door salesmen and more than a third had made repeated purchases. The poor, then, like others in our society, have major wants as con- sumers, and there are innumerable merchants in low-income areas who are all too eager to provide them with the goods they want and, I might add, often with goods that they do not want. Because they are poor and have such low ratings as credit risks and because they lack the training to be sophisticated shoppers, persons of low income are easy prey to unscrupulous, exploitative merchants. The marketing system in which they are forced to operate is in many respects a deviant system. I have elsewhere described it as a com- mercial jungle in which exploitation and fraud are the norm rather /than the exception~ High-pressure tactics, "bait" ads, and "switch sales," misrepresentation of price and quality, and the sale of used merchandise as new all flourish in this special system of sales and credit. Responding to ads announcing appliances and furniture at unusually low prices, the consumer soon succumbs to the ~a1esman's switch sale technique and buys a much more expensive model. Along "furniture row" on Third Avenue in East Harlem, in New York, the bait ad appearing in every store window announces three rooms of furniture for "only $149" or "only $199." The customer who inquires about this bargain is shown a bedroom set consisting of two flimsy bureaus and one bed frame. He learns that the spring and mat- tress are not included in the advertised price but can be had for another $100 or so, The living room set in these "specials" consists of a fragile-looking sofa and one unmatching chair. Mr. REUSS. May I interrupt at~ this point~ Mr. ROSENTHAL. Yes. Mr. RETJSS. On this question of installment sales which you are dis- cussing, and particularly that on appliances, TV sets, what today is the amount, typically, of the downpayment in relation to the total price, and what are the terms of the installment sales? PAGENO="0320" 314 Mr. OAPLOVITZ. I do not have exact figures on that. The amount of the downpayment will, of course, vary with the merchant and the mer- chant's estimate of the capability of the customer to pay his debt. The downpayments generally are unusually low, but then the value of the merchandise to the merchant is so small, I mean he has paid so little for the merchandise, hat a downpayment of only $50 may repre- sent 40 or 50 percent of the merchant's iiwestment even though he may be charging $300 to $400 for the merchandise. The terms of the sale tend to be rather long. Many of these contracts extend over 2 or 3 years, and they frequently get refinanced along the way. Elsewhere I have pointed out that it is almost as if the slumdweller is in a state of continuous debt to the neighborhood merchant. It is almost as if the idea of the company store has been transplanted into our urban centers, with the customers continuously in debt. Mr. REuss. Well, you mentioned a TV set priced at more than $300. Just take that, as being sold to a slum customer who is regarded by the merchant as one of the better risks. What kind of a downpayment would he be asked to make nowadays? Mr. OAPLOVITZ. It is hard for me to answer that. I am sure these practices are not standard. I would guess that from the few ads that I have read, and so forth, it might be $50 downpayment on such a pur- chase; it might be less. It could easily be $10. Mr. REUSS. Two or three years to pay, with the possibility of refinancing? Mr. CAPLOVITZ. Not only refinancing, but if the customer proves he is a good credit risk and keeps up those payments, the merchant then con- vinces him to buy something else, and in some States this is added on I to the contract. This has recently been outlawed in New York, and this is part of what I mean by the pattern of continuous debt. Mr. REuss. I would ask one further question. There is taik of a gen- eral tax increase in the Federal income tax. This talk has been more intensified in several months. If the war in Vietnam and other Federal expenditures should bring it about that the administration believes a tax increase in the individ- ual income tax is necessary in order to combat inflationary pressures, how would you, as one who is intensely interested in the plight of the consumer, feel about that kind of social measure as opposed to steps ~ taken to regulate consumer credit as by specifying a certain minimum downpayment and a certain maximum term of a loan? In either case, the consumer gets hurt, particularly the bottom-of-the-scale consumer, but I wondered if you have done any thinking as to which method of achieving the same end, chilling consumer expenditures, is the more just of the two? Mr. CAPLOVITZ. I am, unfortunately, not an economist, nor do I know that much about economics, but my guess is- Mr. REUSS. My question related to social matters. Mr. OAPL0vITZ. That the manipulation of tax as a way of controlling consumer behavior makes much more sense for the broad middle classes; people who have discretionary income. I am told that as a result of tax cuts, one can predict reasonably ac- curately how much more money will be spent in the economy as a result of the tax saving to the consumer. But that kind of model, first of all, PAGENO="0321" 315 presupposes people paying taxes. In the population I am talking about, the low-income consumer generally does not pay taxes except in the form of withholding taxes. In that form, I suppose many of them do. Mr. IREuss. If taxes are increased, he would have more withheld. Mr. CAPL0vITz. True; he would have more withheld, but I am not sure that the consumer behavior of the poor is related to that discretion- ary income. I suspect that the merchants would make the terms even easier, so that these- Mr. REuss. And the mulcting would get worse. Mr. CAPLOVITZ. It might very well get worse. I am not sure that tax policy as a way of. controlling consumer behavior applies-and I would have to think this through-to this very marginal population that I am trying to describe, who, even with a very liberal tax policy, still are spending more than they, perhaps, should, or are still buying things that they should not be buying. They simply do not have the discre~ tionary income that the great bulk of our population does'. Mr. REuss. Well, following the logic then, what you are saying-is that a general, across-the-board Federal income tax increase- which would, of course, increase the withholding right down to the bot- tom of the income tax paying population-would probably not be suc- cessful in chilling consumer purchasing very extensively, but would simply worsen the plight of the already beleagured marginal consumer. Mr. CApLovrrz. Here is some superficial evidence on this issue. Many of the people I am now describing are people who are on welfare, and according to the terms of their receiving welfare they should not be. making credit purchases, but they do and they pay for those credit purchases out of their food allotments. We must keep in mind how this r system operates. I do not think that economic policy in the form of manipulating taxes is going to provide much of an answer to these is- sues. Certainly, people on welfare do not pay an income tax, and yet they are also involved in these patterns that I am describing. Mr. RETISS. Let us leave welfare recipients aside for the moment. Isn't what you are saying, then, that if it should become necessary a's an economic matter to chill off the production and consumption of tele- vision sets and refrigerators, for example, to do so by stipulating a minimum downpayment on consumer credit would be (1) a more effec- tive way, if that i's what you want to do,. than fool around with taxes; and (2) a more just way? It, at least, lets the poorer person keep the money, although sterilized in his pocket, rather than take it forever by means of a tax. Would you agree with that? Mr. CApLovrrz. I would have to think that through. What you are suggesting is tighter controls on the extension of credit,, and I certainly feel there is need for some reform in the credit system, and it may very well mean tighter controls. But I would have to think through what the unanticipated consequences of that might be. I just do not know at the moment, but I certainly feel that that might be a more equitable arrangement than a tax in'crea'se simply to correct the abuses that I am talking about. There are many other' bases for having a tax increase. I am not sure they bear upon these matters. Mr. REuss. Well, yes. I did import something new into the discus- sion. But because of your great studies of consumer `sales, particularly in New York, I welcome your observations. 88-532-68---21 PAGENO="0322" 316 Thank you, Mr. Chairman. Mr. CAPLOVITZ. With your permission, I would like to edit my com- ment as I go along. Mr. ROSENTHAL. Go ahead, Professor. We welcome that. Mr. CAPLOVITZ. I could go on describing more incidents and more techniques by which low-income consumers are, in my opinion, ex- ploited, but by now these exploitive schemes are rather well known. But there are some other points that I would like to make. Many poor people find themselves overextended in credit obliga- tions and unable to maintain payments. But many others stop paying on their purchases not because they are unable to pay, but because they refuse to pay on faulty merchandise. Instead of gaining retribution, however, they are more often than not subjected to legal sanctions brought upon them by the merchant. In my statement, I describe an incident in which a man refused to pay on a set of pots and pans that he had bought because they were of such inferior quality. This led to his salary being garnisheed at every job he had. He goes on to describe that he had several jobs and they are finally taking payments from his current job. I point out that as a result of this kind of con- sumer problem, many consumers find that they end up losing their jobs as a result of garnishees. Many employers simply will not be bothered with garnishments and do not hesitate to fire workers whose salaries are attached. We are accustomed to thinking that these difficulties arise because these people are poor. But it is also true that some families become poor because they have these problems. To lose a job because of a garnishment is certainly one way of entering the ranks of the impoverished. Another point I would like to make is that legal procedures are violated with some frequency in consumer matters, and these viola- tions are carried out by some of the attorneys handling the creditors' interest, and also by the various collection agents of the law, such as in New York City, marshals. For example, almost all the lawsuits against consumers who do not pay result in judgments by default, that is, the consumers do not show up in court to defend themselves. Mr. ROSENTHAL. Why don't they show up, Professor? Mr. CAPL0vITz. I am going to go into that. The assumption commonly made is that these default judgments~ simply mean that the consumer has no case; that he indeed owes the money and, therefore, chooses not to answer the complaint and risk further court costs. But the legal unit of Mobilization for Youth in New York City has come across a number of cases in which the defendant was never served with a summons. Process servers-and this may be unique in New York, I do not know-process servers often evade their responsibility and simply throw the summons away. This happens with sufficient frequency that a special term has evolved in legal circles to refer to it-"sewer service." Low-income families are especially likely to be victims of this practice since they are not apt to know their legal rights or how to protect them. I could cite another example: In New York State, the lai~ requires that the city marshal send a notice 20 days in advance before attaching the wages of a debtor. The purpose of this law is to give the defendant PAGENO="0323" 317 a chance to clear up the debt and avoid embarrassment with his employer. But this procedure too frequently is not followed. All too often, the first the poor consumer hears of the action taken against him is when his employer calls him in and tells him about the garnish- ment. And by that time it is often too late for the consumer to protect his job, let alone his rights in the legal action. In the past year or so, we have seen some alarming evidence that the poor are aware of the exploitation they face in the marketplace and are rebelling against it. Students of the riots that have swept our country have been struck by the selectivity exercised by the rioters in their destruction. It seems that not all buildings are ransacked and burned, but mainly those of the credit merchants. Mr. ROSENTHAL. Do you have any statistical support for that statement? Mr. CApLovrrz. There is now a report being prepared for the Crime Commission by Prof. Robert Fogelson, of Columbia University, and I spoke with this colleague of mine and he tells me that such data are being prepared and will appear in the report for the Crime Commission. Mr. ROSENTHAL. Take a situation such as Watts. If most of the rioters were in the 15- to 20-year-old age bracket, assuming that they were, do you mean they showed discrimination or exercised discriini- nation in stores that were ransacked or looted ~ Mr. CArLovITz. I, myself, do not have firsthand information on this. I am reporting one thesis that is being proposed in the Crime Commission report that, I believe, is to be backed up by evidence; but I should add that it is not at all clear that the rioters in Watts were only 15 to 18 years old. Studies are now being done on who participated in the riots in Watts, and there is strong reason to believe that the McCone Commission report underestimates the amount of participa- tion in that riot. Mr. ROSENTHAL. By adults? - Mr. CAPLOVITZ. By adults, by the total population of the area. If ` you assume that - I think at one point the McCone Commission cites arrest statistics and it also estimates * and here I am very weak now - a certain proportion of the population that they feel did participate in the riots, and I think their conclusion is that no more than 10 percent of the residents of the area were involved in the riots, and it may be even a smaller percentage. But I am told that the base figure that is used in computing that percentage is the entire Negro population of Los Angeles and not the Negro population of that particular area; and that the Negro population in that area also includes people over 65 as well as many children under 12 and if you were to subtract the very old and the very young from the basic figure and limit the base figure to that particular area the proportion of participants would be much higher. But again I am talking about information that I have acquired from others rather than information I have firsthand knowl- edge of. Mr. ROSENTHAL. But, at any rate, what you suspect the thrust of this report is going to be is that the rioters did show some discrimination in choosing to ransack those stores which had been most guilty of nefar- ious practices. Mr. CAPLOVITZ. This is my considered opinion, and I feel the evi- dence will bear that out. PAGENO="0324" 318 The problems that I have tried to describe here are extremely press- ing and demand the attention of our Government if the war on poverty is to be won and if our ideals of justice are to be maintained. It is all too easy to say that the poor must be educated as consumers. But in my opinion, it is even more important to provide the poor with meaningful alternatives to the present arrangements that confront them. I have in mind such things as credit unions, cooperatives, and other self-help institutions. These institutions cannot spring up over- night in the ghetto. They need to be carefully nurtured with Govern- ment funds and leadership. I understand that the Office of Economic Opportunity is giving great emphasis t~ the creation of such institii- tions, and I hope we will hear what they are up to. In addition, there is a need for new legislation that will redress the balance between creditor's rights and debtor's rights. For example, we take pride in the fact that debtors' prisons have been abolished and yet today our legal structure permits garnishments which often result in depriving the debtor of his livelihood. Mr. ROSENTHAL. Is this almost the same, in your judgment, as the debtors' prison? Mr. CAPJJOvITZ. I feel to deprive a person of a livelihood places a family, a poor family, in a situation that has many of the consequences of having the breadwinner sitting in a prison. This is one way in which families end up on the welfare rolls in our society. This is one way in which the poor are robbed of self-respect and dignity. Mr. ROSENTHAL. So that consumer activity or involvement of tl'ie poor affects their opportunity to earn a livelihood as much as outside economic factors. Mr. CAPLOVITZ. Correct. This is the point I am trying to make. Another point: we urge our consumers to shop wisely and yet we tolerate a situation in which it is virtually impossible for consumers to shop for credit for the simple reason that those who extend credit are not required to state how much the credit costs. Certainly "truth in leii ding" as advocated by Senator Douglas is necessary if consumers are to behave rationally. I will skip some other points here. In closing, I would like to- Mr. ROSENTHAL. If I can interrupt you there? The point you make is that in addition to truth in lending legislation as advocated by Senator DouglaR, the States have been somewhat remiss in this area? Mr. CAPI~ovrrz. I skipped that. There seems to be considerable vari- ation in the amount of interest that is permitted iu the various States. This rauges from a low of 10 percent on all credit transactions, whether it is time sales or loans, in the State of Arkansas, to the State of Texas which permits over 200-percent interest on small loans, that is, loans under $100. But in this connection I should point out, as everyone knows, there is a commission working on uniform credit laws, and their report should be out fairly soon. In closing, I should like to say one word on behalf of those I have treated as the villians in my testimony-the local merchants in poverty areas. In my opinion, it is a mistake to see their practices as wholly due to their uuscrupulous personalities. They too are constrained by a set of economic forces. In some respects these merchants must charge PAGENO="0325" 319 more for the simple reason that it costs them more to operate. I am not thinking only of the fact that being small businessmen, they cannot buy in bulk the way chainstores or large department stores can. I also have in mind the fact that these merchants frequently have to pay more for the money they borrow and in particular that they have to pay more for the insurance they need. If I am not mistaken, the insurance companies of America are now facing a crisis concerning insurance in ghetto areas. Even at the much higher rates they charge, ~they apparently are not finding it profithble to extend insurance to ~etto merchants. There is a need then for new institutional arrange- m~uts to meet the needs of the local merchant as well as those of the local consumer. Why, for example, cannot there be some system of pooling insurance and sharing the risk so that the local merchant does not have to pay an exorbitant price for insurance? Mr. ROSENTHAL. What kind of insurance are you talking about? Mr. OAPLovITz. Fire insurance, theft insurance, the typical kinds of insurance that a businessman needs on his business in order to function. Mr. ROSENTHAL. Have you found in your investigation, or did you go into the question at all, that the merchants in Harlem have difficulty in obtaining fire and theft insurance? Mr. CAPL0vITz. They pay higher rates for their insurance, and I recently read in the New York Times that as a result of the riots, the insurance companies of America are considering, seriously consider- ing, withdrawing insurance from all ghetto areas, because they claim it is so unprofitable. But I have heard this complaint from merchants who say: "It is very easy to beat us up, but you must stop to think that we have to pay more in order to operate-" Mr. ROSENTHAL. Well, I think you have- Mr. CAPL0viTz (continuing). "In the ghetto." Mr. ROSENTHAL. You have engaged in a rather searing indictment of some of these ghetto merchants. My own judgment is, without having much experience at all, that the high cost of insurance they have to pay, the higher cost of insurance they have to pay, and the higher the cost of money that they may borrow, hardly accounts for these practices that they engage in. Mr. CAPLovrrz. I agree. I am not in any way condoning their practices, but I am merely trying to broaden our picture. Perhaps it is best the committee do one thing at a time and focus on the interests of the low-income consumer where, indeed, there is much room for reform. But I think the larger picture should not be lost sight of, and the larger picture includes the situation of the local merchants. It may very well turn out that it is not profitable, that it should not be profitable, to do business in a low-income area, and that the best solution is to educate the poor in the remedies I suggest, credit unions and cooperatives. I am not sure our society is ready to replace our businessmen in the ghetto with consumer cooperatives, and to the extent we feel that the smaller merchant has a place in the ghetto, then we should take his interests into account as well. Mr. ROSENTHAL. I think your book "The Poor Pay More" was published in 1963. Mr. CAPLOVITZ. Correct. PAGENO="0326" 320 Mr. ROSENTHAL. Between that time and the present time have the conditions which you described in the book changed in any way? Have they improved for the poor consumer or have they gotten worse? Mr. OAPLOVITZ. I am sure they have not improved. In my state- ment I cite, in the part that I skipped, I cite several examples that are much more recent than those covered in my book and those incidents are illustrative of the continuing exploitative practices. As I travel about the country, I run across people who tell me they tried to replicate my New York study in their own locale, and to their own stirprise they discover that many of those problems exist in their smaller towns, and they exist in other parts of the country. Mr. ROSENTHAL. You know, insurance is one of the fields that is still controlled exclusively by the 50 States and not by the Federal Government. Do you think if there was national legislation to control the insurance industry, it would be helpful in this field? Mr. CApLovrrz. I do in many ways, not only as far as insurance touches the interests of the businessmen, but I think there is a great need for examining the kinds of insurance that are sold to low-income families, and to consider whether there are frightening alternatives to the insurance that they now buy. One of the frightening things about poverty, and this comes out of conversations with poor people, is the terror that if there is a death in the family, the family will not be able to cope with funeral expenses, and the notion of a decent burial is strongly ingrained in all of us, especially among the poor, for this is the ultimate symbol of self- respect. As a result the poor are very vulnerable to all kind.s of schemes for insurance. Although I do not go into this in my testimony, I feel that a serious investigation of the kinds of insurance the poor people buy will disclose they are buying very inadequate insurance, and that this is a heavy drain on their income. Mr. ROSENTHAL. Is this door-to-door weekly kind of insurance? Mr. CAPLQVruZ. Weekly industrial insurance, a quarter a week, 50 cents a week. Mr. ROSENTHAL. Is there much loss of premiums by default? Mr. CAPLOVITz. A great loss of premiums by default, a great deal. The family would have been much better off putting those quarters and half dollars in a savings account and collecting interest. Behind many of the companies that operate in areas like Harlem, and these companies have names that we have never heard of, like the Golden Eagle Insurance Co., but behind those companies are many of the largest insurance companies in America. Mr. l~OSENTHAL. You do not have any proof ~f that. Mr. ~JAPLOvIpz. No, but I have been told that such tie-ins exist. But, no, I do not have proof of that. But nonetheless there `are insurance companies that specialize in selling industrial insurance to the poor, and this is a very poor buy. Mr. ROSENTHAL. You said something that interested me. Y'ou said that essentially the company store has been rebuilt in American urban society. PAGENO="0327" 321 Most of us who went to school some years ago read about the com- pany store and heard that `it went out of business 40 or 50 years ago. You say it is coming back ~ Mr. OAPLovITz. I used this as an analogy, the concept of the com- pany store. What we find now in our urban ghettos is a kind of in- formal system-not completely informal, because it is bound in by installment contracts, but informal in the sense that the merchant and the customer get to know each other and call each other by their first names. A frequent practice in this marketing system I am describing is the refinancing of loans and ddbts. The installment books, for ex- ample, `that these people have, contain a coupon that is located next to the last payment, or half way through the book, and the coupon says: "If you have gotten this far in your coupon book, you are now eligible for another loan." And many people take advantage of that extra coupon and take out another loan. Mr. ROSENTHAL. What kind of store are you talking about ~ Mr. CAPLOVITZ. Now, that is one aspect of it. Here I am talking about the finance companies that frequently buy up that paper. I am also talking about small loan establishments that have such a coupon, but what I intially meant is the following type `of practice: A consumer goes into `such and such a store and he makes `an ex- pensive purchase. He is encouraged to bring the payments to the store and this `has the function of letting the merchant get to know that consumer. ETc knows when his paycheck arrives; he gets to know how much rent he pays, and this allows him to exercise some control over \that relationship. If, in the merchant's judgment, this person pays his `~1eJ~ts rather regularly, he then talks that person into making another p~u~hase, and from my own interviews with these merchants, that is a very easy thing to do. They have no difficulty `convincing the person to make another purchase. One merchant said to me that the amount of merchandise that you get somebody to buy depends solely on the amount of risk you, the mer- chant, want to carry, and, so, through this pattern of selling something new when the first purchase is almost paid up, the debtor `is continually in debt to the local merchant. Mr. ROSENTHAL. If I can go back a second. Assuming that the re- port you talked of supports of allegation you make that the ric~ters in Watts were discriminating in turning their most vigorous attention to the stores that had engaged in the worst practices; in your opinion is this a restraining-should this be a restraining factor against these same types of merchants in Harlem, looking forward to the day that such an eventuality might take place there ~ Mr. CAPLOVITZ. I am not sure I understand your question. Mr. ROSENTHAL. Well, if you were right in that the Watts rioters turned mosit of the wrath against those merchants `that engaged in the most nefarious practices, and if that `became a matter of public knowl- edge, should this not be a deterrent to merchants in other cities ~who engage in the same kind of practices ~ Mr. CAPLOVITZ. My own feeling is that it is Yery hard to expect businessmen or anybody, even the medical profession at times-and here I am getting into more trouble, but it is very hard to expect groups with strong interests to regulate `themselves. PAGENO="0328" 322 Mr. ROSENTHAL. I was thinking of self-preservation, the self -preser- vation symbol. Mr. CAPLOVITZ. It remains to be seen whether the deterrent theory really applies `to crime in our society at large. Criminologists spend a great deal of time worrying about the functions of punishment. Does punishment really lead to the deterrent of crime? We are really not sure. Mr. ROSENTHAL. I am not thinking of the punishment deterrent but thinking of self-preservation. If I were one of these merchants, would I be thinking that I would make the most I can in a hurry and get out? Would I be oblivious to the fact that there might be an end to this kind of an operation someday? Would I be concerned about my physical well-being if the situation turned into a confiagration, that I might be one of the first to start burning? Mr. CAPLOVJTZ. Responding as a social researcher, Mr. Chairman, you are suggesting to me a new topic for research. I would be very curious to know what the merchants in Harlem think about riots, and I would be very curious to know whether they themselves make any connection between their merchandising practices and the riots, and if they do, has this had some impact upon their merchandising prac- tices? I have a hunch that a number of these merchants find themselves caught up in a competitive situation, and that if they do not engage in. these practices they go under. If they do not have those bait ads in their windows, they are not going to get the customers off the street. If they do not use high pressure tactics, they are not going to' make their salesr-the merchant next door will make the sales. So, how tç~ break down their competitive situation and get the merchants them- selves to come to some agreement that they should change their. pra~ tices is a good question. But I would be curious to know whether the merchants feel that there is a connection between riots and their prac- tices, and if so, are they prepared as a group to change their practices. Mr. ROSENTHAL. I would doubt they have any, independent judg- ment. I think they might rely on some members of the academic com- munity who would suggest in a published paper that there is a con- nection; then they might react to that sort of thing. Going back to another point, I think you said the merchants had great persuasive powers over their customers and you said they called them by their first name and they get very friendly. They call them by their first name in Scarsdale, too', but they do not have the same powers over their customers. What is the difference? Mr. CAPLOVITZ. In my book, I point out that many of these low- income consumers have more traditionalistic backgrounds than the typical urban dweller. They come from small towns in the South, many of them in the New York area come from Puerto Rico, and in many ways they find themselves intimidated by the large, bureaucratic style of operation of our large cities, a style of operation which has as one of its characteristics impersonality, and the neighborhood merchant seems to understand this. They make a great point of personalizing the relationship, of trying very quickly to establish a first-name basis, of saying to their customers "Call me `Joe'," and this kind of informality is appreciated, I suspect, by those consumers who come from more tra- PAGENO="0329" 323 ditionalistic backgrounds. Tt is a technique used by merchants to ma- nipulate their customers and to get their customers to come back. One reason why these poor people do not shop in the large stores is not that they cannot afford to shop there, although that is 9ften th~ reason, but also they `are intimidated by the style of the large store, with its impersonality. Mr. ROSENTHAL. You mean they find it difficult going to the larger store on 34th Street or 42d Street; they would rather stay uptown, in New York City, at least? Mr. CAPL0vITz. Correct. Mr. ROSENTHAL. How many people are there in the United States in this marginal population you have described? Mr. CArLovrrz. There is a considerable variation in the estimates of how many people fall below the poverty line. One figure frequently heard is 20 million. These estimates range from 20 million up to 40 million, depending upon how poverty is defined. Mr. ROSENTHAL. Presumably they predominate in the large cities. Mr. CAPLOVITZ. They predominate in the large cities `but they also are to be found in all parts of our country. Even in the rural South, `buying "on time" is a very common phenomenon, and there is cer- tainly poverty in other sections of our country. Mr. ROSENTHAL. But the survey that you made- Mr. CAPLOVITZ. Was in a large urban center. Mr. ROSENTHAL. Well, now, let me ask you the key question for the day: Have the cities, the States, the Federal Government done enough to solve the problems you talk of? What should they be doing that they are not doing? Mr. CAPLOVITZ. I think there is great need for new credit legislation. I understand that soon there will be a report of the Commissioners on Uniform Laws who have been working several years now on draft~ng an up-to-date credit bill. But since I do not know what its provisions are, I cannot talk about it. There is certainly a great need for correcting and making more universal and consistent, credit legislation. That is only one part of the issue, though. I hope I will learn very shortly what the Office of Economic Oppor- tunity is doing in the way of consumer action. My off-the-cuff hunch is that it is not as yet doing as much as it could be doing in the area of consumer action. I have recently taken the trouble of finding out what is going on in New York City, and I was told that there is a considerable amount i of interest on the local level in consumer action. There are a number of antipoverty `groups in the New Yor1~ City area that find it relatively easy to get people to show up at `meetings &nvolving consumer action. There are a number of groups that have `written proposals for con- sumer action programs. But as of last Thursday, very few of those programs have been funded, and very few of the noble plans for con- sumer action in the New York area have actually gotten underway. I do not know what the situation is in other parts. of the country. Mr. ROSENTHAL. What about the process of general education, what can be done in that area? . 88-532-65------22 PAGENO="0330" 324 Mr. OArLovITz. Certainly, as education improves some of the prob- lems that 1 describe ~will lessen. It will be that much harder for a fast- talking salesman to convince somebody to make a purchase that that person really does not want to make, but I feel that education is over- estimated as a solution. We hear all too often the glib answer that what is needed is more and more consumer education. But it is difficult to inform well-educated consumers on the simple question of how much they pay in interest in our society. A survey was done by Prof. George Katona, of the IJniitersity of Michigan, and the survey shows that the well educated are just as ignorant about interest rates as the poorly educated are, and so even with education it is frequently very difficult for consumers to behave rationally. This very body has just passed a truth-in-packaging law. Mr. ROSENTHAL. A half-truth in packaging. Mr. CAPLOVITZ. Unfortunately, a very watered down truth in pack- aging. I would go so far to say only a one-third truth in packaging. What is the logic behind the law? It is not a matter of people being educated; it is a matter of deceptive practices that need to be corrected. So, I feel that, sure, there is a need for consumer education, but the best kind of education takes place through consumer action. People who belong to credit unions quickly learn a great deal about budgeting and interest. People who belong to food cooperatives learn a great deal about the quality of food. So that the best kind of education is the education that takes place within the framework of action, and what we need, I feel, is a new set of institutions and participation in those institutions will result in education. Mr. ROsENTHAL. What kind of institutions? Mr. CAPLOVITZ. Such things as credit unions; not necessarily new, but new to the ghettos; cooperatives-cooperative insurance, perhaps. Mr. ROSENTnAL. What about legal aid services to prevent these practices, including this "sewer service" you mentioned? Mr. CArLovITz. Correct. OEO takes great pride because of the fact it has brought legal services to the ghetto, and justifiable pride, because this was one of the great gaps in our society. But even though I feel they spent a great deal on legal programs for the poor, there is still much to be done. There is still a shortage of legal services to the poor. Mr. ROSENTHAL. Do you have any notion what kind of numbers they have reached, at least in the city of New York, with these legal services? Mr. CAPLOvITZ. They are just about to fund a legal service program which will provide a stafT of lawyers in every one of the poverty areas of New York. It has already been funded. I stand corrected by Mr. Berry. But have those offices been set up, Mr. Berry? Mr. BERRY. Some of them have. Mr. CAPLOVITZ. Then, after their struggle of two and a half years, legal services are now going to be furnished. Some did exist in New York City, and did an excellent job. Mobilization for Youth has a team of five lawyers that has done extremely good work on the East PAGENO="0331" 325 Side for two and a half years, and that staff has recently been ex- panded with the help of the Office of Economic Opportunity funds. Mr. ROSENTHAL. flave you done anything at all, or do you know whether anything has been done at all, about recommending to the State or the city of New York that there be changes recommended against city marshals in the things they do in enforcing judgments? Mr. CArLovITz. All I know in that matter is that, as a result of some research that Mobilization for Youth did, and I consulted on, we were able to get Attorney General Lefkowitz to hold hearings on "sewer service," and he started to look into the entire process-serving industry. He did not go into the city marshal aspect of it. As a result of those hearings, Attorney General Lefkowitz recommended some rather weak legislative changes, and I am not even sure if those changes have gone into effect. In New York City, process servers are not licensed. Anybody over 21 years of age can deliver a summons. Mr. ROSENTHAL. Well, Professor, thank you very much. I think you have shed a good deal of light on the subject. You have made us all more acutely aware of the problem, and I think you have shifted the burden to our next witness. Mr. Theodore M. Berry. (The full text of Dr. Caplovitz' statement appears below:) PEEPARED STATEMENT OF DAVID CAPLOVITZ, ASSOCIATE PROFESSOR OF SocIoLoGy, OOLUMT3IA UNIVERSITY CONSUMER PROBLEMS OF THE POOR My remarks will bear upon the problems that low-Income persons face as consumers in our society. Until recently the "war on poverty" was focused education, job training, and the creation of jobs. But the inability of the poor to earn a decent iiving is only one side of their economic plight. Equally important is how the poor spend what little income they have; that is, their situation as con- sumers making major buying decisions in the marketplace. To the extent that the poor pay more for the goods they buy-und I am convinced that they do-then to that extent they are deprived of the benefits of their earning power. They are forced to live in a world of inflation that our more well-to-do citizens are able to escape. The tendency has been to assume that since the poor have little money to spend, they cannot possibly be consumers of costly merchandise. But this reason- ing overlooks the role of installment credit in our society. Through the mass media, Americans in all walks of life are bombarded with messages to buy now and pay later. "Easy payments" and "no money down" are the slogans luring even the poor Into the marketplace. Nor is it very difficult to lure the poor into making costly purchases, for in some ways the ownership of goods takes on even more significance for low-income persons than for those In higher income brackets. Since the poor have little prospect of greatly improving their low social standing through occupational mobility, they are apt to turn to consumption as at least one sphere in which they can make some progress to~ard the American dream of success. Appliances, automobiles, and the dream of a home of their own can be- come compensations for blocked social mobility. Whatever the motive, there is increasing evidence that the poor are consumers of major durables. My own study of almost 500 low-income families, living in pt~blic housing projects In New york City, showed that these families owned many expensive appliances. Fully 95 percent owned at least one television set; almost two-thirds owned a phonograph; almost half owned a sewing machine, and almost half owned an automatic washing machine. Most of these families bad spent considerable money furnishing their apartments. The typical family bought sets of furniture for at least two rooms when It moved into public housing and had spent approximately $500 for furniture. Some 1~ percent had paid more than $1,000 for furniture `bought at the time of the move. The prices they paid for aj~pliances were quite high. Forty percent paid more than $300 for their TV set and 13 percent had paid more than $400. A number of PAGENO="0332" 326 families owned expensive combination television `and phonograph sets and one family reported paying $900 for such an appliance. Partly because they are so dependent ii~o'n `credit and partly bacause they are Intimidated by the large `downtdwn Store, most of the families buy their major durables from neighborhood merchants or from door-to-door peddlers rather than going to the large `department stores `and `discount houses. Symbolic `of the narrow shopping scope of the poor is the practice of buying from door-to~door credit peddlers, the men with the traditional slogan of "a dollar down, a dollar a week." Fully half the families surveyed had made at least one credit purchase from these doo'r~to-do'or salesmen and more than a third bad made repeated purchases. `The poor, then, like others in our `society, have m'alor wants as consumers, `and there are innumerable merchants In low-income areaS who are all too eager to provide them with the goods they want (and I might add, often with goods that they do not `want). Because they are poor and `have su~h low ratingS as credit risks and because they lack the training to be sophisticated shoppers, persons of low income are easy prey to unscrupulous, exploitative mechants. The marketing system in which they are forced to operate is in `many respects a deviant system. I have elsewhere described it as a commercial jungle in which exploita:tlon and fraud are the norm rather than the exception. High-pressure tactics, "bait" ads and "switch sales," misrepresentation of price and quality and the sale of used merchandise as new all flourish in this special system of sales and credit. Responding to ads an- flouncing appliances and furniture at unusually low prices, the consumer soon succumbs to the salesman's switch-sale technique and buys a much more expen- sive model. Along "furniture row" on Third Avenue in East Harlem, the bait ad appear- ing in every store window `announces three rooms of furniture for "only $149" or "only $199." The customer who inquir~s about this bargain is shown a bedroom set consisting of tw'o flimsy bureaus and one bed frame. He learns that the spring and mattress are not included in the advertised price but `can be baid for another $100 or so. The living room set in these "specials" consists of a fragile looking sofa and one unmatehing chair. Commenting on this gimmick, a salesman in one of these stores told an interviewer: "I don't `know how we do it. We advertise three rooms of furniture for $149 and the customers Swarm in. They end up buying a $400 bedroom set for $600 and none of us can believe how easy it is to make these sales." I could go on and illustrate many other exploitative practices that `are used to bilk the poo'r, such as the promise of free merchandise if the consumer will assist the salesman in finding other customers, extravagant verbal promises that prove to have no validity, `or the delivery of merchandise other than that ordered, but by now these exploitative schemes are all too well known. Perhaps less well known is that there are even salesmen who specialize in extending credit to families who `are on welfare. Last year I learned about two `cases that had Come to the legal office of Mobilization for Youth in New York City. In both instances, women* on welfare were talked into buying expensive television sets. The salesman `said he would be by every 2 weeks when the welfare check came t~ collect $10. They were told that the sets wo'uld co'st $200 but when they were delivered t'he women discovered that they had to pay $600. In spite of the suddenly inflated price `of tl~e merchandise, thote women kept up payments until their sets broke down and the company refused to make repairs in spite of guarantees that they had been given. `Their withholding of payments led t~ their ~ets `being repossessed `and It was only `at that `time that they sought `legal `aid. These incidents illustrate another point' that must he made. Many poor people find themselves overextended in credit obligations and unable to maintain pay- ments. But many others stop paying on their purchases not because they are un- able to ray, but because they 1~efuse to pay on faulty merchandise. Instead of gaining retribtition, however, they are more often than not subjected to legal sanctions brought upon them by the merchant. This process can be seen in the experience of one man interviewed in our study: "I bought a `set of pots and pans from a `door-to~door salesnian, They were of very poor quality and I wanted to give them back but `they wouldn't take them. I `stopped paying `and told them to change them or take them hack. They started bothering me on every job I had. Then thay `wrote, to my current job and my boss is taking $6 weekly from my pay and sending it to them." PAGENO="0333" 327 It is not clear from his account whether he lOst some of hi's previous job~ because of the efforts to garnishee his `salary; this does happen with some fre- quency. Many employers simply will nOt be bothered with garnishments and dO not hesitate to fire workers wbc~se salaries are attached. We are `accustomed to thinking that these difficulties arise because these people are poor. But it is also true that some families become poor because they have these problems. Po lose a job because of a garnishment is certainly one way of entering the ranks of the impoverished. I should point out that the jungle confronting the pOor consnmcr extends tO the procedural aspedts of the law. Legal procedures are violated with some frer- quency by the merchants' attorneys and the city marshals who are responsible for collecting the debts. For example, almost all the lawsuits against consumers who do not pay result in judgments by default; that is, the consumers do not show up in court to defend themselves. The assumption commonly made is that these default judgmehts simply mean that the consumer has no case; that he indeed owes the money and therefore chooses not to answer the complaint and risk further court costs. But the legal unit of Mobilization for Youth has come across a number of cases in which the defendant was never served with a summons. Process servers often evade their responsibility and simply throw the summons away. This happens with sufficient frequency that a special term has evolved in legal circles to refer to it: "sewer service." Low-income families are especially likely to be victims of this practice since they are not apt to know their legal rights or how to pro- tect them. Another example: Before a garnishment order can be entered with an em- ployer, the city marshal in New York State is required by law to give 20 days' notice to the defendant. The purpose of this law is to give the defendant a chance to clear up the debt and avoid embarrassment with his employer. But this procedure too is frequently not followed. All too often, the first the poor con- sumer hears of the action taken against him is when his employer calls him in and tells him about the garnishment. And by that time it is often too late for the consumer to protect his job, let alone his rights in the legal action. In the past year or so, we have seen some alarming evidence that the poor are aware of the exploitation they face in the marketplace and are rebelling: against it. Students of the riots that have swept our country have been struck ¼ by the `selectivity exercised by the rioters in their destruction. It seems that not all buildings are ransacked and burned, but mainly those of the credit. merchants. The problems that I have tried to describe here are extremely pressing and demand the attention of our Government if the war on poverty is to be won and~ if our ideals of justice are to be maintained. It is all too easy to say that the poor must be educated as consumers. But in my opinion, it is even more important to provide the poor with meaningful alternatives to the present arrangements that confront them. I have in mind~ such things as credit unions, cooperatives, and other self-help institutions. These institutions cannot spring up overnight in the ghetto. They need to be carefully nurtured with Government funds ~nd leadership. I understand that the Office of Economic Opportunity is giving great emphasis to the creation of such institutions. In addition there is a need for new legislation that will redress the balance between creditor's rights and debtor's rights. For example, we take pride in the fact that debtors' prisons have been abolished and yet today our legal structure garnishments which often result in depriving the debtor of his livelihood. We urge our consumers to shop wisely and yet we tolerate a situation in which it is virtually impossible for consumers to shop for credit for the simple reason that those who extend credi't are not required to state how much the credit costs. Certainly "truth in lending" as advocated by ~Senator Douglas is necessary if consumers are to behave rationally. The variations in credit legislation from State to State are not only awesome but difficult to justify. For example, in the State of Arkansas, the maximum interest that can be charged on any loan is 10 percent, but the State of Texas permits over 200 percent interest on loans under $100. In closing, I should like to say one Word on behalf of those I have treated as the villains in my testimony: the local merchants in poverty areas. In my opinion, it is a mistake to see their practices as wholly due to their unscrupulous personalities. They too are constrained by a set of economic forces. In some respects these merchants must charge more for the simple reason that it costs PAGENO="0334" 328 them more to operate. I am not thinking only of the fact that being small businessmen, they cannot buy In bulk the way chainstores or large department stores can. I also have in mind the fact that these merchants frequently have to pay more for the money they borrow and In particular that they have to pay more for the Insurance they need. If I am not mistaken, the insurance companies of America are now facing a crisls concerning insurance In ghetto areas. Even at the much higher rates they charge, they apparently are not finding it profitable to extend insurance to ghetto merchants. There is a need then for new institu- tional arrangements to meet the needs of the local merchant as well as those of the local consumer. Why, for example, cannot there be some system of pooling insurance and sharing the risk so that the local merchant does not have to pay an exorbitant price for Insurance? In short, I should like to suggest that some thought should be given not only to the exploitative relationship between the local merchant and the poor con- sumer, but also to the larger set of forces shaping the behavior of both. Mr. ROSENTHAL. Mr. Berry, we are delighted that you are here and that you had the opportunity to hear Professor Caplovitz. Mr. Berry is director of the community action program of the Office of Economic Opportunity; and I think, sir, that you have a prepared statement? You may proceed, if you will. STATEMENT `OF THEODORE M. BERRY, DIRECTOR, COMMUNITY ACTION PROGRAM, OFFICE OP ECONOMIC OPPORTUNITY; ACCOM- PANIED BY BEN ZIMMERMAN, CHIE~ COMMUNITY SERVIOES, COMMUNITY ACTION PROGRAM, OFFICE OP ECONOMIC OPPOR- TUNITY; AND MILES HOLLISTER, D'LPUT'Y CHIEF, COMMUNITY SERVICES~ COMMUNITY ACTION PROGRAM, OFFICE OF ECONOMIC OPPORTUNITY Mr. BERRY. Thank you, Mr. Rosenthal. Mr. Chairman, I am accompanied here this morning by Mr. Ben Zimmerman, former director of the community action program in Syracuse, N.Y., who is now the Chief of our Community Services Unit in the Office of Economic Opportunity, community action program, and also Mr. Hollister, formerly from California, who is one of the persons on the staff concerned primarily with consumer action pro- grams in relation to community development. It is a pleasure, indeed, Mr. Chairman, to appear before this sub- committee. I have had the privilege and pleasure of being a personal acquaintance of the distinguished chairman of your general committee for many years, and this happens to be the first opportunity I have had to appear `before any of its component parts. Mr. ROSENTHAL. I am delighted you could be here. I might also tell you that both the chairman and the other members of the committee were here earlier and had to leave because they are conferees on the transportation bill, which apparently has a very high priority for this week. They told me that they would be back if that conference broke up. Mr. BERRY. I am appearing here as alternate for Mr. Schriver, and he asked me to convey his regrets that he could not personally appear but the requirement to appear at a conference at the White House this morning preempted his time, and so I consider it his loss and my gain to have this opportunity. PAGENO="0335" 320 Mr. ROSENTHAL. You had better hold that in abeyance, that decisioh. [Laughter.] Mr. BERRY. Well, I think, Mr. Chairman, that I may parenthetically say that I am a relative newcomer to Government. My whole range of experience as a lawyer has been serving a poor clientele, so of that I know something first hand, of the problems of the poor from the point of view of a lawyer and being active in my own community and in community affairs. So, I am not entirely a stranger to the experience. I may be a stranger to the process of correcting it, but I came to Government hoping that out of that experience there might be a joining of both the problem and the method for its solution. I may leave somewhat disillusioned; I am not so sure. The Office of Economic Opportunity has been doing something, albeit on a limited scale, in a limited manner, and I am pleased to at least bring some report of our efforts on behalf of the 32 million Ameri- can consumers who are poor. These are the 32 million that come within the Orshansky definition of approximately $3,150 for a family of four. Anyone in that family range, or below, of course, are considered as poor, with a graduated scale, depending upon the number of persons in the family. It can be said, and not facetiously, that the poor live in a state of permanent inflation. This is true because the poor pay higher prices and higher rates of interest than their more affluent fellow citizens. The poor simply do not have the freedom of choice others do in deter- mining where to buy and where to obtain credit. Dr. Caplovitz referred to the youth in action survey in the Bedford- Stuyvesant section of Brooklyn, which is a survey that was funded by our Office, for the conduct of an in-depth inquiry into the problems of the poor consumer in that community. This survey found that some merchants raised prices on the 1st and the 16th of the month, the days that the welfare checks arrived. Persons buying household appliances and other durable goods on in- stallment plans pay far more than the retail price of the item due to exorbitant, and usually hidden, interest rates. A good deal of low-grade merchandise is sold to those who must buy on credit and have no other place to go. Because of conceived or imaginary dangers in entering the neighbor- hood, process servers decide against delivering a default proceedings subpena. This results in persons not having any warning before goods are repossessed or are fired due to garnisheed wages. Mr. ROSENTHAL. As a practicing lawyer, you know that the allega- tion of potential danger in entering neighborhoods is only one reason for the so-called "sewer service." I do not know how much they are pay- ing nowadays. Is it still $2 for a service ~ Even in our best neighbor- hoods, they just throw them on the ground and run away, because they do not want to spend the time and attempt to make the service. Mr. BERRY. That may be a substantial part in the weakness of the service process. Bar associations are conducting inquiries, and I think they are being stimulated in this direction by some of the legal service grants we have made, which include studies of new types of legislation that may be necessary, or corrective procedures by lawyers or the PAGENO="0336" 330 courts, that will afford the protection of the law to those who are least able to secure proper representation. In my own experience there have been frequent instances in which we have had to represent poor clients in filing proceedings to set aside default judgments in order to afford them their day in court, and in many instances the mere step to set aside a default judgment will put the merchant or the debtor in a more receptive position to discuss the ways and means of resolving without trying the merits of the issue. I will deal with that probably, in response to your question, when I deal with the question of legal service. Mr. Chairman, in order to save time, because I found from Dr. Caplovitz' testimony that we have in fact repeated some of the obser- vations that he made in his book and in his study in New York, resulting in the conclusion that the poor not only pay more but they pay much more, I am going to skip some portions of my written testimony to get to the substance of your interest as to what the Office of Economic Opportunity has attempted to do. I would like to mention, however, that the urban poor consumer is not the only one with problems. In rural America the only source of credit is often still the plantation store or the company store. Many marginal farmers and sharecroppers give up most or all of their earn- ings in return for credit that will enable them to plant and harvest a crop. There are many cases in which small farmers are charged more than 50 percent interest annually for operating money. In addition to the marginal farmer and sharecropper, there is the migrant worker. He has little left after he repays the farmowner, the crew leader, or the individual who contracts out his labor. Recently, there came to our attention a rather substantial or large farmowner in Alabama who still pays the people that work on his farm by a species of money that is not in general circulation, and when they are paid with that they must buy the goods at the store, and they r@- ceive a certain percentage of dollar value which has a built-in profit for the employer because he only redeems the chit for less than the full dollar for which they have been working. In both urban and rural areas, the type of credit available to the poor insures that they will remain in poverty. In fact, that the poor pay more is now receiving the national attention it warrants. And the tact that the poor pay mOre precisely because they are poor is the most important problem we face. When our agency began its consumer programs, it was virtually breaking new ground. A number of laudable efforts have been made in the consumer field by labor and by private groups, but these were generally confined to a constituency above the level of the poor. They were in some sense serving a middle class and a class that is not entirely unmindful and unneedful of this advice. I would not, for one moment, suggest that the groups to which these consumer programs were directed were not needed there, but only to indicate that they did not reach the real poor that are the victims of exploitation today. We began experimenting in an effort to bring the shopping dollars of the poor consumer up to the level enjoyed by the rest of society. We looked for ways to help the poor gain the access to the lowest market prices and interest rates enjoyed by the general public. PAGENO="0337" 331 Now we have developed the following programs which we believe hold real promise. THE HOME-MANAGEMENT INSTRUCTION This program teaches the poor how to maintain the best possible diet at the lowest possible cost. It also teaches them to make and repair clothing. It helps them to get the most value out of the dollars spent for necessities. Mr. ROSENTHAL. I wonder if I can interrupt, Mr. Berry. In each of these programs, could you relate that to the 32 million American consumers and tell us how many people, in your judgment, you are reaching? Mr. BERRY. W~ have a table here. In the home-management instruc- tion thus far, in component programs which have been funded through various community action agencies, there have been 55 grants which are serving some 739,000 people. We have funded some $2,726,000. (The table referred to follows:) COMMUNITY ACTION PROGRAM CONSUMER-RELATED~ACTlVlTY, FISCAL / Number of People served Expended Average unit grants' cost Family financial counseling 10 (2) $460, 235 $21. 81 Home-management instruction 55 739,921 2,726,609 3. 70 Development of low-cost credit 16 291, 390 643,974 2. 21 Consumer information and education 18 106, 514 1,403,860 13.18 Otherconsumer programs 15 382,813 3,246,022 8.48 Total 114 1, 541, 740 8, 480, 700 5. 50 Components only; actual number of program units higher. 2 21,102 families. `Average. Mr. ROSENTHAL. I am just trying to relate it back to your `basic figure. Of 32 million people you are reaching something less than 750,000? Mr. BERRY. Yes, in that particular target or program. I want `to make this clear, Mr. Chairman, `that `the community action program and the funding `of programs has `been largely in response to the type of program, the priority of program, which a community action agency itself conceives as being meaningful, capable of being conducted, and in response to the communities to be served or the groups to `be `served. In the early beginnings, the programs that were offered that were primarily, `and with a great deal of emphasis, in the educational, tutorial, adult education type `o'f program. As neighb'orhood centers have been funded and we have made grants to some 200 communities `that would provide for `the establishment of some 800 neighborhood service centers, `out of the response a'nd par- ticipation of `the poor in advisory councils and bodies that support these neighborhood service `centers have emerged an increasing demand for `the variety `of `types `of programs rela'ting to the consumers' prob- lem's, so that- Mr. ROSENTHAIJ. To put it in simple `language, you do not initiate progra'm's, you respond to what `programs the local community initiates. Mr. BERRY. This is `the major `thrust. PAGENO="0338" 332 I must modify that to say also that we have initiated some national effort programs, and the two classic examples are in the child develop- ment, educational development, known generally and popularly as Hcadstart, which was the first major effort initiated- Mr. ROSENTHAL. This has nothing to do with the consumer program. Mr. BERRY. `This i's correct, but this was the national priority pro- gram that the OEO initiated in the very beginning of the war on poverty. The `second major program is in providing legal services to the poor throughout the country, and we have made grant's totaling `some $19 million to communities all `over the country for the establiShment of service programs providing legal representation to the poor. Mr. ROSENTHAL. The point I was trying to establish, at least in my own mind, i's that in most of these `things you react to local community initiative. But yet do&t you have the responsibility for `the overview from the `Federal and national level, for seeing that what happens in Watts could happen in New York or Detroit or in Washington? Don't you `have that understanding much more than the local community groups do, and if that be so, why don~t you start these programs at the top and suggest to the communities that these `are good programs rather than `wait for them t'o initiate programs? Mr. BERRY. Mr. Chairman, this is a basic philosophical idea that ha's been debated `both with `our own organization and, I thin'k, it is debated generally, as to how much Federal laying-on-of-hands as to the direc- tion in which the people should go' should be continued. The community action program, a's it was conceived by Congress, as we have sought `t'o administer it, was the new dimension of what we called creative federalism, in forming a partnership between local community responsibility and Federal Government assistance in car- rying out that responsibility rather `than tell the communities what they ought to do and h'ow they ough't to do' it. Mr. ROSENTHAL. Well, picking up the point that Professor Cap- lovitz suggested, `somehow you learn that the rioters in Watts took most of their wrath out against the merchants who were engaged in the worst `type of practices, don't you think you should rush back and sug- ges't to `the folks in Harlem that maybe we ought to do something abou't it here and n'ow and prevent a recurrence of what happened there? In other words, you have the communication, you have `the over- view. This is where the Federal Government `has something that local and State governments do not have. You have representatives all over the country. Mr. BERRY. No, no; we do not. Mr. ROSENTHAL. Well, we should. Mr. BERRY. Well, if `Congress provided us with the money and the direction and the legislation tha't would enable us to `have such a large army of representatives all over the country- Mr. ROSENTHAL. You mean if you learn `something in Los Angeles, you do not translate it into a recommendation for `Chicago or Detroit or New York? Mr. BERRY. Yes, `sir. We attempt to translate that information as we gain it, and to other agencies of Government to make `it known what are some of the critical ill's or weaknesses in the system that prevail in a local community. PAGENO="0339" 333 But I do not think that the Office of Economic Opportunity, or the Economic Opportunity Act, became a cure-all for the complex prob- lems that exist in many communities. While we are discussing this matter of the merchant and the hostility that was manifested in Watts, it must be recognized that not all mer- chants in those communities are sinister influences in the cornrnumty or completely insensible to either the problems or the conditions in which `he finds himself. He, too, is a victim of a system which makes it very difficult for him too. Now, by way of example, most of `the merchants who deal in install- ment credit discount their paper with large finance houses that require them to maintain a very high loss reserve. This, in part, accounts, perhaps, for `the reason that high prices prevail. This is not an excuse, but it is part of the complexity of `the whole system. The type of credit, the type of insurance, has been alluded to, the high cost of insurance that prevails, and, therefore, he has a built-in markup in his merchandise. This is not to condone the practices that he might have to engage in by reason of the type of competition he has met with. After all, businesses practice those rules prevailing and with which they have to compete, albeit in many communities most of the mer- chants are absentee merchants. They do not live in the community, and, therefore, they do not identify themselves always with the com- munity's efforts to correct them. We, to the extent possible, make the findings of these studies and. these facts known to communities, and we expect communities also to assess the problems that exist in their own area and, in an effort to respond to it, will fund educational programs that will carry the me&- sage to the people as well as to those who are in position to influence decisionmaking and corrective procedures in their community. I would like to deal also with family financial counseling. For the same reasons a business must efficiently manage its budget and debt, so must a family, especially a poor family. This program provides the counseling that makes budgeting and debt management possible for the poor. Into this area we have funded relatively few on application, but there have been 10 such grants for a little less than a half million dollars, serving some 21,000 families. We have given assistance to the development of low-cost credit unions. In the District of Columbia, the United Planning Organiza- tion, which is funded by our organization as well as the Ford Founda- tion and a number of other agencies, has established nine credit unions. There are more than 70 credit unions around the country which have been made possible by the Economic Opportunity Act. We would like to make it clear that our agency does not furnish loan capital for credit unions, nor do we provide operating capital for consumer cooperatives of the supermarket type. We do supply funds for the training of credit union personnel ~nd for the overhead expen- ses involved in helping a credit union reach the self-supporting stage. MR. ROSENTIIAL. How many credit customers have evolved from this operation so far? PAGENO="0340" 334 Mr. BEiu~. Well, first, I would like to point out, as preface to the answer to that question, that, in order to promote the establishment of credit unions in poverty target areas, we contracted with-the Office of Economic Opportunity did-with the Bureau of Credit Unions in HEW. This is an area of coordination of resources of the Federal Government to provide training on a nationwide basis of credit union personnel recruited from neighborhoods. This constitutes a 4-week course qualifying trainees to act as con- sumer advisers, and, to some degree, as budget counselors. These trainee programs have already been conducted in Boston, New York, Los Angeles in August, and one is now currently in operation in Chicago. Others are to be conducted in New Orleans in the months of Novem- ber and December, and another one in tI~ie District of Columbia in December. Mr. ROSENTHAL. Can you give us any figures on the number of cus- tomers they have reached? Mr. BERRY. The credit unions or these training programs? Mr. ROSENTHAL. The credit unions. Mr. Bi~xtunr. The credit unions are varying in size. We have now about 100 credit unions with membership ranging from 100 members to 1,500 or more. A number of credit unions are even now being organized. The nine credit unions that have been established here in the District of Colum- bia have some 4,693 members, with a potential service market of approximately 38,000. They are gTowing in size. In the Oakland area, Oakland and San Francisco, the credit union there has grown in sufficient size to make many more loans than were available to the people in their community. Mr. ROSENTHAL. Is that the one you hired this professor for some $77.000 to make a survey of what is wrong with the program? Mr. BERRY. That I am not familiar with. There was an evaluation study with the university to be conducted. Mr. Hollister may know more about that. Mr. HOLLISTER. The only evaluation I know of was for the overall San Francisco program. Mr. BERRY. That is not the university itself. Mr. ZIMMERMAN. The man you may be referring to is Professor Caplovitz. Mr. BERRY. I have no knowledge of that. Mr. ROSENTHAL. We searched all over the country for someone who could comment on the consumer problems of the poor, and we found that Dr. Oaplovitz was one of the most knowledgable. To get back to credit unions, we cannot determine the number of people who have been customers of the credit unions you helped establish? Mr. BEaurr. No; we cannot measure it in an overall manner, because the number of credit unions we have aided has been of such relatively short periods for the training of personnel and the development that they have not achieved the operational level to expand service to a large clientele. What we are in position tO report is - Mr. ROSENTHAL. When will they achieve that operational level? Mr. BERRY. I would say between 2 and 5 years of experience. PAGENO="0341" 335 Mr. Ros~NT1iAL. Can we afford, from what Dr. Caplovitz says- and assuming he is correct-can we afford that timelag? Mr. BERRY. Unless the Government is in position to establish and make a revolving fund available to bring the credit unions to the level where they can make substantial loans, bearing in mind that a credit union may loan only from the assets that it is able to derive from its members, and if the members in a small or in a poor community, if its membership is based upon contributing 25 or 50 cents a week toward their membership, the asset growth potential of that credit unions is relatively slow. Mr. ROSENTHAL. How many credit unions did we have in Watts before the riots, and how many do we have there today? Mr. BERRY. The Unity Charity Society probably was the one single self-help, community-initiated credit union in the Watts area. Mr. ROSENTHAL. And today? Mr. BERRY. And had substantially slow progress in getting estab- lished, because of some of the handicaps imposed by State law and the lack of funds characteristic of low-income areas. There are ap- proximately a half dozen that are in their incipient or beginning stages in the Watts area now, but I would emphasize, Mr. Chairman, that the mention of the words "credit union" or the funding of the training of the personnel is only half the loaf and the credit union must have some kind of funding of their ability to make loans, and this raises a very important policy question on the part of the Govern- ment as to whether or not we would establish a revolving fund to aid low-income motivated and developed credit unions. Mr. ROSENTHAL. Have you made any recommendations to Congress about helping to solve these problems? Mr. BERRY. We have not at this moment, until we had gained some experience from the response of local communities in developing their credit unions. I think the Bureau of Credit Unions would be in much better posi- tioll-and we are relying upon their findings-from the training courses which we contracted with them to conduct. Mr. ROSENTHAL. Is private industry helping you at all in any way, either in capital or expert management or people with bank experi- ence-anything like that? Mr. BERRY. We have had consultations and conferences with Mr. Hollister, who particularly has been privy to these conferences, and could give you more in-depth information as to their response. We have had conferences with the American Bankers Association; two of the largest chainstore operations, Sears, Roebuck and Mont- gomery Ward; representatives of Beneficial Finance Corp., to inquire what can be done in the installment credit field to ease the burden of high interest rates on the poor. Mr. ROSENTHAL. Any concrete results at all from these discussions~ Mr. BERRY. Response of interest, concern, and-how would you phrase it, Mr. Hollister? You were the initiator of many of these conferences. Mr. H0LLISmR. They appear to us, Mr. Chairman, to be very ready to cooperate on a rational program, and they have provided us with very valuable consultation in developing our program direction. We PAGENO="0342" 336 have gotten a great deal of cooperation from the private sector and they stand ready to help us. Mr. ROSENTHAL. No results, though? Mr. HOLLISTER. The results are going to depend upon what kind of program we are able to put together which, in turn, depends upon the funding of it. Mr. BERRY. On that point, I would like to later in my testimony-I referred to our conception of the comprehensive consumer clinic which is what the counterpart of the comprehensive health service program which we are initiating would be. Mr. ROSENTHAL. I am sorry for interrupting. Mr. BERRY. Yes. In order to provide technical assistance to interested communities, we have also contracted with CTJNA. International, the national credit union association, for providing te~hnical services for those communities that were desirous of establishing credit unions, to give them the technical know-how. One of the problems involved in making a ghetto area a viable neighborhood is the lack of institutions, especially banks and stores, which have roots in the community. We believe credit unions owned, directed by poor people, are emerg- ing as one of the effective community-rooted institutions around which other institutions may rally. Our consumer information and education program, which has been funded, first trains community aides, especially those on the welfare rolls, who can talk the language and who can reach the people and communicate with them. These aides are taught the relationship between poverty and the low purchasing power of the poor's consumer dollars. These aides go from door to door to contact the people of the neighborhood. They take people on comparison shopping tours, advise them on the seh~ction of responsible merchants, and help them to form informal buyers clubs, which permits them to buy some items, such as milk, at wholesale prices. Debt counseling is also offered by some of these programs. Mr. ROSENTHAL. Out of the 32 million, how many people have we reached through this program? Mr. BERRY. We have some 18 grants reaching 106,000 in their re- spective communities, and we have funded $1,400,000 in that area. Again, in these areas, in comparison with the total problems of the consumer, we must frankly acknowledge that the amount that has gone into these specific types of programs as being comparatively small, but we have to relate that also to the total demands of a variety of component programs which have been funded by our agency. Mr. ROSENTHAL. You also relate to the need, to the potential ex- plosive qualities of communities or do you only relate it to available funds? Mr. BERI~Y. Well, we attempt to emphasize with communities that it is their responsibility to regard our office not as a supermarket for unlimited funding but to establish priority of program needs as they conceive them rather than as we direct them. Mr. ROSENTHAL. How can they conceive them when they are not able to communicate across State lines? In New York, they do not know what is going on in Detroit or California; they do not understand human behavior patterns throughout the country. You, people pre- PAGENO="0343" 337 sumably do. They may be sitting comfortably back in some city, such as New York, saying that it can't happen here. You might have learned from your experience that it can happen here, and maybe some remedies should be undertaken. Mr. BERRY. To reach that, if we call it ineptness or insensitivity to the wrong program, we have attempted to prepare and have distributed widely program guides in particular areas of social need in the com- munities, telling the communities or indicating to the communities how they can address themselves to formulating program proposals that will meet that particular problem, whether it be in the area of manpower training, in the area of education or health or family plan- ning, consumer education-a variety of program guides have been prepared and are in wide distribution into community action agencies throughout the country. Our legal protection is being furnished to consumers by legal service programs funded by our agency. We estimate that at least 20 percent of the legal service cases are related to consumer matters. I mention two examples which relate to Dr. Caplovitz' observation, but here particularly we indicated how the availability of an attorney to a poor client was able to protect them from an exploitive practice. We have been successful in having many contracts that were ex- plosive, illegal, or unconscionable, rescinded and in reducing the price of the commodity that was contracted for. In many instances this type of case is settled with a telephone call or a visit to the involved store. The legal service offices are trying a number of approaches to trying to solve the problem of consumer fraud. In Philadelphia the legal services program has "consumer advocates" who, among other things, draft legislation designed to give poor people equal justice under the law. In Waterbury, Conn., the legal services program includes preven- tive education for consumers, a survey of consumer problems, and the establishment of credit unions for the poor. Mr. ROSENTHAL. Let me ask you, Mr. Berry, about something that a citizen in New York sent to me. lie receives a brown envelope with a window opening here, and in the upper left-hand corner, it says: "Postmaster, after 5 days return to 748 Washington Building, Wash- ington 5, D.C." and then it says that the form is confidential, no one else should open it. Inside he gets a payment demand. I do not know whether you call it Old English script, but it looks kind of official. It is subject to' the laws of the District of Columbia. Final demand for payment. It has the amount, and it says, "Take notice that the above'- named creditor claims a just indebtedness from the debtor," and it is on a form that looks very similar to a payment demand that you would get from the Internal Revenue Service. This was sent to' some- one in New York City, and the agent is the National Marketing Serv- ice, age~t for Con Edison, a New York City utility, and this appar- ently is mailed to citizens in New York by a collection agency from Washington, D.C., in an obvious attempt to make them think this is a notice from the Federal Government. It distresses me that a firm like Con Edison, first of all, has to give their legal business to some- one outside the city of New York; but also that they would be a party to this kind of deception. PAGENO="0344" 338 Now, in your judgment, in your experience, would this intimidate a poor consumer to think that this is an official decument of some kind? Mr. BEIu~y, It certainly would, and I think it is deliberately drawn in that form to impress `and to psychologically induce some ±avor'able response, because it appears to have some Federal Government backing of Some kind. Mr. ROSENTHAL. What is your agency, or anybody else, doing to educate people to events such as this? Mr. BERRY. This is precisely the kind of subject that is' the goal of consumer information and educational programs that we have funded, and in a limited degree, but nevertheless we have made what we believe to be a good beginning, with the resources that we have at hand. The major thrust or attack on this would most likely be, and it is probably receiving the attention of a large number of the legal serv- ice programs th.at we have funded in various communities throughout the country. I am aware that `the legal service program here in the District of Columbia to the extent that these matters are brought to their atten- tion are making an effort to uncover this kind of psychological war that is being carried against debtors to induce their prompt payment. Apparently, this particular collection outfit has sold creditors who have large numbers of delinquent accounts that they have the advan- tage of inducing quick collection with this device which accounts, perhaps, for Coin Edison depriving New York lawyers of that collec- tion business. I have here, and I would like to make them available to' you as sathples, the kind of educational material simply prepared that is used by one demonstration project that we funded in Oakland, Calif., known as BAND, which was a demonstration in community-based information services to bring greater information to consumers. I would like to' pass them up for your examination. In the field of housing, a number of programs have been designed to help the poor receive full value for dollars spent on housing. It is essential that poor people be aware of the choices available to them in the housing area. Without such information, choices do not exist. The poor need to know what subsidies are available, how to' go about finding satisfactory housing, how much to pay, how to' judge housing adequacy, and what respective responsibilities the landlord and tenant have. To accomplish this, our agency supports comprehensive housing service programs, which usually operate out of multipurpose neigh- borhood centers. Among other things, these housing programs provide information on what public and private housing programs offer; immediate aid when housing is needed on an emergency basis; instruction on what buildmg codes are designed to do and how to utilize them. Moreover, the community action program is using demonstration funds to stimulate nonprofit housing development corporations which are financed principally by the community. This efFort makes possible the efficient utilization of available Federal housing construction pro- grams to bring better housing to the poor. PAGENO="0345" 339 I have personally participated in developing a housing cooperative from residents of a target area in which a housing project was pro- posed. But under 221(d) (3) the sponsor had to have either a viable cooperative or a nonprofit corporation to take over its management, and the know-how, the need for information as to how people can bring themselves together and meet the requirements of the Federal agency in qualifying a cooperative is very essential. Through the Office of Economic Opportunity, we have decided that upon request, and where there are available technical services, we will fund the education program to tell the people or teach the people, inform the people, how they can bring together a viable cooperative that will be able to act on behalf of their constituents in relation to either a sponsor or the Federal agency that would underwrite such a project. To further aid consumers who are poor, we have commissioned Columbia University to make a definitive study of varied c9nsumer problems. The Bureau of Labor Statistics is under contract with our agency, making a special study to determine how much the poor pay for appliances and clothing. We have listed in our statement, and I will not repeat it because it is on our chart there, the variety of programs that have been funded to date, the nunther of grants, the number of persons served by them, and the per capita costs of this complex of services. Also, we have cooperated with the Job Corps in that the 30,000 young men and women who were potentially future heads of families, are receiving as `part of their training in the Job Corps instruction in budgeting, financial counseling, and consumer education. This we con- sider to be a very important service for the future family heads of those who have had ~ long experience in poverty. Based on what we have done and what we have learned, we should consider what might be done better to help the poor to enjoy the same access to the lowest possible market prices and interest rates that are available to their more fortunate fellow Americans. We believe a com- munity can bring consumer programs into better focus with respect to the need's of the poor by organizing these programs in a type of j~ack- age for each type of poverty area. The end result would be a consumers' clinic which would address itself to consumer problems in the same way a medical clinic treats their physical ailments, treats the variety of physical ailments of the patients who come to them. The essential elements of these clinics would be: First of all, a consumer action and information program or com- ponents designed to make the poor aware that it is possible to get more value out of their dollars by buying wisely; Secondly, `a family financial counseling program which would advise on budgeting and debt management, and help consolidate debt, and, if possible, to reduce it. Third, the establishment of a credit union which would give the poor access to reasonable interest rates and fln~nce debt consolidation when necessary. Fourth, a home-management instruction course to help homemakers organize for decent and pleasant family living. 88-532-68----23 PAGENO="0346" 340 And fifth, a legal services component designed to assist the consumer where legal problems, such as contracts, are concerned. Mr. ROSENTHAL. This would be a physical plant, a store, an office in a community? Mr. BERRY. Yes; and, more likely, as a related service in a multi- service center where, at the community level, there is a matrix or complex of services that are capable of being delivered to the poor, but that center, whether it be in housing information or whether it be in family counseling, `a; family-planning clinic-but that there would also be within this multiservice center the consumer community program that would be available. This might be done in a multiservice center or it might be established as a separate facility. We would also encourage it being linked to the legal services programs that would be funded in that community. This has been done here in the District of Columbia. Frequently, you will find the legal service program to have a financial counseling serv- ice, consumer credit information service as an adjunct of that office. Since one or more of these programs is already operating in many communities, these communities would have only to add the other corn- ponents, and in the areas where such programs are operated, we have generally received increasing enthusiastic cooperation of local businessmen. They have realized that a customer with some consumer counseling and access to reasonable credit is less likely to overextend his credit and is more likely to pay his bill's on time. The net effect is an increase in profits for local businessmen. I might say parenthetically that, in one of our recent conferences with the J. C. Penney Co., we inquired as to the level to which they extended credit, and the low poor are not the object or the benefits of their credit system, and we discussed with them how responsive they would be to the kind of credit counseling service and the importance of impressing upon the poor how valuable an instrument good credit rating can be to them, and they expressed some interest and at- tempted to `identify some communities where they would, in coopera- tion with a funded program in that community, attempt to bring in persons who had been-who, at least, would use this kind of training, and responded to it, to experiment with in the extension of credit to them. One of the most difficult tasks we have had in the consumer pro- gram-and in all antipoverty programs as well-is communicating with the poor. For the most part, the poor shy away from middle-class language, because it means little to them. They listen to' radio stations which `service their program taste. They speak their own language, and many of them do not re'ad newspapers. Many of the~n cannot read at all. Some of them do not know what the word "consumer" means. To develop methods of reaching the poor, we have funded a pilot consumer program in San Francisco and Oakland, operated by the Bay Area Neighborhood Development Foundation. This organization has used special leaflets, which I just presented to you, radio announce- ments and door-to-door surveys by poverty area residents themselves, in order to communicate with the poor. PAGENO="0347" 341 It has established four thriving neighborhood programs and four neighborhood credit unions. Its impact on the residents of these com- munities has been significant. We recognize that we have a long way to go before the poor of our country can reach the level of sophistication as consumers which would help them to break the poverty cycle. But nothing in this task of eliminating poverty is either quick or easy. President Johnson, in his poverty message of 1964, said: The path forward has not been an easy one. But we have never lost sight of our goal-an America in which every citizen shares all the opportunities of his * society, in which every man has a chance to advance his welfare to the limit of his capacities. We have come a long way toward this goal. We still have a long way to go. The distance which remains is the measure of the great unfinished work of our society. Mr. Chairman, I believe we are making an honest try within the ammunition that has been afforded to us in bringing this message to the poor, and we will continue within the limits of the capacity that is provided us. (The prepared statement presented by Mr. Berry reads in full as follows:) PREPARED STATEMENT or THEODORE M. BERRY, DIRECTOR OF THE COMMUNITY ACTIoN PROGRAM, OFFICE OF ECONOMIC OPPoRTuNITY Mr. Chairman and members of the subcommittee, it Is a pleasure to appear before this distinguished subcommittee. I am glad to have the opportunity to dis~ cuss both what the Office of Economic Opportunity has been doing and what it plans to do on behalf of the 32 million American consumers who are poor. It can be said, and not facetiously, that the poor live in a state of permanent inflation. This is true because the poor pay higher prices and higher rates of interest than their more affluent fellow citizens. The poor simply do not have the freedom of choice others do in determining where to buy and where to obtain credit. In order to illustrate this, one can use as a concrete example some of the find- ings of a successful consumer education program we have funded in the Bedford- Stuyvesant section of Brooklyn, one of the most poverty-stricken urban ghettos in the Nation. This program has found that: Some merchants raise prices on the first and the 16th of the month, the days welfare checks arrive. Persons buying household appliances and other durable goods on install- ment plans pay far more than the retail price of the item due to exhorbitant, and usually hidden, interest rates. A good deal of low-grade merchandise is sold to those who must buy on credit and have no other place to go. Because of possible dangers in entering the neighborhood, process servers sometime decide against delivering a default proceedings subpena. This results in persons not having any warning before goods are repossessed or are fired due to garnisheed wages. This is part of the story in Bedford-Stuyvesant. Unfortunately, it is repeated throughout the country. As Dr. David Caplovitz has pointed out, the poor "pay more, very much more." By way of further illustration, one can cite from the findings of several surveys, some of which we have financed, which show that it is more expensive to live in a ghetto than elsewhere. Here are a few of those findings: The poor pay more because they must buy on credit, sometimes even items like groceries. The poor pay more because they can only afford to buy in small quantities. The poor pay more because ghettos do not attract supermarkets and the people must deal with the more expensive corner store. The poor pay more because sometimes prices are higher in the ghetto than elsewhere in the cIty. It was found recently that the residents of Harlem were paying more for butter and eggs than the rest of the city of New York. PAGENO="0348" 342 The poor pay more because they are easily tempted to buy something, like a color television set, that may bring some ray of happiness into a cold-water flat or a drab life. It is hard for unsophisticated poor people to turn down a salesman who asks only "$2.50 down" and a "few dollars" a week for something that promises to make life pleasant. The "few dollars" a week the salesman spoke about usually adds up to a good deal more than the buyer either expected or can afford. The pooi~ pay more because unscrupulous merchants prey on their igno- rance. Some ghetto merchants charge as much as they can collect, especially on durable goods. Frequently, exhorbitant prices are accompanied by ex- orbitant interest rates. These are important and tragic findings, and I know you will give them most serious consideration. We have discovered that many ghetto people do not realize that their weak positions as consumers have much to do with their plight. They often do not un- derstand that the high prices and interest rates they pay make it impossible for them to get out of debt and poverty. Fortunately, we have had a good deal of success in helping the poor realize the connection between their poverty and the fact that they- 1. pay excessive rates of interest in installment contracts; 2. pay high prices for shoddy goods, and, sometimes; 3. pay with their jobs when their wages are garnisheed-with or without warning. For example, it is not unusual for a low-wage worker to get ipvolved in an overpriced installment contract, as in the case of a television set. If he fails to niake his payments, default proceedings begin. If be lives in an apartment house whose courtyard is a hangout for local unemployed youth, he receives no suhpena because the process server may decide it is safer not to deliver it. The worker does not learn that he has been held in default. Then, without warn- ing, his wages are garnisheed and he is fired. The cycle is complete-from overpriced installment contract to unemployment. The television set, the object of his expectations and difficulties, is repossessed. The poor urban consumer is not the only one with problems. In rural America, the only source of credit is often a plantation store or a company store. Many marginal farmers and sharecroppers give up most or all of their earnings in return for credit that will enable them to plant and harvest crops. There are many cases in which small farmers are charged more than 50-percent interest annually for operating money. In addition to the marginal farmer and sharecropper, there is the migrant worker. He has little left after he repays the farmowner, the crew leader, or the individual who contracts out his labor. In both urban and rural areas, the type of credit available to the poor insures that they will remain in poverty. The fact that the poor pay more is just now receiving the national attention it warrants. And the fact that the poor pay more precisely because they are poor is the most Important problem we face. Poverty is often perpetuated because the purchasing power of the consumer dollars of the poor is much less than that enjoyed by the rest of us. At the Office of F~conomic Opportunity, we are making a vigorous effort to do something about this. When our agency began its consumer programs, it was virtually breaking new ground. A number of laudable efforts bad been made in the consumer field by labor and private groups, but these were generally confined to consumer education for the middle class. We began experimenting in an effort to bring the shopping dollars of the poor consumer up to the level enjoyed by the rest of society. We looked for ways to help the poor gain the access to the lowest market prices and interest rates enjoyed by everyone else. We have developed the following programs which we believe hold real promise: Home management instruetion.-Tbis program teaches the poor how to main- tain the best possible diet at the lowest possible cost. It also teaches them to make and repair clothing. It helps them to get the most value out of the dollars spent for necessities. Family financial oonnseling.-For the same reasons a business must efficiently manage its budget and debt, so must a family-especially a poor family. This pro- gram provides the counseling that makes both budgeting and debt management possible for the poor. PAGENO="0349" 343 Development of low-cost credit unions.-In Washington, D.C., the United Planning Organization, the local Community Action Agency, has established nine credit unions. There are more than 70 credit unions around the country which have been made possible by the Economic Opportunity Act. It should be made clear that our agency does not furnish loan capital for credit unions, nor do we provide operating capital for consumer cooperatives of the supermarket type. We supply funds necessary for the training of credit union personnel and for the overhead expenses involved in helping a credit union reach the self-supporting stage. To promote establishment of credit unions in poverty target areas, we have contracted with the Bureau of Credit Unions in the Department of Health, Education, and Welfare to provide training, on a nationwide basis, of credit union personnel recruited from the neighborhoods. A 4-week course qualifies trainees to act as consumer advisers, and, to some degree, as budget counselors. In order to provide technical assistance to interested communities, we have con- tracted with CUNA International, the national credit union association. One of the problems involved in making a ghetto area a viable neighborhood is the lack of institutions, especially `banks and stores, which have roots in the community. Credit unions, owned by poor people, are emerging as effective, community- rooted institutions. Consumer information and education.-This program first trains community aides, usually those on the welfare rolls. These aides are taught the relationship between poverty and the low purchasing power of the poor's consumer dollars. These aides then go door to door to contact the people of the iieigb'borhood. They take people on comparison shopping tours, advise them on the selection of respon- sible merchants, and help them to form informal buyers clubs, which permits them to buy some items, such as milk, at wholesale prices. Debt counseling is also offered by these programs. Legal services program.-Legal protection Is being furnished to consumers by the legal services program funded by our agency. We estimate that at least 20 percent of legal services cases are related to consumer matters.. Two examples of such legal service to poor consumers are the following: First, there is the case of the woman who signed an installment contract calling for payment of $565 for an air conditioner and an additional $135 for aluminum windows. She paid $25 down and agreed to pay the rest in monthly installments of $13. Shortly thereafter, she received a payment book from a bank stating that the total amount due was $2,500.' She immediately went to a legal services attorney. The attorney learned that a fourth deed of trust had been placed on her property as a result of the transaction. The woman had not signed this deed in the presence of a notary public and had no awareness of the fact that a trust was signed. The attorney referred the woman to the police, who prepared a case against the involved salesman and notary public for presentation to the grand jury. At that point, an attorney defending the salesman and the notary offered to settle the claim. The woman accepted the settlement, which returned her downpayment and canceled her obligation. The second case involved a man who bought a television set, represented as new, for $398, plus a $108 carrying charge. The set actually was an old model selling for approximately $170 at many reputable stores in the area. The legal services attorney, looking into the buyer's complaint, received reports of similar com- plaints by other neighbors against the same store. Our legal services programs have been successful in having some of these contracts rescinded and in reducing others in price. In many instances, this type of case is' settled with a telephone call or a visit to the involved store. Legal services offices are trying a number of approaches to solving the problem of consumer fraud. In Philadelphia, the legal services program has "consumer advocates," who, among other things, draft legislation designed to give poor people equal justice under the law. In Waterbury, C'onn., the legal services pro- gram includes preventive education for consumers, a survey of consumer prob- lems, and the establishment of credit unions for the poor. Housing.-A number of programs have been designed to help the poor receive full value for dollars upent on housing. It is essential that poor people be aware of the choices available to' them in the housing area. Without such information, choices do not exist. The poor need to know what subsidies are available, how to go about finding satisfactory housing, how much to pay, how to judge housing adequacy, and what respective responsibilities the landlord and tenant have. PAGENO="0350" 344 To accomplish this, our agency supports comprehensive housing service pro- grams, which usually operate out of multipurpose neighborhood centers. Among. other things, these housing programs provide- Information on what public and private housing programs offer. Immediate aid when housing is needed on an emergency basis. instruction on what building codes are designed to do and how to utilize them. Moreover the community action program is using demonstration funds to stimulate nonprofit housing development corporations which are financed prin- cipally by the community. This effort makes possible the efficient utilization of `available Federal housing construction programs to bring better housing to the poor. Other prograiins.-To further aid consumers who are poor, we have commis- sioned Columbia University to make a definitive study of varied consumer prob- lems. Also, the Bureau of Labor Statistics is making a special study for us to determine how much the poor pay for appliances and `clothing. The following are our expenditures in fiscal year 1966 for programs specifically intended to help consumers: Home management instruction: $2,726,609 for 55 grants that reached 739,921 persons. Family financial counseling: $460,235 for 10 grants that reached 21,102 families. Consumer Information and education: $1,403,860 for 18 grants that reached' 106,514 people. In other consumer services and programs, including demonstration grants and housing services, we spent $3,246,022 for 15 grants that reached 382,813" people. `It should be pointed out that the average per person cost for home manage- ment instruction was $3.70. For family financial counseling, it was $21.81 per family. `For development of low cost credit unions, the average per person cost was $2.21. For consumer information and education, the average per person cost was $13.18. For all other grants, the average per person cost was $8.48. Also, the 30,000 young men and women in the Job Corps all receive instruction in budgeting, financial counseling, and consumer education. This is very im- portant for successful living in the society they will enter at the end of their training. Based on what we have done and what we have learned, we should consider what might be done now to help the poor to enjoy the same access to the lowest possible market prices and interest rates that are available to their more fortu- nate fellow American. We believe a community can bring consumer programs into better focus with respect to the needs of the poor by organizing these programs in a type of "package" for each poverty target `area. The end result would be a "consumers `clinic," which would address itself to consumer' problems in the same way a medical clinic treats their physical ailments'. The essential elements of these clinics would `be: A consumer education and information program, `designed to make the poor aware that it is possible to get more value out `of their dollars by buying wisely. A family financial counseling program, which would advise on budgeting and debt management and help consoli'date debt and, if possible, reduce it. A credit union, which would give the poor access' to reasonable interest rates, and finance debt consolidation, where necessary. A home management instruction course to help homemakers organize for decent and pleasant family living. Since one or more of these programs is already operating in many com- munities, these communities would have only to `add the other components. In the areas where such programs are operating, we have generally received in- creasingly enthusiastic cooperation of local businessmen. They have realized that a customer with some consumer counseling and access to reasonable credit is less likely to overextend his credit and is more likely to pay his' bills on time. The net effect is an increase in profits for local businessmen. One of the most `difficult tasks we have had in the consumer program-and in all antipoverty programs as well-is communicating with the poor. For the most part, the poor shy away from middle-class' language because it means little to them. They listen to radio stations which service their program taste. They speak a language of their own. Many of them do not read the newspapers. Many of PAGENO="0351" 345 them cannot read at all. Some of them do not know what the word "consumer" means. To develop methods of reaching the poor, we have funded a pilot con- sumer program in San Francisco and Oakland, operated by the Bay Area Neighborhood Development Foundation. This organization has used special leaflets, radio announcements, and door-to-door surveys by poverty area resi- dents themselves in order to communicate with the poor. It has established four thriving neighborhood programs and four neighborhood credit unions. Its im- pact on the residents of these communities has been great. We have a long way to go before the poor of our country can reach the level of sophistication as consumers which will help them to break the poverty cycle. But nothing in this task of eliminating poverty is either quick or easy. President Johnson said it so well in his poverty message to Congress in 1964: * * * The path forward has not been an easy one. But we have never lost sight of our goal-an America in which every citizen shares all the opportunities of his society, in which every man has a chance to advance his welfare to the limit of his capacities. We have come a long way toward this goal. We still have a long way to go. The distance which remains is the measure of the great unfinished work of our society * * *" Mr. Chairman, we are trying to finish that work so that the poor may truly share in the promisei of America. Thank you. Mr. ROSENTHAL. Does time permit us an honest try, or does it re- quire more than that? Mr. BERRY. It requires more than that, Mr. Chairman; it requires not only a try but a massive commitment, both by the American people and by the Government, and the Government response to the consensus, or at least the prevailing opinion, of the great mass of the American people, and I do not believe that there is yet the great mass commit- ment recognizing that exploitation does still prevail in America against people who can least afford to sustain it or bear it. Mr. ROSENTHAL. And if it continues to prevail what, in your opinion, are the results going to be? Mr. Bunur. I think we will continue to have restlessness, frustration, and embittered lashing out against the system that enmeshes them. Mr. ROSENTHAL. How essential are effective consumer action pro- grams to a realization of the goals of the war on poverty? Is the consumer action program a necessary element, a very neces- sary element, to the war on poverty? Mr. BERRY. I believe that it is. It is an important component of the address to the complexity of problems in poverty. Mr. ROSENTHAL. Do you consider that the problems of the poor in- clude both jobs, housing, and consumer ability? Mr. BERRY. Yes, because merely the delivery of jobs, merely the in- crease in income, would still result in the exploitation of the increased dollars unless there is the information, education, the sophistication in the use of the credit systems that have been devised and, unfortunately, I do not know whether this is a correct term, but in my lifetime I have observed that the emphasis is more in the direction of not saving and buying what you need with what you can afford to buy but to buy as much as the credit situation will encourage you; that the installment system, the credit system, even among the people who can least afford to buy many of the things that are advertised with very slick advertis- ing, is a way of life, and we have to help those people know the fallacies and the traps and the pitfalls they get into by the easy response to credit buying. Mr. ROSENTHAL. Can human behavior be changed to eliminate this attitude? PAGENO="0352" 346 Mr. Brauty. I would not want to make any pronouncement on that. .1 think human behavior can be influenced, depending upon the em- phasis you want to put on what you want them, how you want them to act and respond. Presently, we are in a society in which the money- changers call the tune. Mr. RosEwmAL. How many community action agencies exist today, and how many of them have comprehensive consumer programs? Mr. BERRY. There are some 1,100 community action agencies; 750 of them have been funded. Some 275, more or less, have program de- velopment grants; some 120 are waiting for some type of funds to implement programs. Mr. ROSEN~rHAL. What percentage of the total OEO budget is di- rected to the consumer action programs? Mr. BERRY. Well, Mr. Chairman, our budget, according to the Presi- dent's budget, would be for all types of programs; some $900 million for this coming fiscal year. I say $900 million, more or less. Mr. ROSENTHAL. You mean that is for the total OEO budget, the $900 million, or the community action? Mr. BERRY. Community action. Mr. ROSENTHAL. And the total OEO budget is how much? Mr. BERRY. $1,750 million, including delegated programs. Mr. ROSENTHAL. Of the $1,750 million how much is going to con- sumer activity programs within OEO? Mr. BERRY. Mr. Chairman, I would prefer to deal with the com- munity action program portion of that fund. Mr. ROSEN!rHAL. But this subcommittee has no jurisdiction over any- thing other than consumer activities and that is why I am obliged to ask that question. Mr. BERRY. Well, in the community action program is where the basis of the money, the principal money, is going; `therefore, we ought to relate the percentage to what we have some jurisdiction over, rather than the $1,750 million. I would say, out of $900 million, we have approximately $8,500,000 that has gone into community action, which would be consumer action. Mr. ROSENTHAL. It is a little less than 1 percent of the OEO budget that is going into consumer-related activities. Mr. BERRY. At this present moment, yes. Mr. ROSENTHAL. That is not very encouraging, is it? Mr. BERRY. It is not-I think it is encouraging to a degree, but not up to the magnitude of the problem, particularly when we view it in the context of the total complex of programs which we have funded. Mr. ROSENTHAL. You suggested to me in response to an earlier question, that you felt that consumer activities are equally as important as activities on behalf of improved housing and increasing job oppor- tunities. And yet in terms of, and in relation to, money spent there does not seem to be any comparison. Mr. BERRY. Mr. Chairman, I hope you are not insensitive to the pressures that our office has been under in responding to community demand for types of program. It is a question, a basic question, of whether the Federal Government through our office is going to make a predetermined decision as to what kind of programs will be funded, as a priority, over what corn- PAGENO="0353" 347 munities wished to address themselves to in response to community action concept in the Economic Opportunity law. Mr. ROSENTHAL. But at the cost of repeating myself, you are the only one that has an overview of all the events that take place in the United States. If they have not learned anything in Harlem and New York City, and you have learned it in Watts by your experience there,, you can translate that knowledge into programs which could be useful m New York City to prevent a similar type situation. Mr. BERRY. We are not the only one, Mr. Chairman. As you men- tioned in your introductory remarks, there are 30 other agencies,. perhaps, of the Government that have some concern with this. We happen to be the newest agency in which we are trying to exercise the function of being a catalyst, a concerting body, and hopefully to bring together a variety of services that may exist at the community level and within Government to deliver to the communities to give them more effective tools for meeting these needs. Mr. ROSENTHAL. Well, I remember what you said earlier in your qualification, when you said that your experience with Government was limited. But you would not want to guess what any other agency in the Federal Government is doing, anything about the poor consum- er, would you? Mr. BERRY. Well, the President's-is it the Committee on Consumer Interests, the one headed by Mrs. Esther Peterson ?-and OEO are working together. I think that office itself should be strengthened and given some muscle to do something, and not just publicizing what we would like to do. We would like to have more funds to respond to the communities that are asking for funds, and what we have done so far is not in any way reflective of the number of requests for fundings that are pending in our office, to strengthen the consumer action function of community action agencies. Mr. ROSENTHAL. Getting back to your operation, how are the suc- cesses or failures of consumer action programs in one city transmitted to another city? Mr. BERRY. Through our program guide, by example of what other communities are doing. We are reporting this, distributing it by ex- change of information through community action agencies, and through the community development organization which has been. created in the last year as a clearinghouse for success stories of what other communities are doing. Mr. ROSENTHAL. In other words, what I am trying to find out is what you learned about consumer problems and attitudes in one corn- munity, do you translate into action in another community? Mr. BERRY. We translate it as information of programs that a com- munity might very well unertake to extend the impact of their use of the Federal dollars in removing some of the causes of po~verty in their communities. Mr. ROSENTHAL. Do you have any examples of where a community responded to what you have just told us about? Mr. BERRY. Well, there are several communities in the Los Ange- les-not in Los Angeles, but in California-that have sought funding of the type of consumer action effort made through our grant, our demonstration grant, in the San Francisco and Oakland area. PAGENO="0354" 348 Likewise, the State of California has cooperated through their credit union organization in encouraging and extending the whole concept of developing credit unions in poor communities. Mr. ROSENTHAL. Have you been in communication, for example, with the Department of Commerce as to what they can do' to suggest to~ businessmen that they cooperate with consumer action programs? Mr. Bmmy. Mr. }Iofljster has been the liaison with the Federal Trade Commission and some other Government departments and I would like for him to respond to that. Mr. HOLLISTER. I think we would all prefer to have them speak for themselves, Mr. Chairman, but, as far as we know, they are gathering themselves together-we have had several preliminary discussions about this, and the Federal Trade Commission, with one or two of the Commissioners who are interested in this program. Mr. ROSENTHAL. You make me very confident to hear this. [Laughter.] Mr. HOIJLISTEU. The Food and Drug Administration has just an- nounced a renewed interest in this area, to our knowledge. Mr. ROSENTHAL. One of the reasons for this special inquiry-one of the reasons that Chairman Dawson ~et up this special inquiry, was to find out: What the Federal Government is doing on behalf of the American consumer and how they are `communicating with each other. Mr. HOLLISTER. Well, one of the primary channels of communica- tions we have set up by mutual agreement with the President's Com- mittee on Consumer Interests, through that Committee. They have no funds, as you know, and they are ideally situated to act as liaison be- tween the Federal agencies, and we have an agreement that they will keep us in contact and act as liaison with these other agencies. They are carrying the burden. Mr. ROSENTHAL. In other words, you have no direct contact with any Federal agency as to what you are doing with the poor consumer. Mr. HOLLISTER. Yes, we have. Mr. ROSENTHAL. What is the Department of Commerce doing? What is the Department of Agriculture doing? What is the Department of Labor doing? Mr. HOLLISTER. The Department of Agriculture is distributing `about $6 million of OEO funds on small loans and also on loans designated in the act for funding cooperatives. They funded in the first half of 1966 about 190 such cooperatives, most of them being small-some are of substantial size. Mr. ROSENTHAL. Is this a retail-selling cooperative? Mr. HOLLISTER. Most of these are farm cooperatives in rural areas. Mr. ROSENTHAL. What do they do? Mr. HOLLISTER. They buy farm equipment for low-income farmers. They provide marketing facilities. Mr. ROSENTHAL. This has nothing to do with the consumer function. Mr. HOLLISTER. It has an important indirect relationship, Mr. Chair- man. They are funding such things as feeder-pig cooperatives, which, the Department of Agriculture tells us in our conversation with them, is going to `be an important means of keeping the price of pork down for all Americans. Mr. ROSENTHAL. These cooperatives that you are talking `about, this $6 million is of direct help to the farmers. You do not want to- PAGENO="0355" 349 Mr. HoLLI&ri~R. The poor farmer. Mr. ROSI~NTHAL. The poor farmer. Mr. bLUSTER. Yes. Mr. ROSENTHAL. The thrust of the Department of Agriculture is on behalf of the farmer. This subcommittee is trying to find out who is working for the consumer. You are not suggesting that the $6 million is raising the consumer ability of the poor. Mr. HOLLISTER. Not directly. Mr. BERRY. Not directly. Mr. ROSENTHAL. What agency in the Federal Government that you know of is doing anything on behalf of the poor consumer besides your $8 million? Mr. HOLLISTER. The Bureau of Federal Credit Unions. Mr. ROSENTHAL. What are they doing? Mr. HoLLIsm~. They monitor, they audit, the books of every credit union. They have over 500, I should say about 500, low-income credit unions established so far, of which our 70 or so are a small number. These are defined as being credit unions that have a field of member- ship where the income is two-thirds the income of the median income of the area in which they are located, and it averages out to about $4,000 a year-I mean the median income of the members of the credit unions. Mr. ROSENTHAL. I-low many of these were started since the war on poverty began? Mr. H0LLI5TER. I do not have the figures. We know about 70 that we have had something to do with. Mr. ROSENTHAL. The 70 you had something to do with reached about how many people out of the 39 million? Mr. H0LUISTEn. Well, as Mr. Berry has pointed out a moment ago, it is difficult. They have a membership from about 100 to up to 1,500, 2,000-the new ones we have funded. You can take a median or an average on that, but the figure is, probably would not exceed, 15,000, 20,000,30,000 people-someplace in that area. Mr. BERRY. Mr. Chairman, I do not think we should-I think the area of your inquiry is altogether desirable and needed. We are not going to speak for any other agency of the Government other than our own. I think when the total picture is put together you will find that in proportion to the need there is much yet to be done both by the Federal Government and State governments in continuing an address to the problems of the low-income consumer. It remains to be seen at what point the issue will really be joined, because there are substantial interests that may be desirous of deter- ring a real in-depth and sustained activity on their behalf. Mr. ROSENTHAL. Those interests would be who? Mr. BERRY. Well, I would not attempt to identify them particularly, except to say that the profit motive is still the question of the highest priority. Mr. ROSENTHAL. Do you agree with Professor Caplovitz' thesis that the poor, because of their buying habits, their having to pay exor- bitant interest on credit, having their salaries garnisheed, they are taken out of the economic market; and these consumer habits really contribute to unemployment in the case of such individuals? PAGENO="0356" 350 Mr. BF~iu~Y. There is substantial evidence that poor buying habits,. the overextension and use of the kind of credit that is made available, the kind of paper they have to sign to secure it, which mortgages them and their jobs, because that is the only security that they have, and the processes by which that paper or that legal obligation is enforced against them does contribute substantially to unemployment. The short-term employment they have is usually cut off. I know, from my own experience, the large number of persons who lost their jobs when they got that second garnishment. So, it is a substantial contribution to unemployment and to continuing them in poverty, so that if they could modify, retrench, consolidate their debt, and be made aware that there are other sources, through a credit union, that they can consolidate their debt, and follow a practice or habit of buying within their means, that they might be able to be assisted. But it is a vicious cycle in which they get themselves, and it virtually dis- courages them, knowing that they are burdened with debt, discourages them from seeking employment, because they say, "As soon as I get a job, after my first payday or even before my first payday, I will have it garnisheed." Mr. ROSENTHAL. Would you suggest that this attitude affects a large number of people? Mr. BERRY. This, I think, has not been statistically evaluated, and this is one of the purposes of the contract that we had with the De- partment of Labor Statistics in their analysis or study of the high cost of commodities purchased by the poor. Mr. ROSENTHAL. Thank you, Mr. Berry. I think you have made a very meaningful contribution to the inquiry. Today is the first day of the inquiry. What we are very much con- cerned with, besides the economy and efficiency of each agency in meeting its responsibilities to the consumer, is the extent of coopera- tion and communication between agencies in the consumer field. At the moment, I do not know a great deal about how your agency cooperates with other agencies on behalf of the poor consumer. So, I would appreciate it if you would send us a supplemental state- ment on the extent of cooperation between your agency and other Federal agencies on behalf of the poor consumer, the nature and type of communication you have with them, the number of meetings you have with the departments, the programs that you have formulated in cooperation with other Federal departments. This is really the crux and the thrust of this inquiry. (Subsequently, the following statement was submitted:) The Division charged with responsibility for consumer action is the Community Services Division of CAP. Thus far its relations with other Federal agencies has included the Bureau of Federal Credit Unions of the Social Security Administration in HEW, the Presi- dent's Cemmittee on Oonsum~r Interests, the Federal Trade Commission, the Bureau of Labor Statistics of the Department of Labor and the Small Business Administration. Although formal tabulation of the number of meetings has not been made, the responsible Division of OEO has had several consultations over the past year with these agencies. The specific results of our coordination have been as follows: (a) An interagency agreement between OEO and BFCU, involving a transfer of $125,000 to BFCU for a training program entitled "Operation Moneywise." Operation Moneywise trains selected local personnel in problems of the low- PAGENO="0357" 351 income consumer, credit union organization and operation, financial counseling, etc. The overall purpose is to train local leadership for credit union and consumer activity. By January 1967, programs will have been completed in Boston, New York, Washington, D.C., Chicago, Los Angeles and New Orleans. A total of 150 neigh- `borhood trainees will have been graduated' for work in their communities. Liaison continues with the BFCU and we are now negotiating a new agreement for further indigenous training. (b) There have been several contacts with the President's Committee on Consumer Interests. The nature of our coordination breaks down into the following: 1. Consultation on the design of OEO comprehensive consumer planning, 2. Arranging coordination through the President's Committee of liaison with all other Federal agencies having consumer programs, 3. ParticIpation in conferences with private groups and associations hav- ing consumer concern. (c) Consultation with the Federal Trade Commission to explore `how OEO and the FTC can work together. The FTC is presently considering a training device for use by local antipoverty workers in community action programs, (d) Discussion between OE'O and SBA in an attempt to relate more directly the small business loan program to consumer `action. (e) Interagency agreement between OEO and the Bureau of Labor Statistics to provide information regarding the prices which the poor are forced to pay for groceries and hard goods. The survey covers ten cities at a cost of $30,000. The final reports which do document the fact that the poor pay more `have been completed and have just recently been submitted to OBO. (f) A meeting between the Food and Drug Administration and OBO's Com- munity Representatives Advisory Council (CRAC) is set for November. This will enable the FDA to solicit grass-roots opinions on consumer problems. OEO is not `only coordinating efforts among Federal agencies, but is `also work- ing with nonprofit organizations and private companies. Four nonprofit organizations have been contracted by OEO to provide to the Federal Government and the war on poverty to particular consumer action oriented expertis'e of that organization. (a) Contract with CUNA, International, Inc. (Credit Union National Asso- ciation), ($19,500) to provide assistance to low-income groups `which wish to develop credit unions and consumer `action programs and to provide `assistance to existing credit unions which wish to expand their service to low-income areas. CUNA is `also providing OBO with information regarding the particular needs of credit union's serving low-income groups. (b) Contract `with the Cooperative League of the USA ($162,922) to give technic'al assistance `and training to low-income groups interested in establish- ing co-ops. The Co-op League has prepared a manual giving the details and steps necessary for establishing co-ops. Much of co~op activity is only indirectly related to consumer action. However, much of the Co-op League activity cen- ters on buying clubs, buying fairs, and retail co-ops, all of which are directly concerned `with consumer `action. (c) Research grant with Columbia University, under the directi'on of Dr. David C'aplovitz, to study `and make recommendations for improving the con- sumer credit system as it applies to the poor. The entire grant covers a 21/~-year period, the first ye'ar costing $98,450. (d) Conferences `and `consulbation meetings have been held with the Com- munity Services staff of AFL-CIO in an attempt to assist In program design. The first such program will be developed in the near future for the Milwaukee area. In the private `sector, John Sutherland & Associates are under contract to OBO to prepare a film `designed to advise the p'oor about their consumer rights and what they can do to secure those rights. The contract is for $60,000 `and will be completed In `approximately 2 months. In `addition to the Sutherland contract, OEO has held conferences with many leading firms in the business community. The following are representatives: (a) American Banking Association. (b) Sears, Roebuck & Co. (c) Montgomery Ward. PAGENO="0358" 352 (d) Beneficial Finance Corp. (e) Spiegel's. (f) Western Auto. (g) J. C. Penney. (Ii) National Institute of Life Underwriters. As a outcome `of these contacts, OEO has learned `a great deal concerning the problems faced and `solutions tried by business in poverty areas. Other re- suits to date of the meetings have been: (a) Beneficial Finance will assist In debt counseling training programs, and we are now working out a plan of `operation for this in one major city `area (Los Angeles) if the program there is funded. (b) J. 0. Penney has shared information on their credit experiences with the poor of Southeast United States. They informed us that Penney's has a credit business in Southeast area of the United States and has found th'at low-income groups `are as good a risk `as anyone. Main problem seemed to be that when credit account was opened, the poor overbought-not frivolously-but of things they needed (mainly clothes for children) and they needed everything. (c) Sears and Wards have offered cooperation in opening credit opportunities to poor. Also Sears is considering a training program for their own sales force,. the thrust being to sell "down" not "up" to low-income credit customers. (d) The National Life Underwriters Association has expressed an interest in lending training skills in insurance to local groups through OEO. (e) Beneficial Finance offers to prepare proposal in which they agree to match credit union performance on an experimental basis. We are awaiting this proposal now. (f) Meetings are scheduled with most of our present business' contacts, in early December, at which time their proposals and offers of cooperation will be discussed. Mr. ROSENTHAL. On another point, my own observation, Mr. Berry,. is that you are quite right that really nothing is going to happen on behalf of the poor consumer, or the American consumer, until there is a massive commitment on behalf of the American consumer by all the government agencies involved in the problem. The consumer in- terests have always been so varied and so widespread and so unidenti- fied that people have not really accepted this as a clear-cut problem they could zero in on. I think you folks have, for the first time, but what you have committed to doing it with, $8 million or so, is really quite small. I am sure it is not your fault,, and I am sure that Congress is largely responsible for the failure to meet the need, to a great extent. I am hopeful the meetings and discussion and dialog that fo]low these hearings will be useful to your agency. I also hope those who make up your budget will, in terms of allocat- ing funds and priorities, give the consumer activity programs a little extra attention, because, it seems to me as you and Professor Caplovitz have suggested that this is as important as jobs and housing. The special inquiry stands adjourned. (Whereupon, at 12:05 p.m., the Special Inquiry stood adjourned subject to the call of the Chair.) 0 PAGENO="0359" PAGENO="0360" -1