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 Restrictive Labor Practices
in the Supermarket Industry
 Industrial Research Unit
Department of Industry
Wharton School of Finance and Commerce
University of Pennsylvania

Industrial Research Unit Study No. 44

The Industrial Research Unit is the business and labor mar-
ket research arm of the Industry Department of the Whar-
ton School of Finance and Commerce. Founded after World
War I as a separate Wharton School Department, the In-
dustrial Research Unit has a long record of publication and
research in the labor market, productivity, union relations,
and business report fields. Major Industrial Research Unit
Studies are published as research projects are completed.

R E C E N T INDUSTRIAL RESEARCH U N I T STUDIES

Gladys L. Palmer, et al., The Reluctant Job Changer. No. 40

George M. Parks, The Economics of Carpeting
and Resilient Flooring: An Evaluation and
Comparison. No. 41
Michael H. Moskow, Teachers and Unions: The
Applicability of Collective Bargaining to Public
Education. No. 42
F. Marion Fletcher, Market Restraints in the Re-
tail Drug Industry. No. 43
Herbert R. Northrup and Gordon R. Storholm,
Restrictive Labor Practices in the Supermarket
Industry. No. 44
Restrictive Labor Practices
in the

by HERBERT R. NORTHRUP
Professor of Industry and Chairman, Department of Industry
Wharton School of Finance and Commerce, University of Pennsylvania

and GORDON R. STORHOLM

Research Assistant, Department of Industry
Assistant Professor of Management, Villanova University

assisted by PAUL A. ABODEELY

Member, Massachusetts Bar, Research Assistant, Department of Industry

UNIVERSITY OF PENNSYLVANIA PRESS · PHILADELPHIA · 1967

Copyright © 1967 by the Trustees of the U N I V E R S I T Y OF P E N N S Y L V A N I A

Library of Congress Catalog Card Number 67-26220

7555

Manufactured in the United States of America

 to G. F. Β.

SCHOLAR, EXECUTIVE, AND FRIEND

Preface

Union policies which inhibit the most effective utilization of labor

have often been the subject of discussion, research, and public policy
enactments. Commencing as a student of the late Professor
Sumner H. Slichter, the undersigned has for many years been in-
terested in this aspect of union relations, the understanding of which
Professor Slichter contributed to so substantially.
Most of the literature on restrictive practices, however, is con-
fined to unions of blue-collar workers, particularly those in the rail-
road, maritime, building construction, printing, and amusement
industries. Policies of unions with great growth potential, such as
the Retail Clerks International Association, have remained largely
unexplored.
The potential for a contribution to the literature was, therefore,
apparent when the significance of this area of inquiry was discussed
with the undersigned in late 1964 by officers of the National Asso-
ciation of Food Chains. The Association personnel were frankly con-
cerned about the status of collective bargaining in the supermarket
industry, and particularly about the impact on industry costs and
profits of the maze of work rules, and restrictions on managerial
freedom which had become imbedded in supermarket collective
agreements. Moreover, despite the significant role of collective bar-
gaining in the industry, it was apparent by this date that the Na-
tional Commission on Food Marketing would not include any as-
pect of either collective bargaining or union policy in its analyses
of the food industry. The undersigned was therefore asked whether
he would head a study of restrictive labor practices in the supermar-
ket industry underwritten by the National Association of Food Chains.
vili Preface

This was agreed to with the stipulation that an unrestricted grant

be made by the Association to the Industrial Research Unit of the
Department of Industry to cover research assistance and tuition sup-
port, clerical expenses, travel, and other miscellaneous expenses,
with the undersigned performing his portion of the work as part of
his general University research and teaching duties. It was further
agreed that the University personnel would have complete control
over all phases of the project—the procedures and methods to be
used, the areas to be studied, the analytical techniques, and the
conclusions—and that the study would be published, regardless of
results, together with a clear acknowledgment of the fact of National
Association of Food Chain support and of the conditions thereof.
So many persons assisted in the gathering of research material
and facts that it would be unfair to list any without mentioning all.
Special thanks should, however, be accorded to the officers and
staffs of the National Association of Food Chains and The Super
Market Institute, to the executives of numerous companies, to
officials of the unions involved, and to many government personnel
who so freely gave us of their time. The manuscript was typed by
Mrs. Helen S. White, Mrs. Anita F. Boney, Mrs. Barbara
Humphreys, and Miss Joyce Rothman. Mrs. Marie Spence handled
other secretarial functions associated with the project. Mrs.
Margaret E. Doyle, Administrative Assistant in the Department of
Industry and Secretary of the Industrial Research Unit, cared for
numerous administrative details throughout the life of the project.
Mrs. Marjorie C. Denison edited the manuscript and prepared the
index. The manuscript was read by Professors William Gomberg,
F. Marion Fletcher, and Marten S. Estey of the Department of In-
dustry; Vernon H. Jensen of the New York State School of In-
dustrial and Labor Relations, Cornell University; and E. Robert
Livernash, Graduate School of Business Administration, Harvard
University, all of whom offered constructive comments.
Mr. Paul A. Abodeely did the research for and wrote an early
draft of Chapter 8. Mr. Gordon R. Storholm did the bulk of the
field work, gathered other research material and provided consider-
able insights into the problems of organizing the mass of material
into understandable proportions. His work so far exceeded that ex-
pected of a research assistant that it was deemed appropriate to list
him as co-author.
 Preface ix

The undersigned selected the staff, did some of the field work
and research, is responsible for the basic research design, and for
the writing. Any errors or shortcomings in the work must, therefore,
be charged to him.
The dedication commemorates a friendship and collaboration
of twenty-five years.
HERBERT R . NORTHRUP, Chairman
Department of Industry
Wharton School of Finance and Commerce
University of Pennsylvania
January 1967
Contents

Part I: The Study Outline

1. Introduction 3

Part II: The Industrial Background

2. The Supermarket Industry 9

Growth and Development 9
Changing Industrial Environment 19
The Antitrust Impact 27
Concluding Remarks 29

3. Unionization of the Supermarket Industry 30

The Supermarket Labor Force 30
The Extent of Unionization 33
The Teamsters 35
The Retail Clerks 36
The Meat Cutters 40
Alliances and Disputes 41
Concluding Remarks 42

4. Wages and Unionism 43

Union Impact on Relative Wages 44
The Fogel Study of Union Relative Wage Impact 57
The Clerks' Differential Wage Policy 60
Relative in Store Labor Costs 63
Concluding Remarks 64
xli Contents

Part III: Restrictive Practices:

Nature, Impact, and Reaction

5. The Nature of Union Restrictive Practices: An Analysis

of General Restrictions 67
Introduction 67
Union Control of Mahagerial Personnel 72
Seniority Problems 77
Past Practices 82
Arbitration and Contract Enforcement 83
Concluding Remarks 85

6. The Nature of Union Restrictive Practices: An Analysis

by Departments 86
Restrictions in the Grocery Department 86
Restrictive Practices in the Meat Department 104
Restrictions in the Warehouse and Trucking Operations 113
Concluding Remarks 119

7. Strike Vulnerability, Bargaining Structure, and Manage-

ment Labor Relations Policies 120
Strike Vulnerability 120
Multi-Employer Bargaining and Strike Vulnerability 123
Managerial Policy and Union Restrictive Practices 132
Short-Run Decisions—Examples and Results 137
Management Policy—Final Comment 143

8. Public Policy, Restrictive Labor Policies, and the Role

of the NLRB 144
Government Control of Restrictive Policies 144
The NLRB Background 147
NLRB Organizational Aids to Unions 149
Restrictions on Employers 158
Protection of Union Tactics 165
Concluding Remarks 166

Part IV: Potential for Change

9. Technological Progress and Restrictive Practices 169

Technological Progress to Date 169
Central Meat Cutting 171
 Contents xiii

Other Retail Store Developments 176

Warehouse and Trucking 177
Concluding Remarks 178

10. Forging a New Relationship: A Philosophy and an

Approach 179
The Nature of Collective Bargaining 179
Basic Philosophy and Goals 182
The Need for Industry Cooperation 187
Multi-Company Bargaining and Strike Insurance 189
The Need for a New Approach to Unions and Bargaining 190
Concluding Remarks 192
Index 195
Tables

2-1. Relative Market Shares of Total Grocery Store Sales,

Corporate Chains and Independents 12
2-2. Ten Leading Corporate Chains, 1965 Sales 14
2-3. Ten Leading Affiliated Independents of Both Types,
1965 Sales 14
2-4. Ratio of Net Profit after Income Taxes to Net Sales for
Leading Food Chains, 1956-1965 16
2-5. Net Profit after Income Taxes as a Percent of Sales,
Equity and Total Assets for Retail Food Corpora-
tions, by Asset Size, 1938-1962 18
2-6. Net Profit as a Percent of Invested Capital, 1965 19
2-7. Expenses as a Percentage of Gross Sales, Typical
Supermarket Industry Breakdown 21
2-8. Supermarket Store Rent, Real Estate, and Utilities Ex-
penses as Percentage of Sales, 1954—1964 23
3-1. Part-Time Store Employees, by Sales Group and by
Region, Supermarket Industry, 1966 33
4-1. Union Hourly Wage Rates, Grocery Clerk and Journey-
man Meat Cutter, by City, 1965 45
4-2. Food Stores: Cumulative Percent Distribution of Non-
supervisory Employees by Average Straight-Time
Hourly Earnings, by Enterprise and Establishment
Sales—Size Classes, United States, Metropolitan
and Nonmetropolitan Areas, June 1965 46—47
4-3. Food Stores: Cumulative Percent Distribution of Non-
supervisory Employees by Average Straight-Time
Hourly Earnings, by Enterprise and Establishment
Sales—Size Classes, United States, Regions, June
1965 48-49
χvi Tables

4-4. Average Hourly Wage Rates by Size of Firm, 1954

through 1964 52
4-5. Operating Measures for Retail Grocery Stores, by Type
of Organization, Portland, Maine, and Topeka,
Kansas, 1964-65 54
4-6. Operating Data for Retail Grocery Stores, by Type of
Organization, Portland, Maine, and Topeka,
Kansas, 1964-65 55
4-7. Average Hourly Retail Grocery Store Wage Rates and
Labor and Fringe Benefit Expense as a Percentage
of Sales, by Size of Firm, by Region, 1964 56
4-8. Fringe Benefit Costs per Hour, Four Locations of a
Major Chain, 1966 57
4-9. Percentage of Companies Providing Benefits and In-
centives 58
4-10. Percentage of Companies Providing Benefits and
Incentives 58
4-11. Comparison of Hourly Wage and Fringe Rates, Phila-
delphia Area, Philadelphia Food Employers' Asso-
ciation Chains vs. Two Guys from Harrison, July
1966 61
4-12. Comparison of Fringe and Overtime Provisions, Phila-
delphia Area, Philadelphia Food Employers' Asso-
ciation Chains vs. Two Guys from Harrison, July
1966 62
4-13. Relative In Store Labor Costs, Major Chain Typical
Metropolitan Unionized Supermarket, One Week,
1966 63
6-1. Recap of Number of Errors Made and Loss Ratio to
Sales by 97 Regular and Part-Time Checkers on
100 Orders Shopped in 11 Stores 101
8-1. The Purity Food Stores, Inc. Case 152-153
Figures

2-1. Definitions 10
2-2. Retail Operating Expenses as a Percent of Sales and as a
Percent of Total Operating Expense 26
2-3. Retail Acquisitions by Grocery Chains, 1949-1964 28
3-1. Distribution of Personnel between Store Employment and
Other, Supermarket Industry, 1966 31
3-2. Trend of Full- and Part-Time Employment, Supermarket
Industry, 1951-1966 32
3-3. Extent of Unionization, by Sales Group, Region, and De-
partment, Supermarket Industry, 1964 34
3-4. Why is the Union Afraid of a Free Election? 39
6-1. Three Examples of "Clerks' Work Clause" 87
6-2. Scheduling Checkout Employees 93
6-3. RCIA Service Clerk (Bag Boy) Contract Clauses 95
6-4. Sales by Day of the Week 97
6-5. Examples of Meat Cutter Contract Restrictions on
Wrappers 108
6-6. Average Proportion of Employees' Time Used for Various
Activities in Four Retail Meat Departments 109
9-1. Comparative Labor Costs for $6,250 Weekly Volume
Retail Stores Serviced by Meat Backrooms or by a
Central Meat Plant 174
9-2. Comparative Annual Construction, Equipment, and Labor
Costs for $6,250 Weekly Volume Retail Stores
Serviced by Meat Backrooms or by a Central Meat
Plant 175
 I.
Part 1· The Study Outline
 • Introduction

The supermarket industry plays a key role in the shopping and eating
habits of most Americans. What happens in supermarkets in regard
to costs of operations, interruptions of service, and store hours open
to the public is therefore of direct interest to the public. Numerous
governmental studies of food costs, marketing methods, and relation
of retail food costs to payment made to farmers attest to the public
interest attached to the industry.
The supermarket industry has also generated a wide literature
on marketing and production methods, management techniques,
and other business functions. Nearly all aspects of the industry have
been discussed and analyzed in governmental, academic, and trade
publications. The literature in these areas is voluminous and
increasing.
Yet little attention has been paid to the industry's labor relations.
In investigating food marketing and costs, a special governmental
National Commission on Food Marketing issued its report in 1966
seemingly after sedulously refraining from discussing labor relations
in retail food stores or their impact on food prices, costs, or market
structure.1 With the exception of a few studies by Professors Estey,
Fogel, and Brody, books or articles on management written specifi-
cally for the industry confine their sections on personnel and labor
'The only recognition of trade unions as factors in increasing operating
costs was glossed over on page 78 of the National Commission on Food
Marketing, Food from Farmer to Consumer (Washington: Government Print-
ing Office, 1966). One of the Commission's technical studies (No. 7), Orga-
nization and Competition in Food Retailing (Washington: Government Print-
ing Office, 1966), investigated wages and fringe benefit costs and productivity
in greater depth.
4 Restrictive Practices in Supermarket Industry

relations largely to a few broad principles of personnel management

and a few paragraphs about unions in the industry.2 Academic re-
search in labor relations has almost ignored the interesting labor
problems and collective bargaining structure developed in super-
markets.3
This study does not attempt a complete analysis of the personnel
or collective bargaining problems of the supermarket industry. Its
objective is more limited—a study of the development, operation,
and impact of the restrictive labor practices which have become com-
mon in the industry. In order to understand these practices, however,
much of the personnel and collective bargaining practices and policies
of the industry and the unions involved needed to be analyzed. This
is done in Part II of the study which in successive chapters sets forth
the basic characteristics of the industry, the rise and character of
the pertinent unions, and some key economic aspects of the collective
bargaining relationships.
The study is also confined to the store, warehouse, and trucking
operations of supermarkets. Many supermarket firms operate captive
1
See, e.g., Edward A. Brand, Modern Supermarket Operations (New York:
Fairchild Publications, 1963).
' Significant exceptions include the earlier articles by Professor Marten
S. Estey, "Patterns of Union Membership in the Retail Trades," Industrial
and Labor Relations Review, Vol. VIII (July 1955), pp. 557-564; "The Stra-
tegic Alliance as a Factor in Union Growth," Industrial and Labor Relations
Review, Vol. IX (October 1955), pp. 41-53; and the excellent article by
Dr. Walter A. Fogel, "The Impact of Unions on Relative Wages in California
Retail Food Establishments," Industrial Relations, Vol. VI (October 1966),
pp. 79-94. Works which deal primarily with unions in the industry, but only
incidentally with supermarket labor relations, include Ralph C. and Estelle
D. James, Hoffa and the Teamsters: A Study of Union Power (Princeton:
D. Van Nostrand Company, Inc., 1965); and two books written largely from
the union point of view: David Brody, The Butcher Workmen: A Study of
Unionization (Cambridge, Mass.: Harvard University Press, 1964); and Mi-
chael Harrington, The Retail Clerks (New York: John Wiley and Sons, Inc.,
1962). Some relevant material is also found in Robert S. Welsh and Bruce
W. Marion, Management-Labor Relations in Agricultural Marketing Industries
(Columbus, Ohio: The Ohio State University, Cooperative Extension Service,
1965). Two unpublished Ph.D. dissertations should be noted, Richard E. Jay,
"A Case Study in Retail Unionism: The Retail Clerks in the San Francisco
East Bay Area," University of California, Berkeley, 1953; and John W. Allen,
"A Study of the Nature of Collective Bargaining in the Retail Food Industry,"
Cornell University, 1966.
 Introduction 5

canneries, dairies, bakeries, bottling plants, meat-packing facilities,

and food-processing operations. These are not included in the study.
The nature of the actual restrictive practices is detailed in Part
III, in which not only union policies which have contributed to these
practices are discussed, but also those of management and of the
government.
That restrictive practices are not easy to define is clear to sophis-
ticated students of labor relations. Basically they involve attempts
on the part of unions to force management to employ additional
manpower, to reduce productivity, or otherwise to interfere with the
most economic utilization of labor and equipment. 4 Carried to its
logical conclusion this would indict nearly all contractual provisions
affecting seniority, working hours, and other terms and conditions
of employment. Obviously that would be both a meaningless and
inappropriate definition, since it would ignore both reality and human
aspects and needs.
One must, therefore, apply a rule of reason. Does the benefit
to the employees exceed the cost to the employer? The answer can
be clear in some cases, subjective or a matter of opinion in others.
For example, some seniority protection has considerable benefit to
employees, in giving at least part of the work force either security
against layoff, or a belief that layoffs will be governed by objective
standards. Such a seniority provision may involve a very low cost
to the employer. On the other hand, a seniority rule which requires
each temporary transfer to be governed by strict seniority would add
very little job security (benefit) to employees but would involve sub-
stantial employer added cost. Between such extremes are innumerable
rules and regulations, some of which may be obviously restrictive,
some of which may obviously not be, and others may be borderline. 5
Much of the labor relations problem involved in restrictive prac-
tices in the supermarket industry arises from the fact that substantial
nonunion competition exists in most local markets. Where nonunion

4
For similar definitions and the difficulties inherent in precise definitions,
see Paul A. Weinstein, "Featherbedding: A Theoretical Analysis," Journal
of political Economy, Vol. LXVIII (August 1960), pp. 379-389; and Norman
J. Simler, "The Economics of Featherbedding," Industrial and Labor Relations
Review, Vol. XVI (October 1962), pp. 111-121.
5
We are indebted to Professor E. Robert Livernash in formulating the
definitions used here.
6 Restrictive Practices in Supermarket Industry

competition is a factor, the benefit to employees may appear to exceed

the cost to the employer, and yet the rule may still be restrictive
if it adds to the union employers' differential wage costs. There is,
of course, a reverse twist to this situation, too. On the West Coast,
particularly in the major cities, the supermarkets are almost 100 per-
cent unionized. An obvious and high cost restrictive practice in such
a completely unionized area may not be a significant competitive
disadvantage unless and until nonunion competition is attracted into
the area.
The avowed purpose of restrictive labor practice is, of course,
to force employers to increase (or not to decrease) the number of
jobs controlled by a particular union. That this purpose, running
counter to economic forces, is often not fulfilled is obvious. That
all disagreements between unions and employers over speed of work
or complements of people are not based on union attempts to curtail
efficiency is also obvious. But that restrictions do exist in many indus-
tries—building construction, railroads, printing, and amusement—
has long been clear. This study will demonstrate that the supermarket
industry's restrictive labor practices are often quite similar to those
in industries like building, printing, and amusements in both their
character and extent.
The final section of the book is devoted to possible sources of
relief from restrictive practices, either by technological methods or
by changes in the character of labor relations.
Part II.
II· The Industrial Background
 • The Supermarket Industry

The supermarket industry accounts for approximately 71 percent of

all retail food sales. Developed in the 1930's it grew rapidly, with
sales rising from $150 million in 1935 to $46 billion thirty years
later. Today the supermarket industry is one of the nation's largest
in terms of employment, having had 1.5 million persons on its pay-
rolls in 1965. It remains characterized, as it always has been, by
relative ease of entry, intense competition, and net profits after taxes
typically less than 2 percent of sales.1

Growth and Development

The supermarket concept developed in the early 1930's. Retail
food was merchandised prior to this through chain "economy stores"
(many of which were operated by today's supermarket chains), self-
service independents and a myriad of smaller outlets.
The leading retailers prior to 1930 were The Great Atlantic and
Pacific Tea Company, Kroger, Safeway, American Stores (now Acme
Markets, Inc.) and First National Stores.2 Through relative economies
of scale which the larger chains were able to realize, their profit mar-
gins were greater and the consumer prices lower than those of inde-
pendent operators. Agitation for antichain legislation then followed
from certain agricultural sectors as well as from independent competi-
1
See The Progressive Grocer, April 1966, Annual Report Issue, for data
on the industry.
1
R. J. Markim, The Supermarket—An Analysis of Growth, Development
and Change (Pullman, Washington: Washington State University Press, 1963),
p. 9.
10 Restrictive Practices in Supermarket Industry

Figure 2-1

DEFINITIONS

Supermarket—Any store, chain, or independent having self-

service grocery (and usually self-service in other departments)
whose annual sales volume is $500,000 or more. (This
definition has been upgraded from time to time. )
Superette—Any store having self-service grocery (and usually
self-service in other departments) whose annual sales volume
is between $150,000 and $500,000.
Small Store—Any store having an annual sales volume less than
$150,000.
Independent—An operator of 10 or less retail stores.
Chain—An operator of 11 or more retail stores.
Cooperative Retailer—Retailers (generally independents) who are
stockholder members of cooperative wholesale buying groups.
Voluntary Group Retailers—Retailers who belong to voluntary
merchandising groups sponsored by wholesalers.

Source: These definitions are based on those of the standard trade publication.
Progressive Grocer.

tors and resulted in a hostile business environment for the chains.

Although the specter of unfavorable legislation was constantly present
for chain stores during the 1920's, there seems to be little evidence
of a significant reduction in sales by this group as a direct result
of antichain agitation. Indeed, it was not until the early part of the
1930's that the pre-eminence of the chain was challenged by the
independent. T h e vehicle for this new market force was, of course,
the supermarket.
The first widely acknowledged successful supermarket operations
were launched simultaneously by "King" Cullen in the J a m a i c a area
of New York City and by "Joe" Weingarten in Houston, Texas. 3
Characteristic of most early supermarkets, Cullen's operation began

3
M. Zimmerman, The Supermarket: A Revolution in Distribution (New
York: McGraw-Hill, 1955), p. 35.
 The Supermarket Industry 11

in an abandoned warehouse. The store consisted of a lower-priced

(billed as the "Price Wrecker") cash-and-carry, 30,000 square foot
grocery section and a 50,000 square foot nonfood section which was
leased to independent contractors. Cullen's operation met with un-
precedented success and was followed by an even more spectacular
operation, the "Big Bear" market, brainchild of Roy O. Davidson
and Robert Otis in the abandoned automobile plant of Walter Durant
in Elizabeth, New Jersey. The Cullen operation was advertised as
the "Price Wrecker"; the Big Bear was billed as the "Price Crusher"
and its advertising campaign was marked by an expenditure of
$29,000 its first year. The Big Bear's first year sales volume was
$2,188,000 and its net profit was $166,000 in contrast to its pro-
moters' most liberal estimate of $50,000." The Big Bear was, in fact,
such a successful venture that, not unlike the chains of the 1920's,
it was threatened by competitors' efforts to bring pressure on suppliers
and newspapers. When the newspapers eventually entered into a con-
certed refusal to carry Big Bear's advertising; one hundred thousand
handbills were delivered from house to house and the sales for the
following week totaled $82,000.5
During this period, the supermarket idea was spreading to other
geographical areas. Southern California, with its relatively large
number of automobiles and its temperate climate, lent itself readily
to the open-air shopping-center type of supermarket operation and
by 1936 there were twenty-five stores of this type located within the
state. Some of the more successful supermarket operations introduced
during this period were Von's Supermarket in Culver City and Alpha
Beta in Los Angeles.0
In response to the successes of the new supermarkets, the chains
converted their neighborhood stores to supermarkets. Among the
earlier concerns to add this type of store was Union Premier, now
Food Fair Stores. The gross volume of this concern's supermarkets
averaged, after the first year of operation, $600,000 in comparison
to a 1931 average volume of $60,000 for the small stores.7 In the
face of conversion to supermarket retail merchandising by the chains,
4
¡bid., p. 43.
5
Ibid., p. 45.
'Ibid., p. 17. Alpha Beta is now a division of Acme Markets; Von's remains
as a very successful regional chain.
' Ibid., p. 5.
12 Restrictive Practices in Supermarket Industry

early successes by Big Bear and Piggly Wiggly faded into the back-
ground. Their innovation, however, had lent the impetus to the
supermarket to remain as the primary channel for food distribution.
By the end of the decade, supermarket gross volume was $2 bil-
lion.8 Through imaginative merchandising techniques and low prices
the supermarket, by World War II, had established itself as the lead-
ing outlet for retail food distribution in the United States. By 1965,
supermarkets accounted for 71 percent of all grocery store sales,
superettes (see Figure 2-1 ) 13 percent, and small stores the remaining
16 percent. But the greatest gainers were not the corporate chains
among the supermarkets, but a new and apparently more flexible
group of supermarket operators—the affiliated independents who took
over the leadership in the supermarket sales category.

Post-World War II Trends

The corporate chains in 1965 accounted for 41 percent of all

grocery store sales, but the affiliated independent group's share had
risen to 49 percent, with 9 percent going to unaffiliated independent
grocers. Table 2-1 shows the trend in grocery store sales since 1949.

Table 2-1 Relative Market Shares of Total Grocery Store Sales, Corporate
Chains and Independents

Grocery Store Sales, 1949-1965

1949 1963 1956 1960 1964 1965

Percent
Corporate Chains 41 36 37 38 41 41
Unaffiliated Independents 28 29 19 13 10 9
Affiliated Independents 30 36 44 49 49 49

Source: Progressive Grocer, Annual Report Issue, April 1966, p. 155.

The differences between the corporate chain store and that of the
affiliated independent are not readily observable to the shopper. Stores
of both types are usually comparable in construction, products offered
for sale, prices, and services. The distinction between the two types

' N a t i o n a l Commission on F o o d Marketing, Organization and Competition

in Food Retailing (Washington: G o v e r n m e n t Printing Office, 1966), Technical
Study N o . 7, p. 9.
 The Supermarket Industry 13

of operation lies in their respective financial and organizational

structure.
All corporate chain retail stores are company operated, whereas
the so-called affiliated independent group is characterized by a whole-
saler-retailer interdependence. The wholesaler and the retailer typi-
cally enter into an agreement whereby the retailer receives the ad-
vantages of purchasing power exercised by the wholesaler, as well
as the right to use the name of the wholesale group. The wholesaler
in turn receives the assurance of maintaining the retailer's business,
not only for products purchased, but also for certain services provided
by the wholesaler. These services include marketing counsel and busi-
ness services of a wide variety.
Affiliated independent groups are further divided into voluntary
wholesaler groups and the retailer-owned cooperatives. The former
companies' franchise independently owned wholesalers who in turn
sponsor voluntary groups of independent retailers in their respective
communities. The retailer-owned cooperative association is an amal-
gamation of retailers who organize for the purposes of achieving
greater purchasing power and other services incidental to the relation-
ship.® Tables 2-2 and 2-3 show the ten largest corporate chains and
the ten largest affiliated independent groups of both types:
A comparison of the sales figures in Tables 2-2 and 2-3 shows
that the largest of the affiliated independents ranks below the tenth
largest supermarket chain. Yet these data are somewhat misleading
for the sales of the independent group do not include supermarket
store sales of separately-owned, but affiliated or cooperating super-
markets. If these store sales were included, the sales data in Table
2-3 would undoubtedly be considerably higher. For example, Certified
Grocers of California, the second largest retail-owned cooperative,
is reputed to be, in fact, the fourth largest chain!10 Moreover, many
of the firms listed as chains are also found in the affiliated independent
group, or vice versa. Thus Red Owl Stores ranks in the first twenty
* For a summary of the affiliated independents' approach, see "Independents
Have Many Advantages over Chains," Illinois Food Retailer (Chicago: Asso-
ciated Food Retailers of Illinois, February 1955), p. 18; and Seymour Freed-
good, "Uncle to 1,700 Grocers," Fortune, Vol. LXXI (March 1965), pp.
130-133.
" Statement of Robert A. Magowan, President of Safeway Stores, in talk,
"Chains and Change in Agribusiness," Foundation for American Agriculture,
1965.
14 Restrictive Practices in Supermarket Industry

Table 2-2 Ten Leading Corporate Chains, 1965 Sales

1965 Saks
Firm (000)

1. The Great Atlantic and Pacific Tea Co., New York, N.Y. $5,118,978
2. Safeway Stores, Oakland, Calif. 2,939.043
3. The Kroger Co., Cincinnati, Ohio 2,505,109
4. Acme Markets, Philadelphia, Pa. 1,205,000
5. Food Fair Stores, Philadelphia, Pa. 1,200,750
6. National Tea Co., Chicago, 111. 1,161,948
7. Winn-Dixie Stores, Jacksonville, Fla. 978,000
8. Jewel Tea Co., Chicago, 111. 874,700
9. Grand Union Co., East Paterson, N.J. 779,683
10. First National Stores, Somerville, Mass. 684,492

Source: Food Industry Yearbook (New York: Profit Press, 1966), p. 40.

Table 2-3 Ten Leading Affiliated Independents of Both Types, 1965 Sales

1965 Sales
Firm (000)

Retailer-Owned Cooperatives
1. Wakefern Food Corp., Elizabeth, N.J. $410,400
2. Certified Grocers of California, Los Angeles, Calif. 345,000
3. United Grocers Ltd., Richmond, Calif. 221,000
4. Associated Wholesale Grocers, Inc., Kansas City, Kansas 155,000
5. Affiliated Food Stores, Dallas, Texas 142,000
6. Spartan Stores, Grand Rapids, Mich. 140,000
7. Associated Grocers of Colorado, Denver, Colo. 136,000
8. Associated Food Stores, Salt Lake City, Utah 129,000
9. Associated Grocers Co., St. Louis, Mo. 110,000
10. Associated Grocers, Seattle, Wash. 104,800
Voluntary Wholesaler Groups
1. Super Valu Stores, Hopkins, Minn. 584,234
2. Fleming Co., Topeka, Kansas 448,812
3. Alfred M. Lewis, Inc., Riverside, Calif. 300,000
4. Scot Lad Foods, Chicago, 111. 224,752
5. Malone and Hyde, Memphis, Tenn. 222,777
6. Super Food Services, Chicago, 111. 190,411
7. Consolidated Foods Corp., River Grove, 111. 182,000
8. S. M. Flickinger, Buffalo, N.Y. 154,045
9. Wetteran Foods, Stazelwood, Mo. 134,113
10. West Coast Grocery Co., Tacoma, Wash. 105,000

Source: Food Industry Yearbook (New York: Profit Press, 1966), p. 52.
 The Supermarket Industry 15

of the chains in size, but was originally more important as a sponsor

of independents. In 1963, the fifteen largest voluntary wholesalers
owned retail stores with combined sales of $224 million.11
Even the chains which own their own grocery stores have realized
the significance of cooperation at the wholesale level. Topeo Associ-
ates, Inc., is a buying cooperative for thirty-two food chains. This
enables such chains to compete with larger ones, for only A & P,
Safeway, and Kroger had greater retail sales in 1965 than the com-
bined members of Topeo. Other such chain cooperative groups exist.12

Supermarket Profits
Supermarket company profits on sales have traditionally been low.
In 1965, General Motors netted 9.9 percent on sales after taxes,
Ford Motor 6.1 percent, Standard Oil 9.1 percent, and General Elec-
tric 5.1 percent. An examination of the net profits after taxes as
a percentage of sales of the 500 largest manufacturing companies
listed in Fortune shows some with a lesser return, but most with
more.13
In nonfood retailing, Sears, Roebuck and Company, the largest,
earned 5.1 percent in 1965, J. C. Penney 3.4 percent, Montgomery
Ward only 1.4 percent, but F. W. Woolworth 5.1 percent—all except
Montgomery Ward substantially better than the ten largest supermar-
ket chains made in any of the ten years prior to 1966 (see Table
2-4). Indeed only Winn-Dixie consistently made more than 2 percent
on sales. The industry average, as Table 2-5 shows, has—except for
the year 1946—also remained below 2 percent. Profits of the indepen-
dents cannot be compared with the chains. In 1965, for example,
Super Valu Stores, the largest of the independents, made only 0.7
percent profit on sales. But these figures are based primarily upon
wholesale distribution operations and sales of services. They do not
reflect store sales of affiliated independents. The general belief in
the industry is that profits among the independent grocers include
some as high as 7 percent on sales, others quite low, with the average
profit probably not too much different from that of the chains.

" National Commission on Food Marketing, Food Retailing, op. cit., pp.
64-65.
12
Ibid., pp. 68-69.
13
Profit data are from Fortune, Vol. LXXIV, July 15, 1966.
16 Restrictive Practices in Supermarket Industry

Table 2-4 Ratio of Net Profit after Income Taxes to Net Sales for Leading
Food Chains, 1956-1965

Company by 1965 Sales Size 1956 1957 1958 1959 1960 1961 1962 1963 1964 196.5

The Great Atlantic and

Pacific Tea Co., New
York, N . Y . 0.9 1. 1 1. 1 1. 0 1. 1 1 1 1 1 1 1 0.8 0. 9
Safeway Stores, Oakland,
Calif. 1. 3 1 5 1. 5 1 5 1. 4 1 4 1 6 1 7 18 1. 5
The Kroger Stores, Cincin-
nati, Ohio 1 1 1. 2 1 2 1 3 1 3 0 9 1 0 1 1 1.2 1 1
Acme Markets, Philadel-
phia, Pa. 1 2 1 3 1. 3 1 1 1 3 1. 3 1 2 1. 2 1.1 0. 8
Food Fair Stores, Philadel-
phia, Pa. 1 6 1 6 1 4 1 5 1 4 1 .2 1 0 0 9 0.8 0. 9
National Tea Co., Chicago,
111. 1 1 1 .2 1 1 1 .1 1 .0 1 0 0 9 0 .9 0.9 0 8
Winn-Dixie Stores, Jackson-
ville, Fla. 2 1 2 .1 2 .1 2 .1 2 .2 2 .2 2 .3 2 3 2.3 2 2
Jewel T e a Co., Chicago, 111. 1..7 1 .7 1 8 1 .8 1 9 1 8 1..7 1. 5 1.6 1. 5
Grand Union Co., E a s t Pat-
eroon, N . J . 1 .3 1 .4 1 3 1 .2 1 .2 1 .1 0 .8 1..1 1.3 1..3
First National Stores, Som-
erville, Mass. 1 6 1 .7 1 6 1 .6 1 .5 1. 1 1 0 1 0 0.8 0 6

Source: 1 9 5 6 - 1 9 6 4 : National Commission on Food Marketing, Organization and

Competition in Food Retailing, Technical Study No. 7, 1966, p. 280; 1965: Standard
and Poor, Retail Trade Industry Survey, Vol. 135, No. 6, Sec. 1 (February 9, 1967),
p. R65.

When calculated as a percentage of invested capital, supermarket

profits are more respectable, but still often below those in comparable
industries. Table 2-6 compares profit as a percentage of invested capi-
tal in 1965 for the ten largest supermarket chains and the ten largest
nonsupermarket merchandisers. Except for Winn-Dixie, the most
profitable supermarket chain, and Montgomery Ward, the least profit-
able nonsupermarket merchandiser, the supermarket chains' return
is generally lower for comparable size concerns.
Comparison of return on investment between supermarket chains
and nonmerchandising companies is not too illuminating, not only
because of the different nature of operations, but also because of
the prevalence of leasing in the supermarket industry. Most chains
lease a considerable portion of their stores and land among other
assets. If these leased assets were capitalized, the percentage of profits
on net assets would appear substantially less.
 The Supermarket Industry 17

Apparently, the ease of entry into the supermarket industry in-

sures a continuation of intense competition and low profit margins.
A recent study by Standard and Poor's credits "overstoring"—that
is, an excessive number of stores located in an area—as a principal
reason for low returns on sales.14 Others cite the entry of the "dis-
count houses"—stores with reduced prices and services as a reason
for low profit margin. Some of these discount food stores are depart-
ments of nonretail food dealers, including such discounters as E. J.
Korvette and Two Guys from Harrison. Food departments of gen-
eral merchandise discount stores are not included in census data on
food stores. The sales of such food departments increased from $400
million in 1960 to $3.4 billion in 1965, up from 0.8 percent in 1960
to 5.7 percent as large as grocery store sales in 1965.15
Discount grocery stores which are "free-standing"—that is, not
departments of other merchandising stores—accounted for $3 billion
in sales, or 5.1 percent of all grocery sales in 1965. Most such stores
are converted supermarkets. 16
Another bite into the sales and profits of the standard supermar-
kets has been made by the convenience stores, which between 1960
and 1965 increased from 1,500 to 6,000 and by the latter year ac-
counted for 1.4 percent of all food store business. These are small
stores, doing $100,000-$300,000 business annually, specializing in
quick service, long hours, and prepackaged merchandise. Usually,
these stores are franchised. Their sales of delicatessen items, the
most profitable line in supermarket meat departments, has cut into
supermarket profits in some areas.17
Although new developments are important, one must bear in mind
that supermarket profits are not significantly lower than they were
ten years ago. What apparently has occurred in the industry is that
the ease of entry has maintained competition at an intense level;
but the independents, by affiliation with wholesalers, or through the
establishment of cooperative buying groups, have been able to outstrip
the chains. The reasons for this are found both in the changing en-
14
"Retail Trade Chain Stores," Standard & Poor's Industry Surveys, 1965,
p. R 73.
15
National Commission on Food Marketing, Food Retailing, op. cit., p.
164.
"Ibid.
17
Ibid.
18 Restrictive Practices in Supermarket Industry

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 The Supermarket Industry 19

Table 2-6 Net Profit as a Percent of Invested Capital, 1965 Comparison of

Ten Largest Supermarket Chains with Ten Largest Nonsupermarket
Merchandising Firms

Supermarket Chains NonSupermarket Merchandising Firms

Percent Profil on Percent Profit on

Firm Invested Capital Firm Invested Capital

The Great Atlantic & Pacific Sears, Roebuck 14.8

Tea Co. 8.8 J . C. Penney 18.1
Safeway Stores 13.9 Montgomery Ward 3.6
Kroger Stores 12.8 F. W. Woolworth 11.6
Acme Markets, Inc. 6.6 Federated Department
National Tea Co. 8.9 Stores 15.5
Food Fair Stores, Inc. 9.3 Allied Stores 9.4
Winn-Dixie Stores 22.1 McKesson & Robbins 9.4
Jewel Tea Co. 12.8 May Department Stores 12.7
Grand Union 11.2 S. S. Kresge 10.2
First National Stores 2.9 W. T. Grant 16.6

Source: Fortune, Vol. LXXIV (July 15, 1966), pp. 256-257.

vironment of the industry and in the uneven impact of two outside

groups: (1) the federal government, particularly the Antitrust Divi-
sion of the Department of Justice and the Federal Trade Commission,
and (2) trade unions.

Changing Industrial Environment

The corporate chains and affiliated independents both grew rap-
idly after World War II. Increased consumer mobility, high consumer
income, sales of nonfood items in supermarkets, new shopping cen-

NA—Not available.
1
The ratio based on assets was computed by adding "interest paid" to profits and
then dividing by "total assets." This procedure avoids the bias which would result
from variations in the ratio of equity to debt financing.
* Equity data not available in these years.
3
"Source Book" data was not published for 1952.
4
For 1962 data, the "Source Book" did not provide sufficient assets size classes
to ascertain these figures separately.
Source: Source Book, Statistics of Income, Corporation Income Tax Returns,
Internal Revenue Service, 1938-62. Table prepared by Federal Trade Commission.
Reproduced from National Commission on Food Marketing, Organization and
Competition in Food Retailing (Washington: Government Printing Office, 1966),
Technical Study No. 7, pp. 284-285.
20 Restrictive Practices in Supermarket Industry

ters, and elimination of less efficient nonaffiliated independents, all

fed the growth of supermarkets.
Then as the National Commission on Food Marketing noted:

The late 1950's and early 1960's marked a change in behavior and
growth patterns in most markets in the United States. The replacement
of small stores by supermarkets in most areas slowed considerably. This
came about because the most vulnerable small stores were gone, and
the need for new, larger supermarkets was pretty well filled. In many
instances, a new supermarket did not eliminate more small stores but
simply diverted business from an older supermarket. Thus, on the whole,
a saturation point was reached, with supermarkets doing two-thirds of
the grocery store business. The other third went through convenience
stores and other small stores. While supermarkets have experienced a
great increase in popularity, they probably never will get all grocery store
business. The convenience store also has increased in popularity and some
consumers prefer the small store.
This saturation point occurred at different times in different areas
but generally had the effect of changing the rate and type of growth
and development of food retailing. In the postsaturation period, growth
of all companies has been slower, but smaller companies seem to be
able to grow more easily than the largest companies. The rate of growth
in share of grocery business done by chains and affiliated independents
seems to have subsided. The emphasis of competition has focused much
more attention on the local environment rather than allowing homogeneity
of policies and procedures over wide geographic areas.18

The new competition found corporate chains at some disadvan-

tage. These chains had revolutionized the business by integrating
wholesaling and retailing. They had many other advantages—-greater
access to capital, preference for shopping center locations because of
assurance of an automatic consumer following as well as of capital,
specialized personnel and central staff, facilities to train personnel,
joint advertising by many stores in an area, and ownership of manu-
facturing and processing plants. But by 1960 these advantages seemed
to have been overcome by the affiliated independents.
Table 2-7 shows expenses as a percentage of gross sales in the
supermarket industry. An examination of the relative impact of these
costs on corporate chains and affiliated independents will help to

"Ibid., pp. 33-34.

 The Supermarket Industry 21

demonstrate how the independents overcame the chains' once strong

advantages.

Cost of Goods Sold and Facility Integration

By far the most significant cost to supermarkets is the cost of

goods sold. Hence purchasing policy is a key to successful and profit-
able operation. Today 90 percent of all supermarket operations are
in some manner related to a wholesale purchasing facility, either by
a wholly-owned chain or through an affiliation. This indicates the
importance of quantity purchasing in the industry.
In addition, vertical integration has been furthered by purchasing
requirements. All the larger chains, as noted, own food manufacturing
and processing facilities. Food manufactured by the forty largest
chains in 1963 was 16.3 percent of the estimated wholesale value
of their food store sales of manufactured food products, 19 and captive
canneries, packing plants, bakeries, freezer plants, and a great variety
of others are included in this integration.

Table 2-7 Expenses as a Percentage of Gross Sales Typical Supermarket

Industry Breakdown

Item Percent of Gross Sales

Cost of Goods Sold 80.0

Operating Expenses
Store Labor 7.5
Store Supply 0.8
Store Rents, Real Estate 1.5
Utilities 0.5
Advertising and Promotion 2.7
Administrative and Other 5.2
Total Operating Expenses 18.2
Operating Profit ~L8

Based on data published in Progressive Grocer and b y Super Market Institute, Inc.

On the other hand, integration is acquired by affiliated indepen-

dents almost wholly through wholesale connections. Only seven of
the fifteen largest voluntary and fifteen largest cooperative groups
manufactured any products, and two of these made up over two-thirds

"Ibid., p. 79.
22 Restrictive Practices in Supermarket Industry

of the total. Coffee roasting, dairy products, and bakeries comprised

most of these operations.20
The lack of vertical integration does not seem to have affected
the affiliated group adversely. According to the National Commission
on Food Marketing, purchasing behavior among food retailers during
the past thirty-five years was so altered that the independent retailers
associated with efficient wholesalers do not believe that they are at
any buying disadvantage relative to corporate chains. Rather they
feel that the ability to compete depends more upon selling costs and
strategies than upon purchasing capabilities.21 Of course, the Robin-
son-Patman Act, which forbids sellers to discriminate among com-
panies precludes food manufacturers from favoring the corporate
chains over the independents.
Also, despite the alleged purchasing disadvantages which the
affiliated independents might suffer because of the vertical structure
of the corporate chains, the National Commission on Food Marketing
in-depth study of two markets showed that small local chains and
affiliated independents had lower retail prices, lower gross margins,
and lower operating expenses than large chains. This is true despite
the fact that the affiliated independents appeared to have a buying
disadvantage relative to corporate chains of about one percent or
less in price.22
We must conclude, then, that the rise to pre-eminence of the
affiliated independents does not appear to be the result of any pur-
chasing advantages that they have, but rather that through other ac-
tivities, they have been able to overcome the purchasing advantages
of the corporate chains.

Advertising and Promotion Expense

Advertising and promotion expense is largely a function of the

sales policy of a particular chain or affiliated independent. It is quite
difficult to believe, however, that either group has a marked advantage
in this respect. Competition is on a local basis; both chains and

"Ibid., p. 87.
21
"Findings and Recommendations of the National Commission on Food
Marketing," Progressive Grocer, July 1966, p. A-12.
22
National Commission on Food Marketing, Food from Farmer to Con-
sumer, (Washington: Government Printing Office, 1966), p. 79.
 The Supermarket Industry 23

affiliated independents have access to radio, television, and news-

papers. Both use trading stamps in some cases and do not use them
in others. In the final analysis, competitive factors are likely to dictate
expenditures upon advertising and promotion.
Under these circumstances, it is interesting to note that since
1954, the advertising and promotional expenses of large chains have
risen faster than those of small firms, a fact attributable largely to
the greater use of trading stamps by the larger chains than by inde-
pendents.23 Again the size advantages of the chains appear to have
been counterbalanced by the smaller companies' superior adaptability
to local conditions.

Store Rent, Real Estate, and Utilities

Table 2-8 shows that the costs of store rent, real estate, and utilities
have been increasing relative to sales since 1954. Since corporate
chains probably have easier access to capital than do independents,

Table 2-8 Supermarket Store Rent, Real Estate, and Utilities Expenses as
Percentage of Sales, 1954-1964

1964 1966 1968 1960 1961 196S 196S 1964

Store Rent and Real Estate 1.0 1.1 1.2 1.3 1.4 1.5 1.5 1.5
Utilities 0.5 0.5 0.6 0.6 0.6 0.7 0.7 0.7

Source: Food Industry Yearbook (New York: Profit Press, 1965), p. 31.

and can often obtain financing at lower rates of interest, they would
seem to have an advantage even though costs have been rising. Ob-
viously this has not proved crucial in the industry's development.

Administrative Expenses
Fortune magazine quoted a Super Valu franchise holder, de-
scribed as "a former chain-store manager," as follows:
By belonging to a voluntary group, I can get everything the chain
store gets, but I keep the profits and I can run the store the way I want.
I can take anything my supply depot has to offer or leave it alone. Let
23
National Commission on Food Marketing, Food Retailing, op. cit., p.
249.
24 Restrictive Practices in Supermarket Industry

me tell you, that's an advantage no chain-store manager ever has. He's

saddled with supervisors and has to do it by the book.24
Although these comments may well exaggerate the differences
between the corporate chain-store manager and the affiliated inde-
pendent store owner, it seems reasonable to conclude that the very
nature of their organization requires the chains to be less flexible
and to have higher administrative expenses. Also the National Com-
mission on Food Marketing noted:
Since some of the advantages of chain operation accrue from duplicating
the same type of operation in many places, an inherent disadvantage is
its inflexibility and difficulty in responding to unique conditions in a par-
ticular environment. Chain store organizations have echelons of top man-
agement not found in small business, and this "headquarter division"
builds in some overhead costs that the small business does not have.25
This is not to imply that the chains are necessarily overstaffed.
Rather it is a recognition that although bigness has advantages, it
has disadvantages too. Among the latter are likely to be higher ad-
ministrative expenses.
Perhaps more significant than administrative expense in large or-
ganizations versus smaller ones is administrative flexibility. The com-
petition in the industry since 1957 has required maximum flexibility
and adaptation to local situations. "The inflexibilities of chain type
operations and homogeneous policies across heterogeneous areas be-
came a significant deterrent to chain expansion—particularly because
the competition (the affiliated independent) was able to adopt the
advantages of the chain store without the inflexibility." '"
It seems reasonable, therefore, to conclude that the affiliated inde-
pendents' smaller administrative expenses and greater administrative
flexibility have been a factor in their gains since the late 1950's.

Store Supply Expense

Such supplies as grocery bags cost less than one percent of gross
sales and are not likely to be too different as between corporate chains
and affiliated independents.
" Freedgood, op. cit., p. 130.
3
National Commission on Food Marketing, Food Retailing, op. cit., p.
35.
" Ibid., p. 37.
 The Supermarket Industry 25

Store Labor Expense

The supermarket industry is a labor intensive one. Store labor
accounts for almost one-half of all operating expenses (See Figure
2-2), although only about 7.5 percent of total expense. Since adminis-
trative and other expense categories are also composed of labor, it
is likely that labor expense may represent as much as 60 percent
of total operating expenses.
The leverage of this expense in the supermarket industry is very
great. As the McKinsey & Co. study of the industry stated:

. . . there are few industries in this country where a 10 percent cut in

the major labor costs would boost corporate profits before taxes by one
quarter. . . .
While the above figures demonstrate the opportunity in effective labor
expense control, another set of numbers underscores the need. Wage rates
have been spiraling upward in food retailing. . . . studies show a 5.8
percent average increase each year over the last 10 years [1953-1963].
At the same time, productivity has been increasing but not nearly as
fast (2.2 percent a year). The result? In just three years the profits of
our representative store could be cut by over one-third simply from this
wage-rate/productivity differential. . . ,27

To what extent may trends in labor costs have affected the growth
of corporate chains and affiliated independents? The answer depends,
of course, on the relative impact of labor costs and labor productivity
among various firms in the supermarket industry. This, in turn, is
likely to be directly related to the relative impact of unionization.
Moreover, union rules can affect not only wages, fringes, and effi-
ciency and productivity, but degree of customer service rendered.
We must, therefore, postpone our analysis of the impact of Labor
costs until Chapter 4, in order to set forth in Chapter 3 the necessary
background of the rise and significance of unions in the supermarket
industry.
The balance of this chapter is devoted to a summary of the sig-
nificance of antitrust enforcement in the industry. The importance
of antitrust activity—and unionization—on the industry's structure
and growth is suggested by the following terse comment in a National
21
McKinsey—General Foods Study, The Economics of Food Distributors
(White Plains, N.Y.: General Foods Corporation, 1963), p. 23.
26 Restrictive Practices in Supermarket Industry

Figure 2-2 Retail Operating Expenses as a Percent of Sales and

as a Percent of Total Operating Expense
Percent Percent
of Sales INTEREST MAINTENANCE of Expenses

0.2

0.4
UTILITIES
0.7
STORE SUPPLIES
0.7
EQUIPMENT DEPRECIATION & RENTAL
0.8
0.8
MISCELLANEOUS EXPENSE

1.1 ADVERTISING & PROMOTION

(EXCL. TRADING STAMPS)

1.3 TRADING STAMPS

1.8
RENT & REAL ESTATE

2.2 ADMINISTRATIVE

8.5 STORE LABOR

18.5% 100.0%
Source: Derived from Figure Exchange, Super Market Institute, 1964.

Reproduced from National Commission on Food Marketing, Organization and

Competition in Food Retailing (Washington: Government Printing Office, 1966),
Technical Study No. 7, p. 234.
 The Supermarket Industry 27

Commission on Food Marketing report—(a comment, incidentally,

never explored nor further examined by the Commission) :

A large chain organization is a conspicuous target for labor unions

and enforcement agencies administering national antitrust programs. It
may follow that chain stores will be unionized earlier and competitive
practices will be kept under closer surveillance than is the case with
independents. 28

The Antitrust Impact

Vigorous antitrust activity in the supermarket industry dates from
the late 1930's when an attempt was made by the Department of
Justice to force the A & Ρ to divest itself of some of its integrated
operations, upon which the Department blamed A & P's ability to
sell at lower prices than some of its competitors and thus to attract
customers. This long and bitter case failed to achieve the government's
objective.29
Since that time a number of chains including Safeway and Kroger
have been the subject of investigations, orders, or court cases on
the part of either the Department of Justice or the Federal Trade
Commission. Nevertheless, the period between World War Π and
1958 saw a number of amalgamations as major chains purchased
smaller regional groups. Such organizations as Kroger, Food Fair,
Acme, National Tea, Jewel Tea, and Winn-Dixie expanded, not only
from internal growth, but also through this acquisition program. The
course of mergers between 1949 and 1963 is portrayed in Figure
2-3. Then in 1966 a definite stop was ordered. The United States
Supreme Court ordered Von's, a regional supermarket on the West
Coast, which with its acquisition controlled only 7.5 percent of the
Los Angeles market, to divest itself of that acquisition even though
its competitors in the area included A & P, Safeway, Kroger, Acme,
and Food Fair—the first, second, third, fourth, and sixth largest
chains, plus several significant regional and local competitors.30

"National Commission on Food Marketing, Food Retailing, op. cit., pp.

35, 37.
31
The A & Ρ case is discussed in Morris A. Adelman, A <t P: A Study
in Price Cost Behavior and Public Policy (Cambridge, Mass.: Harvard Uni-
versity Press, 1959).
30
Von's Grocery v. United States 384 U.S. 270 (1966).
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