Fluid Pricing : Consumer Group Says Big Grocers Gouge on Milk; Chains Cite Higher Costs
Big supermarket chains in Los Angeles and Orange counties are charging excessively high prices for milk, according to Consumers Union, the publisher of Consumer Reports magazine.
After conducting a 79-store survey in the Southland earlier this month, the consumer organization concluded that big grocers are gouging consumers. The study, released to The Times on Tuesday, showed a wide chasm between prices charged by large chains and those at mom-and-pop stores--with stores such as Vons, Ralphs and Lucky charging $1.50 to $1.70 more per gallon.
Supermarkets disputed the suggestion that they are gouging, noting that rising prices instead reflect a variety of factors, including higher costs paid to dairy farmers.
“The supermarket retailers know that there is no reasonably priced, nutritional alternative to milk and that consumers will continue to buy it at almost any cost,” said Elisa Odabashian, a policy analyst for Consumers Union and the report’s author. By charging as much as 74% more than many of the small stores, she added, “they’re taking advantage of consumers, particularly poor families with children.”
The fact that milk prices have soared this year will come as no surprise to many grocery shoppers. After years of relative stability, prices nationwide have moved up by 6% since December.
Driving the increase is a steady climb in the prices paid to farmers for fluid milk. This so-called farm-gate price is determined by the federal government or, in California, by the state Department of Food and Agriculture. Neither the federal nor state government, however, has any control over the wholesale or retail pricing of milk.
Milk prices are routinely higher in the West than in the nation as a whole, in large part because of higher processing, transportation and other costs, according to the U.S. Department of Agriculture.
Consumers Union said in its report that it was troubled by a seeming lack of competition in milk pricing among the major grocery chains. The Southland grocery industry has undergone a great deal of consolidation in recent years, with the most recent merger occurring between Ralphs and the company that owns the Food 4 Less warehouse stores. Vons and Ralphs have also shuttered stores operated under separate banners--Tianguis and Giant, respectively--that failed to thrive.
Grocery companies in recent years have wrangled with state officials over the issue of whether fewer big chains means less competition on pricing. But the mergers have continued.
In a survey released last month, Consumers Union found even greater uniformity of milk prices among Bay Area supermarket chains. There, too, smaller independent stores sold milk at much lower prices.
The “apparently odd” pricing pattern piqued the interest of Thomas Greene, chief of the antitrust section of the California attorney general’s office, who told Consumers Union in a letter that a staff member would follow up on the issue.
Food retailers took issue Tuesday with the gouging allegation, citing a litany of factors that have driven up the price of milk.
“It’s costing Vons more to supply the milk,” said Doug Hendrix, a spokesman for the 325-store Vons Cos. in Arcadia, which operates Vons and Pavilions stores in Southern California. “We don’t like to have to [raise the price] on a staple item.”
Higher costs for grain and fuel have made it more expensive for Vons to process and transport milk under its Jersey Maid and Westwood labels, Hendrix said. The hot summer also depleted cattle, reducing the amount of milk produced by about a gallon per cow. Moreover, grain prices rose prohibitively earlier this year, forcing some dairy farmers out of the business. All this has combined to boost prices and flatten the supply of fluid milk at a time when economic recovery is prompting robust demand for dairy products.
“We attempt to stay competitive in the marketplace,” Hendrix said. “If you look at aggregate averages of products, you’ll find we’re very competitive.”
Even Lucky Stores, which promotes itself as the leader in offering so-called everyday low prices, came in on the high side in the survey, charging $3.87 for a gallon of whole or 2% milk under the Lady Lee label.
Neither Lucky nor Ralphs responded to requests for interviews.
By contrast, Ranch Market, which operates four stores in central Los Angeles, chalked up the lowest price for a gallon of whole or 2% milk: $2.29.
“One of our strategies is to try to get the things that consumers need and price them fairly, particularly in the inner city,” said Mike Bell, general manager and food buyer for Ranch Market, a four-store chain in Los Angeles. The chain caters primarily to Latino and African American patrons.
Shoppers at a Pavilions store in Culver City on Monday evening said they were displeased about the bump-up in milk prices--but not enough to stop buying the product.
“I’m not happy with it, but what can you do?” said Ladera Heights resident Tricia Phillips. Milk at her neighborhood Sav-On drugstore, she noted, is typically cheaper, but “it’s just more inconvenient” to have to make several stops to complete her shopping.
She won’t shop at a store unless it offers a price break on two-gallon packs of milk. At Pavilions, she loaded a two-pack of Westwood milk into her shopping cart, at a price of two gallons for $4.87. She and her 4-year-old daughter, Hillary, and husband, Joseph, down that much milk in about 10 days.
At first glance, it might seem surprising that big chains, with their perceived economies of scale, would charge so much more for milk.
But Jim Miller, an agricultural economist with the U.S. Department of Agriculture in Washington, noted that “milk pricing is a rather perverse thing.”
Some small stores will sell milk at low prices to lure customers and then make up their margins on other items such as potato chips, beer and soft drinks. For big stores, a variety of costs and pricing strategies go into the mix.
Miller said a price survey based on a single product creates “a weak basis for comparison.” He noted that a more meaningful comparison is derived from a “market basket” survey, which looks at the total bill for a number of items. As for big chains charging more for milk, he said, “it’s difficult to impose a moral code, if you will, on retailers.”
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Got Milk?
A survey of 79 grocery stores in Los Angeles and Orange counties by the Consumers Union has found that larger grocers charge significantly more for milk than do mom-and-pop outlets. A look at the price for a gallon of whole milk at a sampling of Los Angeles County grocery stores:
Store City Price
Vons West L.A.: $3.99
Ralphs Torrance: $3.99
Lucky Northridge: $3.87
Woodley Market Encino: $2.99
Trader Joe’s Granada Hills: $2.79
Ranch Market Los Angeles: $2.29
Source: Consumers Union, West Coast regional office
