First, supermarket competition is among the keenest, if not the keenest, in any industry; net earnings, after taxes, being slightly over 1 percent. If there is one area in which there is no mystery left pricewise, it is in the consuming public's knowledge of their food costs. Because she buys these items so frequently, and because advertising is so extensive, the average shopper knows exactly what she is paying for items. No one can fool her. Any merchant trying to increase his margins would be shortsighted indeed, and would soon feel the impact of his customers' disfavor by loss of volume. Regardless of what promotional avenue any organization uses, whether it includes stamps or not, his prices must, therefore, remain strictly competitive. Second, there is another development going on in food distribution of which you gentlemen may not be fully aware but which is leaving its impact on our industry and affecting the overall price spread. This is the demand of the public for an ever-increasing degree of prepreparation of foods by the grocer. This has come to be known in the trade by the name "built-in maid service." Since domestics for housework have become scarce and expensive, and since an ever-increasing number of our women are being employed outside the home, and for numerous other reasons, there has been a greater need for this prepreparation of foods. Manufacturers and processors have gone a long way in this direction, and today there are literally hundreds of items in this category running from delicatessen items to frozen dinners and packaged mixes. In the past generation it has developed to such an extent that surveys show it takes the average woman less than 1 hour to prepare a meal which used to take her an average of over 4 hours. Of course, this has meant added costs and, necessarily, has increased the price spread between the raw product and the finished one. However, the percentage profit of markup that the supermarket industry has obtained still remains essentially the same. Third, there is a saying in our industry, "That you have to run like the devil to stand still." As facetious as this may sound at first glance, it is only too true; because in our dynamic, aggressive, fast-moving industry, keeping pace with all the new developments is a primary must. The man who does not, soon finds his competitor overtaking him. Thus you see bigger and more beautiful markets, with ever-increasingly new types of modern equipment, being opened throughout the country. An average large market today can represent an investment of from a half million dollars on up. In order to make such an investment pay off, it is obvious that a large volume of business is necessary. Therefore, every possible promotional and advertising medium is employed to bring this result about. Anything and everything that might have any value to the consuming public is employed as attraction and as giveaway, from countless small and large household items, to new homes, expensive clothing-such as furs and so forth, to cars-both large and small, trips to short and distant points, going almost anywhere in the world, and so forth. Two large chains in our area just recently advertised giveaways of approximately a quarter of a million dollars apiece for a given area of their respective organizations. In lesser or greater degree practically every operator in our industry does the same thing. No one questions the right of any organization to use these methods, and what is more important here, no one questions whether prices are increased to cover these giveaways. Everyone knows that competition would not permit any such increases and, therefore, the giveaways are genuine. Volume is the soughtafter goal at very high promotional costs. Why then should it be any different for the organization seeking the same result through trading stamps? Stamps as a promotion medium have, in the greatest majority of cases, done all that these other types of promotional campaigns have accomplished, with two major plusses. It gave the wide-awake merchant everywhere, who promoted stamps aggressively, and whether he had new stores or old, whether he was large or small, the medium through which he could increase volume and customer loyalty. Through this increased volume the merchant was in a better position to do more for his customers, and thus each customer participated in the extra savings, in proportion to her purchases, through stamps. There is a very simple, yet very important, merchandising principle involved here. Any given retail store does a specific amount of business which, with very rare exceptions, is considerably below what the location could do as a maximum volume. Any increase beyond an average normal volume gives that business a greater potential return. Stamps, when promoted properly and aggressively, have proven to be large-volume getters. It is not unusual for stores issuing stamps to increase their volume by 20 to 50 percent or more, on the average. It has been variously estimated, in supermarkets, that the total cost of stamps is fully covered by approximately the first additional 10 to 15 percent of volume increase. Largely, the only added cost involved is a minor extra labor one, because other overhead remains essentially the same. This percentage has been found to more than amply cover the extra stamp cost. Any increase in volume beyond this, therefore, becomes plus-dollar profit for the operator, with no changes in selling prices. In this simple merchandising truth lies the success and/or failure of any individual stamp-giving concern. Most businessmen have gone well beyond the needed volume increase and are, therefore, enjoying larger returns than previously, while at the same time giving their customers this added bonus saving that comes from stamps. A reliable stamp program, therefore, benefits both consumer and merchant. To further prove our contention as correct, we have but to cite the results of certain studies and surveys made in various parts of the country covering the price comparisons or percentage comparisons of stamp and nonstamp users. The recent Boston College survey, as brought out here, is one such example, as is Dr. Phillips; as are many others carried from time to time in our trade periodicals. The Federal Trade Commission in its analysis has many such percentage comparisons. We were one of the companies who sent the Commission our figures. In our case, through increased volume our gross markup percentages through 1956, after we had employed stamps for 4 years, were essentially the same as they were in 1951, before we issued stamps. To further prove our contention, we are submitting herewith two separate and distinct surveys made in our area covering all our major competition. The first survey was made just a year ago for presentation at a similar hearing on trading stamps, ordered by Governor Harriman of New York State. The second one was made on the day before yesterday, Monday, October 7, 1957, and covered essentially the same organizations. In both instances the following methods were employed. Responsible men, holding executive positions, were sent to each organization included in these surveys and instructed to obtain every possible price they could of identical, nationally advertised items. Any items that could be classed as the same quality, or almost the same but which were other than identical were not used. These lists, therefore, include items of companies like Del Monte, Campbell's, Procter & Gamble, Colgate, General Mills, Pillsbury Mills, General Foods, Standard Brands, Beech-Nut, Heinz, and so forth. In the 1956 survey seven organizations, including all our major legitimate competition, were covered, namely: our own, central markets, chain A, chain B, chain G, chain D and chain E, and our largest independent-operator F. (Chains A, B, and G are national chains, chains D and E are sectional.) At the time, central markets, chains B, G, and D issued stamps, while chains A and E and operator F did not. We found 139 identical categories in all 7 organizations. By categories we mean any grouping of any individual line of items, as for, example, baby foodswhich number 114 different items-were only listed by their 6 price ranges: Campbell's soups were listed only by 2 different price ranges rather than the 34 varieties, and so forth. Actually, therefore, these 139 categories represented many times their number in individual items. The survey, furthermore, was made on Monday when all prices were regular-that is, they were not in any way distorted by weekend specials. All lists were verified and signed by all the men obtaining them, and notarized. Thus, some stamp-issuing stores actually showed lower pricing than non-stamp-issuing stores. Taking an average of both groups, there is a difference of approximately one-tenth of 1 percent. When you add in the 22 to 3 percent retail value of the stamps to the consumer, the tremendous savings enjoyed by the stamp-issuing stores' patrons are apparent. We went one step further on this survey. We found that in comparing our central market prices with one other organization-chain A, our largest competitor-we came up with 239 categories that were identical. Because among these categories are our fastest moving items, these could possibly represent a third to one-half of our dollar volume. This showed the following: Central markets, with stamps--- $97.63 97.65 Here again central markets' totals, plus stamps, were less than chain A, without stamps, plus the savings represented by stamps. This year we followed the same basic format except that we increased the categories by as many as it was possible to include on comparatively short notice. However, one of the organizations in the iterim-chain G-has discontinued giving stamps in this area and is using a self-liquidating premium program. (This same organization, however, is still issuing stamps in their stores in other territories, so we must assume this discontinuance is experimental.) Thus, this year we have central markets, chain B, and chain D as stamp-issuing companies, and chains A, G, and E as non-stamp-issuing companies. In 351 identical categories we find : The stamp-issuing companies here show 73 cents lower average, or better than 2 percent lower. Again, when we add the value of the stamps, the stamp-issuing companies are giving the consumer an additional 21⁄2 to a 3 percent price advantage. Here again also, we took the total of 492 categories which were identical, between central markets and chain A, and found that central totaled $252.45, and chain A totaled $253.58, a difference of $1.13, or almost one-half percent lower pricing by central, plus the 22 to 3 percent extra stamp saving. We repeat, gentlemen, this was an impartial, objective survey made just 2 days ago. From what we have seen, we sincerely believe that wherever real, honest to goodness, factual surveys and comparisons are made, that the propaganda issued by the opponents of stamps is completely unfounded in fact. To prove this still further, we would respectfully suggest, and strongly recommend that additional surveys be made of the prices charged by organizations or individuals who clamor loudest about the injustice of stamps, as against their responsible legitimate stamp-issuing competition. We sincerely believe that the facts borne out by all the surveys would again repeat themselves. Theirs is the cry of the inefficient who are looking for someone to pull their chestnuts out of the fire. The facts speak for themselves, gentlemen. The American buying public is not easily taken in, and is quick to recognize real value and to support it. That is why trading stamps have stood the test of time, have made such great strides and will continue to do so. Mr. COOLEY (presiding). Thank you. Mr. GALUB. That is my full statement. I have here copies of the surveys which I would like to put into the record. Mr. COOLEY. You may give them to the clerk. They will be filed with the committee report. (The surveys will be found in the files of the committee.) Mr. COOLEY. Do you use stamps in all of the stores? Mr. COOLEY. From what sources do you obtain them? Mr. COOLEY. Do you have any stock in any of them? There is not a bit of connection between us and the S. and H. other than we purchase the stamps from them. We made the survey on our own. We had these copies made up at our own expense. S. and H. had nothing to do with it at all. In fact, I would say that today is the first they know of this, of these surveys and what we have done. There is absolutely no connection between us other than we purchase stamps from them. Mr. COOLEY. You think that the users of stamps are actually involuntary? Mr. GALUB. I believe nothing can be further from the truth. We are free agents in a free economy. If we felt that stamps were not doing a good job and that we were not competitive and that we were doing both our consumers and ourselves good, there is no power on earth that says that we have to stay in stamp issuing. There are just as many large chains in our area that do not give as do give. And even if there were more the advantage of a good merchandising program, whether it be stamps or any others, has to benefit an organization if it is aggressive and does the job right. Mr. COOLEY. In other words, you would not hesitate to discontinue the use of stamps in any one or more of your stores if you thought that it was in the interest of good business to do so. Mr. GALUB. That is right. We feel that it is in the interests of good business not to do so and that is why we are promoting them at all times. Mr. COOLEY. We thank you very much for your statement. We are very glad to have had you with us. Mr. GALUB. Thank you. (Without objection by the chairman the following statement was submitted to the subcommittee and is inserted in the record as follows:) STATEMENT OF HAROLD S. RAAB, EXECUTIVE SECRETARY, TRADING STAMP INSTITUTE OF AMERICA Mr. Chairman and members of the committee, my name is Harold S. Raab, and I am executive secretary of the Trading Stamp Institute of America. I am a member of the New York bar, associated with the firm of Patt & Heimowitz, of this city, and have been, for some time now, an active participant in the various aspects of the trading stamp industry. I should first like to express my appreciation to the members of this committee for permitting me to say the very few words I shall say upon the general subject at hand. Because I feel that an inquiry of this nature must receive highly specialized and factual knowledge and information which I, in utter frankness, am not prepared to give, I have asked Dr. Charles F. Phillips, an economist of great stature in this country, to present our point of view to the committee. We are happy that Dr. Phillips has accepted this assignment, and |