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Retail milk prices continue to climb in the San Francisco Bay Area, despite the fact that the price dairy farmers receive for their milk dropped 20%, or $ .30 per gallon, as of February 1, 1997. In February, Consumers Union, nonprofit publisher of Consumer Reports magazine, surveyed milk prices in 108 food stores in four counties throughout the Bay Area. Consumers Union's previous milk survey, conducted in September, 1996, found that gouging by grocers, particularly large supermarket chains, was a primary cause of surging milk prices. This latest survey supports those earlier findings of gouging by grocers on milk and, further, highlights the widening gap between the price farmers receive and the price consumers pay for milk. We define "gouging" as taking advantage of consumers' needs by exacting a price that is excessively high and non-competitive. Grocers hike the price of milk in order to make the highest possible profit on one of the most necessary foods for the healthy growth of children.
Consumers Union's newest milk price survey shows, as did last September's survey, a vast range of prices at which Bay Area consumers can purchase a gallon of milk (even the same brand of milk), from $2.06 per gallon on the low end to $3.85 per gallon on the high end--a difference of $1.79 per gallon or 87%. Large supermarket chain stores are charging among the highest prices--as much as $1.14 more per gallon than the local Mom-and-Pop grocer. This 44% higher price by the supermarket chains actually represents a decrease--last September, the gap was 56%. Unfortunately, the slight closing of the gap between supermarket prices and small neighborhood market prices for milk during the las t six months is due more to a rise in the smaller market milk prices than to a decrease in supermarket prices. Of the San Francisco smaller markets surveyed by Consumers Union last September, 77% of them have increased their milk prices by 8-9%. This, despite a $ .30 per gallon or 20% decrease in the farm price as of February 1, 1997.
There is also a wide range of prices consumers pay for the exact same brand of milk. In San Francisco, the range of prices for Berkeley Farms brand milk is $2.59-3.73 per gallon, a difference of $1.14 or 44%. In Marin, the range of prices for Clover brand milk is $2.95-3.59 per gallon, a difference of $ .64 or 22%.
One notable change in supermarket milk prices since last September is a $ .24 drop in the price of a gallon of milk at Safeway stores. Last September, Safeway stores were charging $3.73 per gallon of whole milk in San Francisco, and $3.39 per gallon in Marin county, the East Bay, and on the Peninsula. In February, Safeway stores were charging $3.49 per gallon in San Francisco, and $3.15 per gallon in Marin county, the East Bay, and on the Peninsula. This 6-7% drop in Safeway's milk price is a commendable effort to pass on to consumers the $ .30 decrease in the farm price. Milk prices at other Bay Area supermarket chains, such as Cala Foods/Bell Markets, Lucky, Falletti Foods, Andronico's, and Petrini's, have either increased or remained unchanged since September. These supermarkets remain at the top of the price survey, charging considerably more for milk than do many smaller neighborhood markets.
The farm price for milk is regulated in California. Dairy farmers cannot be paid less for their milk than a minimum set by the California Department of Food and Agriculture (CDFA). Retail milk prices are not regulated in California, but grocers are prohibited from selling milk for less than their actual costs. With no cap on retail prices, grocers are free to charge as much as they want for milk as long as they do not sell it for less than their actual costs. Our September 1996 survey reported that regulation of farm prices by the state was the reason many grocers gave for charging consumers exorbitant prices for milk. A number of stores displayed conspicuous signs explaining the increases in retail milk prices as beyond retailers' control due to regulation of milk prices by the CDFA. Dairy farmers are being falsely blamed for the retail price of milk, and according to a recent article in the Wall Street Journal, "what particularly irks dairy farmers is that they spent $70 million last year on their "Got Milk?" advertising campaign designed to shore up U.S. consumption. Farmers feel that retailers are reaping most of the benefits."1 This frustration was especially felt by California farmers on February 1, 1997, when the regulated farm price for a gallon of milk dropped by 20% or $ .30 per gallon. One farmer wrote us, "I doubt the retail price for milk to consumers will drop $ .30 per gallon."2
On October 29, 1996, the Department of Food and Agriculture issued the following warning to grocers, distributors and processors:
The growing spread between the farm price and the retail price of milk is caused by grocers using the slightest increase in the farm price as justification to increase retail prices exponentially. Since January of 1995, there have been three decreases in the farm price. However, grocers rarely lower their milk prices when the farm price drops. The cumulative effect of years of continual increases and no decreases in the retail price of milk by grocers is an ever- widening gap between the amount farmers receive for their milk and the amount consumers pay at the checkout stand. Consumers end up paying more for milk than they should be, particularly at supermarkets.
The current farm price for Northern California is $1.23 per gallon. Retail supermarket prices in San Francisco range from $3.49-3.73 per gallon of whole milk. This difference of $2.26-2.50 per gallon, representing a 184%-203% margin between the farm price and the price consumers pay, suggests that supermarkets (most of which process and distribute their own milk) are reaping high profits on milk while blaming farmers for the high cost of milk to consumers. Consumers Union maintains that San Francisco supermarket profits are higher than they should be. All California grocers should, at the very least, pass the $ .30 decrease in the farm price directly on milk-buying consumers.
Grocers know that milk is an "inelastic" food item. That is, regardless of socioeconomic factors, season of the year or changing fads, consumers always buy milk. There is no good, reasonably-priced, nutritional alternative to milk. When food budgets are tight, consumers are more likely to scrimp on other items rather than limit their milk purchases. Many consumers are unaware of the price they pay for milk, and their busy lifestyles preclude them from shopping around for the best price. Knowing this, supermarket retailers locate the dairy sections on the back walls of their stores, compelling consumers in search of milk to walk down aisles lined with high-profit, highly-packaged products in the hope of inspiring people to buy items not on their grocery lists. Retailers consider milk a lure because it is so essential to families.
Consumers can pay considerably more for a single gallon of milk at a Bay Area supermarket--up to $1.14 or 44% more in San Francisco, $1.40 or 67% more on the Peninsula, $1.33 or 65% more in Marin, and $1.30 or 62% more in the East Bay--than at a smaller neighborhood market. This is so despite the fact that the smaller stores pay higher wholesale costs per gallon for moving a smaller volume of milk, and despite the fact that almost all of the major supermarket chains process their own milk, eliminating the profit of the middle man and driving supermarket costs down.
Consumers Union's Bay Area Milk Price Survey found that consumers pay the highest prices for milk at supermarket chains, and this remains true even in low-income areas. A good example of a large chain charging considerable more for a gallon of milk than a smaller market in the same neighborhood is Cala Foods on South Van Ness in the low-income Mission District of San Francisco. Cala Foods charges $3.73 for a gallon of whole milk and $1.96 for a half-gallon of whole milk. A few blocks away at 23rd & Mission Produce, a gallon of whole milk sells for $2.59 and a half-gallon of whole milk sells for $1.39. This $1.14 or 44% difference for a gallon of milk and $ .57 or 41% difference for a half-gallon of milk is not atypical of milk price diversity between supermarket chains and small, neighborhood stores, particularly in low-income areas where the market can bare only so much gouging and where reasonable milk prices can be readily found.
Of the Bay Area supermarkets surveyed, Cala Foods/Bell Markets and Falletti Markets sold milk for the highest prices (an average of $3.56 per gallon), Petrini's prices were the second highest (an average of $3.49 per gallon), Lucky prices came in third (an average of $3.39 per gallon), Andronico's were fourth (an average of $3.27 per gallon). Safeway offered second to the lowest supermarket prices (an average of $3.24 per gallon). United Markets in Marin offered the lowest milk prices ($2.95 per gallon) of the supermarket chains.
Considerable savings on milk prices, as compared to the supermarket chains, can be found at specialty, discount and co-operative stores, such as Trader Joe's (an average of $2.99 per gallon), Food Maxx ($2.89 per gallon), Rainbow Grocery ($2.88 per gallon), and Pak & Save Foods ($2.64 per gallon). The rock bottom lowest milk prices of all stores surveyed--$2.09 per gallon and $1.10 per half-gallon--were found at Cheaper! stores, located in Half Moon Bay, San Rafael, and Concord. Cheaper! dropped their milk prices $ .27 per gallon (11%) since last October.
Consumers Union's Milk Price Survey does not claim to be a comprehensive compendium of milk prices in a particular region. The methodology is to comparison-shop on a random basis, as a typical consumer might do. The purpose of the research is not to provide a complete list of the lowest and highest milk price leaders, but rather to see if there exists a dramatic range of milk prices about which economic conclusions can be drawn, and to provide guidance to milk buyers.
This survey was done anonymously, without notice to store owners or managers. The data was gathered by walking into each of 108 stores and making a notation of the advertised price of milk. No payments were made to or solicited by Consumers Union from any person or entity connected with the survey. The survey compares retail prices for single and multiple gallons and single half-gallons of whole, low-fat, and non-fat milk.
California's supermarket industry is highly competitive, using extensive advertising, marketing and price-cutting. However, aside from Safeway, which lowered its milk prices by 20% recently to reflect the $ .30 drop in the farm price, major supermarket chains in the Bay Area do not appear to be competing heavily for milk sales with one another through advertising and marketing in order to win a market share. In general, Bay Area supermarkets do not advertise milk or otherwise attempt to undercut each other on milk prices. In fact, there was not a single advertisement for milk in the 802 food ads by Safeway, Lucky, Bell Markets, and Falletti Foods, pulled from the February 23, 1997 San Francisco Chronicle. Again, grocers know consumers need milk and will continue to buy it at almost any price.
Last September's survey revealed that within each county, chain supermarkets matched one another in milk prices to the penny. The uniformity of supermarket milk prices in the Bay Area, coupled with the conspicuous absence of price-cutting and advertising of milk by the major chains, prompted Consumers Union to request that the California Attorney General investigate whether there exists at least an unspoken agreement between the big supermarkets to set milk prices, a concept called "Parallel Pricing," which drives up the cost of milk to consumers. A letter from Attorney General Dan Lungren, dated October 1, 1996, expressed interest in the "apparently odd" pricing pattern for milk in the San Francisco Bay Area supermarkets and indicated that an investigation will ensue. That investigation is currently underway.
Most of the major supermarkets are milk processors as well as retailers. They offer, in addition to higher-priced name brands (Lucerne and Lady Lee), lower-priced, non-name brand alternatives (Farm Fresh and Dairy Glen): one gallon for $2.95 and two gallons for $4.29 at Safeway, and one gallon for
$3.19 and two gallons for $4.89 at Lucky. In generaI, there are fewer of the lower-priced, non-name brand gallons on the shelves in comparison to the well-stocked, brightly-colored, higher-priced name brand gallons. Since the quality of the milk in both the name brands and the non-name brands is the same (all brands must meet minimum standards set by the CDFA), consumers should take advantage of the lower-priced offer by Lucky and Safeway. However, not all Lucky and Safeway stores offer the two-gallons-for-less special, no store offers the special on half-gallons, and the special is often not available in each of the three categories--whole, low, and non-fat. Furthermore, only consumers with transportation from the grocery store and with families large enough to consume two gallons of milk before the expiration date can easily and realistically take advantage of the special two-gallons-for-less offer at Lucky and Safeway.
Children are drinking 16% less milk and 23% more carbonated soft drinks than their counterparts of the late 1970's. Families dependent upon government assistance for food stamps and faced with the challenge of stretching their food budgets, may be tempted to purchase lower-priced beverages, devoid of nutritional value, instead of milk. Many of the Bay Area's poorest consumers purchase the highest-priced milk at supermarkets because they can be assured that both food stamps and WIC coupons will be accepted there.
All the major Bay Area chain supermarkets accept food stamps and Women Infant Children (WIC) milk coupons. Many of the smaller markets in this survey also accept food stamps, but only a few of the smaller markets (where milk can be purchased for considerably less) accept WIC milk coupons. Trader Joe's and Cheaper! stores offer some of the lowest prices in the Bay Area for a gallon of milk and neither store accepts WIC milk coupons. Tax dollars for food stamps and WIC coupons are being spent on the highest priced milk, enriching the biggest retailers. Eighty to eighty-five percent of the food stamp population is children. When food dollars are wasted on excessive milk prices, poor children get less food to eat.
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