In an election year with rampant inflation, the Carter administration recently tried some jawboning with the nation's retailers, convincing more than two dozen supermarket and retail drug firms to freeze prices on some merchandise for one to five months.
Giant Food Inc., based in Landover, installed the most comprehensive freeze in the nation, selecting 275 private label products, regular ground beef, some national brands and drug items for a program that is scheduled to run through Aug. 2. Area drug chains and some national food chains in the D.C.-Maryland-Virginia markets also established freezes; Safeway and Grand Union will end their programs today.
More typical of industry response, however, was the Stop & Shop chain in Boston, which said that while freezes may be popular, "it is generally recognized that a price freeze affecting only retail prices is an artificial, short-term public relations response to the serious threat of inflation." Other chains noted simply that the don't raise prices in any event unless costs go up.
As leaders of the nation's retail industry gather in Washington this week for the 45th annual meeting of the American Retail Federation, to share glum forecasts about the impact of recession on their sales volume, the merits of price freezes will be among the topics of conversation. It is an issue amply blessed with rhetoric and few facts for the public to understand.
An exception is Hechinger Co., the regional do-it-yourself hardware and building supplies retailer based in Landover, which has done its homework and prepared a newspaper advertisement to discuss its own pricing experience recently. But you'll not see the ad. As company board chairman Richard England recounted it, "Hechinger had a big internal debate and decided not to run" the ad. England didn't really say why the decision was made to drop the ad, other than it just didn't seem to be the right medium to talk about something that wouldn't have any impact on most consumers, whose main interest is today's prices, not yesterday's.
But England agreed to show a copy of the planned ad to Washington Business, and the ad has an interesting message.
For one thing, the Hechinger copy calls into question the value of freezes. "Temporary price freezes are not the answer to inflation," states the headline. It continues: "At first glance, freezing the prices of 1,000 selected items in a supermarket seems like a good way to hold down the cost of living. But think about this: There are about 10,000 other items in that supermarket whose prices are continuing to spiral upward rapidly . . . The net effect of the price freeze on the average cost of all items is almost negligible . . . at the end of 30, 60 or even 120 days, what happens to the prices of the 1,000 'frozen' items? They are adjusted upward to keep pace with increases in prices of the other items."
More important to consumers is Hechinger's own experience, as recounted in the ad. During 1979, the national consumer price index showed overall inflation at an annual rate of 13.3 percent, home ownership costs up 15.5 percent and energy costs up 25.2 percent. But, according to data that Hechinger was required to compile under Internal Revenue Service rules for accounting, the average price increase of more than 40,000 items that the firm stocks regularly rose 6.2 percent.
Consumers, of course, have become cynics in recent years because many prices haven't declined with reduced demand, despite economic "laws" of supply and demand. But England said building materials prices actually rose by a very small amount last year and that a number of lumber products are now going "not up, but down."
This reflects the current housing industry depression and lower demand for lumber products, which has led to layoffs in forest products firms and some declining prices. At Hechinger stores last week, for example, $1.59 southern pine studs were on sale for $1.14 and 1-by-12-inch knotty pine boards for shelving were going for $2.19, down from $2.60.
That brings us to England's final point, which is that consumers really don't care very much about "what we did for them in 1979; they want hot bargains today."
GIANT'S VOLUME: Giant Chairman Israel Cohen also had some interesting comments last week that are related to consumer prices. He indicated that Giant has more than one reason for supporting a price freeze.
Cohen was speaking to securities analysts in Baltimore. The food chain expanded into that metropolitan area 25 years ago next November in the vanguard of local businesses that saw a regional market developing. (Of Giant's 121 stores today, 27 are in the Baltimore area; 22 of 50 drug stores are in that market as are 6 of Giant's Pants Corrals retail jeans stores).
The Giant chief noted that his firm's sales in the year ended Feb. 23 had jumped 15 percent, indicating an increased regional market share since food prices rose less rapidly. But profits increased just 5.3 percent with earnings per share of $3.64, up 24 cents.
"There are a number of reasons why earnings did not increase at the same rate as did sales," Cohen said. The primary reason? "Giant is committed to protecting our sales volume -- and building our sales volume -- in the face of unsettled conditions in our industry, and in particular in the markets which we serve."
At times, Giant reduced prices on several hundred key items, ran double coupon promotions and made selective price cuts at stores near new cut-rate box-and-bag grocery competitors. Cohen's message is clear: Giant decided to keep some prices down in the face of competitive pressures, in order to guarantee its stature in the regional market and to see its share of sales grow.
"We have made, and will continue to make, short-term sacrifices to assure continued future success."
Giant's obvious success and No. 1 position in the Washington/Baltimore retail food market shows that Cohen's priority attention to maintaining sales volume makes good, long-term business sense. But price freezes, which coincide with company decisions to sacrifice some profits as part of a business plan, should be understood in that broader perspective.
Footnote: giant plans to open six food-pharmacy stores this year, two in Baltimore County and others south of Annapolis, in Montgomery County, Clinton and Waldorf. High interest rates might mean some developer-owned projects that Giant has considered for future locations could be delayed, but the firm has a good inventory of locations and expects to continue its growth of store units. "We see ourselves strengthening our position in the markets we serve," Cohen stated.