Washington has a deserved reputation for high profiles, high blood pressures, high temperatures and an often-overlooked, frequently taken-for-granted distinction: high supermarket prices.
The supermarkets point to labor, transportation, advertising and real estate costs as explanations; the economists say it's affluence; the labor unions and consumer groups charge the retailers with fat profits.
At the same time, the Food Marketing Institute's latest trend report found that consumers are more interested in saving time than money when it comes to shopping. And locally, more and more supermarkets are featuring high-priced specialty items (Giant has plans to phase in 23 new upscale food/pharmacy stores in the next 2 1/2 years).
So not only are prices not getting any lower, but consumers seem to be unconcerned. In fact, in Washington, consumers appear to be perpetuating the situation through their demand for expensive, quality goods.
But other than the obvious fact that it is generally more expensive to live in a big city than in a small one, just why are the metropolitan area's food prices high?
Comparative city-to-city price statistics aren't easy to come by, and often are not absolute indicators of the situation. Supermarkets, for instance, have long criticized market-basket surveys because they don't take into consideration quality and because sometimes too few items are included to give a realistic portrait of comparative price structures. Even so, the available evidence all points to one general direction: Washington's food prices aren't low.
According to Ann McDuffie, editor of the Tampa Tribune, who has conducted an annual food editors market basket survey since 1969, Washington, D.C., is "consistently" high, placing somewhere among the five most expensive cities out of the 21 that are surveyed. This year's June survey was no exception; the District was second only to Anchorage, Alaska, for the title of most expensive U.S. city in which to buy food.
McDuffie said that Washington did not have any of the least expensive items and either had the most expensive or was tied for the most expensive for 14 of 35 items surveyed in the market basket.
A survey conducted by the American Chamber of Commerce Researchers Assn. showed Washington as the 14th most expensive city in which to buy food, out of 231 cities surveyed in the first quarter of 1984 (the most recent quarter in which Washington was included). And although it does not measure the differences in price levels between cities, according to the Consumer Price Index, the Washington metropolitan area's food-at-home prices increased 2.7 percent from July 1984 to July 1985, twice as much as the national average of 1.3 percent.
It's difficult to determine which, if any, factors in Washington's food prices are more important; they are all so interrelated.
One obvious factor is affluence. The Washington area repeatedly appears as a top entrant on national income and educational surveys. According to a 1984 Bureau of Labor Statistics report, for instance, only Alaskans were paid more annually. People with more money have more money to spend on groceries.
What that does is create a market basket mix with more sophisticated items, according to Frank Panyko, vice president of the American Institute of Food Distribution, Inc. Furthermore, even with everyday items, retailers can "get what the market will bear," Panyko said.
Whether retailers charge higher prices because they know they can get them is a factor that obviously no retailer will admit. The stable economic nature of the Washington market "has allowed us to have a good and consistent pricing program," said Larry Johnson, spokesman for Safeway.
Then there's Washington's unique market situation. Unlike most cities, which have several chains slugging it out in competitive price wars, the metropolitan area really has only two big-league players. According to the latest survey from Food World, a Columbia, Md., grocery trade journal that analyzes the local supermarket scene, Giant's share of the market is 42 percent; Safeway's is 32 percent. Although recently gaining momentum in the Washington area, Jumbo still only has 4.5 percent of the market, according to the publication.
In fact, the power of competition in the retail marketplace was perhaps best demonstrated here in 1980, when, for the first time, Washington placed 11th in the food editors market basket survey. That was the same year that Magruder's was added to the calculations in Washington's market basket survey, contributing the lowest prices in 11 of the 35 items surveyed. (In each city, three competiting stores are surveyed and the lowest price of the three is used in the market basket.)
It was also the time period when the warehouse stores, such as Basics, first started entering the market. Less price duplication between Giant and Safeway and increased specials and promotional activities were noted on the survey date as compared to the year before.
In fact, what would really create a competitive market here, said Johnson of Safeway, would be the growth of the warehouse, no-frills stores, rather than another chain of conventional, full-service stores. Johnson said the warehouse stores have not appeared in enough number to have a "major impact." (Jeff Metzgar of Food World said that out of around 600 supermarkets in the area, approximately 18 are warehouse-type stores.)
Another factor unique to the Washington area market is its union base. The Local 400 of the United Food and Commercial Workers Union, is the most heavily unionized chapter of the retail food industry in the country, according to James Lowthers, special assistant to the president of Local 400. Of the food and commercial workers who work in this area, 95 percent of them belong to the union, Lowthers said.
Retailers repeatedly point to this area's high labor costs as a factor in higher consumer costs. Labor is one of the highest operating costs in running a food store, said Barry Scher, spokesman for Giant Food.
Obviously, labor costs are a factor in consumer costs, said Lowthers, but "we think that a company's profit margins are a factor as well." If food prices are high, "then maybe somebody's making a lot of money," said Lowthers.
Lowthers also pointed to the union's two-tier contract, instituted in September of 1983, which puts employees hired after that date on a lower wage and benefit scale. Lowthers said the new contract should lower labor costs for area supermarkets. Scher of Giant said it's too early to tell what the new contract will do for supermarket prices.
As for profit margins, supermarkets traditionally operate on low percentages. The national average for supermarkets' return on the dollar is presently less than one cent on the dollar, according to Ron Hawkes of Cornell University, co-author of the report, "Operating Results of Food Chains." Giant has been averaging about 2.5 cents on the dollar, according to Metzgar; he, the supermarket and other industry observers say that is a factor of a well managed, progressive company and not due to higher consumer prices. Safeway's return on the dollar is not quite one percent, according to Johnson.
Metzgar said that a Pennsylvania-based chain called Weis Markets, which has six stores in Maryland and is shortly opening one in Laurel, makes from four to five cents on the dollar, about five times the national average. The chain is non-union.
Other factors affecting food prices here include transportation costs: We're at the tail end of the distribution line, said Timothy Hammonds of the Food Marketing Institute; a lot of production areas are in the midwest.
And then there are real estate prices: Washington's are among the highest in the country, according to Metzgar. Add on high utility rates and taxes and the picture begins to take some shape. But real estate costs, taxes and utilities aren't passed onto the consumer, says Johnson of Safeway; they're all part of general operating costs. Safeway's lease arrangements, for instance, have had "no direct bearing on the price of a gallon of milk," Johnson said. Price differences between stores are due more to the proximity of competitive stores in the area, he said.