After months as a major consumer bargain, milk prices have begun rising rapidly in area stores. The price for a gallon of regular milk has risen 20 cents from a low of $1.69 on June 7, and appears headed back to the area high of $2.09 that was reached before a supermarket price war broke out last spring.
The war is ending because of profit losses, store officials said. "At $1.69 a gallon, we were selling milk below our cost and, obviously, that couldn't continue," said Susan Portney, a representative of Giant Foods Inc., the area's largest supermarket chain.
Besides Giant, three other supermarket chains in the area -- Safeway, Grand Union and A&P -- have marked milk prices back up to $1.89 a gallon.
Milk prices are a barometer of the five-month price war. As milk prices went down and then up, so did hundreds of others. At Giant, prices were marked down on 2,000 items, about 17 percent of the merchandise in the average store. Now, as the milk prices go up, so do the prices of other products affected by the price war.
Giant began the price war in April with the introduction of what it called "warehouse pricing," a program of price reductions on selected items such as milk, sugar and bread. At the same time, Giant instituted a policy of marking prices on shelves rather than on individual items. The chain said the labor savings from the new system made it possible to lower prices.
Today the shelf-pricing policy continues but prices have started to go back up since Giant lost money in the last quarter. In raising milk to $1.89, Portney said the chain has "come back to our original warehouse price."
She could not say how long it will be before milk soars back up to or even beyond the $2.09 benchmark. "I don't know when a price increase might come about," she said.
Supermarket officials readily concede the importance of milk in store efforts to attract as many shoppers as possible -- and thus help maintain and perhaps expand chain market share.
"Milk is a very competitive item; it is in almost every ad because it is a very popular item," said Ernest Moore, a Safeway representative. For those reasons, he said, milk typically has a smaller markup than many other supermarket products.
Since April, milk has been marched down a series of steps and now is being marched back up again. The reductions began when Giant marked regular milk down from $2.09 a gallon to $1.89 a gallon. Safeway and other stores quickly countered with an identical markdown. The price went down another step at Safeway on May 2 to $1.85, followed by a cut on May 8 to $1.81 and on May 16 to $1.75. Finally, on June 7, milk slid to $1.69 a gallon and remained there for nearly two months. The price did not begin to increase until Aug. 2, when milk went up a dime to $1.79 a gallon. The second increase occured Aug. 29 when milk was raised to its current price of $1.89.
Retail milk prices often change in response to supply, policy decisions or major economic forces -- such as increases or decreases in the cost of livestock feed -- that occur during the production process and are passed along to consumers. None of those factors is responsible for the fluctuations in the milk prices here, according to market officials.
"It is the price war -- lock, stock and barrel," said Tom Smith, a consumer advocate at the Community Nutrition Institute.
"Nothing has changed at the producer level (to push retail prices down)," he said. "Nothing has happened in federal supports."