In my mail box at The Washington Post, I found a folded grocery bag. A note taped inside said:
"I got my groceries from 'Watergate Safeway' in this bag today, and read the message on the bag. When I finished, I thought to myself, 'Who are they kidding?' Safeway makes a net profit of only a penny??!!"
The message on the bag was headed, "Here's where your food dollar goes." It said 78 cents pays for "the cost of things sold," 19 cents is for operating expenses, and 2 cents covers licenses and taxes. The remaining penny is Safeway's profit.
Is this true? Or is Safeway kidding?
In round numbers, it is true. The food chains make millions, but only because they sell billions of dollars worth of merchandise. Their profit on each dollar of sales usually hovers around 1 cent. In peak years, it soars to a penny and a half.
In 1979, Safeway sold a record $13.7 billion worth of groceries, almost $1.2 billion more than in 1978. Its profit was $143.3 million, a decrease of $3 million, despite the higher volume.
As I figure it, Safeway's profit margin was a bit more than 1 percent of its sales. On a $10 bag of groceries, Safeway netted 10 1/2 cents in profit. i
Margins have been even smaller this year. In the first quarter of 1980, Safeway's profit margin dropped to 0.38 percent of sales, or less than 4 cents on a $10 bag of groceries. Giant Food, whose profit margin had been 1.57 percent of sales in its fiscal year that ended in February of 1979, was down to 1.44 percent for fiscal 1980 -- despite the fact that this relatively small "local" chain had again topped a billion in sales ($1,242,620,000).
The chairman of Safeway's board of directors says 1980 got off to a bad start and won't get better until late i n the year. Giant's chairman says he doubts that his chain's profit margin for the remainder of 1980 will be as much as 1 percent. Yet readers ask, "Who are they kidding?"
I wrote recently about Giant terminating its discount coupons on milk and at the same time lowering the price enough to bring in the same number of dollars the company had been getting while the coupon was in effect.
Now people are writing letters like this one just in from Bill Brown of Centreville, Va.: "You wrote a nice little story about milk and coupons, but tell me why Giant milk is back to $1.93 in Centreville now."
I have bad news for you, Bill. Wholesale milk prices have been going up month after month, and by the time you read this, just about everybody in this area will have boosted his price another 4 cents. Safeway went upon Monday, Giant followed on Tuesday and so did most of the others. Why? The latest increase is blamed on sharply higher prices for plastic containers.
Sophisticated consumers know that milk is often used as a cut-price lure to get people into various types of stores. Paper towels, facial tissues and laundry items are also offered at subtantial price reductions for the same reason -- to build up "traffic" in a store that needs greater sales volume.
The alert shopper follows the ads carefully and plans his buying prudently. If there's 25 cents to be saved on a jug of milk but it will take 25 cents worth of gasoline to drive from one store to another, there's not much point in making the trip.On the other hand, when there are two or three supermarkets within a few hundred yards of each other and one offers superior meats, another has outstanding produce and the third offers low prices on canned goods and milk, a thrifty shopper tries to buy where the best values are offered.
However, in these times there is another consideration. Either daddy is moonlighting on a second job or mommy is trying to be a wage-earner as well as a homemaker. By the time they get to the supermarket, they are too weary to quibble about prices. They're just too doggone tired (or haven't the time) to go elsewhere.
Then they write me a letter of complaint about how the grocery chains are ripping them off.
My reaction is: If you think Safeway and Giant enjoy huge profits, why not make them share the loot with you? All you have to do is buy a modest stake in each company.
Giant stock was down from a high of $19.38 a share to just over $16 this week. Safeway, which had sold for $41.25 earlier, was down to $33. Safeway has been paying an annual dividend of $2.60, making the return on a $33 investment just under 8 percent a year. Giant's $1.10 dividend makes your return on an investment of $16 justunder 7 percent.
However, you can get 9.5 percent on solid old AT&T and never have to worry about how much your competitor is cutting the price of milk. Even better, you can get 10 percent on United States government bonds and never have to worry about what the government is going to do to (KEY OFF)(KEYWORD)T&T. Investing in supermarkets is not a magic formula for getting rich.