Consumer advocates here allege that millions of dollars in excess profits are lining the pockets of several supermarket chains which control the Puerto Rican food market.
If true, most of the alleged millions come from the federal government. Puerto Rico was granted some $682 million net value in food stamps in fiscal year 1978, about 10 percent of the national total, and the dollar amount is expected to increase slightly this year. Over 60 percent of the island's families now receive stamps.
The Washington Post conducted a short survey of 10 food items in Puerto Rico's two leading chains -- Pueblo International and Grand Union. Prices were recorded in both Washington -- which itself has supermarket prices among the highest on the mainland -- and San Juan in November. Shipping costs were calculated from the Federal Maritime Commission's (FMC) shipping rate schedules.
San Juan prices were found to be anywhere between 1.7 per cent and 94 per cent higher than the Washington prices plus shipping costs.
A five-pound bag of Idaho potatoes, for example, was 69 cents in Washington, $1.29 in Grand Union and $1.69 in Pueblo. The maximum shipping cost was calculated at 18 cents.
A one-pound can of Green Giant French cut green beans was 43 cents in Washington, 55 cents in Grand Union and 57 cents in Pueblo. Shipping was calculated at 2.2 cents.
Only one of the 10 food items was priced at or below the Washington level. A 28-ounce can of Hunt's whole tomatoes was 93 cents in Washington, 91 cents in Grand Union and 95 cents in Pueblo. Shipping was calculated at 3.9 cents.
In 1974, Puerto Rico's Consumer Affairs Department (CAD) conducted a similar study comparing prices of 59 items in Puerto Rico versus six East Coast cities, with shipping costs obtained from the maritime companies. Puerto Rican prices were found to be 10 per cent higher on the average than mainland prices plus shipping costs.
"There is a lack of price competition between supermarkets here," former CAD secretary Federico Hernandez Denton said. "The market is characterized by heavy economic concentration and very large profit margins."
Raymond Hernandez, vice president of Pueblo, said prices are higher in San Juan because of higher operating costs for electricity, equipment, rents and spoilage.
Ivan Santos, Caribean division marketing manager for Grand Union, challenged the shipping cost data in both surveys.
A refrigerated trailer is supposed to hold 45,000 pounds of meat, but it can actually hold only 25,000 pounds because of air circulation and butchering losses, Santos said. Shipping costs would be, therefore, 10 cents per pound, not 5.3 cents, he said. The Post survey found that sirloin steak cost $2.49 per pound in Washington versus $2.79 in San Juan.
Santos said that only a food importer, not the FMC or the shipping lines, could calculate the real shipping costs of food.
The shipping and loading cycle takes about one week from Gulf and East Coast ports, Satos said. Puerto Rican supermarkets are thus faced with a 10 percent higher rate of spoilage in fresh produce than the rate in mainland supermarkets, he estimated.
Furthermore, the island supermarkets must charge higher dollar profits to maintain the same profit margin, Santos said. For example, a Washington store may purchase an item for 49 cents and sell it for a 20-cent profit. In Puerto Rico, the same item would cost the store 63 cents, he said, and it would add on 27 cents to get the same percentage of profit.
Santos said the Puerto Rican division of Grand Union has lower margins than its stateside divisions, but he refused to release the figures. "Even though our prices are higher, we are not profiting on the difference."
The executives were also asked to comment on CAD 1976 and 1978 studies which found that the few small, independent supermarkets in San Juan have lower average prices than Pueblo and Grand Union. In the states, larger supermarkets charge lower prices. In puerto Rico, furthermore, the independents must purchase from wholesale food importers which charge do their own importing for many items, shipping full trailer loads directly from the states.
Hernandez, of Pueblo, said the smaller supermarkets often sell lower quality goods and can get away with "certain things which are not kosher," such as accepting food stamps for no-food items. Pueblo, furthermore, must pay enormous overhead for its central offices and distribution centers, he said.
Santos said the big supermarkets pay higher salaries, particularly for management and supervisors.
Consumer advocate Hernandez Denton was skeptical of the supermarket officials' arguments.
When the studies were first released in 1974 and 1976, Pueblo and Grand Union made no attempt to refute or reply, he said, but "simply ignored the studies. This is the first time that I have heard this criticism from Grand Union" about the shipping cost estimates.
Pueblo and Grand Union have also ignored a 1975 report by the Consumer Affairs Committee of the Puerto Rican House of Representatives. The report used financial data provided by the companies themselves.
The data showed that between 1971 and 1974 Pueblo's Puerto Rican sales amounted to 24.4 percent of its total sales but its Puerto Rican net profit amounted to 88 percent of total profits, or $12.9 million.
Pueblo's average profit margin in Puerto Rico was 22.7 percent for 1971-74, while the profit margin in its stateside operation was 19.2 percent. Average operating costs were slightly lower, 18.5 percent of total sales in Puerto Rico compared to 19 percent on the mainland.
For Grand Union, Puerto Rico accounted for only 3.63 percent of the chain's total sales in 1972 through 1974. All the same, island operations rakced up 16.2 percent of the chain's total profits during those years, or some $3.85 million.
Grand Union's profit margins were lower in Puerto Rico, 19.9 percent on the average compared to a 21.3 percent average in the chain. Its operating costs were also much lower, however -- 17.3 percent compared to a 20 percent average in the entire chain.
Former committee chairman Jose Izquierdo says the situation has worsened since then. Food stamp recipients pay little attention to prices and buy whatever is available, he said, and the middle class suffers the resulting higher prices.