City 1 2 3 7 8 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Figure 7 CHANGES IN PRICES PAID AND GROSS MARGINS OF LARGE GROCERY CHAINS, *No Change Source: Federal Trade Commission Survey. TABLE 7.-CHANGE IN GROSS PROFIT MARGINS FOR WHITE BAKER BRAND BREAD, 9 LARGE GROCERY CHAINS, JANUARY TO AUGUST 1966; 25 CITIES Private label price increases.-Prices of bread sold under the private labels of the largest national grocery chains increased much less than the prices of wholesale baker brands sold by these chains. From January 1 to August 15, 1966, private label bread prices of chains in 17 of 25 cities where comparisons could be made' increased either not at all or by amounts smaller than those of wholesale bakers' brands (Table 8). In five of the remaining eight cities, private label prices and wholesale baker brand prices increased by the same amounts, and in only three cities were the private label price increases greater than the wholesale baker brand increases. The average private label price increase in the 25 cities was .8 cents, slightly less than half as great as the average wholesale baker brand price increase. In only two cities did the average private label price increase as much as 2 cents. Private label price increases of different chains tended to occur independently of each other as well as independently of the price increases of wholesale bakers' brands. This was particularly evident for the period January through June. Since July, however, the increased frequency of price increases of both wholesale baker brands and private labels has made it more difficult to eliminate the possibility of associated increases. TABLE 8.-PRIVATE LABEL AND BAKER BRAND RETAIL PRICE INCREASES OF LARGE CHAINS, 1 Includes 2 cities in which there were no changes in either private label or baker brand prices. Source: Federal Trade Commission Survey. The lower increase in private label prices is, in part, a result of the period of time for which price data were collected and the tendency of private label price increases to follow wholesale baker brand price increases. In about two-thirds of the cities, the wholesale baker brand price increases occurred after July 15. By August 15, the end of the period for which data were collected, private label prices may not have had time to adjust fully to the wholesale baker brand increases. 1 Adequate data were not available to make comparisons in two cities listed in Appendix B. Including two cities where there were no changes in either private label prices or retail prices of wholesale baker brands. Average private label prices in the cities surveyed were fairly equal. The averages for most cities fell within 12 cents of the average for all cities. The price increases from January to August 1966 affected this equality very little. Of all of the cities surveyed, only the large chains in Los Angeles and San Francisco reported significantly higher private label prices. The average private label prices in these cities were about 6 cents higher than the average for all cities. The relative equality of private label prices among the cities surveyed contrasts with the relative disparity of average wholesale baker brand prices. Table 9 shows average wholesale baker brand prices and private label prices in 23 cities in which data are available. The cities are arrayed and grouped by level of wholesale baker brand prices. The difference between the average baker brand price of the lowest and highest group was over 8 cents whereas, in the case of the private label brands, prices differed by only 3 cents between the high and low groups. TABLE 9.-AVERAGE RETAIL PRICES CHARGED BY LARGE GROCERY CHAINS FOR WHOLESALE BAKER BRANDS AND PRIVATE LABELS IN 23 LARGE CITIES 1 Cities were arranged in declining order by the average wholesale baker brand price changed by chains on Aug. 15, 1966, and divided into 4 groups of equal numbers of cities except for the bottom group. 2 Cents per pound. 32 cities for which the change in price over time of wholesale baker brands and private labels were included in table 8 were not included in this table because of differences in loaf sizes of baker's brands and private labels in these cities. This made comparisons of price levels unreliable. Source: Federal Trade Commission Survey. SUMMARY OF PRICE INCREASES Fig. 8 summarizes changes between January and August in the retail price of baker brand white bread by four groups of cities, and further subdivides these changes by the amount attributable to increased ingredient costs, baker margins and retailer margins. For the 25 cities studied by the Commission, prices increased an average of 1.7 cents per pound. Increased ingredient costs accounted for 0.6 cent, increased baker margins 0.7 cent, and increased retailer margins 0.4 cent. There was considerable variation among cities, however. In the four cities where wholesaler prices increased most-an average of 2.7 cents-retailers passed on this increase and added an additional 1.0 cent. In a second group of nine cities, wholesale bakers raised prices 1.5 cents and retailers added another 0.5 cents. In the third group, the respective amounts were 1.1 cents and 0.3 cents. In the four cities where wholesalers did not raise prices, retailers' prices were unchanged. Ingredient costs to bakers rose by 0.6 cents over the period. Hence, bakers in the first group of cities increased their prices more than quadruple ingredient costs. and retailers added to their margins as well. As a result, in these cities retail prices rose 6 times as rapidly as ingredient costs. At the other extreme, in four cities wholesale bakers absorbed the full amount of the increased ingredient costs; retailers did not increase prices in these cities. Whereas many wholesale bakers used the occasion of increased flour costs in June to increase their prices, we have seen that the greatest increase occurred in markets where baker margins were abnormally low. In some cities at least. 1 The estimates in this figure are based on information as to prices paid and charged by large food chains. This is not to imply that wholesale bread price differences among cities are due solely to differences in profitability of bakers. Bakers in different cities frequently have different labor and other costs. Bakers on the West Coast generally have higher costs. especially distribution costs, than bakers in other parts of the country. See Organization and Competition in the Milling and Baking Industries, Technical Study No. 5, National Commission on Food Marketing. June 1966, p. 105. The Commission is developing infor mation regarding the impact of changes of non-ingredient costs in its in-depth studies. |