ARIZONA BEverage JourNAL, I& EDWIN C. JOHNSON, I nited States Senate, Senate Office Building, Washington, D. C. MY DEAR SENATOR: As a long-time Arizona publisher, vitally interested in - welfare of this State and our Nation, I am deeply concerned over the position all-business man who is the backbone of our economy. In this connection, I wish to add my word of approval for the McGuire faira b H. R. 5767) which is scheduled for hearings before your committee. If it were possible for me to be present, I would strongly urge the adoption of are which can mean the salvation of hundreds of thousands of businesses ver America. Failure to a lopt this bill could very well mean the loss of life - and the very livelihoods of people in stores and businesses through the Attached are two editorials published in the June 1951 and August 1951 issues Arizona Beverage Journal which illustrate the gravity of the situation Your careful consideration and favorable action on the McGuire fair-trade bill ai, much to many. T 1 Very truly yours, IRVING L. DIAMOND, Publisher, Arizona Beverage Journal. [From the Arizona Beverage Journal, June 1951] · fall effect of the recent United States Supreme Court decision that mercannot be required to sell merchandise at fair-trade prices set by the manarer unless they sign specific agreements to do so, is not immediately apparent. However, it seems certain that there will be no rash of price cutting on alcoholic erages here, because the retailers of Arizona realize that nothing but chaos as in the wake of price wars. has been recognized ever since repeal that because of the nature of the product a stable market is necessary to the continuance of a strong healthy industry, of those practices which reflect discredit upon our operations. de merchant caught in the middle of a price war sees his profits dwindle, day day, until he finally finds himself operating at a loss. The vicious cycle of je mer underselling his neighbor, only to find that same neighbor undercutting tas no end until one or both are bankrupt. 1 eerse on the wall of a retail establishment, along with the stock and good at go with it, represents the life savings of many people, and they are too isgted to let themselves become involved in a price war which has no justificair theory or in fact. They know that today's temporary advantage bedes tomorrow's permanent liability. We sincerely believe the retailers of Arizona are too level-headed to take any which might lead to a price war. 1st what measures the producers will take to protect their brand names and me is not known at this writing. One thing for sure, they will not stand idly watching the demoralization of this industry through unrestricted price wars. le interim, however, let the entire industry in Arizona provide an example sand thinking and unity by maintaining a strong, stable market, free of price Only by such action can we maintain our present position of respect, dependence, and security. [From the Arizona Beverage Journal, August 1951) The entire Arizona alcoholic beverage industry was dismayed to see Skaggs Le Drug Stores, 22 East Washington Street, Phoenix, make the first serious has in the price line here in a recently published ad which drastically reduced on eight nationally known whisky brands. (Pay-Less is a chain drug with head offices outside of the State of Arizona.) Pablished in the Phoenix Gazette of July 19 and the Arizona Republic of July *he full-page ad did not restrict its price slashing to liquor, but took in autoatie toasters, toilet goods, and other fair-traded items as well. The Arizona Beverage Journal learned at press time that the sale would only run for 3 days and prices would then go back up to regular fair-trade minimums. The fact that the price slashes were so deep probably proved a strong deterrent to other retailers who might have been tempted to follow suit. Five big-selling blends were cut from $4.04 to $3.29; another blend was slashed from $4.41 to $3.69, while a straight was reduced from $4.72 to $3.72. One of the biggest bond sellers in the country was dropped from $7.01 to $5.95. Whatever the reason, the rest of the retailers in Phoenix wisely held their fire and did not strike back, thus averting the precipitation of a disastrous price war. One look at the cuts showed the intelligent retailer that to join in the fray would be nothing more than business suicide. Meanwhile, trade speculation was focused on possible results if Pay-Less should decide to make this a weekly habit. The Arizona Beverage Journal has been advised by top legal authority that a wholesaler is not required to sell a retailer. This, then, would appear to be the easiest possible method of snuffing out an incipient price war. You may be certain that distillers and wholesalers of well-known brand names will not stand idly by while the carnage of a price war reigns. They will explore every legal means to maintain fair trade which they have espoused for so many years. Similarly, the retailer who makes his bread and butter from the products he sells should be equally anxious to see the market remain stable and untroubled. This industry has enough problems without adding a price war to the list. Retailers can do their part by holding prices to the fair-trade minimums published, regardless of what others might do. Further developments in this unfortunate situation will, we believe, prove the wisdom of this course. STATEMENT OF HARRY A. KIMBRIEL, VICE PRESIDENT IN CHARGE OF MARKETING, ELI LILLY & Co., PRESENTED TO THE SENATE COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE IN SUPPORT OF H. R. 5767 For the past 35 years I have been associated with various phases of the drug industry. I have served in the capacity of practicing pharmacist, store owner, and sales and advertising manager of a 19-store chain. Later I served as field representative, regional sales director, and finally as vice president in charge of marketing of Eli Lilly & Co. In these capacities I have had ample opportunity to observe the drug industry in operation with and without fair trade. My experience leads me to the conclusion that fair trade is best for the manufacturer, the wholesale distributor, the retail druggist, and the consuming public. It was as a drug store owner-operator in a farming community of 6,000 population 100 miles north of Dallas, Tex., that I first felt the effects of predatory price cutting. We found it difficult to compete with metropolitan stores which used their tremendous buying power to cut prices on popular items to a point where we could not compete. It resulted in my leaving the retail drug business. Later, as the sales and advertising manager of a substantial chain-store operation, I had ample opportunity to observe the demoralizing tactics of chain operations first hand. It was my responsibility to prepare the large ads with which we are all familiar, setting forth the week-end specials. There was no intention of making money on these items alone. They were loss leaders employed for the single purpose of getting people into the store. An example of these one-shot items was Whitman's Sampler, a fine candy of established and recognized quality. The regular retail price (1929) was $1.50 per pound. It cost us $1 per pound. We sold it for 99 cents per pound. The same tactics are being employed by cut-rate stores since the Schwegmann decision. Let me give you just one example. There appeared in the Tampa Morning Tribune dated Thursday, April 10, 1952, an ad by a retail druggist featuring the fine insulin products of my company. It advertised protamine, zinc & iletin (Insulin, Lilly), U-80, 10-cc. and N. P. H. Iletin (Insulin, Lilly), U-80, 10-cc. for $1.86 per vial. The actual cost of these products to this druggist is $1.89 per vial. Regular Iletin (Insulin, Lilly), U-40, 10-cc., which cost the druggist $1.65 per vial, was advertised at $1.62 per vial. It is obvious that the drug store which sponsored this ad will not stay in business selling our insulin products. It does, however, expect to make a profit out of this device. To do so, it must do one of two things either raise the price slightly on other items, or increase the volume of business. Since this type of predatory price cutting and loss-leader selling is common examine the effects of such price cutting on society and see who benefits and who is hurt. Obviously the price cutter benefits, or he wouldn't do it. It would also seem at first glance that the customer who buys the product benefits by the savings. But, does he? A store is going to make a profit, and there are various ways to make it-some fair and some unfair. The unfair trader tries to give the consumer the impression that because he can buy a well-known nationally advertised article in his store at a price far cheaper than it can be purchased elsewhere, all products in the store can be purchased cheaper than elsewhere. To the extent that such impression succeeds, it is false. If it were true, the cut-rater would immediately go broke. The retailer may sell the customer something he doesn't need by high-pressure selling with the aid of mob psychology developed in a bargain hunt. Finally, the retailer may actually put his competition out of business and then charge what he pleases. In the long run, the consuming public, of which each individual customer is a part, doesn't gain one iota. The good will of the manufacturer, whose product is used as a loss leader, is severely damaged by such tactics. When a manufacturer builds up confidence in his product, people want to buy it. It is only then that the product is useful to the cut-rate retailer as loss leader bait. When he cuts the price substantially on such a well-known product, many people rush to get the so-called bargain. Since other retailers can't compete price-wise on this product, they start knocking it. They try to get customers to buy a "better" product at a higher price. Those who do buy the product in the cut-rate store get used to this low price and refuse to pay more. They feel that the new low price is all that it is worth. The manufacturer's good will is severely damaged by unfair trading methods, that is, one person (the retailer) has made a profit by damaging someone else (the manufacturer). The term "fair trade" is a good term to describe a law which prohibits the practices described above. Such legislation should be classified in the field of unfair competition, a recognized field of statutory law since the days of Theodore Roosevelt. It is in accord with the American way of doing business. We don't let one person use a trade-mark of another. Yet, the value of a trade-mark is in its good will only. We pass laws that prevent a person from palming off his goods as those of another because we say it is unfair competition to let one trade on the good will of another. Isn't it just as important to prohibit this kind of trading on, and subsequent injury to, the good will of another? Let us also not forget that fair trade helps keep our retail stores in the hands of a lot of small independent businessmen. This is also in accord with American principles of business. We believe in laws that prevent the big corporation or chain from putting the little fellow out of business. The Robinson-Patman Act prohibits large quantity discounts, because they give the big fellow an advantage. The Federal Trade Commission Act prevents exclusive dealing and tying contracts because such contracts eliminate the possibility of the little fellow's coming in and selling something at a later date. Fair trade is right in this category. It prevents the big chain from cutting prices in one locality to drive its small competitors out of business, while it makes its profit in another locality. There are some who argue that any good that may come out of a fair trade law is far outweighed by the harm that results when a manufacturer and a retailer can get together and "fix" the price the consumer shall pay for a product. Let's not be mislead by this argument. Under fair-trade laws the only one who "fixes" prices is the consumer. It is illegal to set a fair-trade price on any commodity that isn't in free and open competition with products of the same class. Thus, if company A makes product "X" which has no competitor, it cannot set a fairtrade price on that product. On the other hand, if companies A, B, C, and D make product "Y," they may set fair-trade prices, but each will set the price as low as possible in order to get as much business as possible. It is illegal for A, B, C, and D to conspire to set prices. Thus, under fair trade the consumer is still king in a free market. We at Eli Lilly & Co. believe strongly in fair trade. We hope that the arguments which I have presented will convince you that H. R. 5767 should be passed. We hope you will agree with the statement of the late Justice of the United States Supreme Court, Mr. Oliver Wendell Holmes, Jr., when he said, "I cannot believe that in the long run the public will profit by * * * permitting knaves to cut reasonable prices for some ulterior motive of their own and thus, to impair, if not destroy, the production and sale of articles which * the public should be able to get." * * Hon. EDWIN C. JOHNSON, PACIFIC COAST REVIEW, Senate Office Building, Washington, D. C. DEAR SENATOR JOHNSON: The Pacific Coast Review, the largest independent food and beverage publication, which has served the Pacific coast area for a quarter o a century, is unequivocally in favor of the McGuire fair-trade bill H. R. 5767, nd believe in endorsing this bill we are expressing the opinion of our vast reader audience. Fair-trade laws are the backbone of not only American industry, but are absolutely essential for the success and welfare of the small-business man. A fair-trade law such as the McGuire bill would eliminate the omnivorous evil of cutthroat pricing of products, but more significantly, would extend to industry, and big and small business, the opportunity of conducting their operation on a fair and equitable basis. Fair-trade laws and freedom of enterprise are synonomous. We would appreciate it if you will include this statement of opinion in the record of committee hearings. With best wishes. Yours very truly, ALEC X. MCCAUSLAND, Editor. STATEMENT OF HAROLD O. SMITH, JR., EXECUTIVE VICE-PRESIDENT, UNITED STATES WHOLESALE GROCERS' ASSOCIATION, INC. My name is Harold O. Smith, Jr. I am executive vice president of the United States Wholesale Grocers' Association, Inc., a national organization of independent wholesale food distributors, with headquarters in Washington, D. C. I speak as a proponent of H. R. 5767, the McGuire fair trade bill, as passed by the House on May 8, 1952, without amendment by overwhelming House vote of 196 to 10. My authority to support and urge the passage of the McGuire bill is based on the following resolution passed on April 30, 1952, at the annual convention of our association at Chicago, Ill., and resolutions passed at previous conventions of our association, all in support of fair trade laws: "Loss-leader selling.-It is our unanimous opinion that State fair-trade laws should be restored to their former effectiveness. Under our Constitution we believe in the right of an individual to control the product of his thought and effort when such control is not detrimental to the common good. Little business can only prosper in the future with Congress continuing its approval of the right of the manufacturer to protect the distribution of his product at all levels from the harmful effects of loss-leader selling. Congress should also protect the overwhelming majority of products which are not fair-traded by prohibiting sales of items in interstate commerce at less than net delivered cost to the seller. We would therefore request and urge the committee to approve H. R. 5767, also without amendment, for the following reasons: 1. It is the simplest and most direct way of restoring full effectiveness to State fair-trade laws that was lost by reason of the Supreme Court decision in the Schwegmann case. 2. It is in effect a Federal enabling act for State fair-trade laws and their operation in interstate commerce. 3. It does not establish a Federal fair-trade policy or involve any Federal cause of action, enforcement or expense. 4. It merely recognizes the rights of States to pass effective fair-trade legislation to cure the evils of predatory price cutting. 5. It will afford adequate protection to the independent distributor of many trade-marked commodities from uneconomic, destructive, and deceptive pricing practices. 6. It will not result in price fixing in any detrimental sense but in price stabilization fair-trade commodities; a situation that will permit all classes of merchants to stay in the distribution picture and that will not have the capability and tendency of removing from that picture all dealers except the big mass-buying and mass-selling organizations. Such giant organizations have the resources which the small distributor does not have, to withstand losses on some items and recoup such losses by profits 7. Authentic figures, available or presented to the committee, amply show that fair trade does not raise the general level of prices of items that are fair-traded as compared with non-fair-traded items but lowers them in many instances, with the general result favoring, pricewise fair-trade merchandise. DRUG AND TOILETRY ITEMS UNDER FAIR TRADE Food commodities per se have not figured largely in fair-trade contracts in the business of wholesale or retail grocers. Many nonfood items, however, which they handle have been covered by fair-trade laws and contracts. Such commodities are most frequently to be found in drug and toiletry lines, though not exclusively confined to those lines. A recent survey made by the Progressive Grocer, one of the leading magazines for retail grocers, shows that food stores sold an estimated $340 million in selected drugs and toiletries in 1951, 40 percent of which was supplied by wholesale grocers. The survey discloses also that food stores now handle about 27 major commodities in drugs and toiletries, and that of the more than $1 billion annual sales of these 27 commodities through all types of retail outlets, retail food stores are now doing more than an estimated 30 percent of the total. Some of the leading items among such commodities are tooth paste, razor blades, shaving cream, headache remedies, first aid supplies, laxatives, cold and cough remedies, hand lotion, hair tonic, tooth powder, deodorants, and liniment. The foregoing data serve to show our interest in the nonfood fair-trade items which the grocery distributor handles and the resulting concern he has over the fact that the Schwegmann decision practically nullifies fair trade for such items. FAIR TRADE IN FOOD INDUSTRY Fair trade has not been used to any great extent for foods proper. Fair-trade laws, nevertheless, should be restored to their full effectiveness and should be retained on the statute books for use by food manufacturers at such times in the future as conditions and developments may make their use desirable. There is nothing static in the grocery industry. It is constantly changing, developing, and progressing. The methods and practices of today may become outmoded tomorrow. The benefits of fair trade have been so pronounced in the nonfood field, that it can spread quickly to food commodities when the time is ripe. Hence fully effective fair-trade laws should be kept ready when that time comes. FAIR-TRADE REPORT OF HOUSE AND SENATE COMMITTEES The support of fair trade by both the Senate and House Small Business Committees after exhaustive investigation should have great weight in the furtherance of adequate fair-trade legislation such as is exemplified in H. R. 5767. The conclusion of the House committee is that small business in particular needs protection against loss-leader and similar unfair business practices and that the States should retain jurisdiction over retail trade practices and that Congress should make it possible to enforce fair-trade contracts in interstate commerce. The Senate committee's conclusion is generally to the same purport. It declares that the Nation's economic well-being depends to a large extent on the vitality of America's small business and that threats of price wars must be eliminated if that vitality is to endure. SUBMITTED ON BEHALF OF THE EXECUTIVE BOARD OF RETAIL JEWELERS OF GREATER NEW YORK, BY SAMUEL R. ZICKERMAN, CHAIRMAN, FAIR-TRADE COMMITTEE Gentlemen, my name is Samuel R. Zickerman, I am chairman of the fair-trade committee representing the retail jewelers comprising the membership of the Metropolitan Retail Jewels Association, Bronx Retail Jewelers Association, Brooklyn Retail Jewelers Association, Long Island Retail Jewelers Association, Retail Jewelers of Borough of Richmond, a total of some 3,000 retail merchants in the greater metropolitan area of New York. Since the voluminous testimony before both committees which held hearings in the House of Representatives on the McGuire and Keough bills is at your disposal, I do not feel it necessary for me to take up your valuable time in repetitious arguments on the vital issue of Federal enabling legislation to permit the several States to properly enforce their fair-trade statutes. |