The more important independents organized their own voluntary chain which enabled them to buy in carload lots, and thus get the benefit of the lowest possible price.

Mr. ANFUSO. I want you to know that we are very well acquainted with the progress of the supermarkets and your reference in that regard. I would like to ask you a question, which, also, interests this committee.

This last year a committee was appointed, a subcommittee of the Committee on Agriculture of which I am chairman. I believe most of the members here are likewise members of that subcommittee to study the advantages of having an American fair in Moscow. Mr. ZIMMERMAN. Yes, sir.

Mr. ANFUSO. That has been revised. I know that you are in favor of that, and we on this committee are, also, in favor of that. We were last year and are this year. It is for nothing else but to show the people in the Soviet government that we are thinking in terms of making people live and live better, rather than destroying them. Are you in favor of such an exhibit say of a superb supermarket at an exhibition in Moscow? Would you and those people that you are connected with give it cooperation?

Mr. ZIMMERMAN. We are certainly, definitely in favor of it. As a matter of fact, I happened to be the founder of the International Association of Food Distribution in Paris in 1952, and it was organized for the purpose of bringing over to Europe and the rest of the world the economies of self-service distribution.

I might say that in Rome, in 1956, the first supermarket was put up at our third annual congress and, of course, this has had a tremendous influence.

I can think of no better way in penetrating the Iron Curtain with our philosophy of life than the supermarket, but in organizing this supermarket for Moscow I think it should be representative of the entire food industry and not one single organization. It should be heralded as the food industry of the United States, in cooperation or in collaboration with the Department of Agriculture. That is the way it should be presented more than anything else, because it is not a chain offering, it is the whole food industry. We in the food industry are all interested in it, and we have pioneered in Europe.

I spent 8 years traveling back and forth all through Europe. I returned only recently from a trip around the world where I was lecturing on food, the economies of self-service food distribution.

So we are very strongly in favor of this particular movement of presenting our way of life. There is nothing that is more dramatic than showing the people of these countries who are living at a very substandard level how Mrs. America shops and the great varieties of foods.

Mr. ANFUSO. This will be the first time that has ever been done. We understand that the Soviet Government has agreed to it. Our Department of Commerce is working on it, in cooperation with our committee, and I believe that it will come into being in 1958.

Mr. ZIMMERMAN. Yes, sir. I think it will be the greatest penetration behind the Iron Curtain possible.

Mr. ANFUSO. I might say that the fair which we had in Yugoslavia was a tremendous success.

Mr. ZIMMERMAN. Unquestionably so.

Mr. ANFUSO. Millions of people patronized it, and I think we promoted much good will.

Mr. ZIMMERMAN. I know in Rome for the first week, when it was opened, there were over 500,000 consumers, Italian consumers, passed through that supermarket.

Mr. ANFUSo. I know that.

Mr. ZIMMERMAN. It was an amazing success.

Mr. ANFUSO. Thank you again. You will be hearing plenty more from us.

Mr. ZIMMERMAN. Thank you very much for allowing me to appear on your hearing.

(The prepared paper of Mr. Zimmerman is as follows:)

THE VITALITY OF THE SUPERMARKET INDUSTRY-WHAT IT HAS ACCOMPLISHED AS A LOW-COST DISTRIBUTION OUTLET

(By M. M. Zimmerman, president, Supermarket Merchandising,
New York, N. Y.)

I should like to confine my remarks at this hearing, devoted to the price spread in foods between the farmer and the consumer, to the supermarket and its vitality as a low-cost distributor.

As a system of mass retailing it has affected the farmer, the processor, the wholesaler, the neighborhood grocer, and the consumer. Its ability to attract tremendous traffic week in, week out, to move carloads of foods in a day—and at a penny net profit-has won the acclaim and envy of the world.

To appreciate the influence of the supermarket in giving the consumer foods at the lowest possible cost, let us review briefly the inception of the supermarket and how it achieved its present position of dominance. It is important to study this, because what is at issue is the question of whether the supermarket continues to be a force in lowering costs. My opinion is that it is a continuing dynamic force in leveling prices.

The supermarket is so much a part of our lives today that it is hard to believe it is only 27 years old and that its origin goes back only to 1930. Like many other great American innovations such as the electric light, the airplane, and the automobile, the supermarket didn't just happen. It was the product of farsighted grocers who sought a way to bring down the cost of food for the average homemaker.

Before the advent of the supermarket, when Mrs. America wished to buy her groceries, meats, fruits, and vegetables, she had to ask the storekeeper or clerk for every item she wanted. If she wanted cookies or crackers, he grabbed handfuls out of boxes or barrels. Sugar was scooped out of 100-pound sacks into brown paper bags. Milk was dipped out of metal cans in pints or quarts, and there was very little control over how much water or cream was in the milk. Packaging was limited and the number of items that the homemaker could buy in any one grocery shop was very small.

The average grocer carried from 400 to 600 different grocery items, and had little knowledge of how to keep his costs low. The facts are that in those days Mrs. America was paying as much as 25 cents out of every dollar that she spent for groceries just for the grocer's cost of operation and his profit, which could be as much as 10 cents.

In 1929, when the stock market crashed, America became much more aware of the value of the dollar. Every penny spent on food was watched carefully and the homemaker thought nothing of walking long distances if she could save a penny or two on a food purchase. The time had come for a new idea in selling groceries: to find a way whereby the merchant could give the shopper more for her food dollar.

It was then that a man named Michael Cullen, a food-chain executive, began to put his mind to the project of creating a food store which would be operated at rock-bottom cost. He hit upon a simple idea: He would build a gigantic store far away from main-street shopping areas, so that the rent would be the lowest that could be obtained; he would eliminate as many sales clerks as possible, allowing the homemaker to shop almost completely on a selfservice basis. At the same time, he wanted to put tons and tons of merchandise

out on display in the hope that the large volume of sales would reduce the cost even more. He was applying a concept familiar to all mass production industries, that the more that is produced and sold, the cheaper it is.

Finally, his plan called for buying all the merchandise directly from the manufacturer, so as to eliminate the profits of the middleman, and for selling in such great quantities that he could purchase in carloads, which was the only way the manufacturer sold his merchandise. "Mike" Cullen left his job with the chain, raised the necessary capital, and built the first supermarket in Jamaica, Long Island. He called it King Kullen Market-The World's Greatest Price Wrecker. That was in August of 1930.

"Mike" Cullen's supermarket was an instantaneous success. People flocked to his store in droves. And why not? Michael Cullen had actually cut the cost of selling groceries in the most dramatic manner ever accomplished. Instead of taking 25 cents out of every dollar spent by the consumer to operate his business, he only required about 13 cents.

Others began to open supermarkets. In the early days these supermarkets occupied abandoned garages, manufacturing plants, and even warehouses. The main idea was simply to get a lot of space where rent was cheap. The stores themselves, therefore, were nothing to look at compared with the present-day supermarkets. Merchandise was heaped up on floors helter-skelter. As time passed, however, the customers began to demand more conveniences, more services, and a greater variety. In the early 1930's you could count the supermarkets on your fingers; their annual business nationally was less than $100 million. In 1956 there were 22,517 supermarkets, and their sales amounted to $23,190 million, well over 50 percent of all the sales in America's foodstores. By the end of 1957 there will be over 23,500 supermarkets, and their combined sales volume will be closer to $25 billion.

The precious pennies which the consumer saved by shopping the handful of supermarkets during the depression years have skyrocketed into billions today. In 1955, when the industry celebrated its silver jubilee, it was estimated that over a quarter-century period the supermarkets sold consumers some $150 billion worth of foods at a saving of $15 billion.

Besides creating a new industry, Michael Cullen left behind him a credo which became embedded in the minds of those operators who followed in his footsteps. It is taken from a letter which Mr. Cullen wrote to the Kroger Co., outlining his complete program of supermarket operation before he went into it on his own. In the closing paragraph, he said as follows:

"The one thought always uppermost in mind: How can I undersell the other fellow? How can I beat the other fellow? How can I make my company more money? The answer is very simple-by keeping my overhead down, and only by keeping this overhead down can I beat the other fellow."

This credo has been the driving force of the industry that has kept costs down.

What has the supermarket accomplished over the past quarter century?

It is my contention that the supermarket industry continues to fulfill the aims of Mike Cullen made 27 years ago-to deliver foods at great savings and at the lowest possible cost.

Let us review a few cases of how the supermarket influenced other branches of retailing to lower costs; how by introducing new techniques in its operation, by adding more lines and building huge markets for greater volume, it has kept costs down.

First, the supermarket changed the entire distribution picture of (a) the food chain, (b) the wholesaler, (c) the retailer.

At the time when the first supermarket appeared, the food chains of that period were operating small grocery stores with weekly volume of from $500 to $800 in sales, confined primarily to groceries. The supermarket competition reluctantly forced the chains to revamp their entire structure. The competition compelled them to replace their small units with supermarkets, despite the fact that many chain executives did not believe in the supermarket system of mass retailing. In this revamping process, they met the supermarket challenge and reduced their gross margins to meet supermarket competition.

Today the national and sectional food chains are a very definite part of the supermarket industry and play an important role in maintaining low prices. The wholesaler, as well as the independent retailer, were also forced to meet the new conditions imposed by supermarkets. The wholesalers of that period were comparatively high-cost operators. To survive supermarket competition,

the wholesaler had to streamline his entire wholesaling structure so as to reduce operating costs and come out with prices to keep his retail customers in competition with the supermarkets. He organized voluntary chains, in many instances furnishing his customers their grocery requirements on a cost-plus basis. In addition, he organized complete advertising and merchandising assistance programs, to give his retail customers some of the advantages which the supermarkets enjoy in advertising and merchandising.

In this whole development, many of the more progressive independent retailers organized their own wholesaling warehouse operations, so-called cooperatives. These pooled their buying power and put them on a carload buying basis-on the same footing with supermarkets. Today thousands of small retailers are successfully competing with the supermarket and are holding their own. The end result has been that both wholesaler and retailer are in a far better competitive position and are delivering foods competitively with the supermarkets. Unquestionably, this intensified competition between chains, supermarket operators, wholesalers and retailers, has contributed materially toward maintaining lower food costs.

The supermarket has now entered another area of development. The intensified competition within the industry has reduced prices and net profit to such a low level that it forces the supermarket to look to other avenues of sales and profits. Prices have been falling to rockbottom and the net profit, as already stated, has been reduced to a penny or less on the dollar sale. All these factors-wholesaler, retailer, supermarket, chain-have brought the whole price level down.

Therefore, it has taken on many lines which were once considered foreign to the grocery business. These are the nonfood lines: drugs, housewares, etc., that the supermarket is developing, not only for increased sales, but uses to make up for the lack of profits in many food products.

And this is another revolution in supermarket retailing which is now in the making. Except where fair trade in toiletries is involved, the supermarkets have become, to a great extent, a "discount" operation with respect to housewares, housefurnishings, hardware, soft goods, and many allied lines.

The supermarket industry is, therefore, entering a new phase in this revolution. It is going into super supermarkets-massive buildings occupying anywhere from 75,000 to 200,000 square feet, loaded with all classes of merchandise which can be conveniently carried out of the store.

The far-visioned supermarket operator believes that he can operate these huge markets at a lower operating cost through the economies and efficiencies he can introduce. For example, such a super supermarket can equal in volume at least four standard markets. Thus, the savings on managers, rents, clerks, etc., will enable him to sell at ever lower prices.

In these super supermarkets, while foods will be the magnet of attraction, the profit emphasis will be from the nonfoods.

One of the far-visioned operators on the coast believes that through these super supermarkets, he will be able to sell his foods at cost and make his profit from the large nonfood volume. And it is not inconceivable that the super supermarket may some day give away its foods at less than cost or even close to cost just to attract the traffic to its nonfood lines. The supermarket industry will help lower costs of nonfoods-the important household necessities, as well as foods. It will also continue to find ways to reduce food costs through new techniques of merchandising foods.

In prepackaged meats, for example, the consumer has benefited materially through lower prices, resulting from the introduction of new methods which sells more of the animal carcass; 25 years ago, meats were sold at a gross margin of around 25 percent or even more. Today, because of self-service prepackaging, competition, and the sale of more of the animal carcass, meats are selling at a gross margin of as low as 16 percent in some cases, with an average of around 18 to 19 percent. In the sale of service meats, many of the parts of the animal carcass were not salable because consumers hesitated to ask for them. Consequently they were thrown into the offal barrel and sold for scrap. Under self-service, many of these parts are packaged and offered at low prices. Mrs. Consumer has her choice and buys many of these low-cost meats.

Similarly, in prepackaged self-service produce, the industry is pioneering to reduce much of the waste in fruits and vegetables which occurs during transport and in the warehouse, most of which finds its way into the garbage can. The industry's aim is to get growers to package many of the perishable fruits and vegetables at their level. This will eliminate the waste and reduce the

high cost of transportation involved in bringing this waste across the country. If this effort can finally be achieved, both the farmer and the consumer will profit materially.

As we all know, when nature is bountiful we have surpluses. Up to the time of the supermarket, the grower was usually confronted with the problem of moving these surpluses; 25 years ago there were no organized systems of retail mass outlets which could help the farmer dispose of them. Today, when there is a glut or a surplus on the farm, it's an easy matter to organize these merchandising mass retail outlets on behalf of the farmer and quickly move these surpluses into the consumer's pantry at great savings to both farmer and consumer. Since 1936 nearly 400 promotional campaigns organized by the Department of Agriculture, in cooperation with chains and supermarkets, have moved hundreds of millions of dollars of these surpluses at great savings to the American economy.

Aside from these few examples, the industry has changed the shopping habits of Mrs. Consumer. It has given her beautiful markets with many conveniences, stocked with the greatest variety of foods and other merchandise. In addition, it has introduced many items of cooked and semicooked foods ready for the table. It has figuratively taken many housewives out of the kitchen, and given her more leisure. It pioneered frozen foods so that today strawberries finds its way to the table in February, at prices much lower than when first introduced. Yes, the supermarket continues as a force for progress. Look at the modern supermarket today with expensive refrigeration and air conditioning, to take care of all the freshness of the products they display, sanitary foods, quality merchandise well packaged by manufacturers, carefully displayed, with freshness and variety that is beyond the imagination of the housewife of 25 years ago. All these come to the consumer without any increase in costs. If anything, Mrs. Consumer today can just thank her lucky stores that all these advantages come to her in the lowest-cost retail business in the world. Gentlemen, I say that this is a miracle of modern distribution.

Mr. ANFUSO. We have with us Dr. Charles H. Phillips, president of Bates College, Lewiston, Maine. I am going to give the privilege of introducing Dr. Bates to our very distinguished colleague from Maine, Congressman McIntire.

Mr. McINTIRE. Thank you very kindly. My colleagues on the committee and our guests here today, I am very happy to introduce the president, Dr. Charles Phillips, of Lewiston, Maine.

Dr. Phillips has had a distinctive academic and research training, with experience in the field of marketing. In addition to that he is an outstanding man in the field of education.

He is president of Bates College which is one of the leading colleges in our State.

Dr. Phillips' background from his academic and merchandising experience in my opinion makes him eminently qualified to appear before this committee, Mr. Chairman, to discuss various aspects of merchandising and trading and other matters which he may wish to present to the committee.

I am very happy that it is possible for me to be in New York today when Dr. Phillips is appearing before this subcommittee of which I am a member, and to introduce him to you.

Dr. Phillips, I must apologize in that I am returning to Maine for a meeting in Bangor tonight, and I will beg your pardon in leaving at such time as is necessary to make the appropriate connection. I am very, very happy that you are here with us this morning.

Mr. ANFUSO. Thank you, Mr. McIntire. Dr. Phillips, I would like to ask you this question first, before we proceed with your testimony. How much time would you like, and whether you would prefer to have your statement introduced in evidence and then speak from it, or we will accept any other suggestion that you may have?