Mr. ANFUSO. We will first hear from Harold Unterberg.
Mr. Unterberg, will you please identify yourself for the record?

STATEMENT OF HAROLD UNTERBERG, GENERAL COUNSEL AND SECRETARY FOR THE ASSOCIATED FOOD STORES; ALSO REPRESENTING THE FOOD INDUSTRY ALLIANCE

Mr. UNTERBERG. I am Harold Unterberg. I am with the law firm of Unterberg & Unterberg, and, also, general counsel and secretary for the Associated Food Stores. We have also been retained by the Food Industry Alliance in this matter. Food Industry Alliance is an organization composed of some of the large leading independent chain and cooperative retail food merchants in the city of New York, and that includes Long Island and part of New Jersey.

Both organizations, I do not have to add, are strong opponents to the trading-stamp plan and what it represents as an impact on the increase of cost of food to the consumer and an added expense to retailers which is not normal to the general food-distribution cost.

I would like just briefly to begin to summarize what the tradingstamp plans are, because we have found a lot of people discussing trading stamps and frequently they do not have exact knowledge of what it is. So far as we are concerned in this case, and I am going to stick primarily to the impact on the retail store and then the retailers, trading stamps, the basic features of the trading-stamp scheme, varies very little.

One company may have a little variation, but, basically, these are features that are parts of all, and, incidentally, it has changed very little through the years. Trading stamps are purchased in advance by retailers from the trading-stamp companies, using pads of 5,000 for $10 or $15. The prices charged the retailers range from $2 to $3 per thousand stamps. In other words, this is an added cost to the retailer of about 212 percent of the merchant's sales.

If we try to link it in a factual presentation to weekly sales, in other words, if a food retailer's average weekly business is $20,000, he is required to have in his possession for distribution 200,000 stamps for which he must pay in advance. The trading-stamp people don't deal on credit. So that he has an advance cost of anywhere between $1,400 to $1,600 each week before he opens his door for business.

Of course, we know the retailer does not give these trading stamps to their customers in a common ratio, it being 1 stamp for each 10 cents of purchase.

These stamps are then accumulated by the customers in books, having spaces for 12 to 1,500 stamps, and the customer, normally, to fill such a book, has to make $130 worth of purchases.

This, basically, is the stamp plan, the advanced cost to the retailer. What is the impact of it, nationwide?

Surprisingly, now, the stamp problem has not become localized. It has grown to such an extent that it streatches from the west coast to the east coast, north and south, to the extent today

Mr. ANFUSO. Before you leave that point, to clarify your first point, do you mean that the retailers who deal or accept these stamps must make a payment for them?

Mr. UNTERBERG. Yes. Incidentally, whether the stamps are redeemed or unredeemed, the retailer gets no credit. This is an absolute advance cost to his business.

Mr. ANFUSO. What is the cost?

Mr. UNTERBERG. The costs? Well, the cost varies from 2 to 3 percent. But we will take the Department of Commerce figures; they strike an average of 22 percent of the gross sales, not the profit but the gross sales.

Mr. ANFUSO. That is the first point?

Mr. UNTERBERG. That is the first point.
Mr. ANFUSO. Go right ahead.

Mr. UNTERBERG. It varies. The Department of Commerce estimates that half of all families in the United States are saving stamps. That is over 40 million families. The sale of stamps to retailersthis is not distribution to customers-the sales I have talked of before, of stamps, have been quoted from statistics from the Department of Commerce and other sources, reliable sources-the estimated volume exceeds over $700 million. This is a figure of $700 million added to the cost of doing business to the retailer a year.

Today this cost is a fact that has been injected into food-distribution prices. This fact becomes very important when we consider that the average net income—and I am talking of the net profit of a retail store today-if he sells 2 percent, that is exceptionally good-the average, I would say, is between 1 and 2 percent. So, in other words, a retailer pays 2 cents on each dollar for these stamps, which almost wipes out the income that he derives from his business.

We have then this situation, that the retailer has this cost to make up from his business. I do not think anybody would expect a retailer to absorb that cost or operate at a loss. Even our stamp people say that, in order to break even, he would have to increase his volume 15 to 20 percent-in order to break even. One of the contentions is that the cost will be absorbed by increased volume. Let us examine that for the minute.

When one retailer in an area adopts stamps he might have a competitive value, but today competition forces the other retailer to adopt stamps as well. There is not one retailer that we have heard of that was a willing subscriber to such a plan. When all of the retailers in the area have the same competitive advantage, then it comes back to the same forces of competition. In other words, the advantage one has to get the volume is the same in the other store. So, they revert again back to the old system of merchandising; stamps have lost all benefit. So, there is no increased volume at that point. This argument then falls.

Secondly, stamps themselves are no miracle. They cannot produce a volume when in a particular community the volume potential has been reached. But that particular store would have to put on stamps by reason of competitive forces because the areas adjacent have stamps. But he cannot increase his volume if he is getting all of the volume in that area. Again, then, there is additional cost.

The only way he can continue operating his business is to pass this cost on to the consumer. A 2 percent cost, a 2 percent profit. Somewhere someone has to pay for this. And who does it? It is the

consumer.

Statistics have been given-and I have read the testimony before this committee by some economists, indicating in some area surveys there have been no increase in costs in prices.

I recall Daniel Webster once saying that the Devil himself can quote the Scriptures for his own benefit.

The costs that these people have on national brand items are not raised-they cannot afford to-but where the costs are, in special items and meat and produce, things in which you cannot make comparison, except where there is another force, another chainstore publishing prices.

The average housewife is a very astute and sharp shopper. She will read the ads. She will know what national brand products cost, but the ones that are not advertised are the ones that are increased. So that when a housewife goes in and buys, we have all of those statistics and surveys that have been shown, the average cost between a stamp store and a nonstamp store has often been as much as 8 percent higher in a stamp store because of these hidden items.

The costs have to be made up.

Mr. ANFUSO. Would you like to be interrupted or make your statement?

Mr. UNTERBERG. I believe I would like to be interrupted because I feel that this would crystallize questions.

Mrs. KNUTSON. Did you read the report that the Department of Agriculture made in testimony before our committee several months ago?

Mr. UNTERBERG. I understand they did. I did not read their report, but I have read the various marketing research reports.

Mrs. KNUTSON. They issued a preliminary report saying that trading stamps did not raise prices they did not find that and furthermore, the University of Indiana reported the same thing, they could not find any increases in prices.

Mr. UNTERBERG. With all due respects to the Vredenburg reportI think you are referring to that his statement was along the lines that I have just indicated.

In other words, these three facts, that the competitive value or the question of cost, in an area where all stores are issuing stamps, the competitive value or the advantage is lost.

Secondly, the potential of the area where the volume cannot be increased by reason of the population itself. There, of course, the cost cannot be absorbed.

Mrs. KNUTSON. Their testimony is a matter of record.

Have you one similar to that?

Mr. UNTERBERG. I have here the Department of Agriculture Marketing Research Report No. 169, and if I may just quote from that. Here they are talking about the question that we have of increasing sales.

Though many retailers experience an increase in sales following the introduction of a stamp plan, the size of this increase can vary greatly.

The first dealer in his immediate trade area to introduce stamps may have an increase in sales that will more than meet the entire cost of stamps.

On the other hand, if the grocer already has a large share of his possible customers, there may be little or no increase in sales.

Then, too, even though sales increase at first, they may not continue to do so if competing stores adopt trading stamps.

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In instances such as these last two cases, unless a retailer can save in other ways, all or part of the cost of the stamp plan must be passed on as higher prices, or he will have to take smaller profits or even a loss.

Mrs. KNUTSON. I am not interested in that. I am interested in your report. Have you received a similar report to that of the Department of Agriculture or of Indiana University?

Mr. UNTERBERG. No, we have not. What we have, the information we have had is regarding these various surveys.

I had at one time the items of special products, but I do not have it with me, in the stores in metropolitan area.

Purchases were made in stamp stores and nonstamp stores which bear out these conclusions that are reached by the marketing report and, also, the statements that I have just made.

Mrs. KNUTSON. Would you say that yours is comparable to the wide scope in which these two studies were made?

Mr. UNTERBERG. No. But I am not professing to be a statistician. I am dealing in simple arithmetic of facts.

If an area has so much volume that it can produce, let us say, $1 million of sales per year by reason of population the introduction of stamps by themselves will not lift that to 2 million, nor by reason of the fact if one person, if one of the big chainstores is using stamps and another chain is using stamps of a similar caliber, the competitive advantage to the consumers, they are going to get stamps from those stores; therefore, the cost then or the competitive advantage or the incentive, for one customer to go to this store as against the store that does not have stamps is lost.

Mrs. KNUTSON. Did you check?

Now, for instance, they have different ways of setting up the merchandise.

They have precheckout. They have packing facilities. Have you checked that against some of the prizes that some of these stores give, to find a comparison where they are giving away automobiles and fur coats, and so on?

Mr. UNTERBERG. Today because of the saturation of the stamps all of these stores that are giving stamps are now compelled to go into the same promotional items as before. Because the competitive advantage is lost by stamps alone. So these stamp stores that are giving stamps are giving away cars, gift certificates, in the same promotional way as they did before.

Mrs. KNUTSON. To look at it from the standpoint of how a woman. looks at it, a woman shopper, would you say that she is a pretty good shopper and knows her value?

Mr. UNTERBERG. I definitely think so.

Mrs. KNUTSON. She wants the stamps. I have a lot of letters, because I am a woman on this committee-I have about 99.99 plus percent in favor of it.

What would happen if you tried to take it away from these housewives? They think they are making a great big saving.

How will you take care of that?

Mr. ANFUSO. To keep the record straight, we have received information that consumer groups are against the stamps.

We have a letter from a Pacific consumer group representing 7,800 members, and they are opposed to it. I cannot accept the statement for the record that all housewives are in favor.

Mr. UNTERBERG. I may just remark in answer to that, I think your committee has received an equal number of letters from consumers complaining about high costs.

You are on the horns of a dilemma. You hear some housewife say, "Don't eliminate stamps but keep my prices down."

We are here and I imagine the committee is interested to find what causes the high costs.

I think fundamentally between a housewife getting a percolator and putting nutritious food on the table, she would prefer the latter.

In other words, any item that appears in the food budget is an important part of the national health and I think if you gave your housewife the choice, your food bill will be reduced by 2 percent or even more, or 9 percent, what would their answer be?

This is the question that you have to put to them.

Mrs. KNUTSON. They still would take trading stamps.
Mr. ANFUSO. Let me ask you this question:

Take a particular area, whether New York City or elsewhere, and tell us what percent of the retail stores are using the stamps.

Mr. UNTERBERG. I would say in the New York area, I would say about, with a large number of the independents, percentagewise, it would be difficult for me to approximate that.

But I would say according to the national statistics, a good portion of the retailers, I would say a majority of the retailers, are using stamps because by competition they have to use them.

Mr. ANFUSO. Your point is and we would like to hear from the experts on the other side on this very point-your point is that those who use stamps go on for a certain period of time and their sales are increased.

That compels others of the same community, the same area, to meet that kind of competition, and eventually, the market is exhausted, so that there is only the cost of the stamp which the consumer has to pay, is that your point?

Mr. UNTERBERG. That is one of the points. Then they revert back to the same promotional gimmicks that they had before with the additional cost.

Statisticswise, I will have to borrow from the American Institute of Public Opinion.

Mr. GRANT. I might be getting the cart before the horse, from the statement that the witness has made, if that be correct, that it does cost more to do business, if that is correct, what is the remedy?

Would you outlaw the trading stamps by Federal or State legislation?

Or would you give the various municipalities authority, if they do not already have it, by way of license, to let them place a license on this business that would make it confiscatory?

What is the remedy?

Mr. UNTERBERG. I would like to answer that by reading a quotation which pertains to Federal legislation outlawing stamps in the District of Columbia and the remark very significantly is something that is by a Federal court and has pertinent application to this.