National Editor Tom Karst
National Editor Tom Karst

If a retailer is shafting its customers, can suppliers trust it?

I was reading a  recent story about Safeway overcharging customers, despite a 2008 settlement okayed by the CDFA that indicated the chain's responsibility to take corrective measures.

Checking out the 23 reader comments in the November KCBS story, I don't get the feeling there is a lot of goodwill toward Safeway on the issue right now.

From that November KCBS  story:

As a result of the most recent judgment against the supermarket chain (.pdf), if an item under $5 scans at the register for more than the lowest advertise price, Safeway and Vons must give the customer the item for free (limit 1 item – the other items must be given at the lowest advertised price). If an item is over $5, Safeway is supposed to give the customer a $5 gift card. The judgment excludes dairy, alcohol, tobacco, fuel and pharmacy products.

“In all the years I’ve called them this I’ve never gotten the item for free,” complained John Mortimer of San Francisco who says he is regularly overcharged at Safeway.

“They just kinda unhappily give me the difference,” added a San Jose Safeway shopper who asked to remain anonymous.


KCBS updated their coverage Dec. 19, with a story titled "ConsumerWatch: Safeway Stores May Be More Likely To Overcharge."

The same story referred to a state of California Department of Food and Agriculture survey of retail price accuracy throughout the state. That survey showed that retailers were more than twice as likely to overprice as underprice. And another county  survey of Safeway showed that those stores were four times as likely to overcharge as undercharge.

Sure, there are a lot of complexities in supermarket pricing models - true sales, loyalty cards, PLU numbers (!!) price reduced,  advertised price, etc. But if Safeway is overcharging some customers (still), how safe should suppliers feel in the supermarket accounting department when it comes to promotional funds supplied by fresh produce marketers?

Much safer than in Cyprus, I would wager. From a story in The Cyprus Mail, description of the  crisis for retailers and the untenable fiscal situation that suppliers find themselves.  Photos Photiades, founder of the Photos Photiades Group. and author of the piece, spoke of the repercussions of a bankruptcy of a larger retailer in Cyprus. The market power of the major supermarkets has allowed them to demand credit terms from three to eighteen months after delivery, he said. That has made the supermarket irresponsible with the investments they make.  From the story:

For those who are unaware, this is how this disastrous payment system - that has to be stopped at all costs - works.  

The supplier delivers the goods to the supermarket that in turn sells the goods and fills up its tills. The supermarket though does not pay the supplier for those goods but instead demands, and gets, further deliveries that also remain unpaid. In the credit period, which can last three to 18 months, the supermarket can receive takings of several million euros. The length of the credit period depends on the ‘strength’ of the brand and how reliant the supermarket is on a specific brand. The supermarket receives all these products without having to place any kind of security/guarantee and furthermore it is the supplier who will pay the interest arising out of the payment delay. This usually erodes the profit.

The negotiating power of these big supermarkets has increased tremendously over the years as they attract the large majority of the consumers, thus enabling them to impose their own terms on their suppliers however harsh they may be. They secure prices that leave little or no margin, rent out their shelf space at exorbitant prices and make their suppliers responsible not only for the replenishment of the shelves but also for their cleanliness and general upkeep. However their biggest ‘achievement’ is this credit period that ranges from three to 18 months and which is both interest- and security-free.

Ouch. I would hate to be a supplier who extended 18-month credit terms to a bankrupt Cyprus supermarket. So as retail sins go, perhaps Safeway's apparent overcharging of consumers isn't quite as grave.

But for Safeway, the company's perceived  lack of progress in delivering correct prices creates ex-customers and could lead to a healthy skepticism from its own fresh produce suppliers.



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