Friday, June 06, 2008

Milking Consumers?

The NYC Council released a report yesterday alleging that New York retailers are over charging customers on milk, As the report states: "
Forty-three of the 50 stores surveyed (86%) charged a price that was higher than the
threshold for at least one unit of milk.
 The 43 surveyed retailers that charged above the threshold for at least one unit of
milk charged an average of $0.40 per unit above the threshold.
 Twelve (63.2%) of the 19 supermarkets surveyed charged above the threshold for at
least one unit of milk.
 A total of 458 units of milk were surveyed,11 with 238 (51.9%) units priced above the

Unfortunately, the council analysis is not only misleading, it is also camouflaging the real issue: the cost of doing business in the city that is pushing grocery prices skyward-on top of a world wide trend in this area, In fact, as a result of these operating costs, the city is losing neighborhood supermarkets-as a Crain's New York Business story underscored a couple of weeks ago.

Here's what Crain's pointed out: "In the past five years, about 100 grocery store owners have either left the city entirely or focused their expansion efforts outside the Big Apple. In response to recent reports detailing the situation, a special commission is now struggling to come up with recommendations that might help turn the tide. The experiences of many of the grocers leaving town show, however, that it won't be easy. "The cost of operating supermarkets in New York City was impossible," says Eligio Peña, who closed the last of his six Associated supermarkets here in 2000 after 30 years in business. Today he co-owns 26 Compare Foods markets in the Carolinas."

So instead of writing a report chastising local retailer, the council should be analysing how to reduce the cost of doing business; because, if the retailers were such good gougers they wouldn't be closing their doors, would they? As we told the NY Sun in its story this morning: "But a spokesman for the Neighborhood Retail Alliance, Richard Lipsky, took issue with her statement, saying the council's focus should be on reducing taxes and regulations, not adjusting price ceilings."If the retailers are doing such a good job gouging, they'd be going out of business?," he said. "The cost of doing business. that should be the final objective."

And ironically, the council does understand this to some degree. Yet it buried this understanding under the sensational "findings" in its report. On page 12 we find: "Finally, it must be recognized that rising rents, high operating costs and slim margins have made it difficult for supermarkets to thrive in New York City."

These high costs, the report finds, may mean that it should be necessary to reconfigure the formula that determines whether retailers are in fact gouging at all: "In discussions with a number of retailers and industry experts it was mentioned that the New York State Legislature should consider amending the MPGL in order to allow AGMKT to update its methodology for setting the threshold price in order better reflect all of the costs to retailers and decrease volatility in the market."

Well there you go. The high NYC operating costs may very well be creating what the doctors call a false positive. Once these new costs are factored in we are sure it will be found that retailers, struggling to survive in this harsh city business climate are not gouging at all. The first place the council should examine in all of this is the commercial real estate tax that the city raised by 20% in 2002, a raise that was an equivalent rent increase for all city store owners.

When the city's hemorrhaging supermarkets the last thing we need is a report that claims to demonstrate that these retailers are trying to bilk their customers. On reflection, what we see in the mirror, is the council's own countenance (along with the mayor's). Instead of pointing fingers, it should be looking to help NYC consumers by lowering retail operating costs.