by Terrie Ellerbee/associate editor
A huge battle is brewing in Wisconsin, and what is spurring it on revolves around a new entrant into the state: Meijer. The Michigan-based retailer has opened two stores in Wisconsin and plans to open more. It stands accused of breaking the state’s Unfair Sales Act, or minimum markup law, by charging prices that are too low.
Meijer is not behind a movement to repeal the Depression-era law. It’s just the public face of it for those who would push for repeal.
Complaints to the Wisconsin Department of Agriculture, Trade and Consumer Protection, which is the agency that enforces the Unfair Sales Act, have brought headlines such as, “Meijer investigated in Wisconsin for pricing too low,” from MLive.com and “Wisconsin Goes To War Against Low Grocery Prices,” from Investor’s Business Daily.
Proponents of repealing the Unfair Sales Act use the “free market” argument. Legislators who are pushing for the change say that if retailers can’t compete in a free market, maybe they shouldn’t be in business.
“Look at the four chains in Wisconsin that have just surged in dramatic growth: Sendik’s, Festival Foods, Woodman’s and Gordy’s,” Wisconsin Grocers Association (WGA) President Brandon Scholz tells The Shelby Report. “As I look around, I’m scratching my head. How are we not in a competitive marketplace here? I mean the Milwaukee market in this state is going to be an all-out war between Pick ‘n Save and Meijer and Woodman’s and Sendik’s to some extent. These folks are in it for the long haul.”
Repealing the law wouldn’t solve a problem, but it might score political points. Scholz said there are lawmakers who, perhaps rightly so, believe they have helped Wisconsin be “Open for Business,” by passing right to work and prevailing wage laws, among other initiatives, and now they say it is time to help consumers. Gov. Scott Walker, who is running for president, uses the phrase “Open for Business” as his slogan, and while he isn’t leading the charge for repeal of the minimum markup law, Scholz said the result would ultimately be businesses closing.
“There is a core group, very fundamentally strong ideologues, who for one reason or another feel that we should be in a free market no matter what the consequences, and those consequences are businesses closing, lack of customer choice, people out of work, people in the unemployment line,” Scholz said. “It’s not like the employees in these grocery stores are going to get jobs at the store that wins out. They’re going to be unemployed. This is the ‘Unemployment Act of 2015.’”
Repealing the Unfair Sales Act would mean a complete change in how goods are priced and would ripple throughout the supply chain. The minimum markup law has as its foundation the prohibition against selling goods below cost. It was put in place in 1939 to stop larger retailers from selling products below cost in an effort to kill off the competition.
It is because it has been in place so long that its repeal would wreak havoc.
“This law has been one of the basic planks in somebody’s business plan,” Scholz said. “You know what you can and can’t do when you develop pricing, and when your wholesaler develops pricing, and when your suppliers develop pricing, and when their manufacturers develop their costs of producing the product, and the raw materials suppliers develop their costs—this is all up and down the supply chain.”
Scholz at least wants retailers, wholesalers, suppliers and everyone else who would be affected to have some time to adjust.
“If you want to flip a switch and say, ‘On Jan. 1, 2016, we’re done and this is repealed,’ there is going to be carnage, serious carnage in the retail marketplace,” he said.
Proponents of repealing the law argue that other states don’t have the Unfair Sales Act and they’re doing fine.
“Of course they are,” Scholz said. “They’ve been operating without this in place, and therefore they can set their business plans and their prices, and so can the supply chain. It’s not like you can’t survive with or without this.
“It’s not that I’m advocating for a long period to repeal, but if the people who are headstrong in this truly cared about the store that they will put out of business, then they would sit down and say, ‘it’s maybe not as fast as we want it, but at least we’ll have it in five years or seven years or something like that,” he said.
The Unfair Sales Act is one reason independent grocers like Sendik’s, Festival Foods and Woodman’s thrive. A Sendik’s store will anchor a new development coming to Muskego. Festival foods plans to build a fifth Green Bay area store that also will anchor a retail center. Employee-owned Woodman’s opened a store in Altoona in late August.
“Wisconsin has, I think, one of the healthiest crops of independent retailers in the grocery business compared to most of its neighbors. That’s with this law in place,” he said. “On the convenience store side, we have more growth and a more stable marketplace and competitive marketplace than Texas does, and they have their own oil. So, if you look at the growth in this state, we’re not stagnating. We’re not going backwards. You’re seeing entrants into the marketplace.”
Scholz said it is a false assumption to claim that consumers would benefit from repealing the law. He said any benefit would be temporary. When the price war starts, he suggests shoppers buy “a gazillion” of whatever the loss leaders are, because once the smaller, independent retailers close down, it could be the last time the larger retailers—or any retailer for that matter—would ever price them so low.
Wisconsin-based Certco continues to grow
Certco Inc. recently completed renovation work on its new business at the retailer-owned corporation’s facility in Madison.
“We just needed to create a little more space for growth,” Dave Ryman, VP of sales and marketing, told The Shelby Report. “It should take care of us for a while.”
Two quick examples of its growth include one of Certco’s larger members, Woodman’s, which in late August opened a nearly quarter million-s.f. store in Eau Claire. Another customer, Sendik’s, is adding stores in Muskego and Greendale.
“It seems to have been a little better environment on the retail side,” Ryman said of the area economy. “I don’t think it’s by any means bursting. It’s slow and steady. Year-over-year sales are good in same stores in most of them.”
Certco is hiring, too, beyond replacing retirees and filling open positions. It recently expanded both its buying and sales support staffs. Marketing and advertising may also expand to meet some “new needs,” Ryman said. Hiring for drivers and warehouse personnel is ongoing, but that also is picking up some as the business grows, Ryman said.
Woodman’s, Sendik’s and other members get what the company calls the “CertcoEdge.” It is something of a promise to the independent grocers served by Certco.
“I didn’t come up with the name, but I like it. It incorporates the suite of services that we offer our retailers,” Ryman said. “We think we have the lowest pricing and biggest variety of any wholesaler at least in the Midwest. We feel we give retailers an ‘edge’ with support and services, so we’ve come up with CertcoEdge. It encompasses retailer accounting services, web design and support, IT services, advertising, sales support, store support—just about everything we offer falls under that grouping.”
Unlike other wholesalers, Certco doesn’t require its members to sign a contract other than a buying agreement.
“That doesn’t bind them to a certain amount of time that they have to be with us as a supplier, like a three- or five-year commitment. We just never really required that, and haven’t seen the need at this point,” Ryman said. “What we feel, and we’ve been able to do, is that our members are happy to stay with us. They don’t change because they’re unhappy. They stay because they get what they need and the support they need. You can change whenever you want, but rarely does anybody change.”
Three of Certco Inc.’s members are among those that will be recognized by the Wisconsin Grocers Association (WGA) at its Innovation Expo in October for excellence in operations and community service.
“Independents, as they always do, find a way to compete. They adapt and grow,” Ryman said. “They find their niche and improve on it and continue to be successful in their community, which I think is quite remarkable.”
*Editor’s note: This Wisconsin Market Profile also appears in the October print edition of The Shelby Report of the Midwest.
