Kroger Takes Aim at California Below-Cost Sales Law

Legislation would make it harder for marketers to challenge big chains

Carole Donoghue, Petroleum Editor

CINCINNATI -- The Kroger Co. is backing a bill that would amend a longstanding California law to make it much harder for marketers to sue chains that sell gasoline below cost, CSP Daily News has learned.

The 33-state grocery giant is throwing its weight behind a measure that would require a marketer to get the price of every item that is sold in conjunction with a fuel purchase--and the costs involved in selling it that item--in order to show that the fuel was sold at a loss.

"This measure presents a huge problem for marketers," said Jay McKeeman, with the California Independent Oil Marketers Association. "It will prevent them from challenging below-cost sales by big-box retailers and others who can afford to sell below-cost and then engage in lengthy and costly legal actions to defend their marketing practices."

In a typical supermarket, there are more than 10,000 individual products for sale at any given time, according to Rusty Rinehart, a California lawyer who has filed below-cost cases in the past. Add an additional 1,500 items for dairy produce, meat and deli sections of the market, and it would make it "nearly impossible" for a marketer to even get to the first stage of bringing a case.

Under the bill, the marketer would also have to show what the supermarket's costs were over a "commercially reasonable period of time," that could be one month, one quarter or one year, depending on the whim of the jury hearing the case, Rinehart said.

The bill was introduced by Assemblyman Robert Wieckowski (D), who maintains the measure would protect consumers by making sure that they could buy fuel at discounted prices, based on points or credits they earn for purchases of groceries or other products.

Kroger has a loyalty program with Shell that allows consumers to earn 10 cents per gallon in discounts, depending on their purchases.

California's average price for regular in early April was approximately 38 cents per gallon above the national average for self-serve regular, according to a fact sheet Wieckowski's office is circulating. "Ambiguity" in the state's current law threatens to eliminate discount programs in the state and make fuel even more expensive for consumers to buy.

"They [Kroger] want to preserve some of these popular fuel discounts," said Jeff Barbosa, a spokesperson for Wieckowski's office.

Currently, California's Unlawful Practices Act, passed in 1939, only requires a marketer to obtain the invoice cost of fuel that he believes is being sold below cost for the day in question and to apply a cost-of-doing business formula, to prove his case.

Jobber Graham Mackey successfully sued Safeway under the law about eight years ago, after the grocery chain started selling 20 cents per gallon below cost to promote a new store opening in Hollister, Calif. In a settlement deal, Safeway agreed not to sell below cost at its stores in San Benito County, CSP Daily News sources say.

"The law as it stands now, is a good one, it keeps the big boys honest," Mackey told CSP Daily News. "It would be much harder to prove a case if this bill goes through."

Kroger launched a similar campaign in Colorado five years ago after two small retailers won a $1.4 million below-cost judgment against Dillon Cos., a Kroger subsidiary, which was offering 20 cents per gallon off fuel on a $50 food purchase. Big-box firms retaliated by suspending discount offers. Wal-Mart, for example, refused to offer its $4 generic drug program in the state, and flyers were handed out at church services urging parishioners to contact their local senator on the issue. Legislators later amended the state law to allow below-cost sales if they are part of a package of products sold. The award against Kroger was overturned on appeal.

Kroger uses lobbying firm California Strategies & Advocacy LLC to represent it in California. The firm also represents the National Football League, New York Life Insurance and U-Haul.

Cincinnati-based Kroger did not return a call for comment by press time.