Cheesehead Attorneys Claim Meijer Prices are Too Low

[XLFD]

Can you imagine running a private business and getting sued by a competitor for offering your products to the consumer for too low of a price?   An 80 year old law in Wisconsin allows this to happen, and it's being used against Grand Rapids based Meijer's Inc. a successful supermarket chain that has recently opened a few stores in Wisconsin, and plan to open several more. 

Locals may recall earlier this summer, the chain opened a store in Manistee and had about a month of grand opening sales that occurred even here in Ludington's Meijer's.  Those were good times for stocking up your pantry, with Bush's Baked Beans and 2 liters of soda pop going for $0.69 (with quantities limited), and a host of other bargains.  Undoubtedly, it served its purpose, bringing bodies into the store, but it was perfectly legal to do so here, and great for the consumers who took advantage of the sales.

In Wisconsin, however, these grand openings were met with an undisclosed retailer fighting back with a rarely invoked Great Depression era law that makes it unlawful to offer products below its own costs.  Whatever the rationale for passing the law then, it is obviously contrary to the concept of free markets unhindered by government interference, and when enforced, is bad for Wisconsin business and for informed consumers.  Read the article below from the Grand Rapids Press on August 18, followed by a critique of the law two weeks later by two state senators that want to repeal it.

Meijer investigated in Wisconsin for pricing too low

MADISON, WIS — Meijer's recent opening of two Wisconsin stores has led to a state investigation to determine if the Midwest retailer violated a Depression-era law that keeps products from being sold below cost.

There are 37 products reported in four complaints filed against the Michigan-based retailer, according to documents provided to MLive and The Grand Rapids Press under the Freedom of Information Act by the state of Wisconsin.

Products reported to be priced too low range from 28-cents a pound bananas to a $1.99 gallon of milk.

The complaints were filed with the Department of Agriculture, Trade and Consumer Protection, which is charged with enforcing the the Unfair Sales Act, also known as the minimum markup law, which covers the sale of gas, tobacco and general merchandise products sold in Wisconsin.

The complaints were made by Milwaukee attorney Gerardo "Jerry" Gonzalez with the Milwaukee firm Gonzalez, Saggio a... for an unidentified client. Gonzalez didn't respond to a request for comment by MLive.

In one of his complaint letters to the state, Gonzalez noted Meijer's entry into the Wisconsin market is significant.

"We believe Meijer's failure to adhere to the requirements of the Unfair Sales Act will immediately result in injury to those retailers adhering to Wisconsin law," he wrote.

The supercenter chain is accused of breaking the Wisconsin law by advertising and selling products below its own costs.

The complaints are tied to ads for Meijer's grand opening sales prices of the Kenosha and Grafton stores in late July.

The alleged violation of the so-called minimum markup law comes as Meijer is investing $750 million to expand into Wisconsin. This summer, the Michigan-based supercenter chain opened four stores in the Milwaukee area and expects to have at least a dozen stores open by 2019.

While Meijer was aware of the law, the complaints surprised the privately-owned retailer, which has long competed on price in the marketplace and uses the advertising tagline "higher standards lower prices" in its commercials.

"Those prices were for our grand opening promotions, which are consistent with the promotional prices we used when we opened the Michigan stores in Alpena, Manistee and Detroit," said Frank Guglielmi, Meijer's director of communications.

This is the first time Meijer has been in hot water for pricing too low. The retailer operates more than 200 stores across a five-state footprint of Michigan, Illinois, Indiana, Ohio and Kentucky — in addition to its new stores in Wisconsin.

Most states have laws that protect consumers from retailers taking advantage of shortages by price gouging. Wisconsin is among 16 states with minimum markup laws that have price protections for retailers, according to the National Conference of State Legislatures.

"This is a bit peculiar for us, we are not accustomed to regulations that limit our customers' ability to save money when they shop with us," Guglielmi said.

The state completed investigations of three of the complaints and sent Meijer a informational letter about the law. The fourth complaint is still under review, said Bill Cosh, communications director for the Wisconsin DATCP.

Gonzalez filed a fifth complaint last week.

If found guilty, Meijer could be forced to pay up to $500 in "forfeitures" for the first violation and up to $2,500 for subsequent violations.

There is also a provision of the statute that allows retail competitors who sell gas or tobacco products to sue privately to recover up to $2,000 per day or triple actual damages, whichever is greater.

In the past decade, the Wisconsin agency hasn't collected any money from retailers for violating the law.

"Most of our violations are resolved via Warning Letters, or Special Orders in rare cases," Cosh told MLive in an email.

The DATCP receives between 700 to 800 complaints per year mostly tied to the pricing of gas. Less than 15 cases annually involve complaints about the pricing of general merchandise.

The law has been on the books since 1939 and was intended to protect smaller companies from bigger competitors trying to drive them out of the market and creating a monopoly.

The Meijer complaints are again igniting debate about the law, says Nick Novak, who wrote about the state's investigation for MacIver News Service, an arm of the MacIver Institute, a free market think tank similar to Michigan's Mackinac Center for Policy.

"It comes up every couple of years, and maybe this is the year something will change," said Novak, the Madison, Wisconsin, think tank's director of communications.

MacIver Institute has been spotlighting the law in recent years in hopes of getting it changed.

Over the years, Wisconsin legislators have tried to reform the law. A bipartisan effort in 2012 to exempt prescription drugs failed, Nowak said.

The law is blamed for Wisconsin residents not being able to take full advantage of Wal-Mart's $4 prescription program like shoppers in Michigan and other states can.

A Wal-Mart spokeswoman said in 2012 that Wisconsin residents could save up to $35 million annually if the law was repealed, according to Fox6News.com.

Meijer is allowed to bring its free prescription drug program to Wisconsin because providing a free item with no other purchase required is acceptable under the statute, Guglielmi said.

Wisconsin Grocers Association, a trade group that now counts Meijer among its 1,000 members, opposes changing the law.

"You would have massive, massive disruption in the marketplace," said Brandon Scholz, WGA's chief executive officer. "You would have competitors trying to meet those prices and you would have others who simply could not do it."

The restrictions of the 76-year-old law are embedded into the business plans of manufacturers, wholesale suppliers, those who transport the goods and retailers, he said.

"You simply can't end it today and expect them to stay in business. In states that haven't had it, they have managed to build their business plans that way," Scholz said.

The law equates the practice of selling merchandise below cost in order to attract patronage as a form of "deceptive advertising and an unfair method of competition in commerce" and warns it could lead to a "train of undesirable consequences, including economic depression."

Like many other states, Wisconsin lawmakers added the law during the Great Depression after the emergence of the first grocery chains threatened "mom and pop" shops, and there was fear the new competition would increase the country's already devastating unemployment rates, said Michael Waxman, a professor of law at Marquette Law School in Milwaukee.

Opponents contend the legal protections are no longer needed in a high-tech 21st century world where shoppers have the Internet to find the lowest prices.

"The real losers in the end are consumers who have to pay higher costs," Novak said.

Leah Vukmir and James Ott, Republican State Senators of Wisconsin write in the Milwaukee Journal Sentinel about a week after the letters from Gonzalez are sent: 

"Southeastern Wisconsin residents are flocking to the newly opened Meijer stores to shop — a phenomenon that has led to complaints against Meijer for allegedly selling its goods for prices that are below cost. That practice is currently against state law.

It's time we take a closer look at Wisconsin's Unfair Sales Act, called the minimum markup law, that mandates general merchandise may not be sold at less than cost by retailers and wholesalers. Passed more than 75 years ago, the Unfair Sales Act keeps prices artificially high for consumers and businesses. The law also requires that sellers include a gross profit markup on certain products, most notably gasoline, regardless of whether the product is sold above cost.

The Unfair Sales Act gives government bureaucrats, rather than business owners, the ability to control product prices. These higher prices hurt consumers, and businesses are often forced to pay stiff fines or face the possibility of litigation as a consequence of violating the law.

Opponents of the repeal of the minimum markup law assert that many small business owners likely will be forced to close. There is no evidence this actually would happen. Wisconsin remains one of only a handful of states where such a law exists. Other Midwestern states, such as Iowa and Illinois, permit businesses to sell goods below cost, and small businesses still thrive. Rather than let the free market reign, opponents of the repeal prefer to inhibit competitors from being too competitive.

Furthermore, supporters of the archaic Unfair Sales Act claim that selling a product below cost is unfair competition that would lead to uncompetitive pricing. In fact, the existence of below-cost pricing is an indication of a strong, competitive marketplace that has the best interest of the consumer in mind. Today's consumers can easily tap into interstate online commerce websites — Amazon, for example — and have more choices than ever when it comes to price. Currently, Wisconsin-based businesses are banned from legally selling items at below-cost prices and are unable to provide full discounts, placing these businesses at a competitive disadvantage.

For instance, on Black Friday, Wisconsin consumers are often prohibited from purchasing nationwide doorbuster deals because businesses must comply with this illogical law. Consumers may take notice that stores insert exceptions in their advertising fliers. Because Wisconsin businesses are banned from legally selling the item for the national doorbuster price, consumers are likely to spend their money across state lines or simply purchase products online. This is not only inconvenient for Wisconsin residents, but also results in lost tax revenue for the state.

Allowing businesses to function freely while allowing consumers to purchase goods at the best possible prices is common sense. The Unfair Sales Act lacks rational basis and is an unnecessary intrusion into the private sector and the free market. It is not the role of government to impose an artificial price on consumer goods.

In the coming weeks, we look forward to introducing legislation that will repeal the state's Unfair Sales Act. We're confident our legislative colleagues will support this common sense repeal. It's long overdue.

[Willy]

I can understand both sides of this situation. The market should set the product prices through competition with supply & demand, However since existing Wisconsin stores are required to follow the law, it would  be reasonable to expect that meijer should not be allowed to have an advantage by not adhering to the law. It might be a bad law but it has worked for 80 years and if the citizens of Wisconsin want it changed then so be it, as long as the Feds stay out of it.

[XLFD]

As an interesting note, the Unfair Sales Act was almost dead in the water just a few years ago with Wisconsin courts declaring an indefinite injunction against it, however, a group called Wisconsin Petroleum Marketers and Convenience Store Association successfully appealed the ruling to a federal district court in 2010. 

That group, directly or not, may be the force behind the Meijer's pushback.  Even if it is anti-competitive and stupid, it will have its share of defenders, including most Democrats in the Blue state of Wisconsin.

[Willy]

Speaking of old laws, I found this web site that has a list of silly laws. I actually agree with some of them.

[AQUAMAN]

Sav-a-lot and Walmart regularly sell gallons of milk for $1.99. Some other laws on the books regard practicing witchcraft and being able to discipline your wife with violence are also probably outdated now, lol.