Appendix — United States v. Topco Associates, Inc.
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Text
12/13/68
>
out (Draft). Order ay trial briefs to be filed
ene within 10 days. .
12/13/68 Filed Plaintiff's Reply to Defendant’s Pre-trial L
Brief.
iled Defendant's Reply ts Plaintif’ Pre-trial 3
* Brief.
/ 20/ 69: Order cause wal for trial on Wehieary 25, 1969 at.
2/25/69 Cause called for trial. Plaintiff waives ipaifeg
10:00 AM. “Will, J.
statement. Opening statement heard for de-
a fendant. Evidence: heard. Evidence heard for. . -
plaintiff. Plaintiff ‘rests. Evidence heard i
— for defendant. Order cause ging
February 26, 1969 at 10:00 A.M. Will, J
"226,69 " Warther evidence heard . for defendant, Order
_ eausé adjourned: until February 28, — at
10:00 A.M. Will, J.
"9/28/69 Pusthsc jolainan kiasd ice defended Order
3/4/69
3/6/69 :
_.* ant rests. Rebuttal evidence heard for plain-~
‘Gt, Plaintiff rests. Sur-rebuttal evidence |
heard for defendant. Defendant rests. Plain-
4 ‘tiff rests. Order simultaneous briefs to be filed
378769
3/5/69
_ cause adjourned until) March -:3, 1969 at
10:00 A.M. Will, J.
Further evidence aed for defendant. Order
cause adjourned until March 4, 1969 ~at
. 10:00 A.Ms: Will, J. . ;
Further evidence heard for defendant. Order
- cause. adjourfed until ‘March 5, 1969" at
10:00. A.M. Will, J.
Further evidence heard for “defendant. Order —
- @ause adjourned until March 6, 1969 at
10:00 A.M. Will, d. i |
Further evidence heard for. daneiadaat Defenid-
9
; @
and » cnhnstinionl to the ended findings of
' fact and conclusions of law to be presented Soe
’ within 30 days, simultaneous answering briefs.
to be. filed within 15 days. thereafter. Order
cause taken under advisement. Will, J.
| 4/21/69 Filed plaintiff's post-trial brief.
; 4/21/69 Filed defendant’s post trial brief
a
| 5/6/69' Wiled defendant's post-trial reply brief.
5/6/69 © Filed plaintiff's reply to defendant's post-trial.
oo brief.
11/16/70 Filed Opinion etre :
11/16/70 ‘Enter Findings of Fact sad Doseucine of Law,
ra
(Draft) Judgment order entered: It is ordered .
~ and adjudged, that a judgment be, and it here-
~ by is entered for defendant-Topco Associates, |
Inc. and against plaintiff, United States of
- America; and that the complaint bé and it
hereby is dismissed with prejudice, (Draft)
— Will, J. > : * %
1/15/7 1 Filed notice of eeu’ to the + an Court of
the United States by the United States of
America
fo.
: of . a * Ss
---Unrrep States oF AMERICA ]
ac.
es
Unirep States. District Court
. .. + Nortuern District or, Inzrvo1s
Eastern Division
Pl wif |.
eT ewe) | Civil Action’ No, 68-C.76
Peace Assoctates, INo., | Filed: 1/16/68
raat Defendant. fi “%
~ a
. .?
rece. CoMPLAINT : ,
The United States of America, plaintiff, by its attorneys,
ae acting under the direction of the Attorney Genera] of the
‘Daited. States, brings this civil action against the above- _
newied Getemttnt and hese igor: and alleges as follows:
oe |
_ Jurisdiction and Venue. |
1. This complaint is filed and these proceedings aire in-
stituted against the defendant under Section 4 of the- Act
of Congress of: July 2, 1890, as amended (15 U.S.C. § 4),
. gommonly-known as the. ‘Sherman Act, in order ‘to prevent _—
and restrain continuing violation by defendant, as herein-.
after alleged, of Section 1 of the Sherman Act (15.U.8.C. § >
«2. The dete ndant maintains offices, transacts - hese, 2
and i is found within the Northern District ef Illinois. )
1
‘The Defendant
3 Topco. Amnesia, Inc., (hereinafter referred to as .
- “Topeo”) is hereby made the defendant. Topco is a corpo- |
ration organized . and existing under the laws of Wisconsin, G
with its’ principal place. of business in Skokie, Llinois.
Pept operates asa edie ee for its sharehold-
Oi
-
‘
: ‘seinen (hereinafter referred i as: » “member firms”), :
‘ supplying these member firms with a broad line of groeeey |
and related: non-food jtems bearing Topeo-controlled bran
names. Topco’s member firms have ‘been and are independ-
_ent: persons, firms and corporations engaged i in the whole-— =
sale and retail sale and distribution of grocery and related
non-food. products. ° Ses
ek | thee
' Go-Conspitators 3
- 4, ach of the member firms, ‘not made defendants .
t
% ae has participated as a co-conspirator and is a-party .
th\Topeo i in the combination and conspiracy in fiolation
| of Section 1.of the ‘Sherman Act as hereinafter alleged.
a
Each of these co-conspirator. member firms has éxecu
a membership _— with defendant Topeo..
o- . | ‘ Iv ; |
Definitions ® sa
7 olf, “Topeo-controlled brands” means grocery ‘and rege
_ non-food products which are procured, ‘produced and
tributed by: Topco to its member Ste neee Roped's 8 trade-
_ names ‘and trademarks.
Ve
vila of Trade and Tisatiags
6.. Toxo has approximately : 25 member firms located 3 in
various cities and States throughout the United States.
These member firms are licensed by Topco ‘ta sell one or
more of -the , Popeo-controlled pene under Topeo trade-_
names and trademarks, - 7
7.° During the period of time ie by this Complaint, ;
| Topeo has:sold and shipped in interstate commerce Topco-
. controlled brands from the States in which its warehouses: .
and distribution centers are located to ‘member firms il
‘cated i in ree States.
6
- & ti the year 1966, the soabined retail. sales of grocery
z ‘and related non-food items of the,Topeo member firms ex- _ |
ceeded: $2,500 ,000,000. During 1966 Topco sold and distrib-
uted to its member firms ee brands valued at
: approximately _ :000,000.
sa trolled. brands only within the 2 marketing territory -allo-~-
e \
z
VI.
Offense Charged -
9. Beginning at least as early as 1960 and soitiaeink’ up
to and including the date of .the filing of this Complaint,
Topco and the co-conspirator member firms. have engaged
in a combination and conspiracy in unreasonable restraint
of the aforesaid interstate trade and commerce in violation —
of Section 1 of the Sherman Act (15 U.S.C. § 1). The of-
fense is continuing and - will continue unless: the relief
"prayed for herein is granted. .
* 10. The combination and conspiracy has cenalated of a
continuing agreement, understanding and concert of action
among the ‘co-conspirator member firms acting through» -
Topco, the substantial terms of ywhich have been and are
that each co-conspirator member firm will sell Topco-con-
cated to it, and will refrain from selling Topco-controlled
? brands outside such marketing territory.
- lL. In effectuating and carrying ‘out the aforesaid combi-
~ nation and ‘éonspiracy, Topco and the co-conspirator mem-
' . ber firms have done those things which, as herein alleged, |
, they — and agreed to do. .. ,
Effects - ee §
12. ‘The es offense has had the flowing ¢ erg
- among others:
(a) Competition among the co-conspirator ‘timber firms
® in the sale and Satribationd of ee brands has
¢ been eliminated; :
(b) Competition among ne co-conspirator teiinline firms
oe
"in the sale and distribute of he: grocery and related
‘non-food products has been eliminated ;.
(c) Consumers have been denied the benefits of free and:
open competition between member firms in the sale of.
~ Topco-controlled products and in the sale of other grocery —
- and related non-food products.
| : | pe
WHEREFORE, plaintiff prays:
1. That the aforesaid combination and conspiracy in un-
reasonable restraint of trade and commerce’ be adjudged
and decreed to be unlawful and in violagpn of Section 1 of
the Sherman Act. —
2. That’ the defendant, its successors, cthieirs: Mion,
managers, agents and representatives, and all persons act-_
ing or claiming to act for or on behalf of defendant, be
‘perpetually enjoined’ and restrained from continuing, -re-
' viving or renewing the aforesaid combination _and-eonspir-——
BY, and into, maintaining or participating «
in any contract, agreement, understanding, plan, program,
or other arrangement having the purpose or effect of con-
tinuing, reviving, re or Tehewing this combina-
tion. and conspiracy. .
3. That the defendant, its menibeds, officers, directors, ~
managers, agents, employees and representatives and their
respective successors, assignees and transferees be perpet-
ually enjoined from entering into, adhering to or maintain-
ing any contract, agreement, arrangement, understanding,
plan’ or program to ljmit or restrict the territories within
which or the customers to whom any. member firm may sell
Topco-controlled brands. _
_ 4, That Topco be directed to fonish to each of its mem-
bers and to each ‘person, firm or corporation which hereaf-.
ter becomes a member.a copy of. any final judgment ae
may be entered in this case.
5. that the — have ‘such other and further relief
th
8 4
as the nature of the case may require and the Court may —
- deem just and proper.
6.. That the pais: recover the costs oft this action.
at Daieds 3" ; :
" /s/ Ramsey Clark =
- Ramsey ChanK = “>
Attorney General |
. Js/: Donald F. Turner
- Donato F. Turner ;
Assistant Attorney General -
/a/ Baddia J; Rashid
Bappw J. Rasop.. . ”
_/s/ Charles D.Mahaffie,Jr, 8 = +»
-Cuantes D, Manarrin, Jr. Maat ee ae
__ Attorneys, Departnent i Justice. aie ote Oe SY
Rowan V. 1 a i ote 43 ve -_ fn
United States Attorney - | oo : a @
'/s/ Hugh P. Morrison, Jr.
Hues P.. Morrison, JR. *
_/s/ Theodore M. Jones, Jr.
| Tueopore M, Jongs, JR. i
- Attorneys, ‘Department of Justice
United States Disraicr Court
| _ Nortuern. District or ILLinos
70% Pats 5 Eastern | Divistox
1 =< “sre Scures oF Ancenbi : tk PE TY a oes
4 hi Plaiahsf, ~ isla gt ta
oe ae a Civil Action.
=i Torco AssociaTés, INc., a No. 68-C-76 di ea Ree
| | Defendants: 4 fa pees? a as
>. ee Answer :
“4 \ 2 oo " Defendant, Torco Associates, ‘Inc, (Cooperative) (here- ;
inafter sometimes referred to as “Topeo”) , by its ‘attor- j
_ neys, answers the complaint herein as follows: 3
“4 aa Defendant admits that the complaint purports. -to be
~ filed under Section 4 of the Act of Congress of July"2,
1890, as amended, (15 U.S.C. § 4), commonly known asthe. —
“Sherman Act,” but dénies each and every remaining alle-
gation contained in paragraph 1 of thefomplaint. — Pe
2. Defendant admits the allegations contained. i in ¥ pare oe
.* graph 2 of the complaint. :
o 3 Deféndant admits the allegations onntieak i in para-
graph 3 of the complaint, except that it denies that- all &
member firms of Topco are engaged in the wholesale distri-.~
butipn of grocery and related non-food items. Further an-
swering, ‘defendant allegés that the correct corporate name ee
of defendant is Topco Associates, Inc. (Cooperative).
+ 4, Defendant denies each and every’ allegation contained:
| - in-‘paragraph 4 of the complaint, except that it admits that
4 - -each’member: firm of Topco has exevuted a memes
and licensing agreement with Topco. ;
. § Defendant denies the allegations contained in. pain:
graph 5 of the complaint, except that it accepts plaintiff’s.
definition of “Topco-controlled brands” insofar as it relates
to ‘products ‘procured and distributed by Topco for member
firms under trademarks: owned by je rs Further answer-
ae ears
. ¥ ris
‘10:
. ing, defendant states that it does not produce a any grocery
“.* _. or related non-food products.
Es 6. Defendant admits the allegations contained i in the first
sentence of paragraph 6 of the complaint, and denies each
*and every remaining allegation contained in paragraph 6.
of the complaint. Further answering)defendant states that .
all member firms are licensed to sell one or more: Topco--
- -. controlled brands except Frankford-Quaker Grocery Co.,
, Ine. which sells products under its own oe, some of
‘. whieh are procured by Topco.
7. Defendant denies the allegations dcateined i in para-
graph 7 of the complaint, except that it admits that some
products procured by it are sold and shipped in interstate. *
- commerce. Further answering, defendant states that it .
owns no ‘warehouses or other distribution facilities, but it-
uses public warehouses for temporary storage of some
-. products procured by it. In most cases, Topco places or-
ders ‘with suppliers for its members-and the products are
: shipped directly from suppliers to the members. Further ‘
answering, defendant alleges that its member firms have
stores located in thirty-six states. 3
8. Defendant admits that in the year | 1966, the ‘combined
aie: retail ‘sales of. grocery and related non-food items of those
~~ firms which were Topco.members on January 1, 1966 ex-.
ceeded $2:5 billion, and denies each and every remaining al-. “
legation of paragraph 8 of the complaint. Further. answer- —
ing, defendant alleges upon information and ‘belief that in
' the year 1966, the combined retail sales of grocery and re-’
! lated/ non-food items of those firms which were Topco mem-
hers on December 31, 1966 was substantially less than $2.5
billion. Further answering, defendant states that during its
:. fiseal year ending March 31, 1967, the dollar volume of
~ ‘Fopeo-controlled brands procered for members was b-
_ proximately $140,900,000. - \
‘9. Defendant denies sidele and every allegation contained
in paragraph 9 of the complaint.
- | 10. Defendant denies each and every allegation ae oo .
, tained i In pian cyt 10 of the complaint.. me , | - .
ea: ee ie Ae ore © : a
et toe
41. Defendant denies each and every allegation con- ~
tained in paragraph llofthecomplaint. = =)
_ 12. Defendant denies each and every. allegation con- -.
tained in paragraph 12o0fthecomplaint, ~~. 13
Joe pes . “ApprrionaL DErense -. ; ee eee
Boe 1. Private label merchandising is a way of eblenntis life
; - in the food retailing industry; and exclusivity is the ess-
-ence of a private label program; without exclusivity, a pri- .
_ vate label would not be private. Each national and large : _
‘Tegional-chain has its own exclusive private label products aes
, in addition to the nationally advertised brands which all -
|. °. chains sell. Each such ehain-relies upon the exclusivity of |
_ |.” . ‘its_own private label-line to differentiate its. private label _
. - products-from those of its competitors and to attract and
| ° ‘petain the repeat business and loyalty of consumers.
"Smaller retail grocery stores and chains are unable to com- —
"4 >>. pete effectively with the national and large regional chains
“|. without algo offering their own exclusive private label ”
| oo) pas AES ON aap Cae ee cE Ese, Oe
2: Topeo is a cooperative procurement organization _
serving a group of independent small and medium-size
- local and regional grocery chains. Topeo was created to
“help its members compete with the national and larger.re-
. Pes, Sional chains. Through Topco, its members obtain private
ge, label products of consistent quality to supplement nation-.
Silly advertised brand products carried in their stores and
- aehieve the economies of combined purchasing, quality con-
trol, packaging design and_ procurement, all-for the~pur-
pose of competing effectively with national and larger re-
gional chains. . 3 - 7
_ 3. The only feasible method by which Topco can procure
: private label products and assure the exclusivity thereof is
through trademark licenses specifying .the territory in
- which each member may sell such trademarked products.
This arrangement is e ectuated by Topco’s bylaw provi-|
. eee sion which praviden “No member will sell or offer for sale
ae * any products bearing any of the Association’s trademarks
Paid
ee 12
wi any point outside of the saesteniy whieh has bela. ex-
pressly assigned to himrsunder his membership and licen->
, agreement.” This: provision applies only to Topco pri- .
oe an labels; it leaves: members wholly free to sell products . ==
. bearing other labels wherever they please. © :
4, Topco’s- territorial licensing provisions } to Topeo
private labels are necessary and ancillary to i purpose of |
procuring private and exclusive ~ label products rm .°’
members on a cooperative purchasing basis, are reasonable
‘within the meaning of Section 1 of the Sherman Act (15
‘U.S.C. § 1) and promote ‘and enhance competition in the See Ee
food retailing industry to the direct benefit of consumers. Pe.
¥ oy a WHEREFORE, defendant denies that plaintiff je entitled to .
\- the relief prayed for, or. any part thereof, and prays that Ny
Sn —* be dismissed with prejudice. bis
jeer Ayia ie | Joux T. Lovewun :
P RY Be W<pren C. Hasxm ;
Pee eet ~~ Vieror E. Garam ee
iets, : By ;
PS AE SY : ’ aw. for Defendant, :
: Or Counsnt SEL: ° | Bi
Bis, Bom Laon Hoon & Boe i
-135-South L e Street
- ANdover ust decisive
e
igre 5 5 aad Lae Ey isis ‘
Sis awl Sted se
, Pig te . . eee s
ws
» WS
ae =o or ht nat; hopped naimen eiee
going Answer by n an copies nareet Fe =
Tous B, Sansavan, ae, A isiged Ber.
© Atbortiey- ba an my
and aoe precio
OW D.C.
ey /s/ John T. Loughlin a bons oie. 3
.* Chicago, Illinois 60603 - Pace tee tS SEE
a BR Pr tas Oe BE er.) ie
The undersigi thesey ortifiog thathe served the fore.
Department of Justice
ong .
. 2 a
rn ees % \ : @ >
Huan P. PE Ja
Department of. Justice oer 4 ae ro 4
attorneys or. seetife aoe ‘iret class, mail on » Ma a gt:
‘ ie mee ; sie
Sees, Dotk Niles; Hania h Baad: NS ea cara
135 Soth TaSnlle Street =}
fy
ts
’ . and between counsel for ‘plaintiff and defendant for pur-.
' grocery chains ‘were as ‘shown j in Appendix A: (Sales vol- -
=
oer
~
fs
,
Wt:
&
In Tue Unrrep Srares Distatct Court.
* vor THE NortHeRn District or Inuinois
Eastern Division’ | a
~ [€aption Omitted i in Printing)
“ ‘SrrPuLaTion ;
The following tipts are hereby stipulated and | agreed by |
poses of this action only: | oe
_ (1, Total retail fogd: ‘store. sales in the United States for
the period 1963-1967 were as follows :. | a
1967 _$74,195,000,000 ade ee
1966 ~*~ —-_-70,750,000,000 = t.
1965 =~ 65,810,000,000 »
1964 ~ —_62,050,000,000 ..
1963 > __-58,700,000,000
2. The total number of. stores operated. by grocery maine
and the total number of stores operated by all grocery re-
tailers in the a States during 1966 and. 1967 were aS = *
follows: | P : |
7 ; Chain Stores AU-Stores. me,
1966 25,205 - - 227,005 °
1967 | . 27,670 . - 226,170 » = . a
3. During thépyears 1966 and 1967 nena ‘sales cdaun
and the numbers of stores operated by eighty-one leading.
umes include manufacturing, retail non-food discount, res:
taurant and drug éperations. ) | aaa,
—g§ e - ia . . -
15. The- lactams of ‘Topeo is managed by the board of
directors. The members of the board of directors of. Topco’
. Serve also as executive officers i in their respective member -
—— °
7 aa) e. e
19. Topeo’s Bylaws provide that unless a member’s
"Membership and Licensing Agreement permits sales at
wholesale, a member may not wholesale products’ supplied
by — | . .
a * * | * *.
- 14—- a ss kb
ts,
4
=
91. The shemnberdhtp of Stevens Markets, Inc. was wit.
, nated effective J ure 30, 1964, by its resignation. The mem-
* 45
bership of Giant Food, Ine. was terminated effective March
31, 1966 by its resignation. The membership of Allied .Su-
permarkets, Ine. was terminated effective October 31, 1966,
by its resignation. The membership - of Hills-Korvette - “
Supermarkets, Inc. was terminated effective December 31,
..1966, by its resignation. The membership of. Pick-N-Pay
~ Supermarkets, Inc. was terminated effective December a1,
. 1967, by its resignation.
24. In or about’ June, 1964, Asienrdetn Comniunity Stores
Corp. was authorized; but not licensed to- sell products
bearing Topco trademarks in Milwaukee and Waukesha,
Wisconsin.
25. Schultz Sav-O iiete: fic. is licensed to sell Topics
branded products both at retail and at wholesale within”
sixteen counties within the Stafe of Wisconsin, including
a the Counties' of Milwaukee and Waukesha, Wisconsin.
* -Schultz’s sales at wholésale in 1967 totaled $10,667, 000 and
_ ineluded, among other apogee reste some: Topeo branded it
ucts.
26. "The Membership and Licensing ‘Agreement executed
~~. by A. W: Cullum & Company, Inc. licehses A. W. Cullum &
-Company to sell Topco branded produets at: retail within
seven counties in the State of Texas. In or about June
- 1966, A: W. Cullum & Company was authorized, but not li-.
_‘gensed, to sell Topco ‘branded products at‘wholesale in six -
L of the seven counties in which it*is licensed to sell at retail
~~ and was also authorized, but not licensed, to sell ‘Topéo
_ branded products at wholesale. in twenty-six additional. .
“Texas counties. A. W. Cullum’s sales at wholesale in 1967 ~
totaled , $6,792, 000 and included, among other products,
some Topco branded products.
27. The Membership and Licensing Agreement enon’
by Fred Meyer; Inc. licenses Fred Meyer, Ine. to sell Topeo ©
branded products both at-retail and at wholeslaé i in. twenty
counties i in the State of Washington, eight counties in Ore-
gon, nine counties in Montana and ten counties in Tdaho.
| Fred Meyer’ s sales at wholesale i in 1967 totaled 94028, 000 |
/
" &
—"
>».
and ulated. ‘among other products, some Topco branded
roducts. |
~ @ 28, The Membership wad Siew ‘seeneneiah: executed —
_ by: Hills-Korvette Supermarkets, Inc. licensed Hills-Korv-.
ette | to sell Topco branded products at retail within eight
counties in the State of New York. The Membership and
_Licensing Agreement executed by Hills-Korvette also au- -
“thorized the sale of ‘Topco | branded products at wholesale
- to B & B Market, located in Suffolk county. The member-
ship of Hills-Korvette Supefmarkets, Inc. was. terminated
by resignation effective December 31, 1966.
29. Giant-Eagle Markets, Inc., by action. of the Topeo
board of directors in January 1964,- was licensed to sell.
Topco branded products both at retail-and at wholesale in.
three counties within the State of Pennsylvania. _
‘30. The Membership and: Licensing Agreement executed
“eal Allied Supermarkets, Inc. as amended from time to time.
% "licensed Allied to sell both at retail, through Allied’s Michi-
- . gan-Ohio, Oklahoma, Missouri, and Ideal divisions, and at
wholesale through Allied’s Abner Wolf wholesale division,
"in thirty-six counties in the state of Oklahoma, seven: coun- _
ties in Kansas, two counties in Missouri, seventeen coun-
ties in Michigan, two counties in Illinois, “and six “counties * .
“in Texas. The. membership. of Allied Su rkets, Inc.
_ was.terminated by resignation effective Oct r 31, 1966.
_ 31. The Membership and: Jicensing Agreement executed _
_ by Twin Ports Grocery Company licenses Twin Ports to. ,
‘Sell Topco branded products at wholesale in.eight counties
in the State of Wisconsin, seven counties in Minnesota, and
two counties. in Michigan. Twin Ports Grocery Company
-.. Supphes products to seventy-six retail outlets in the State
of Minnesota, thirty-two retail outlets in Wisconsin, and °
six retail outlets in Michigan. fos wef
| An attra for plaintiff,
2 An attorney for defendant’ _
»
iinet ieee ih dinias fh
e APPENDIX a
<
During the years 1966 ba 1967 annual siden volumes |
and: the numbers of stor
operated by eighty-one large
grocery chains that publish such informatjon, were as fol-
lows: . . i
Company
A&P ne
Bafeway s..cccivecceccees
Kroger .4....+.-- se deeeees
Food Fair Stores . ceaseeeies
Acme Markets ewe eeecererces |
Jewel Companies ovedoends
‘National Tea ..........0+-
: Winn-Dixie 0 odie ome eeetecee
| Grand Union Co.
_ Allied Supermarkets eoecade
ereeee eee
Lucky Stores ..
First National Stores .....
Loblaw Companies, Ltd. .
eeoeetoeeces
Stop & Shop ..
Colonial Stores eeereeeeeeeene
COrp occ edeseccceccceees
‘Cook Goffee Co. .
Red Owl Stores ...........
Borman. Food Stores .......
‘Giant Food . codecs ereocece
e@meoeneaeee
Dollar Sales :
+ 1967 1966
'$5,491,685,078¢ | $5,475,250,300
8,318,495,175e 3,345,186,668
. /2,782,342,376e 2,659,983,151_
1,354,968,559e 1,296,620,631
"1,257,508,861¢ 1,868,749, 618
1,222,338,4640. 1,060,137,436
1,120,255,500e 1,190,4947686
1,068,289,403e. 1,020;333,718
913,175,98le - . 836,241,741
- 770,136,887¢ 591,049,031
639,134,064¢ 467,545,036
618,787,744¢ 641,896,000
~ .578,510,596e 561,116,000
565,754,141¢ | 543,471,797
563,553,061¢ 546,078,547
559,779,300e 507,506,165
531,659,244 - 535,478,275
527,000,000 450,198,007
| 456,461,808 407,749,509
95,406,008 ecg
398,076,818 324,166,383 }
368,547,460¢ 319,919,670 -
_ $33,096,102 337,483,386
308,307,616e 263,962,000
-286,588,696¢ | 259,304,805.
- 984,635,4806 324,555,849 ,
280,794,951e 260,719,546
| 277,528,350 269,445,006
- 241,877,928e 249,616,025 .
206,076,667¢
. “ : . . oe
|. No. of Stores
1967 1966 f
4,723. 4,672.
2,180 oe7
1,493 1,497 :
630.615.
894. 863
price! t.
580 -495
875. 914
.740 #7 .
568° 540
324 (280
187°" 205
504 539
‘384 ©3877
246 «0-247 :
135 139
439 427
2,321. 2,321
7 «8
168 . 156
202 «(196
a) oo
207 - 207
140 = -:124 .
81 81
106. 106
‘159° (155
1430 «181.
168 172
Company °
. Shop Rite Foods .........
Waldbaum’s
Weis Markets Ine. .........
. ye: Stores sn iaweeet
King Kallen Grocery Oo. ..
- 1967 1966 -
4 195,075,131" © 201,523,896.
188,692,6506¢ 075,701 :
184,502,747 + ¥¥0,e85,877
182,932,065 171,867,800
182,708,318 169,647,884
168,665,620¢ “155,883,198
160,000,000° —_170,000,000e
150,897,711* 129,979,189
143,288,460" 134,118,408
139,675,124¢, ~ 112,188,855
138,240,946 139,381,062
1387,175,877* 125,848,970.
132,060,000¢ 119,000,000
128,455,000e 131,592.537
119,815,682 91,238,471
114,136,901¢ ~ 110,383,850
109,266,100 110,036,354 .
94,727,743 81,924,667
92,087,445 « 76,787,673
84,409,447 77,064,709
76,881,733 - 71,029,559
76,880,998e . 64,823,776 .
regenenee 111,359,994.
: 74,786,552¢ 59,590,878
| 74,708,872 (88,677,748
72,631,492 66,481,662
67,021,491 65,634,673
€6,528,919 62,468,469
61,372,853¢ 57,953,501 _
- 60,401,580 51,709,649
54,000,000e 60,000,000
53,715,181¢ 47,619,841
51,670,124¢ 40,975,515
48,630,306e - 35,393,936.
44002,201+ 38,814,085
44,028,799 37,535,599 *
1967 1966
213 218
4° #74
4. 4.
fa
81 67
120» 9
52 SséS)O
58. sé88
49 49
460045
- .
5585
67 - 63
94 97
oer) a
9 9
81 87
62 soS8
20 20
50 OS!
31 31
16 14
69 69
23. 2
27 2s a
4. -% ~~.
5585
“a 4
37837
7 a T}
30. 2
-139 199
i 20 18
269 69
4 M4
20.0 az.
383 34)
317 889
rs
‘%
Jackson’s Minit Mkts. .....
Motts Super Mkts. Inc. ....
Stop N Go Markets '.......—
~~“ @rleenbelt Consumer
' Serv, Ine. ....
Popular Markets
eee@eeeeeee
Schnucks Sebbae60eesdcbens,
Village Buper Mkts. ......
‘Big Bear-Mkts, eeadeeseeees
‘Foodtown Stores Inc. ....,.
B & B Cash Grocery ......
Piggly. Wiggly ..........66
Quality Markets Inc. ......
Sunshine Groc. Co. ........
e—Estimated
ANY ee
x Ot:
o 7
“9 :
ig
19:
Dollar Bales
. 1967 1666
43,510,841¢ 86,842,372 -
41,228,918 34,939,761
36,067,704 ~ . 27,000,000
35,000,000" ‘82,757,552
84,823,727 - 83,221,521—
84,500,000 “NA
' 80,117,551 27,243,378
25,000,000e 15,000,000
24,500,000e * .23,220;000 .
22,250,000 = NA
20,000,000e 18,000,000
14,000,000" 13,000,000"
12,000,000e 10,000,000
Z &
No. of Stores -
1967 1966
1° 6 (8
277 277
21 319
2 2 .
13" «10
of. a8
19. 14
27. 7
23° -17
29 (4
32 436-32
S ,
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143,371. . 129,606
03 Whee -. 164,053
retail noti-food, restaurant and drug operations
ner. i; 3
2 fie
. Food Stores, Inc.
Co,, Inc. «++.
A. Brown & Co. ....
Supermarkets,
av-O Stores ......++
Co. Qeeeeeceeee
ts, Inc. .
, Inc. 4
(a) Tacaen mannfactaring,
¢) Procured under Frankford-Quaker labels:
e an © ‘
3 fecz
o\
_ stand Mr. Morrison correetly,
justify a motion. for. summary j c
_ © that eorrect, Mr, Morrison? -
: tion for summary judgment.
called as a witness by and on. behalf of the Defendant
a es a
— | re
a THE : UNITED STATES 5 ‘DISTRICT COURT FOR .
THE NORTHERN DISTRICT OF ILLINOIS
‘EASTERN DIVISION
[Caption | Omitted in. Printing] —
‘TRANSORIPT OF ‘PROCEEDINGS
\?
> had on the trial of the above-entitled catise, before the
Honorable HUBERT L. WILL, one of the Judges of said
Court, in his courtroom in the United States Courthouse, -
Chicago, Illinois, : ‘commencing on: Tuesday, —_— 25,
- 1969, at 10:00 o'clock, a.m. | .
PRESENT:
MR. J OHN E. SARBAUGH, - >.
Chief, Chicago,- Office, Anti Trust Division,
MR. HUGH P. MORRISON, JR, _
-- MR. JOSEPH A. TATE, : an oo
\ . MR. THEODORE M. JONES, JR;
on behalf of the Governinent; oe
Ng BELL, BOYD, LLOYD, HADDAD & BURNS,
135 S. LaSalle St. Suite 3400, Phieago, ll. )
VICTOR E. GRIMM
MEOW ARREN C. HASKIN, . a
MR. JOHNT.LOUGHLIN
“ MR. a CARNEY
ae o . * *
[38] Tae Court: I take-it there is no case, if I under-
ere is no case which would ,.,
ent in this case. Is
Mr. Mozaison: Well, your SHeaas 5 I didn’ 3
that:flat out last time,.and I won’t this time.
- Ҥ39) Tae Courr: Then make your motion: for summary .
. «judgement, if you please, and I will save myecit a ——T" |
deal of time listening to Mr. Grimm,
Mr. Morrison : I agree with you. ay se igy
‘Tare Court: There.is no such case that will justify sno
ty <
— ) 7 . ae ee.
RosearD. Fars,
See
y answer
xX _ a
herein, having bows first daly sworn, was ‘examined ena
. testified as follog: | . 7
-Dmecr Examnvariox | . a
By Mr. Grimm: *
Q. Would you state your name?
A. Robert D. ‘Fenn. -
Q. What is your address, Mr. Fennt |
A. My business address is 7711 Grosspoint Road, Skokie,
Tilinois.
Q. Where do you Brot
A. I live in Northfield, on Birchwood Lane, 2222 Birch- :
wood Lane. —
- Q. What is your age, Mr. Fenn
A. Tam 54...) .
Q. What is your estanila or. ‘cicandaiaed |
[45] A. I am Executive Vice President and General
Manager of .Topeo Associates. ~~
Q. How long have you held that positiont* pas
A; I have been general manager of Topeo since July of
1960. I have been executive vice president since May of
1967. Prior to that time I was vice president of Topco.
. Q. How long have you been ‘employed by Topeot
A. Sinee 1950. . ,
Q. I wonder if you sould describe es briefly for the ak
Court what Topco is. ,
A. Topco is an scapeinlianeds which is. eink by a number
of small,.medium-sized chains in markets across the coun- ©
try, and it serves the owner-member companies in the pro-
curement, quality control, product development, packaging’ |
for a wide line. of. private label. products under Topco.
brands, which become the private brand of the member
_ = companies that-own us.
This includes both food and anil oaita!: In addition,
do some buying and specialization work. That is, ity
controrumbrdeveloping of specifications on certain types of oe.
products like [46] important equipment and supplies. - *
_.. We do field procurement, quality control in the fresh pro-
duce field, and we also do some work in fresh beef selection —
in — _— and — — areas.
a,
Q. Could you summarize sa: positions you have held
with Topcot ;
Tur Court: May I ask a couple of auestions get my
understanding of Topco’s activities a little sharper?
Mr. Fenn, let me see if I. understand you. You are pri- a
marily involved in the selection and procurement | and dis- _
trihution of private brand merchandise? 3 :
Tue Wrtness: That is our primary function, most im-
portant function, and that: is the one _ for which. the
company was organized, yes.
_ Tas Court: That covers everything from. — foods
to biscuits, crackers, cookies?
Tur Wrrnsss: Yes, frozen foods, dairy products, grocery
_ products which would include canned goods, and the wide
variety of so-called grocery food items, recipe items, [47]
pickles, olives, preserves, peanut- butter, and also includes
| grocery: -non-foods.
Tae Court: Jams, jellies? = =. ;
Tue Wrrnsss: Jams, jellies, yes, sir, grocery non-foods,
" which are traditionally - called grocery items, detergents,
bleach, starch, ammonia, products: of that type.. We also
handle health and beauty aids.
Tur Court: Under private label, too? .
Tue Wrrness: Under private label program, and we also
handle a number of so-called general merchandise items,
which are,also. non-foods, but the types of things that are |
not sold in all aauircld stores. For example, mene, and
* soft goods. °
Tar Court: You ale handle any. of the Sa Boual adver-
tised brands? Are. you a procuring source for any nation-
_ ally advertised brands? .
Tse Wrrness: No, we do not handle, generally spanking,
we do not handle and I will explain my ualification, on
consumer goods and things for resale, the members head .
their own_national brand items. — a
[48] Te Count: Directly?
Tar Wrrness: In other words, the aioe | in Philadel-
phia buys the Del Monte a.
Tue Covet: Or Nabisco? ~
De ,
whatever it would be; - «’ |
“THe Court: Campbéll’st he bie
‘Tum Witness: Campbell’s. I did mention that we do
some specification work in equipment and supply. items,
’ such as shopping. carts and cash registers, and things of
that type 3 ES net .
[49] Tue Court: I know also that you handle some pro- -
motion. For example, I had a case which involved English
_ dinnerware. - _ an - path’
Tae Wrrness: Yes. This was what was called a traffic
_building promotion. These were the items the stores buy
"and sell at or below cost to build traffic.
Tue Court: Right. - (Piha
Tue Wrrness: In other words, you get a plate for 9
cents, or a plate for 20 cents, or whatever itis. . oar
Tux Court: Then you said you also have something to
do with field procurement and quality control with respect
to both produce and meat? = * |
Tue Wirvess: Yes. . ire
. Tae Court: How do you handle this? I take it ‘this in- -
cludes lettuce and potatoes! . ert:
Tur Witness: Ys. This is a separate function. In other
words, Topeo is an organization of specialists. We have
offices here, as I think our counsel intends to point out, and
in important areas across the country. Sesser =
Tue Court: You have warehouses actually?
[50] Te Wrrwess: No, we do not do any warehousing
ourselves, to speak of. We primarily, in the case of pro-
duce, we do buy fresh produce. We have people in the-field.
We have some 40 people who cover and work in the impor- .
- tant growing areas. We have an office in Salinas and Yak-'
-ma-and Wenatchee and Phoenix in'the same way as the
_ other big chains do. In this particular case our primary ef-
fort is in the direction of the buying and the quality con-
trol of produce.in the fast-changing, widely fluctuating,
both as to markets and as to quality. We do very little jn.
private label in this area. . | : wea.
Tur Witness: Or Nabisco, of Carnation, or Pet Milk, :
We do have. a Top Fresh brand where we put iin ee
- entirely under our brand.
o =
30
items, such as bagged apples or things of that type in, but
_ for the most part, our function in produce is quite differ-
._ent than our function in the health and beauty aids.
‘Tue Court: What about mgats? = | yh:
THe Witness: In meats, th§ meat selection program, this
is another case of specialization. ~ sae
As you know, the meat department is one of the biggést -
and most important departments in a supermarket or in &
food store, and there [51] can be acwide variation not -
only in the quality of the meat, but in beef, and we primar-
ily are-working in beef selection at this time, but also in.
what is called the cutability. ee Ce
In other words, you can buy two 600 pound steers, or’ .
two 600 pound cattle, both of them will be U.S. Choice, but.
one will give a imuch greater yield of salable meat.’ So this
is one of our newer functions, and we have some six people
- working headquartered in Omaha, and working in areas |
like Iowa, Minnesota and so forth, the major producing
areas. +e espe ee %
In this particular case we don’t do the buying. It is
strictly a field quality control selection. Our people are in ©
the plant. They look at the plant. They stamp the meat,
and then they are doing for our people, again some kind of
_ a job that the bigger.organizations can do for themselves.
[52] ‘Tue Court: What about bakery goods!
7 Tue Wirvess: Bakery. goods, we are not in bread or
things of that type which are primarily locally produced.
‘We do buy and have under our brands some items in the
bakery section, not in the fresh bakery section, but in the _
"cookies, crackers or some snacks, and you mentioned bis-
_euits, That is a refrigerated item traditionally called a
dairy item, but we do buy biscuits but these are primarily, —
‘Tue Court: ‘All right. So you are a very diverse private
label operation, plus produce and meats: . —
Tae Wrrvess: And equipment and supplies.
Tam Cover: Equipment and supplies. ae
‘Tae Wrrnsss: Kind of specialization, field coverage—— _ a
Tae Court: And promotion. —s_iy
%
“
31
‘Tue Wrress: Yes: In promotion, this is very much of a
. sideline. In other words, this was a particular case where
we were buying some items for promotional work. Promo- ©
tion covers also the promotion and advertising. We do very
little in this area, which I will touch on. faythapte
[53] Tue Court: I am sorry, Mr. Grimm, but I wanted —
to get some picture or a little better picture of the Topco —
focus than I had before. nat .
By Mr. Gama: es
Q. Mr. Fenn, prior to becoming general manager, could
you summarize the positions which you have held in: °
Topco? . : be HS 3 7 ,
-. A; Prior to 1960 I came to our Chicago office, which is |
_ our headquarters area, in 1955. From 1955 to 1960, I was -
. one of two assistant general managers. From 1950 to 1955
I was on the West Coast in charge of our frozen food opera-.
tion, and also:in charge of our West Coast canned: goods —
oand other products, which are procured on the West’ Coast.
From early 1949 until 1950 I was on the staff of-a com- -
pany called Top Frost Foods, which was a sister type of
organization concerned. with a, similar type of work that
Topco was doing but in the area of frozen foods. ez.
In December of 1950, Top Frost was merged.into Topes,
and in effect, the management of Top Frost came in to
take ever the combined operation. A number of the firms
were in both organizations, some were in [54] one and
not in the other. \ elit J Sie, nae sf
' Tue Court: ‘Let, me ask you one further question, if I
| I kiow from the stipulation that Topco is a Wisconsin
' ® eorporation. Who are its shareholders? You said, the mem-
a bene. It was owned by its members... a a
Tue Wirnzss: Yes. |. es
Tue Covet: Would you describe the corporate structure
to me, please? sincte RUAN. Geli Se Ae
-- Tae Wrrness: We are a Wisconsin cooperative corpora-
’. tion, your Honor. I am a paid employee. ‘The corporate
°
32:
- structure is that each member owns, has the same nominal .
- amount! of common stock. wrB eR MEAs ef sie
Tur Court: Are there any other stockholders? =.
Tae Wrrwsss: No, there are no other stockholders. Each
member owns the same nominal amount of common stock. .
Tue Covat: What is that, one share? ; ,
Pag Wrrness: It is-50 shares. It has a par value of @
_ dollar. Actually, when a member joins Topco he pays $101
a share. $100 goes in paid in surplus. If he resigns or -
leaves the Topco firm,.Topeo redeems that stock for a dol- -
lar [55] _a share. That is the voting stock. In other words, ©
_ - each. member has one- yote regardless of. size, whether it
is a chain of $10 million in,retail sales, or a chain ‘of $50
‘million. fie ero be eS eG = ae
In addition, we have preferred stock which is non-voting,
and the preferred stock is the primary source of capital to
run the business or to finance our investment in equipment,
and inventories, which I will get into. In other words, that
is the operating money for the business. —_- aa
. If a member leaves Topco, he gets that stock back, re-.
- deemed over a period of time. | - dk
Tar Court: Preferred stock is purchased by a member
when he comes into the company? - ee
Tae Wrrness: Yes, over a period, and it is paid out over -
a period when he leaves. &5 , 3
‘Tae Court: So it cost him $5,000 for the common
stock? . OCP YO
Te Wrrness: Yes. 2° decodes
ee Tue Court: Plus how many preferred does he have to
Te Wrrvess: That is on a graduated basis. I. think as »
will come out in the course of the [56] ‘.testimony in ~
_trying to explain the operation of Topco, the bigger he- is,
the more preferred stock he buys, and it is tied in with his .
retail sales volume, which we have set forth in our bylaws
according to.a common denominator formula. =~ . e
In other words, achaim—— = i —i‘“C!” |
. Tue Court: Does that’preferred carry a fixed. return?
_ "Pe Wrrnzss: There is no interest, sir. — ne
| &
Tue mes - What is preferred. about it? y
Tue Wrrness: It makes him a preferred owner of non-
_ interest-bearing stock, but it is really. just the nioney he —
~ has in the business. It is his part of. helping finance the ce
~ business.
Tue Court: Presumably he gets his retarn ina seonor: 3
tionate amount of services to the basis of nies sales ree? |
Is that the idea?
‘Tae Wrrness: Yes, sir.
Tue Court: He makes his profit oak on any: dividends ze
or cooperative a from Topeo,"but 3 in the store it-
self? , ’
(hae Wrrness: Yes. As I will try to point out, this is a
fundamental part of our whole concept aa service charges. -
- [57] Tae Court: All right.
| By Mr. Gaim:
“@ Prior to joining Topco, Mr. Fenn, what did you do?
\A. I was with a small frozen food packer on the West |
Coast which I joined after World War IT. My last pees <<
with that company was as sales manager in frozen foods.
_ During World War II I was in the Naval Reserve. 4°
served in the Pacific. I was in the Navy from 1942 until the
end of. the war in- 1945. I came out as.a ‘Lieutenant Senior’
‘Grade.
_ Prior to that time ‘t was in government service, first in :
the Department of Agriculture 1939 to going into the serv-
. iee, and from 1936 to 1939 I was on the staff. of. the board
‘of governors of the Federal. Reserve System, Washingt,
-D.C., which I joined after Igotoutofcollege. = =
-Q. Where did you go to college? MOC ap
A. I went to college in Amhurst Collgee, ‘Massachusetts.
Q. Would you describe, Mr: Fenn, in a*brief manner, »
. your duties as executive vice president of Topco? —
[58] A. I am the chief operating officer of Topco. I am.
concerned with the day-to-day operations of the business in
conformance with policies which are, ‘set by the board of
directors of Topco, which is made up of representative
: owners:6f —— I — toa ae who is one of the
Poet
| be te
: principal owners of:Topeo, and get my directions from him
and my contact with the board from him. The board sets . :
the policy for Topco. It is my job. to administer the pro-
_ grams and carry on the operations of the basiness. pe
[59] Q. You‘said that the president is one of the princi-
pal owners, What did you mean by that?" ;
"Ay Toused the term of “principal” meaning one of the
member company principals, - © °° . tt
_ Q. Would you briefly— Ae. gPalt MET
‘Tum Court: Does this presidency change from year. to.
. Dan Wrrnsss: ‘Yes, generally the president of Topeo a
- gerves @ period of two to three years. He is quite often |
usually is the head of his own business or one of the top -
- men of his own business. . — : ree:
em Courr: Is it a compensated job? _
rn Wreness: This is ‘a non-paying job,
. iam Count: The president’s job? ©
Tn Wrreass: Yes. ~
Tun Covar: You are the.chief compensated employee
_. Dam Wriwess: Yes. -
. Q ‘Are you generally familiar, Mr. Fenn, with the for- Tie
mation of Topeot == - : yetitee +. het
A. Yes, Iam.
. -.'. Q ‘Woald -vou briefly describe the purposes for which
apes ar i
as a cooperative organization to handle a private label pro-
gram for them and also to serve as:a procurement organi-
" In 1949 oF 1950, as I indicated, Top Frost Foods, which
was a parallel type of company, was merged into Topco. -
| But the ‘Topco Company, Topeo Associates, was formed 3
- ; ~ D
Me ee
~patenaittii sei serve as ochilionetidel felt the need for a
- strong private label program which would enable them to
compete against the bigger national and ‘regional chains.
* with whom they i ee
enough to have such programs on theirown. = —
Q. How many people does Topco presently employ!
lev the mont reent count ws 8 employee
_ Q. You mentioned in response to one of the Court’s
aaae some of the and facilities that were oper- =
: ated by Topeo. I am-.no sure that you gave them all to us.
I wonder if you could. just briefly run down where the
offices and operations are located. :
A. Our headquarters office is in Skokie, and at Skokie we
3 have about 145 of our employees headquartered. This in- ,
eludes the so-called product managers or the people who
work on procurement in the different product departments _
and handle programs of the different kinds of products
that we buy as well as dur technical’ services division, me
whieh is concerned with product development, specification
development, and field quality control. . ‘ee
Also headquartered in Skokie are staff functions of traf-
fie, packaging, and our fiseal section which includes se-
-eounting. EF
. On the West Coast, we have two division offices, one in
_ San Francisco. We call it the in Francisco, office, but ac-
tually it is'in San Mateo, ‘of San Francisco. That
office is concerned with the procurement and quality [62]
- eontrol. of West Coast canned ‘goods, frozen foods, and =
other processed items, seafoods, dry foods that are grown
and primarily packed on the West Coast. ‘That office hes
some 11 employees. —
; In addition, in answer tothe Judge’s inquiry, Txeheceed
e .to' the produce division. Our produee division is headyuar-
tered in Reedley, California, which is right near Fresno.
Headquartered in both of these offices ate the two heads 3
* of these divisions.
The produce division has field offices up and down both,
- * eoasts. They have some 40 employees working in and out of . -
ee ee
\
\
\
ie ~{64] supplier. ;
: ‘ ny}
: 36 ;
,.
°
"°° @here are offices in Yakima, Wenatehee, Idalio Falls, and
Salinas. We have an office in Los Angeles. We have an
- office in Phoenix. We have one in Calallen, Texas. We have
~- three offices in Florida, |
In addition,: from’ time to { time throughout. the growing
season as the crops change, some of the people from these
offices move into other growing areas, such as Colorado, on
up the Kast Coast, and ‘open up temporary Offices: for a
‘month or two to handle the same functions.
{63). Q. You also referred, I believe, in dn answer to one
ot the Court's questions to Topeo’s function in terms fof’ .
suppliers of Topeo. branded products. I wonder if you
- could now tell the Court.the manner in which ‘Topco estab-
", lishes a source of supply fora Topco branded product?
A. Well, first, I would: say: as a general rule we and.
~ other important distributors of private label in this coun-
try primarily get our products, from the small and medi-
- um-sized producer or manufacturer. In general, these are
- the firms who are not big
ough té market their entire
production, promoté it, advertise it and. sell it under their _
. own-brand whether it is in foods with firms like A&P,
Safeway, or Kroger, or an 0 ization like Topco, or in -
general merchandise felds, whether it is a Sears or a + Pen- :
ney...
In most cases, the strong, the larger buyers of rivate ,
; label become an important outlet for the smaller and medi-
7
um-sized supplier. Of course, our-concern is to find people .
of ability, of integrity. We do: not own any production fa-
_ dilities. Our first job is to try to decide the kind of product
\wwe want, then develop he elite, and then to aoe out wah
at in general, they are the suppligrs, and in.
they are suppliers we hope £0 see ‘grow and pros-
per with us berause, as I say, we do not own any produc-
tion facilities. We_do have some of these things produced ~
for us under what we call toll’ conversion arrangement, but
: for the most part, we get our products on & finished prod-
-. tet basis from responsible suppliers. :
iad Do ven enenee these. meee from time to time? .
: ‘5 , 37 ' : - : Misc
' A. Yes, there is a turnover in our suppliers in: most — F
cases. Tes
Q. What wonld be the reason for changing a supplier? -
A. Well, sometimes suppliers either just can’t ‘develop or
A produce the kind of:product which is called for in a specifi- os
- gation. He may sell out. He may merge with another orga-
‘nization. He may become successful enough in selling prod- |
ucts under ‘his own brand so that he gets out of the private |
label picture. The reasons are varied, bat there i is a change
and a turnover.
He may just not be technologically: ahie to (65) “ist up”
with the highly: competitive production change and just “en
2 be competitive i in the market place. |
Q. Can, you give some examples of suppliers, heater
"Popeo suppliers, who have been: acquired and then stopped eee
‘supplying you products? * f°
_ A, For a number of years, our principal sauiiies on pea-
nut butter was the W. T. Young Company which was later
: gequired by Proctor and Gamble. It toate A
We were one of the. first people to try to market private
d be one example.
label frozen pies, and we developed that: program with ‘
George Petritz until he opened the George Petritz Pie
Company in Franklin, Michigan. He later sold to the Pét.
Milk Company. pues would be two cases that, come to .
mind.
—Q. Can you give us any oxime of situations where a
manufacturer may. have discontinned supplying Private.
"label products?
A. Smucker Pisseeeet: who were private label wapiiliers,
. became successful enough with their own brand that ia etl
ceased becoming a source of private label supply... oe
‘Q. Were they a Topco supplier?. -
[66] «A, ea, we bought some of our-preserves and jel
lies, from them for some time. They were fine suppliers. |
ther exaniple would be the recent decision by Rival
Pet Food Company to discontinue supplying pet food for
private label because they weré taking all of their products
— their Rival brand. — “
onan in
Q You nae _ I believe, quality
or . ‘ ; or : < ‘
j Vig pr . ° 8 : Do . . . {
a eS ge . . cb oe
ae . at \ . ° A ona af e /
- 3) * : aes ee es
Be Or tg . 4 t 88. \ f
’ ‘ ‘ .
A enantio with a question which the: Court; laitan’ I won-. -
... | der if you could outline briefly the functions peatonned by :
: SF j ' Topco in connection with quality control? | TR ote
\/ ia Well, > reethecegraph-atgenen:4 our most important ge
furiction. | cote f
{ Most successful brands, aiosthies in food or non-food,
KG that gain a successful share of the market are products _
.., | which are of consistent high quality. In getting ‘such qual-
ity, deciding what quality to get, setting-the quality stand-
ards, : learning: how to produce them, and particularly hav-
>. Inga consistency, require considerable specialization ‘and
‘. «Knowhow ‘and expertise, and I think this is one of our
_...* most important functions. ~~ 7
-[67] ~ ‘We start out with trying to decide—as any of : you
* who shop in:supermarkets know, inthe food field as well as |
ae tion-foods,. the new products which keep hitting the mat
+ | ket, place come fast and: furious. The first problem is to.
\’ >. reallly decide the kinds of products that you want to try to: 7
‘bring out under your. label. because when you bring it out ?
" under your label and’a customer is buying it, she is: ‘buying as
_. + it-with the endorsement of that brand, and if the product is
Be ec fine, consistent high quality product, it will -gradually
i ‘gain consumer acceptance and get repeat sales.
The process that we go through is a continuing one, de-
ciding what: we “want, developing specifications with our
ae technical ‘people working—I don’t think I mentioned we -
“~~ Have some 25 technologists working out of our laboratories _
‘on the West Coast and in Chicago—with our product peo-
‘ple. These) are specialists, scientific people who work nat
only with our product managers, but also the production
, and quality eontrol people in. the literally hundreds of
plants from which we supply products.
- [68] So it is. a continuing ‘process of deciding tink we
‘want, finding. the suppliers that will produce it, auditing
“their quality control, and then periodically reevaluating
. how our produets. stack up in the market place against the
_ competition, not,only against the bratids, but against other
~ private labels, against A&P, Safeway, and Kroger. <=.
‘ess ieee if anything, does Tope * in connection with |
Ps
co
7 7 ‘89
. the: design; and procurement of packaging” for Topeo |
-. branded products? © oe
A. Well, if a good quality is the ingredient which brings
the. consumer back to the product. I think that good psck-
aging is probably the most important ingredient to help
‘make the first sale, and in today’s modern supermarket
. where you have literally seven,eight and nine thousand
‘items on the shelves of the big ones, these items are all
‘fighting for attention against well-packaged, heavily-pro-
moted, well-recognized brands. So one of our first functions .--—
is to try to have our packaging attractive. For this, .we —
have to work with good designers, majorsuppliers, and
when you. are doing this on literally hundreds [69] of © .
- items. in. different product areas, if becomes a continuous
_ job. And in the area of procurement, this is our most im-
portant production cost. Te. produce a line for a b line
of private label products, covering many hundreds of items
which .inelude literally every type of packaging—wax
_- wraps, paper labels, tin cans, cartons, film; just about.
every kind of packaging known—is a big undertaking. That
represents an investment.in art and plate costs of a num-
ber of hundreds of thousands of dgllars. The management
of procuring these quantities, not only the right packaging |
economically, but having them in the right place and at
‘right times is part of our whole function. These things just
work with our suppliers in having packaging there.
- don’t happen. In other words, we have to do a lot of sched-
uling and anticipating requirements and scheduling our lo-
.. gistics because while. we don’t have: any plants, we, in ef- _
fect, have Jiterally hundreds of plants, and we have to.
This past year has been particularly difficult with liter-
'. ally having to almost change every package we have with
the new packaging law [70] which required that just
about every package in the industry had to be changed, so
it costs many thousands of dollars.
‘Q. How many. items does data have under | ‘Topeo
~ + Seed
‘A. We use the term of losis sens to iry to differentiate,
‘which I will explain, between total number of items.
40
We handle and have a line of what we call ‘1150. basic.
items. When we use the term basic in our own shop, we are -
referring to the—these are the items. which we feel just
’ about every one of our members should be able to handle.
Now, an item six-ounce orange j juice and 12-ounce orange -
' joice.are two items. Cut green: beans and French style |
green beans would be two different items. Green beans |
_ would be the product.
- A first quality brand. peas, and a second quality bean’
peas, ora third quality, and there are different brand lev- .
els, would be an item.
‘So éounting the various duplications, in,some markets
there are ten-ounce items and in ariother market that same .
item might be 12-ounce. [71] We. probably handle twice
that number. In other words, we handle close to 2300 items,
_ but counting what we call basic items, about 1150. .
_ > Most good Topeo members, and when I say good, mean-
ing ones who have been most successful with their pro-
. grams, handle eight hundred to nine hundred items. This is
food, non-food, meats, and general merchandise items.
These are only iterns under, Topco brand, first, second, and
third quality. Some handle over a thousand. ;
Q. Do you ever add new items toTopco’ s line?.
A. Yes, it is a continuing process. I referred earlier to
. the constant flow of new’ products, particularly in the,
household suppl¥ chemical field and- in the prepared,
whether it is boil-in-bag regetine, it is a continuing al
rade.
{72] Q. What types, of new produgts do you give consi |
eration to for adding t6 your-line? .
AL Well, first, of course, we try to look at a sindhaette ¢ po-
tential. In some.cases, we do move into products, or we
have moved into products in the last few years that we had
-- Just never been in before, whereas other ~~ had been in
3 them under private labels.
Withiti the last year or two,-we have moved into a num-
ber of processed ‘meat items. These are items which the-
major chains and major regional suppliers have under pri-
es
sad
2
4
fe
Al
vate seiliiesiaaial ah inn iinet esi meats, and ‘prod-
ucts of tHat type.
‘ In addition, there are the, truly. ‘new Mena that hit the
>. marketplace. Our first problem is to try to find out whether
‘it looks like a winner or a loser, but the mortality on new -
"products is very high. Some brands click. General Foods i is
successful in one field, and in another field they won’t be as
successful. Our problent i is first to decide or to try to decide. _
which type of product, which type of package, which size
looks ljke the most successful, and then to try, or our next ©
' job is to try to find out whether. or not the [73] members
have an:interest. Do they think they could sell it under pri-
vate label. If théy say “yes,” then we try to see if we can, .
get it produced, set a specification, find .a producer and
start marketing it.
Any ‘new item has to be watched oretty carefully for e sory
couple of years to make sure you. get it airborne. —- 3
Q. Would Topco do any marketing: research activity be- ie
fore introducing a product? 3
A. Yes, we do, certainly. We do not have a large sabiront
research staff, but we try to keep apprised of this, as a-
_ part of our job, to talk to our members, and to get their re- _
actions, their ideas, They are‘a pretty good cross-section of .
different types of stores and also in different areas, and
they are also pretty good merchants, so our own as ah :
track record is pretty good on new items.
Most private label people are not primarily Lenattdiien:
‘ In other words, we can’t be as much an innovator as can a __-
national brand, although many ees brand people are
cjust “me, too” markets.
[74] Q. Why can’t you be an tanovedot
A. It is just in new products, we-just don’t have the dis- -
tribution. In other words, while we have pretty good distri-
bution among our -stores, if we bring out a product in a
' market\and we don’t get the coverage, we don’t have the
advertising and we don’t have the promotional support, it
is only sold and promoted by the retailer.. ~ .
8) THE Covrr: But you don’t get any national aan: .
a ‘
store level. "
— 4
- thaing for any of your products private, label produets, do -
_ vost :
Tue Wrrness: No, we don't. fe A
Tue Court: Whether it is a new product or an old one,
it stands or falls on whatever promotion — you
gan develop for it? =~ ~
Tas Wrrness: With the retailer, yes, sir.. But, your
Honor, we were one of the early entrants in the early ’50s
of frozen orange juice concentrate. We weren’t the first,
but we came early with it. But after people began to real-
ize you took three cans—the education process of a truly -
new product, bring out a product like Miracle White, I
- think all you have. to do is watch television and I have a_
« difficult time telling all the different kinds of soaps and de-
tergents and soakers, and what-not. Just the education
process for a truly new product i is complicated. It is a dif-
ficult message. i me
‘Our message is primarily told i in the local saciid at the
* _@ * . e e :
[81] Q: Has Topco. ever dropped items from its line of
Topco branded products? a eet
A. Yes, we have. :
Tus Court: Buggy whips and things of that kind?
[82] Tue Wrrnsss: No, some a little: more new than -
that. I think most people probably find it harder to drop ©
items than they do to get into them, but there are products
. that we have dropped.
The health and beauty aid field is one , whieh comes to .
- mind. We were in deodorants, i in roll-on deodorants, cream
deodorants. Those have been dropped and we are now in a
spray deodorant. We are about ready to introduce a new
_ type of spray anti-perspirant. This has all happened within
a relatively few year sai It is a a. very — fast.
aes Geld. :
. Why have y you cincmabtbies oredectat | ae
A. We hadn't been too. successful. The nature of | the |
produet changing that we are semapilid with, Serenghedy
is bringing out something new, something different: The .
style of product. It is a fast-changing competitive thing.
There are many brands on the shélves and these brands
are fighting for their share of space and share of turnover.
ein ee ° .- =: o reste 4 - :
[84] « Tue Court: I take it that there is some relation-
. Ship between the degree of consumer acceptance of highly
advertised brands and your ability to compete with an
offbrand or private lable. Is that true?
THE Wrrness: Yes. I would say that probably the erodh: a
ucts, your Honor, that have the highest share of the mar-
két under a private lable are products which are, more: in
-. th& commodity class, more with the: soasacscaies like canned
f if rozen foods; however,——
reo)” By Mr. Grimm: |
Q. Mr. Fenn, | can you describe for the Court how ‘Soon | |
anticipates what the requirements of its members will be
-for products procured by Topco? _ |
lke Everything 1 in our business revolves around a pro-
curement plan in the sense that we procure for the needs
of our members, so obviously the first thing we look at is
_” the past, what we have used, where we have used it, and
_ then the next most important thing is to anticipate forcast-
ing our future requirements, and for this purpose we need
to know, have a pretty. good feel of the change in size of
our members, change in* location: of .our members, any— .
changes in our membership, because as we expand our
items, more and more of them are regionally produced. ss
_ . In other words, all peaches may come from: California, :
- 6r most orange juide comes from Florida. ‘e
As you get in the manufactured items, why, [90] as we
discussed soft drinks, you can’t ship these very far and so
you have a regional source. You have a source in the
Northeast, one in the Midwest, and accordingly, it is very
important for us to know not only what our total demand ©
is, but what the changes, what the growth pattern and what 2
c : ‘ ahs : ; ‘
“
is happening with our members, what that is going t do to ;
their demand and potential market. —
‘Then, of course; we have to look at the items ienanbivis. |
“Some items are on the increase, and some items are on the
decline, Then, of course, there are market conditions which
come into play.
‘Tur Court: Do you have any: ‘authority with respect to,
well, anything, store layout, use of shelf space, quantities
of any particular one of your 1,150 basic items which any
ee particular“member takes?
Tus Wrrnéss: No, we don’t. That i is ‘their decision as to: |
_ how they use it, the way they use it.
Tux Court: And quantity? |
- rs Wrrnass; And quantity.
- Tae Court: How mnych lead time do they have to give
you on orders?
Tan Wrrness: [t varies with the item. On [911]. items
7 which are. seasonaly produced, that is different than sell- :
"ing. In other worcs, I — your question, sir, was di-
' rected to displays. .
Tur Court: Wel, it was. I know, for tial the Cen-
tury people,exercise a great deal of control overthe nature
of the layout, the store, the construction of the store, the
allocation of shel’ space to various products, quantities
taken. They, in fac, determine on the basis of thejr compu-.
terized statistics what the Aaa store should sell of a
particular item.
[92] Tae Wrrnsss: Our “member headquarters sauple
probably do that for their own stores. We spread ideas of
may pass on a gocd idea in the form of a bulletin, or sug-
gestion that such-and-such a firm has had good luck put-
ting this product up here, or putting it down here, or inter-.
spersing brands. So we do pass on ideas of that type.°
Tue Court: But you have no authority, so-you cannot
place your’ orders on the basis of a — — you —
| made up in advance.» : ‘
Tae. Court: That i is _ reason I asked the quan of
45°
ini Wrenn Selita: tc tac namsk eneng: Mica
quiré commitments, and we have to make commitments, as
. you do when you buy packaging or you sit a year’ 8 o oupply
of something——
‘Tur Court: Right. | |
Tar Wrrness: We in turn ask our. people, « our members
_. for commitments, - | spies
Tx Court: So you do have i some sdenaieids
‘Tur Wirness: We don’t tell them how to sell t. Instead x
we give them a market projection [93] on-an item like
' frozen strawberries. Those are all packed in a Telatively —
short period.. You have to order containers and the brand
is part of the container. We commit for containers and we | a
commit for deletes them i in our: brand. We enter into a con-
tract.”
, So, in those cases. we will ask-our seapeitive : sntinbeul for a
orders for a year in this particular case, and we will spell
out the terms of the. shipping period, .and so mee and . oe
_ then we book and plan accordingly.
Now,-in other cases——
' Tue Court: Let me ask you one , further oiiitien: Who
- stores those over the preceding 11.or12 months? | “
. Tae Wrrnzss: In general, the pattern in the industry, in
an item like strawberries is the packers work with their
customers. They are stored in public storage, and it de-
_ pends on what the terms of purchase were as to whether it —
is pack time, or whether itis for deferred shipment price
-at the time of shipment; but, they have to be in cold stor-
age and freezer storage, and: generally they do that >
at the point of pack.
We would prefer it that wxPcintes if sviinlingy A gives
us’a commitment for 5,000 cases, and member B said he
wanted 10, and we see member B being a little long, we will
attempt to relieve him, particularly if member A wanted
Some more. But, until we say you are relieved of 2,000
cases, he owns them and it is his problem to sell them.
‘Tue Covrr: You don’t customarily warehouse any sub-°
stantial amount of private label brands? :
_ Tue Wrrness: We do not own any warchotites. We do
> 4
gj
net own any production facilities: One of our more impor-
tant: functions is several distribution programs ‘that we
have. We have a storage in-transit program. in a public
warehouse incthe caves in Kansas, underground inland
storage for frozen foods and grocery products. So we ship
into these points straight carloads, the largest cars we can
_ ship in of peaches, and so forth. They are stored in transit
nets and then shiipped.qut in mined cars te the member's ware-
house.
So, we might ship out 30, 40, 50 different teens. We man-
-age that. inventory but we don’t own the facility.
[96]. Q. How do you determine, or how is it determined
what prices will be charged to the Topco members? er
A. We try to charge our members actual average cost.
We. pass. on all discounts or any allowances we earn, .
whether it is a cash discount. In other words, we do not
: try to’ make any profit.on our pricing’to the members. In-
_ ‘stead; our operating costs are. covered out of service ©
. charges, and in pricing our products at average cost, I
mentioned that we might be buying from two different
packers. If we are buying from two different packers at .
two different prices at the same’ time, we may do what we —
call average pricing.
We will bill at one price for equity reasong, ona then we
will either pass that money back to the members in a fur;
ther price adjustment, or if we end up with any moriey in
such an averaging account, itis passed back to the mem-
bers atthe end [97] of the period in. proportion to their ._
perticipation. We also, of course to the extent we maintain
stocks, we have stocks in Kansas City at these public ware-
houses; and from that point of view we are doing some .
pricing. In:some cases we may buy products on‘an f.o.b.
point of pack basis, in other words, f.o.b. a Wisconsin
plant, and priee them ‘on a zone Melivered bests depending
on what the tradition in the industry is.
In those cases—the reason I am touching on this—we do
_ some. price averaging, but our objective is to try to break
even, but with the volume of transactions we are handling,
‘You'ean't break even. a ee eae ae ee =
bd
en
fs : di pga eso al
f over or go under, so it is good business to be over and have
oe ee ee
_ them..:
We.do not try to make «prof on our pricing to the :
\_gnembers. sigs nee
98] .Q. You mentionéd service charges Could you ex- cae
pand on that a little bit? hae
A. The general and administrative expenses for operat-
ing Topco are covered by service charges from the.mem-
. bers, which are assessed anauslly and paid quarterty in
advance. . =
‘| think this is an important point, your Honor, to have
an understanding of Topco. ae oe
_ - What we do is we make a program, we come out for this , as
next fiscal year. This is our. progam, and this » our =
budget. .
That program and that budget i is feniiaatal to o our Board
of Directors and our membership, our stockholders, and ;
when it is approved we then have decided how much money
is going to be spent to run the business. *
- Now, the service charges for our general and aieioleten: ee
tive expenses are assessed to the members in accordance
_ with the formula which is in the by-laws, and they pay
. Service charges on an annual. basis based on their retail :
sales volume. 7 3
Tx Court: Of the previous year? gee 3 : x
Tae Wrrvess: Yes,sir. o
_ Te Court: And they’ pay them i in a Inmup [99] sun, o%
‘ yousayquarterly?; =—s.
THE Wrrness: Quarterly, ij siete What we do, in
essence we have a formula that is called reported sales vol-
ume, which in essence we were talking about. earlier. I tried
to define the difference in grocery products. In essence, it -
' is the total retail sales in grqcery items and grocery non-
foods, plus a factor one than these sales, which I wk —.
plain.
For example, ts a seabed hit 40 million: dollars a year i in
_, total sales in the previous fiscal year—the previous calen-.
dar year, his reported sales volume would be based on 40
-. million dollars plus up to two and a half per cent of that
- amount for his non-foods. In other words, he would have
what we call a reported sales volume of— \_.. Loe
Tux Covar: When you are talking 40 million; you oil 3
: talkingabout 40 million in food sales?
‘Tar Wreness: Grocery sales, and 41 adjusted, In’ other
words, it is his. total-retail sales. It is his ability to use our
- service
Palouse: But: that dieu’ mean that [100] his ac-
tual. sales will have mene 41 million. dollars i in the previous
year, i: -
Tur Werxast: No. If he was heavy. in general taerehan-
- dise he might have'done 50 million. If he didn’t have much ~
‘ general merchandise = peoyeny was pretty close to 41
million.
- Tur Court: Right. |
Te Wrrness: And it doesn’t include his sales in’ restau-
rants and liquor stores, or gas cet or whatever else he
might operate.
-{101) And two members who both ‘did the s same volume,
dollar volumeavould both pay the same service charge.
THe Court: What do you mean. the same dollar volume? ~
‘Tur Wirwess: In their sales. .
- Tae. Court: esr sales ad the two and a half per
cent factor.
Tae Wrrvess: If they both deal 41 aitinee dallawe: they |
would both pay the same service chatge, which is an indi- :
cation of their ability to use the Topco service:
Tse Court; But the two and a half per cent is an arbi-.
4 trary figure. Any ‘particular dealer may: be over or under? -
Tue Wirvess: Yes, and this, frankly, is something. that ‘.
we are trying to figure out, some changes in our formula,
- because there are some members who have more of an abil-—
ity to use our general merchandise service, and this is ac-
, tually under study at the present time. ©
Tse Court: Which. would mean they were getting 2 a par.
tial free ride? ny! sg
_ [102] ‘Tas Wrrnzss: Yes. Tego
-
. ‘
> . Be si : Ph J
Tae Court: To the extent ‘the two and a half per cont
- was— “wy iif as
‘Dan Wreenss: Yes, that is correct, if they gre—— ®
Txe Court: ——an unrepresented factor. . oe :
~ Tae Wrrnsss: ‘As the ability to use starts to fall apart.” w
ee What we do then is we have a by-law formula, and it is a ”
+ graduated scale.
- ‘Dae Court: That is revised annually; not quarterly.
Tur Wrrvess: Yes, or whenever the budget is ideals os
_So that'in essence, we have an annual budget, and it is re- |
' vised once.a year. We just had a meeting in January, and _
- the budget for next year, -fiscal 1969-70, has already been .
.. approved. We are in the process of accumulating a report . .
__of sales volume figures, and we-will make our first assess- —
"> ment of quarterly service charges as of April Be ETE
Tue Court: What is your fiscal year?
THe Wrrness: April 1 through March 31.
_ Tae Covrr: Apriil through March31.-
[103] | Tae Wrrness: : We handle produce charges-— “
‘> "re Court: You said you compute them on the previous
year’s sales. 3
‘Tae Wrrnzss: The previous calendar year. *
THe Court: You are talking about December 31? It :
gives you a three-month computation? = - :
Tae Wreness: Slants cts thse cs ao Mon ecaiy try. |
: to get a reasonable indicator of a figure to use. There is
' bound to be some mix in each person’s business.
' "Tre ‘Court: There ‘is no question. Some advance at a
faster rate than others, or some fall off im sales. tee
Tue Wrrness:Thisistrue.
_. Te Court: And it is disproportio
- the current year, and it catches up the next
THe WIrxNEss: We assess produce the way for use _.
forthe people who are in the produce program. Not every-
one is big enough to be in the produce program. We handle -
our service for promotion apd packing, what little: et dover ae
made reference to that. | es
- . “All we do, in promotion and advertising” (104) isto
make up some en mnbvertiitng aide ‘Package a
> the base eee
5 3%
mats, and little in-store signs, but the Simary onus of pro-
: ens ‘the product rests with the members, and then the
ee
of packaging are edvered separately. By
In addi if member is, engaged in wholesaling. of
any Tapco brande ducts, then we have to.come up with
some, special kind of form
‘ture of his operation is, which according to our by-laws is
-avorked out between the memberijand the Board on what- a
ever is considered to be an equitable basis. ‘
TH; Court: Some of your members are engaged in a
lesaling?. * 8 . , ee
Tue Witness: Yes. . Eee .
THe Court: To sslaabehnier? OR
“THE Witness: Yes, in some cases. We will get into that. -
[105] Tue Court: What happens to your territorial in-
tegrity?- Are they limited in their wapleaaeng to people in,
their area?
‘THe Witness: There are only a few. cases’ where this ~
takes. ‘place, andaf a.member wants to wholesale in an area
which is exclusive with him, he has always been able to. do
_ it. The only problem i is then one. rn aH out the service
_ charges, and-in essence the practice‘has been, and we re-
cently changed our bylaws to conform to state that he
- could also wholesale ‘gan tivea whergé-ho other member
in which he has exclusive rights. _
‘Tue Witness: Or no other member. - ,
“THE Court: Or no other. member i is listed in the area?
om!
was listed at retail... ¢~ ea
., ‘Tar Court: In other words, he can wholesale i in “oi
THE Witness: We have had the problem. The nature and —
the extent, of it is varied. It is a minor part of our busi- .
- ness, and as a, résult, we have never hada formula or a,eri- ©
teria to approach it. The way the bylaws have read is: the
‘member had to—when it was approved, then we had to -
work out some arrangement which was equitable.
1106] Tue Court: Do you do anything about the whole- .
sale price which he charges, or is that Smaliy:3 in his disere-
tion? we
THe Wanwnss ‘Tat is his’ Hsssitinn. We do not get-in- -
idepending upon what the na- —
ogi”
by:
and trying to.do a good competitive job. -
Seiiiae in pricing. All we teh: to; p is to” WOrTy | ‘ghont
getting a good product, getting it shipped to him efficiently,
- By Mr. Gama: ; seni.
Q. Mr. Fenn, int your Fears i in the bebisiiey: haye you be- -
come familiar with the different types of brands available -
on the food-products in the indistry? 3
A. Yes. I obviously have. to try. to keep’ well posted b be.
-eause this is part of my job.
~ Q. What types of brands are available toa retailer?
A. Well, we have been discussing one type.. There are
several types. This may be: important, A think, ¢ as we use
words later.
First of all, there ts the difference i in the brands helenae pei
—the:first consideration is who owns‘the brand. There-is a
manufacturer’ s brand, and there is a diStributor’s brand. ~
[107]. .The -‘manufacturer’s brands are really of two
types. One is the highly advertised, widely promoted,
"es widely distributed. national brand. The Proctor and Gam-
ples, the Campbell Soups, the cigarette people, the people \\ -
that have their products handled by practically every
from coast to coast and border. to border. ‘The cigarettes,
for example. These are truly. and are commonly é¢alled na-
tional brands. These ‘products cost more because of this :
heavy advertising, promotion, and selling expense, and ‘if
they have a high share of market and a high franehise,
_ they often deliver to the owner of the.brand a healthy.
profit.
_In addition, there ¢ are man apinilinabiadat - brands which are
By ‘unadvertised, local manufacturers; small manufacturers,
- regional manufacturers. Now not aj small—there are some
regional manufacturers and in a few cases local manufac- are
turers who devdlop what might be called an unadvertised
° brand. In other ares ow —_ don’t have ow distri- —
bution: .
‘So I think there is a Sicehiaiedal! difference bent a
manufacturer’s brand, heavily advertised, heavily pro- —
. moted, and unadvertised. The unadvertised brand’ ofter-
°
- times may not be as good quality. I ) certainly”
‘2. vehise. The costs are considerably less, and in soine cases, *
doesn’t have the consumer acceptance, the consumer fran-
_ these brands are made available to a given distributor ina .
— as the only customer that. that supplier has. In-
trade parlance, it: is called*a controlled. brand. In other.
words, in Chicago, he will only sell that brand to one cus-
. tomer, and, in essence, it kind of. becomes a form of “pe
~ > vate brand.” ’
Re big enough, if can have its own private brand. The -_*
[109] Distributor: ‘brands areAt the other: ty pe, Leer that’ :
is a distributor brand is a brand which is owned by the- dis-
tributor. It is his brand. He sets the quality. He.determines
where it will be produced. He determines where it will be
marketed. He plays an important part. In other words, Be. |
takes the marketing responsibility for the brand.
Tre Court: ‘That, too, can be nationally advertised, can
“it not? _
Tue Witness: Yes. , .
Te Court: If there are a number of nationally gdiver:
tised brands which are not manufactured by the—— .
Tue Wrrnsss: That’ is where the confusion comes from.
_ Certainly, some of A&P’s brands, some of Sears’ brands are
_, true national. brands in the -common-term,.‘but sometimes
' - people do mix the two. up, and imply that national brands»
' per se are always manufacturer brands, but there are some .
. distributor brands. These are the strong brands in the food
field in many cases that we are competing against. ,
Now there are also the. distributor [110]. brands which ©
may be owned by. somebody, maybe a wholesaler’s brand.
You’ mentioned. rey,. who, I guess, serviced the Century ss
_ stores in Milwaukee. a
THE Court: Well, it was all of Windia: ©
Tae Wrrvsss: All of Wisconsin. That would bea a whole-
saler brand that heservices.
THE ‘Court: They have a number of ‘stores and different
qualities.
"THE Wrrngss: And so also is our - program, _ ‘in reel:
ity, in our program, on the one hand, if the organization is _
=
——o-——_—«,
.
to whether he is talking about the fact that the distributor
has these economies or the rétailer has these economies.
0 SB
the Safeways, the Krogers, the Sears, the Pénny’s,andour
program or other cooperative ventures either on the na-
tional level or on the. kgal level are an attempt: ‘to have a
‘private brand program more comparable. to the big na-
- tional brand with which they can compete. ie
By Mr.Gamm: — Witt bee Ot a oN
Q. Mr. Fenn, with referinee to. private. bneenbili or private :
labels, what cost - economies, if any, does: seat oe
achieve by utilizing such a brand? me 8 be
{111] A. Well, first, cost against what? I think we hiv
to-address ourselves to that question, The cost advantages
of.a good product, opr an A&P product, or a Sears & Roe-
buck product, against the heavy advertised brand is the’
' cost to the distributor. The cost to the distributor is much
less because it doesn’t carry the costs of merchandising,
advertising, and all of the support that goes into it..
Now the cost advantage of a private brand versus an un- .
‘advertised manufacturer’s brand may not be very great, ©
. but the cost advantages : to. the marketer of the brand and
other advantages are many. So I think that in the first
~ease,.sometimes they speak about cost. advantage, and the .
cost cheek 38 private brand e versus Tide _— is
“great, but the cost advantage ivate-bre sus
Mother Kelly’s Old-Fa¥hioned Bibi, which is ‘nade j in Mil-
-waukee, and sold in Milwaukee, may not.be very great. It .
_May even cost more because it might be a better product. |
When you have a private label and you set high quality
standards, and you put that same label on- a wide variety
of ednsistent high [112] quality produets, you ‘have very
» efficient merchandising cost. Good peaches help~sell - good
- .tomato juice. on
+ Mr. Morrison: Excuse me, your Honor, I am confused as
Tue Court: If I understand the Topco situation, the =
" economies are in effect passed. on to the retailer. - | . .
_ Tae Wrrnsss: Yo. < | | Et
s
“@
ee «|
— Courr: Except. for.s service charge which Topco adds :
to.it for its contribution, isn’t thatat? == =
Mx. Grimm : The retailer is the distributor.
Tur Witness: Yes. 2” |
Mr; Mornison: Here is the ‘thing’ that is confusing me. If
_. Mr. Fenn is testifying that in general private label prod-
wets are more profitable to the retailers. .
- Tar Court: He is not saying that. He hasnt said it yet, .
at least. What he said is that-——
* Tur Witygss: The cost of
(1134, Tar sare the. cost of distributing them is
‘less. — °
‘Tas Wrrness: The cog of baying them CS ag ee ae =
Tur Court: The cost of buying them. So the question of
_profit depends'upon what price they sellthemat. 4
‘ Mr. Morrison: Very good. | i: vA
[114] Tur Court: If they ell them at a penny ‘less
than the nationally advertised brand and. it costs them two
cents less, then the profits are obviously going to be “higher
than on the nationally advertised brand. .
If it costs. a ‘penny less and they sell them at a ‘penny |
less, then the margin of profit i is substantially the same on
both of them. T take it it varies from product to product. © ____—-
a earlier the difference
in cost depending upon how much advertising per unit goes
into the nationally. advertised brand as against how much
‘advertising per unit goes into the private label or unadver- °-
tised:brand,-so the difference in-spread of cost between the
nationally advertised brand and the private labél or unad-
vertised brand will vary, from produet to product depend-
ing upon, one, how much advertising is in the natior ——
advertised_one_per- _upit,—and—how little sing and
other costs are in the private label-or unadvertised brand.
I don’t see. ‘how you can make any general - ‘observation un--
less you take an overall look at a large number. :
> (115) —— that question. Is it your nen
- ~~ $mpression, enn, that the margin of profit of private
. label product is greater tham the margin of profit ingihe av-—
! erage sae is greater: than the margin of aegis on
ay nag
<r
s*s4 * ‘
~ersS -
tar .
a ~ Jewel, with National, and whatéver the market is, with ~
S/S
55 , -
a ‘nationally advection’ program as such, such a8 Camp-—
bell’s Soup as against privatelabel? _ ae
Tus Wityess: You touched on avery soperteda poiat.: eer
depends upon how ‘you are going:to use your private label
in your merchandising mix as to. where you are ‘going to
“put your price emphasis:
Tue Court: Yes, sure. .
Tux Wrryess: They cost less, and if you sell them for
enough less, which may be a traffic builder, the product it-
self might not, if you were comparing Brand A to Brand B
on an analysis, but if you are giving tremendous. values,
you are building acceptance for your stores, and it is build-
ing your rijeny muRyeeN and on your mix, you ‘are ons
_. more profit. .
THE Cacia: I guess I can put the question another way
to get at what I think Mr. -Morrison is driving at. What is
the primary incentive to a member of Topco to sell Topco’s
private label« [116] brands? Is it to be able to. compete .
price-wise, df. Eis it to make a bigger profit? -
Tur Wityf8s: I think it.is both. First of alk, as I men-
tioned: earlyer, he’s competing in the ‘market place with |
many people, with A&P;-with Safeway, with Kroger, with |
o : vt
ee
- ‘local strong independents, the Centuries, and so he has to
_ be competitive in this market place on both. national atone
and private label. |
Now markets vary. Some are much - more competitive .
price-wise than others. But, certainly, one of tle important |
things to him—any chain,., any customer,. any distributor—
Se xh am wing the retailer .
‘Tre Couns: Yes. ~
THe Witness: tlie than the wholesale distributor
—that has a strong private label» program. has many eco-
nomic advantages. If he has @ fine- - quality product that
eosts less, and he sells it for less, he is giving the people °
good value, and he is attracting customers and building a
loyalty. to his: stores. If he has something— [117] im
ote — it sinha him aan mhore — so eur ‘ele
- ‘or other people in the market place need a strong. private
label-‘program to. compete against the A&P’s, the Safeway,
., the Kroger, and these. people that have.their private label .
“program. In other words, private labels tng ——— with
each other in the market place. ei a
One of the other aspects of private label which I think 3 is
_ important is if you are handling Del Monte peaches—and I
Aon’t mean to use one example,- but it is the brand. in
” denned foods—or Tide or Carnation milk, your product ee
- exactly the same as everybody ‘else’s. in town. You can’t
- claim your Del Monte peaches. This i is part of the boo nail =.
_ tive battle that-is taking place. | —
“Tue Court: That is, bétween Del-Monte peaches, it ig a
question of which store sells t them the cheapest?
_ Tee -Wit {TNESS: Or which: store might have the best park.
a ing space, the friendliest clerks, or the best air condition- -
ing, or anything. else, or the best produce,*or the best
‘meats, but certainly it boils down to price on brands, anda
strong [118] private label. program puts the distributor —
in a position: or gives him more options. In other” words, he
is not. completely dependent on a national. brand. He has \
- got some other alternatives. He « can ee. a Lae) market
for his own’brand. ~
[119] Ts Court: I am at the moment tying in see.
what.is hap ening. For a long time, I have been buying |
. Alpo Dog Foo for the dog. They were 26 cents a can, and
A&P’s private label.is 25. I figure with consumer. accept-:
ance of Alpo,and all of those things, I paid 26 cents. They
have now gone to 29 cents a ean, and the A&P is:still at 25.
-eents a can. I have switched to &P. I have discovered, as ;
far as I éan see, there is no signifit’ nt difference.
’ THe Wrrvess: Has your dog switched? |
; : THE Court: ‘The: dog has switched. Right ot he“
seems as happy as he can be. I am waiting to see what hap-
pens with respect to A&P’s private label price over a pe-
riod of time, whether they will stay at the four-cent differ-
ential or go back to the one-cent Miarential, at which -
incites ti : | Sie
—
* 57
Tue Wenbisie This is the. naieihac that fakes. place mn
the time. What does the chain do that only had. Alpo when.
A&P had. a product which you say is good and [120] han
_ @which they can sell at a quart i
- Tue Court: It is i Testing. . There are two other ae |
foods. One o m- seems now to be doing some advertis-
e-.- L forget ‘what it is called. It lars with a K.
HE Witness: Kal -Kan. bei A". gh
Tap Court: Which is selling at ree dia Alpo. how. a2 are...
still at 26. ‘In other words, a. pemily more. So it is:a nice —
juggle at this point.
Tue Witness: This is one of the itnes that thes place.
Now some of the other merchants might.choose.to sell the
Alpo at 26, and then do something different with his own.
- Tue Court: ae : in 2 | aor f oe
THE Witness: Or whatever the brand is. In other words,
this iscalled product and merchandising mix. :
THE ‘Court: Yes. |
HE’ Witness: And with a ‘good sirieehs label program,
ome people want national brands. Some“ people only will -
buy Alpo, and, certainly, anything. that is truly a national
[121] brand, aa all of our:members handle it. +
“What our program attempts to give them i is something
that will help them to be more effective competing: in the.
4
- .marketplace-against A&P, Safeway, Kroger, ‘and big re-— -
- gional chains to have ‘ar alternative, a good alternative,
which they can take to. give them ‘more options, and which
_. helps them‘ have something that is a little special, a little”
’ different for their store, and if you. do buy a good product,
and if you beceme an A&P product user, certainly A&P—
an A&P product: means Ann Page and Ann Parker, and
'... they are only available to A&P, why,—you will go to A&P
for them. That is one of the things that I one of the: -ad-
vantages.
You can only get ‘Sears. Coldspot: refrigerators at Sears.
=. By Mr. Gam: _— the
Q. Mr. asad you have referred a | number of times to an
-
ree
; : 58 a ae ed
~ AQP, Safeway. iid: ‘Kroger: Are you \Gendially familiar
_with the private label programs of those chains? acne
‘ .A. Yes, I referred to them because they - [122] are the
three biggest chains in our business.
- Q. How . extensive are. the = label programs of
those chains? :
_ A: They: have over a thousand items. L don’t know ex- 5
..4ctly how many, but I would say they have very strong y
lines. They: have strong lines, and they heavily promote 7
them. They are in some products we are not in. We are in
« some protlucts’ ‘they are not in. They are exactly like our |
stores. Not all of their stores handle all items, but this is
certainly a’ strong. part of: their total merchandising. pro- >.
- gram, and in all three of their cases, they do manufacture’
_ anumber of their own products.
On! le What are the benefits or advantages in Saving a
_lhroad line of private label oo over a thousand, as
-yousay? — Be ee :
A. Well, I guess I— 2 en Par ia ANE ae IN
. THE Court: I think he covered that: _ : —
Tue Witness: I have touched on that part, Mr: ‘ie
when I said the umbrella éffect: Good’ peaches help sell
good peas. And I think in all , aD eR. you are
that much stronger.
7
Q °° - By Ma. GRIMM: |
» [128]. Q. How does the retailer go about establishing. a
_ private label in his marketing area? -
. es Well, first of all, he has to’ see the ane for it, and it -
takes a- tremendous commitment. The ability to establish a!
private brand-depends on the caliber of the retail opera- _
_, tion, -his commitment, and how long he stays. at it, with <,
what- constancy. By in all of the advertising and all of the.
- promotion, he in effect is saying; “These are. my products. .
I guarantee them.” He does all of the promoting, and all of
‘the merchandising, and that is: the fenton that they. are
termed “private label.” —.
[124] -Q. You have referred a combat of times ‘os var- 2 se
+ fos bene Tose we can cal them, o pra abe <
MG ec a
re — ee ge. ‘
- wonder if we enn try to sutimarize pe the benefits tos ee
_ retailer are in _private label.
A. Well, the: retailer, first of ‘all, he can play an impor-
tant partin setting the quality standards for the products :
that he i is handling under that brand. Secondly, he ig better .°
able to. compete with the big chain competitors, the other
_strong private labels. He has more options. He is not so de-
e pendent on a single source. He can buy from more sources.
He also has a chance, as we were discussing, to‘change his 5
merchandising mix. . Th other words, he is completely the ;
master of his-own promotion and pricing mix, not in a vacu-
um, but in competition. with. other national brands, other -
‘+: ‘petailers, and other private labels in the market. place. But - :
he has something that. is unique in his store, something .
- that ino one else in towii | has, —* which hy can biild
and try to reap the benefits 3 ae
- Q. Mr. Fenn, Paragraph 8 " the Stipulation of Facti ee Bae
tached to the pretrial order Ahtes that: .. ; |
“Sales of Topco branded products to aenwre for: - :
. the: fiseal- yedxr. ended March 31, 1968 were [125] se
$133,871,000.” fs
Based upon your. snipatiilea with. Topeo and the tition : :
- try, what i is your estimate of the retail sales ve which -
these products would represent? :
A. I would estimate up about. a third or about $180 _ :
me. ys « j
4 : , nie
THe Coen: The naikup th is a thitd on private label? a4
“Tae Wrrnzss: No, this includes some » freight: This i is not -‘—
: the margin on retail selling,. your Hdhor. :
"Te Court: This is the difference between _ pricee—
Tae WItNEss: ‘Beg paéidon? -
’ Tar Court: Difference between your — wil the retail
ee ‘
Tee ‘Wrixzse Yes, Usually, w we set margins on the sell-
ing price. In‘other® words, 20 per cent margin is 20.centson = —_
a dollar. That is a "25 per cent markup on 80 cents, And ~
this could be as high as one-hundred eighty-fite. It could be “
as low as” one hundred —o It — wise, Be —_ ih
9 - -
. is
’
oe
60. |
- on the pricing philosophy of different members and the |
_product mix. It would be our best [126] estimate—— - .
_ Tue Court: Do you, make any recorhmendation as. to Ta 2
markup! ass
Tak Wrrness: No, we give information on 2 whi is taking :
place in the competitive market place, but we might show.
- that: if they bought this for so much and sold it for this. - —~*
. price, this might do some calculation for them, but the pric-
ing is théir bailiwick. . oy
‘Tue Court: Do: you: ‘have any. informiation as to the
spread in retail selling price: of your — of your var-.
‘jous members? .
- Tae. Wrrvess: It is very. spasmodic. It varies from mem-_.
7 * ber to member and product to product. I wish I had more™
.. » of that information, but it is very fast-changing, and we d
“not. Each member does his own pricing and makes his owk,
. or has his | 0 is merchandising philosophy. And, of course, %
each member has different delivery prices. It is a horren-
‘dous problem for us.” Certain departments, traditionally,
. such-as meat, are higher markup. On. health ‘afd beauty
aids, you make more than on sugar and coffee, and these
products. But, in ‘general, certainly, I think it is eokamonly
accepted [127] that with a good private label program,
the retailer can sell a comparable product. for-less and .
make more than the national brand equivalent. He is giv-
. ing the consumer a little better value, and he has a little
better chance that he can either pass on more of a price ad-
vantage, or he might make a little more on that particular
‘item, but in the overall competitive. market place, he can’t © '
“pe very far out of line taking both the Epvats brand ‘and
‘national brand products inmix. - - :
[128] Tue Court: But, the real objective of the private :
dabel is to do just what you have said, provide the.retailer
: with a comparable produtt, that is, gomparable to a nation- .
ally advertised produet which he can actually sell for less,
and yet. have a higher margin of profit. .
Tae Witness: a he sells it for enough less he might not —
& -- have a higher ma of profit on the a but his over-all.
| volume will be. . a Dated |
a
2
a a
oh By Mn: Gain: tig ae - noe : ees
‘¢@ Mr. Fenn, you ieferved to Popes as a viet. label
. sourée, and also A&P with its: own private label. program..
- What other alternatives, if any, are there available to a re-
tailer as.a source for private labels? _
A. Well, as you indicate, we have talked about: the ie.
ger regional, bigger national chains. Of course, they’ are
the big regional chains like Win-Dixie, people like that are~
‘big endugh to have their own brand. They either put their
own.store naine.on it or some other brand name that is as- —
sociated with the store. Safeway:does mot [129] use very -
- miuth under Safeway, but everybody knows ‘that Bel-Aire
' Frozen Foods, and ‘Town House canned goods: are, Safe-
way’s finest brands. ;
Of course, there is the alternative of a oodparsitive like
Topco. He might get a franchise on: products‘in an organi- -
zation like Red and White. There are other organizations
that are géared, cooperative organizations’ to serve the
wholesaler like Shurfind, or there are — like
IGA
* hare Court: Is IGA still « a major factor i in the field? |
Tue Wrrness: Yes, IGA is not: owned by its membtrs
' like Shurfind is. I don’t really—they are going through
some reorganization, but i in some areas: of the country IGA
‘is still a very prominent name, and I think Godfrey, I
think he’still is active in the thing, but I don’t think he .
handles much under IGA any more. a
THE Coury: They required al} the IGA stores to become -
what they called food liners, which means they have to be
at least a sort of junior supermarket, not a corner grocery
_store-because they aré:jconvinced that: the small [130]
mom and pop store doesn’t have any basis for effective
competition on any volume scale. 6
- Tue Wrrvess: In the local market, as in this market, for :
‘example, there are. wholesaler brands that might be a coop-
-erative wholesaler brand. like Certified, which is in this
~ market. They have products in stores around Chicago
Pal a Certified prene, and Raggedy Ann, or it might
“:
even be what is 5 tied a calatnt whileuiter: like epee’ ize
Value, or Fleming. There are.a number<of different types . ‘
of organizations where a distributing organization controls
the brands, rather than the manufactuer, and has a conti- =:
| nuity’i in the marketplace.
"Te Court: What is an outfit like Sprague Warner, for
example? Ti
eT HE Witness; Sprague Wares; that used to ind think |
‘it was sort of absorbed into Consolidated. They - had Reed i,
“Murdoch, 5 |”
Tur Court: The Monarch etal name is still around?
Tun Wroysss: It is still around, but [181] Reed Mur-
dock, and Sprague Warner was Richelieu, but those brands
_ are still aréund, but-I don’t think that they have grown as
fast in the marketplace as some of the others.
[132]. . By Mr: Grim:
‘Q. Mr: Fenn, we have been talking about pints label
for some time now. What.reason, if any, is there for main-
taining exclusivity of the private label for the retailer?
A. Well, private label means, requires exclusivity. With-
out it, it would not be a private label. A&P, Safeway, Kro-
ger, people that I have mentioned, all havé their own
private labels. They don’t have to sell their. labels, and I
' don’t believe do sell those — & anyone else. They are
a their label..
So, by definition; private. label rare mean exclusivity:
_ ‘When a retailer spends time, money, or if he is going to
build, make the inygstment in building a brand. for the
market place, and the brand only becomes a brand, becomes
something if he does make an ‘investment in time, money - |
and effort, why, he certainly should be protected on his in-
vestment ; otherwise I don't. think: he would snake the in-
vestment. ;
Now, he could go his own route and try to develop | his
- own brand, as some retailers do, but small retailers just
don’t have the wherewithal, the organization, the ability to - |
have. a line of [133] the comparability, the scope,’ the —
quality to generally compete with what are ‘ealled the: big-
”
68
“ger, bitosider private | label se done with which thay are
. ‘competing: =~ ae
Tue Court: There athe ESTEE though, who will
. . manufacture a private label product for a. a singie store,
-- won't they? -
_& > Dap ci ‘Well, yes, there 8 ‘are. Of course, ‘that gets
into the kind of produet,-4eur Honor,— well, in the drug .
- field, I think this is part of the problem of. the small drug-
gist. But a druggist could get aspirin under his label. ?
Tue ‘Court: I grew.up in-a drug store, and’ we had
.Will’s White Pine and Tar Cough Syrup, with a sign that
- said “Head off your cough or. cough off your head. Use .:
Will’s\White Pine and Tar Cough Syrup.” sso
* They let me put the capsicum in, three drops in every
bottle, when I got to be around 14 years of age, and that i is
what made it ours, unique. ‘
. ‘Tue Wrrness*Was that your brand?
Tux Court: No, my father’s name’ was Will, too, and it .
was Will’s Pharmacy ;-but this was manufactured by some
manufacturing chemist, who: the next store’ up [184] the
street, they had Farber’s. White: Pine and Tar Cou
Syrup, the same stuff; and my friend, young Edward Far-
ber, who was a year: younger, ‘he started to prt the. capsi-
cum in when: he was.14, too. He probably had the same sign .
saying the same sign saying the same thing. [sic.]
THe Wreness: Part of the problem, of course, is produc-
. tion. efficiency. You can put a little labelon a jar of‘aspirin,
> OF as you say, some of these other things, but every time —
you stop the line and change things it costs more. If you
are going to deliver five. cases of ee ae instead ofa .
. truckload, it costs more. —
THE Court: As a matter of fact, now that I think about
it, we put thé label. on. We just got the bottles unlabeled,
and purchased the labels arid made our own private brand.
Tae Wrrnsss: gs ge are a number of so-controlled :
brands. | .
Tue Court: And I think Century does that, if my ‘cated |
lection is correct.
: -
LL LL ENT IE INT ; saa aacecmeaeniaai sere sia calae stiaaeahemeeamnainaiita
. . . — . : e
: .
lies Weed There are some, they do some sinbieine
Some wholesalers will buy bulk beans, [135] and -products
of that. type, and package it. In some cases they do.a little - ~
ufacturing. They take candy and — it and put on
. their brand.
- Tur Gourt; So, the combinations i are idwoiiat endless: The
bulk of your operation is a mass purchase, mass produc-
tion, mass distribution single - private label for the whole
organization.
THe Wrrness: Yes. oh oe
Tue Court: That is thie essence of it. :
THE Wrrwess: ‘Yes. _
[136] °° By Mr. Garam:
Q. Mr. Fenn, are you generally familiar with ‘the prac-.
tices.‘and policies with reference. to Toped’s’ licensing of
-members to distribute the Topeo a: ae
» A. Yes, Iam. . -
. Would you describe in a, general way those policies
and ‘practices with reference to territorial licensing?
- A. If a member is considered to give a market wioniate
coverage so that he ‘can successfully develop the market ac-
ceptance fot Topco brand family he is given ‘an exclusive -
license for that territory. Hf he does not give s the territory,
- in the opinion of the Board. ef Directors which governs,
controls the issuing of territory licenses, he does not. give
the markéf adequate coverage in their judgment, ‘he is
- given either a coextensive or a non-exclusive license.
Q. What do those tetms, coextensive. cand non-exclusive,
refer tot . %
“A. An exclusive. license i is. a license where he is licensed
“to use the ‘Topco brand in that territory to the exclusion of
all others.
‘(13877 A non- ae license is. a license hae he-i is li-
eensed to use_the brand mm a given market, but the Board
"may grant.a license to anyone ‘else it .so chooses in that
- market..
g
ae Tue Count: Without his consent? . Lan, oN
Tue Wirnzss: Without his consent. . :
ne. 65.
Tue Court: What i is ee re a. oe
‘Tue Wirysss: Coextensive is of two ‘types. There is. ome...
ease where he is coextensive with:one or ‘more other mem ~~ —
bers, to the exclusion. of all other members. It may be de-
fined. Then there are some instances where the wording is __
such that he is coextensive with such other members as the
Board of.Directors may designate, and in that particular
case it really i is essentially the’ same as non-exclusive. In’ .
these cases this has only to do with Topeo branded prod- *
ucts. |
THe Court: Say that. again. fas every case, or many
cases? | —
Tue Witness: We are-only concerned. with the licmistng |
on Topco branded products. | oy
By Mr. Grimm:
Q. You eferred to store coverage. “What [138] is the
relationship between store coverage and the type = li-
cénse?
Tue Court: Wait a ‘mnimite. You. re got third grip ——
- who don’t have any mhonopoly-at-ait, isn't that aul
- Pers Witness: The non-exclusive? 7
THe Court: What are called none, no Siseaia.
Tue Witness: They ‘havea right to sell something—
Tue Court: Well, I am looking at A. W. Cullum Com-
pany. You have got exclusive, and no license. . .
‘THe Wrrness: That is a wholesaler.
‘Tue Court: Is that what that is? .
~. THe Wrrness: Yes. ;
~ Mr. Grimm: I think those refer. to rath stores. You
~ are talking about the stipulation? ~
THe Court: I am talking about the stipulation. T notice
in a number of instances—well, some of them seem to have
everything. They have exclusive, non-exclusive, eoexten-
sive, non-exclusive, some ‘Say none, as. for example A. W.
Cullum. —
- [139] What is. the tention -with Cullum? Here are
stores in Pasadena, Altadena, Pasadena, Duarte, Mon-.—
rovia, » Long — Costa —_ rs ise pera: ante |
66
e ° . - .
. : e - = < -. « :
. . : ( . . : : tap
. * - . = s
; : Ana, South Tustin, Glendale, ‘Fulle¢ton, It says, no flevicie.
With respect to those stores, what does that meant
Tue Witness: I can’t answer that without seeing that.
_ .Mr. Grimm: May I show him the stipulation?
_ |Tue Court: Please do, because I wasn’t sure how some- —
. body was’a member of Topco with nog<ticense: That is. A.
_ W. Cullum. Is that:the same thing, incidentally, on Furr’s. .
in Oklahoma. City—no, that is Del City, Oklahoma. It says —
no license..The last one is Furr’s. The second page of —_
~ lum is all no license. :
“He Witness: Oh, excuse me, Yes, T am sorry, your
Honor, I didn’t recognize that. You said Pasadena. I was .
thinking of Pasadena, Texas.. : |
TxeE Court: No, California. ae
[140] Tue Wrrvess: There are some wof our members .
who have. stores in some areas which are not licensed. They ~
have not requested a license, or they have not been given a
____ligense. This ina chain that ‘A. LA Cullum operates in Cali-
fornia. - x
THE Court: Beiiel itisa Pecks operation.
any products. F, .
Tue Court: They are not selling your priv ate label? |
_ Tae Witness: No, sir. . © ,
Tue Courr: They may be selling somebody else’s private
label, but not yours?
- Tse Wrrwness: I don’t think, the store actually hes its.
own warehouse. I think they are serviced by Certified, but . ©
_ they have other ‘means of competing in the Los Angels:
-market: |
Tue Court: Take : a look at McCarty-Holman, which in-
dicates that in some counties of Mississippi they have an
exclusive license, some counties they have a ‘coextensive, —
~ and then in Harrison County, apparently, Jackson, Escam-
. Tue Wrrvyess: Yes, it is a Texas-headquartered com-
pany, but. they recently acquired a chain in California .
called the Pantry =e We do not service them. with |
bia, some in Mississippi [141] and some in Licgenm: they
have no license. :
"PHE a: They have several sources. MeCarty-Hol
ee
- + man, I think they: ive. some exclusive and either coexten- 3
_ sive or non-exclusive. a :
. 9 Tae Court: They have everything, exclusive; non-exelu-
_4 sive, coextensive and no, license. -.
Tue Witness: They have several ‘stores which they have™
either opened, and/or operate in several counties, one in
’ Florida, I believe, rae one the Gulf Coast where they do
not have a license... ie segpene Ses
’ Te Court: In Peas: TENS,
“Tue Witness: In Pensaco rere done don’t bein *a li-
a lien ie produets: The territory was already we
ex Y licensed to another member. __ -
_ ‘Tue Court: Somebody else? ee
THe Witness: Yes.
Tue Court: They can’t ‘sell, your ‘Produet in, those
stores? ©
_ Tur WITNEss: That’s rights’
TxeE-Court: Even. though they are a Topco member? |
~ Tse Witness: Yes,sir. =“ f .
[142] Tue Court: All right, I understand. I just didn’t a
- understand what no license meant. It means that ‘even -
‘though you are a Topco member, for those stores you do
not have a licetise— ; . X
Tux. Wrrnsss: I said we only got into it Sak a member: —
was licensed to handle Topeo branded products, so there
area number of our members who operate stores in differ- _
ent areas where they are not licensed and there are no. oth- )
‘ers. They have never asked for a license.
In somie cases there are stores where they have asked for
a license and we haven’t been able to give them a license i in.
a few cases. ‘ ;
THE Court: All right. I take it. if you take over a chain’
which already has its private label brand you don’t shift to -
Topo necessarily, if.you are satisfied with the distribution |
you are getting.
THe. WITNESS: Depertds on ‘whiat the © geogiaphy i ™ and
the problems, of service.
,
-_-
« ry: .
¢
My .
Fie <> h
68
By Mr. Gane:
-Q, Tam not sure that the last ‘italic has been an- :
granted. |
A, If, in the opinion of the board— |
Tue Covrt:, I thought I understood it. If- a member is
~giving the market: adequate- coverage, in the opinion of the
board, of directors, he gets an exclusive. license. If he is giv-
_ing it inadequate coverage, he will get a non-exclusive’ or —
" voextensive license, in the sense the board of directors may
_ determine somebody else is not unfairly competing with
him, but would give better coverage to the market: and™
. aprengtnes the private brand, they will put him in.
Then, there: is also the coextensive thing where you may.
_ be with some other member from the outset, I take it, or
; “ta Wien
Wrrvess : Or someone may have.come in. :
~~ Mr. Grium: That is right, your Honor, but. my. eaation
is the significance of store coverage.. oe
\
a a THE Wrrness:
A. I was going to. try and atectity this. “Cortadaly it is
not an easy question. There is no mathematical formula. It
is.a matter of judgment, number of stores, type of stores,
type of area. .
THE. Court: Let me ask you the question, [143] the -
| key question, I think.
Let. us suppose that I eB, ‘in the opinion of the board
: of directors, that my five stores in-a county entitle me to
‘ an exclusive license, but my five stores in the county, well,
Cook County is what, 800 square mule, yepien ay! of \that
sort? “ i .s \
|) Dare Wrens: Asefui big. = |
_ | Tae Court: Yes, and there is at least 15, 30 ‘miles BN
more between each of my stotes. Now, somebody in there ;
~-warits to come in. If I have an exclusive licénsé, the board 7
of directors has no discretion to let them in?.
»
, swered. The question was, what is the relationship, if any, .
between store atti Oe and the type of Us) license "
~
°
wer
; te
THE Werwues: That i is right, without your consent. .
Tue Court: Without my consent? Even though you
_* could make out a pretty good case that the definition of ad-
equate coverage. under those circumstances was verge gener- |
dus, or friendly to me, if you like. ~~
- Tue Wrrvess: Well, your Honor—— —_- il
-, Tue Court: As I look at some of these, and it seems to ;
me the exclusive license’ for a particular county with one -
.Store, and there [145] are a lot of them, is hardly ——
Tae Witness: You will have to. look at the CORRSY where
‘it is and its population. ,
Tue Court: I was looking at some of the counties, for |
example. Now, you take the Milgram food stores. ‘They .
have got an exclusive in Jackson County in Missouri, andI : °
- can understand that because they. have got 31 stores. ae
[146] Tue Wrirness: That is Kansas - City, een,
and that is a big metropolitan market.
' Tae Covrt: And in Kansas, Overland Park, T can un-
. derstand them’ covering. .
- Tue Wrrness: But; in some outlying county in Kansas
. that only had 20,000 people in it, they might have a store
and theoretically they could have as high a percentage of
coverage or even more, so you can’t just look at county
Ce “But, you are right, your Honor, you look at the cover-
@&4be in the market, the size of the market, the potential for
the member for growth. In general, when a new member .
comes ‘in he usually asks for. an exclusive license, “and
where his warehouse is, his major metropolitan area.
. . Tue Court: Here is Meijer’s who actually was the outfit
involved in that English dinnerware case. In Kent County
‘they have got ten stores - and. that covers. Ionia, Cedar .
Springs, Grand Rapids; Wyoming, et cetera. But, in Cal-
houn County, which -is sei Creek, they have got one
store, and they have got [147] am exclusive for the whole
of Calhoun County, which i is not a small county. fits
Tue Witness: His stores are gigantic.” :
Tue Court: One store. is
Tue Witness: His stores are gigantic.
e
~
¢
eo eee
Tae Cavite They } have to. he aetle Smatie’ in order to 7
cover all of Calhoun Coynty.in any effective sense. . °
ag. Wrrwzss: These are big, super discount food stores.
Iti is also quite possible sometimes that‘therg is 4 store just
across the county line that services. We use county lines ag. ©
the best measure we have, but the territory, the market,
may encompass part of another county. But, in ‘essence,
that is the breakdown between exclusive, non-exclusive, and .
coextensive, and the Board tries to administer: this with
consistency.
‘Tue Court: I hive some ° problem, For - example, take
King Soopers, Inc.: - i . 2
_ THe Wirness: Denver, . °
' Tue Court: Denver. They.have got a seal of soli in.
Denver. In Colorado Springs, which is a pretty good sized
. place, [148] they have- got. one stgre and they -have the -
monopoly. for El Paso- County, which is a pry good.sized
-~ county in Colorado. °
I just am cprious as.to how you. pate that one King
Sooper store in Colorado Spring's is adequate coverage for,’
_ all of El Paso County, ‘so as to entitle them to prevent any- :
_ ° body else in that enfire area from handling this.
Pe Tue Wrrvsss: I think we will get into that shortly as to
“how Bome ‘adjustment can be made in outline fringe areas
_© incase there is some justification for reclassification. Rae.
“Tze Court!: Look at Cook County in Chicago: Hillman’s —
‘with 16 outlets. Well; it is even more than Cook County; be: __.
. ¢ause there are two in Du, Page and“14 in Cook County.
‘They don’t really cover Cook County with 14 outlets...
: “Tae W: : They only have the City of Chicago, and
_ ‘part é6f Cdok County, but there is no other member that we
could get in Chicago: This was a condition of their coming ©
into Topco, and we think that they will a ait They do.
advertise in the metropolitan papers.
[149] Te Court: Now what you have just told me | isa .
variation of what:you described.as the standard for deter-
mining whether or not you get exclusivity, because what
you have just said is this wa# the condition on which they '
would come in, and that is’ not the! mee OR AT
e adequately cover theterritory,
sh
| ing adequ
i change in/size and type ae eee in recent years.
‘, ee Oe ay
You have said this was. the beat dittributdr’ you could.
: ” get. I take it you agree with me they don’t really cover.
Tue Wirwess: This is our ‘lowest, I would think this is
take’it on-percentage of per populati
[150] ‘Tue Court: I hope some slong
, our lowest percentage of share of. a i if s! were to
ie
am going to see some statistics on yolume of the exclusive
store to total weg ene volume in the area, say. ©3559
_ Tue Witness; We hav had; I think é
, Tue Co You mus have some ering: for determin- -
*: of eoveragé: *» ~ ‘
. THe Wrrngss: We have- generally blai’ at ‘the number
of stores and populations, ‘As I say, there has been rite’ a.
. Tuer Court: Yes. < : ria
THe Witness: They are getting much Nests: and dai
s
. ‘from much - bigger - areas, and particularly, as you get in
‘rural areas: In other words, I think a store—I have never
seen the store in Lansing which you referred ta, 3 ues
TE Covrr: Battle Creek. ,
THE Wirness: An area like. that vill ian from a bigger,
7 ‘area than it might in Chicago. | 2
-. Te Court: Except Battle Creek is a 2 metropolis. It is
. . not @ farmers’ Saturday night town. Nor.° is Colorado |
Srpings, just to take tw6 examples. eo
’ «Tap Wrrness: I meant,.it is what the ‘member [151] |
: now has and what we think that he will be able to build it
into, with ifs share of the market. A number of our mem- . °
bers were quite small, and then by making the investment
and the commitinent, they have built. the program into an ,
important program for them ween in that share of the mar-
eee
Mr. Garu : I miiaht. say; your emacs
Tue Court: I assume we will get“ome specific informa-
_ tion onit before we are hrough. ‘e ae bie
Mr. Gifism : Yes. ., a. PR oS
THE Covrr: Because it is one thing to tell: me that. the”
only. reagon you give éxclusivity i is | on a reasonable | ae
standard, the person given exclusive territorial rights i is, in
\? * tect, Seer ey: covering the — and it is another »
pe
~e:
thing to say that and then have evidence appear that casts
some doubt on whether that is, in fact, the criterion used,
or whether there are other criteria, such as this is the only
way Hillman’s would come in, which | is quite a different
er standard en y.
Understand, I am not derogeting the criteria, but it.
changes what 1 was told was the eriterion for oe
exclusivity. | es
[152] Tue Wiseins: -We* were invite ‘to talk sheet ter-
ritorial grants per se ina general policy. |
Tue Court: Right; undérstand, .
Tae Wirnsss: I think this is going to. come out. |
Mr. Grimm: As I. mentioned in my opening statement, 1
' think, the territories change, and we intend to get into-that. -
There is: ‘also in the record some statistical oe “sh.
that does go to some extent to'this point. -
‘Tar ‘Covrr:’ Let: me ask Mr. Fenn a question now. Do
you think it is necessaty to give the member the absolute
veto authority in order to get members? a. |
‘THE Wreness: r think it, is absolutely essential, your
Honor..
.- Bae Court: You mean none of these satpte: would be’
Al members if the boand of directors exercised the samé dis-
cretion that they:do with sre to the so-called oe
-. give territory? |
‘Tae Wrernsss: I think by- sintaiey iti is the heart. Iti is, the 3
heart of the. program: Iti is the heart of the private label
/ program. 5 .
- [153] - Tae Covrr: No, I understand the desirability of
not permitting it to be totally open to anybody who wants
to come in, but what we are talking about now is whether it
is necessary to give the member, as distinguished. from the
3 board of directors, the full and complete discretion to ex-
‘clude anybody else from coming in even though ee
else in the world except that member would agree:
.1. That the territory is not adequately « covered. oleae cal
-2. That in fact permitting Mr. X, who is in the: territory, -
to sell; would not harm the member, but would strengthen
Sk the. brand name in the pecir a and yet all the board of diree-
Pa . @ : .¢ . ® :
cy ¢ rr
ee : . 4 “toe ~
a3
: “i
~% 3
ics combined can't put Hawpty Dumpty together . again
: because Humpty Dumpty says he doesn’t want to have any-
body come ‘in there.
Tse Wairness: Your Honor, pas are tet things. I didn’t
-mean to give the impression that the board just responds.
- to pressure. In other words, we were ‘talking about Chi- —
cago, and I made that yefererce to.the Chicago market, but
if the board of directors did not feel that the [154] mem-
- ber’s request was justified, and they. didn’t feel it was good
business for Topeo, and the. sound and fair thing to do,
they would not give him an exclusive license whether he
did-come in or didn’t come in. And secondly —
[155] Tsue-Courr: You haven’t answered my questing.
What I asked you was whethez_in your. judgment, in order .
to get adequate membership, it is essential to give:the .
member the veto in most instances because in most if-
stances, the exclusives out-number the coextensives and the
» non-exclusives very greatly.
> THE WITNEss: I think that it.is most essential, your
.. Honor, in @ major metropolitan market, where he is given
. ' adequate coverages, and as will come out, we do have some
. procedures and some policy where, if @ thing were to
‘~..change or not, why, it is possible that the Board has au-
_ thority to change the classification on a territory in- an
outlying area. |
Tur Court: What interested me and the reason I asked
the question, for example, is because your own statistics in-’
dicate that-in the Washington, D. C. area you have got
Giant Foods, cichiyilaribi a is one of your largest :
. tmembers. . is
Tae WITNESS: They have Piss ciatmeod your Honor:
[156] . Tue Courr: They had only. toextensive rights to
use—did they resign because that is all they sara "Beg
THe Wrrness: No. . ”
. Tur Court: What about Hills Korvette Salat eapihih, ,
Inc., in New York, which likewise has no exclusive? | |
Tas. Witness: In those particular cases, there was al-
ready some license in the area to another member. ptt eae
THE Courr: I understand. =
| Te ;
Pain Wilintes: And they came in, on that basis.
Txs Courr: They were prepared to come in with that?
Tui Witnsss: In-those particular cases, they did. Giant
came in originally as a frozen only member. They were only
in our frozen food progrant, ~~
‘Tux Cofar: But it is your judgment that the exclusiv-
a essential element of membership attractiveness, if
at:
tes Witness: Both attraction and retention.
Txx Court: And retention. = oe
{[157] THe Wrrnesa: And also, ev evibiad, because
Topco will not be something unless its members make the
investment and give it support: In other words, it is not. —
_ just the service.charges that are paid, but rather it is the
extent to which they deliver, build a prograin, and deliver
the market.
Court: I have no question about that. # would as-
sume any intelligent Board of Directors would understand
that, but. that depriving them of the discretion and giving
the- power exclusively to the franchisee. might very well—.
you have to balance, I take it, the relevant considerations.
O.K., if an exclusive franchisee has a veto, he may veto ~
. somebody who has been or who would be a desirable addi-
tion in the market area. If he: didn’t have agveto, he -
‘wouldn't be a- member at all, and maybe that’ would be
worse. I don’t know. I take it that it is a value judgment
you have made, and you have concluded that it is better to .
’ deprive the Board of the opportunity to even examine into
the desirability of a new member in a- ‘particular territory ©
[158] than it is to:ran the risk of losing a member. 7
Tae Wrrvess: Your Honor, think a little later, counsel
plans to cover. a point where some of this question which is
raised might be answered, where something. like ‘this has
been built in.
; By Mr. Gramm:
_ + And if T may proote, I think some bf thee things
- will become evident in the testimony. oe
‘Tae Court: I didn’t mean to anticipate your proof.
Since we are talking about how you decide these things, as
_ Tread tlie list, I have;some questions of my own. I didn’t
want to anticipate your proof, sir. Why don’t we take
betet recess and then we " proceed..
. | -@ * : 7 -
(159) Q. Mr. Fénn,. is the entire area, of the United
_- States licensed to Topco members?
A, Excuse me. I couldn’t hear you.
Q..Is the entire area of the United ats Hosa’ to
Topeo members? a
__A. No, only a very small part of it. .
.Q: Are there any major metropolitan areas _whiel ang
not licensed? -° | |
A; Yes, there are a number of them. ‘There i is no-licens:
ing at the present time, in the Los Angeles, San Francisco,.
~ and in fact, we have'no licenses in the entire State of Cali- .
fornia, and other areas like Cleveland, Detroit, Atlanta, St.
Louis, San Antonio, Minneapolis, and many others. - 7
. Q. Have the geographic areas of the county which have
been covered PY. Topeo licenses, changed from ‘Gme to
time?’ :
A. Yes. As eens come and join Topeo; of course, ter-
_.ritory is added. As members leave Topco for one reason or
another, why, territory is vacated, as they expand, mays sell
‘out, merge. - *
Q. How does Topco obtain new enters? 7
‘A. In sonie cases whiere primary contact is by the ‘re-
tailer who feels the need for a stronger [160] private ©
label program, and contact us about the possibility of the
Topco program. In other cases, as part. of our new member
development program we may establish the contact and ex-
plore the possibilities of membership in Topeo withhim
Inan organization like ours where members grow, get to
be bigger and in effect graduate from Topeo, get big
enough to handle their own label, or merge, we are bound
to have membership turnover. As such, in order to‘stay a
- healthy, viable organization, we must keep having some new
——— addition. - L a
»
4
i
76
Q. When you week new members, where do you 1 ‘seek
them?
A, Generally i in territories where we don’t already have
‘members; in open territories, as I indicated, ‘for example,
‘on the West Coast we have-a very limited @stribution at*
the present time. We look at- the kind of firm that they are,
and hope that ideally they would logically grow and “fill
some of the vacant territory in the country. ..
THE Court: You have people whose principal responsi-
bility it is to recruit new members? Salesmen, so to speak?
[161] “Tue Witness: Not ‘salesmen. I have a man. who
works with me, reports to me, who works ‘on what we call
‘member. development and marketing services, but we are
_ not peddlers in that sense of, the word. This is a big buying —
decisjan, big selling decision. Some cases the contact comes -
to.us, as I say, from the members themselves, and in other
cases Wwe see new organization development or change in
the marketplace and do some contact work ourselves.
Tuer Court: Do you do institutional advertising in ade
journals, anything of that sort?
‘Tue Witness: No, sir.
Tur Court: You don’t solicit membership inquiriest |
Tae Wrrness; No. We have little public relations. type
information pamphlets. If someone says what is Topco we
have that, but not in the. manufacturing, & Svertiaing, retail
- Sense.
By Mr. ae
Q. Mr. Fenn, what criteria or seasdarila are [162] used =
to determine whether or not to accept a new member?
A. Well, the first thing we look for, of course, is the kind |
- of organization that it is, kind of management, type of |
stores they operate, their financial responsibility because .
when a member becomes, when a firm becomes a member of
Topco, he; in’ effect, becomes a part owner of Topco. So, |
obviously, we are very concerned, make sure that we get:
- good, responsible, aggtessive people who look like they can
run an efficient business and build a growing business.
[163] . Tue Court: Can ‘you terminate their - member-
aa)
, ° 407
\ @
ship? Do the by-laws provide for involuntary termination
by Topeot :
THe Witness: Yes. ‘The only besis on which there is
- gome’such provision, your Honor, is when there is a change
in control. The by-laws specify, for example, if a chain.
sells out to a larger company, and there is a change in con-
- trol, the association has the right within a specified period
to termiriate the membership. That is. the only on
which any membership has ever been terminated. an
_.' There are some other‘ general conditions such as if- he be-
came finandially irresponsible. |
Tue Court: Suppose he doesri’t pay you for purchases?
Tue Witness: We have never had that, or that type-of
. thing. If: he became an ‘irresponsible bad risk, or was abus-
ing the trademark, or that type of thing, there is the usual ~
type of recourse action in our by-laws.
. By Mr. Grimm:
-Q. By “bad risk,” you mean financial risk? .
A. Yes, God forbid if a fellow who was iynning a busi-
ness got into financial disorder.
Q. When: a member—
Tue Court:-May I just ask one more question?
Mr. Grimm: Certainly.
Tue Court: Let’s take the other side of the coin. Besig.
nation requires some advance notice?
THe Witness: Yes, sir.
“Tue Court: At the end of. some fiscal period, or some-
‘thing of that sort?
. THE Witness: The by-laws provide that depending upon
. how long he was a member,-he may resign, and the resigna-
tion becomes effective within 60. days ater the date of the
month in which he resigns. *
. Tae Court: What would happen’ to his contribution ‘to:
the annual unde, for example? . |
THE. W: ; That depends. upon how die he was a
member. We tetently revised our by-laws in this respect so
that at the present time, if he had been a-member of Topco.
for two zo or less; after the effective date [165] | of the
ve ©
@,°
78 = s
termination, he is liable for six months of service charge,
_ during which period we will Zive | him tapering off service. -
If he was a member of Topeo for. two years or more, he
is liable for one year’s service charges, and we would give —
->~him-a tapering off serviee, ‘phasing ‘out.service in that pe- :
riod. |
~~ Tue Court: Do vo. ever take. back from a resigned
’ member any of the private label goods he has?
Tur Wirnxss: On that, too; he is required to- live up to |
his commitment. I think the by-law has some provision in it —
that if-he-was irresponsible and was hurting the brand —
name, or something, we could, but we have never had to do
that, fortunately. We have been very fortunate: i in that re-
gard. . . . ,
By Mr. Gru:
Q. You have made a statement that depending upon how
long he is a member.of Topco, he may eee
_A. I didn’t mean ‘that. «
Tur Court: He didn’t say how long ‘he was [166] a
member, he may resign. He stated what the terms of resig-
- nation.and conditions of resignation ‘were. ‘L think he can
resign no matter how long he has been a member, but it is:
ona different basis? :
rc THE Witness: Yes.
ee By Mr. Gris:
mo When-a | new member comes in, he © applies for a. li-
cense, 1s that, Se ee iE
A. Yes, sir. | ,
Q. How. is it determined in what area’ he will be he
censed ! ies 7
A. Well, we touched 0 on that a little bit, I-think, but it —
. . bears repeating. .
We survey his operates and he makes application; usu-
ally, for the import’ market in which he operates and
usually asks for an exclusive license where his headquar-
‘ters are and where he feels he is giving adequate coverage.
In outlying areas where he may have fewer stures or it .
A>
’
Bag
might be different trading areas, he may ask for a non-ex-
_clusive or a coextensive license which would permit Topco
a little greater leeway to admit some other member who
might grow and. expand [167 ] into that area if. we- ‘had. a
new member.
Qs You referred to two things, I (@leve—market. cover-
age and trading areas: How do those factors: come into
play i in determining this licensing?
A. We try to look at the number of stores, size of store, °
the size of the market, the population of the market, and,
as I said earlier, it is not a mathemtical formula because
there is a great difference in size of store. We have gener- ..
ally granted licenses by counties as a convenient way, of ei- ~
ther a single county or combinations of counties as a con-~
venient way of designating the market.
- [168] Q. Would those county lines be the same thing as
trading areas?
A. In many cases, they are. In ‘some cases, the: trading
area might be a little different. It may be a-combination of —
it, but, generally, the county breakdown, either singly or. in
combination; has: -been a a reasonable and practical ap- |
. proach, :
Q. Ina case where the county line did not necessarily
| correspond to the trading area, what would you do?
A. We would define the difference. We would seek some
different trading area. There have béen a few such cases, —
and we mentioned earlier Hillman’s in Cook County. Their -
concentration was primarily in Cook County, and as the |
Judge pointed out, their’share of market mathematically is .
not as high as some other criteria for other members, but -
- nevertheless, there is their dedication. As a result, it makes.
it harder for them-in a market of this size to establish the
brand. In order: to-make a dent brand-wise, market accept: ”
ance-wise, and consumer acceptance-wise, it takes a greater
amount of effort for those 17 stores which they have in
Cook County, or Chicago, which is a part [169] of Cook
County, than it would he. out in some other lesser county
area.
& I believe: earlier winds the Court was inquiring on a .
ee
80
related subject, he referred to situations where there were
coextensives, and my question is, is it not important. in a
situation where there are coextensives for the members
__ who are operating there to have an exclusive, to deal exclu-
_ ‘sively in Topco products in that‘area? - °
A. Excuse me, I don't = understand your “question,
sir.
&@
Q. In any situation. where there . are two members: oper-
ating on a coextensive basis, would they necessarily be-op-
erating i in the same ytrading area? .
A. Oh, excuse me, I see: No, we have had some members
who were coextensive in the same metropolitan marketing
area. This was true in the early days of Topco. There were
three small firms, namely, Star Market Company, Brockton
_ and Supreme, who, when they joined Topco, were so small.
- that they weren’t even big enough to participate on their
own, and they formed a group called the New England
Food Buyers Co-op. They were coextensive. members of”
- Topco ia the Greater Boston area.
[170] They at that time were generally in different
parts of the Boston market. One of them was east, and one
of them was south, and one of them was in a different area.
As they, have grown and expanded, they have had some de-.
gree of coexistence.
- Sometimes within this country bivesidoive: two people
may be licensed in the same county, and one fellow is in
one town, and one fellow is in ahother town quite a-dis-
tance away. It may bé a part of the same metropolitan
trading area, and it may be a different trading area.
Q. Mr. Fenn, with respect to applications of new mem-
bers, have ‘you ever requésted ‘a atabe tt member to
ase operating in any stores?
A. No,I have not.
- Q. Toe your knowledge, has anyone reprenenting card
ever made such a request? :
’ A. Not to my knowledge. : 0 5'N
Mr. Grium: I would like to get into- some documents
~ now, if I may, your Honor—53, 34, 65 and 80.
rn
' jieense. - © ar
81
By Ma: Ganax:
Q Mr. Fenn, I show you now r Government’s. Exhibits 54, a
53, 65 and 80, and ask you to look ss those [171] docu-
ments.
_ Have you seen, » those documents tietoret +
A. Yes, I have looked. Shem over. I ae them straight
* here. :
.Q. Have you seen those documents?
A. Yes, I have. )
Q. Would. you tell. us. whether or not those documents
refer t8 licensing in’ the Dane County, Wigeopetn!
A.: Yes, they do.
Q. Are \you fgmiliar with the licensing situation at that |
time in a area?
A. Yes, I am.
[172] Q. Would you denne that situation, please.
A. In Jan yary—let’s see if I have got these in the right
_ order. They are not i in the same order as they are numeri-
cally.
“. In January 1962, we. received a- request from Schultz. |
Sav-O Stores for a license in Dane County, Wisconsin.
THE Court: They were already a member? > Ke
Tue Witness: They were a member, yes, ‘sir, ‘in another _
area, and at that Tequest, at that:time, we had a member i in *
Dane County, namely, Eagle Stores, whose Piggly-Wiggly |
Division with stores in Rockford and Madison had’ ‘seven
stores in Dane County, which includes Madison.. They only oon
had a non-exclusive license, but based on the number of the 7
stores that they had, it w Wag considered generally’ good cov-. |
s,in other cases, in comparable \\_
cases it would have been construed to warrant an n exclusive \
erage, and in some case
&
Government’s Exhibit 80 refers to the fact that that mat-
ter came before the [173] Board as” a. request from
Schultz, and it says:
“Tt was pointed out that Eagle Piggly:Wiesly Division od
had a number of stores in the Madison area. The question a
was raised whether the Board would: be in & position to —
* ‘mittee...
rie.
. . : . . 82 Z € * | ° rd
We grant Heit to Schultz in this. county. It was oswisiided
that further information was necessary, and the subject
“was & proper one for consideration by the Territory Com-
\
-~
By Ma. Gaim: :
Q. Did Schultz subsequently receive & a Receae?
A... Yes, he did. / ; |
Q. For what area?
A. For the V} lage of Sun Prairie’ in Dane County.
Tae Court: Where there was a Piggly-Wigaly store in
' the City of Sun Prairie.
. THe Wits iT am not familiar with that in Sun Prai-
Tue Court: I happen to isis Sun Prairie. I lade to be
g@ stockholder of Soil Research [174] ‘which is located in: - :
- Sun Prairie. There is a big’ Piggly-Wiggly Store. I have Pe
_ been there: It ss. not have been: a -Piggly-Wigsly ‘of
oe Eagle.
‘Tae Witness: I was going to ‘Bay “ak | that time, I think
the Piggly-Wiggly stores in that area were operated bythe
Piggly-Wiggly: Comriany that later became merged with
Eagle. \e
Tue Court: Yes. ; ;
Tue Wrrxess: Whereas ‘Schultz cuenatat Pigely-Wig-
gly stores in the eastern half of the United States.
Tue Court: Eastern half. - : ‘
Tue Wrrness: :The Village of Sun Prairie in. Hone
County was licensed to thath,,
By Mz. Gramm: Si
Q.. Why only the Village of Sun Prairie?
ae? That was all that they requested. And that grant of
license was recommended to the Board and made by the
Board in—this is cOvered by Government’s Exhibit 65.
-: | “St the May meeting, the Board approved the
granting. of a non-exclusive license to Schults Sav-O
Stores in the Town ‘of Sun hana Prairie ‘in Dane ¢
'
oF rd ‘ * 4 . Pe af
& : et:
-. 88
‘County. lean’ its ‘planned store at. tn location is
opened.” °. “ws eos
—Q. What Topco members ‘presently — ‘in Ger’ :
‘ County?
‘A. Ghly Schpitz. |
ee What happened to Eagle |
-A. Eagle has resigned:
Q. What Topco licenses are presently | in "existence for.
_..,;Dane County? —
| oe A. Only Schultz. ‘oyliade
| Q. Has Schultz. navenind any Seseut for any part of
lee County. other than Sun Prairie? ss : ,
- <A, No, they have not...
Q. Has anyone from Schultz ever expressed to you a de-
sire to open stores in any other part of Dane County?
A. No, he has not ever made any such request, either
“earlier or currently.” .
-.. Q. Mr. Fenn, have any members ever in‘ Topeo.had
. ‘own private labela on produsta Whi they eatried in their
. s
oo _ stores at the time they entered
a A. Yes, there have been some, in these have
been rather limited, and their primer reason for en-
toting Topco in that they either hm wo private label pre
gram, or what they had was
Q. Would you identify them? ould you give some ex-
“amples of members who have had their own private labels :
prior to entering Topeo or uponenterTopcot .
A. One member who has*had a number ‘of items under ry
oldest members is Meyer in Portland, Oregon. They
_. have had a numberof items under the Mighty Fine and |
: other brands which they own. In general, they use their —
own brand on programs in which Topeo does not service
_ them, primarily grocery items and certain non-food items. tees
? aa addition, Giant Foods: in Washington, D.C., who was, :
~ referred to earlier, early in the fifties, became a member As
' Topeo, as was. then referred to, as a frozen only member.
They came‘into our frozen;program under the Top Frost
Sor and ened hed a number of a under their gown
their ener Pi for some years and is one of our
.
s
a4 Sn \"
brands. At that time, they were using ‘Giant and Aunt: ‘Nel-_
lie, and some’ other brands.. Then in [177] about 1960 ee
they applied for full membership and came into Topco. .
They dropped some of their own brand items, but kept oth-
‘ers: Subsequently, in 1966, they resigned from Topco and -
had moved into a broad line of their ¢ own brand products
De — the Giant brand. —
“I
. %
%
-%
Hills-Korvette i is aaikae firm. This was a firm in Rock
. Island which became a member of Topco in 1963. Origi- |
nally, it,was the Hills store when they applied for member-
’ ship in ‘Topco. At that time, they had several hundred.
itemis under various brands that‘ they: either — or con-
trolled. — -
\ Later, they sng with Korvette Stores and took over |
- out of the Hillman brands and into Topco brands. -
- original members
early fifties, they
» anablé to have a line of the scope. oF
Same of those brands, but over a period, they phased out of
of these products and converted into Topeo brand
me
eee ’s in Chicago. That was nhattnaea earlier, one of
our newest*members, when they came in. were one of: the
of Topco in the early forties. Then in the
lropped out and went their own way and
tried to develop their‘ewn private label program. They de-
veloped some 150 items er Hillman brands [178]. and
some other brands that they k then.. Then about a year
or two ago; they applied for mem
needed, and during the recent period, had dropping
1179] ‘Q. What is Topco’s position, Mr. Fenn, with. re-
spect ‘to a member’s own private label heiveae he enters
Topco?
A. Well, as I indicated, hé comes into. Topco petngtly
- beeause he doesn’t have.very.much of a private label pro-
gram. I referred earlier to the— Aad st
Mr. ‘Mpnnison : Your Honor, I think I. want to. object to
-- ‘gome of this, some of what.is taking place here. For the
° last few Ininutes, he is testifying as to things that are —
going on. in the minds of these een siving . the rea-
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sO 85 2
‘sons, or he. ai to give the reasons for which they
acted. If they told him this was their reason, at least we
could find that out, but I would oon tothe. witness testi-
fying astothesé reasons. =. ,
Tue Court: When he is testifying, he is in fact stating
_ opinion, I suppose.
Mr. Grimm: Actually, on ‘this particular question, I don’t
think—my question was as to Topco.
THe Court:.Was there a serious question in your mind,
Mr.. Morrison, that this was a large motivating factor. in oar
the people joining [180] Topco, to get the benefit of :
availability of Topco private label brands?-
Mr. Morrison: No, I don’t think so. I don’t question that.
‘Tue Court: That i is all he is trying to state.
Mr. Morrison: I question whether or not Mr. Fenn can :
testify as to whether or not Hillman’s in the period of time -
it was out of Topeo failed, in effect, as the implication cer-.
tainly i is, to’ develop its own line, and it was required to
come back. )
THe Court: He didn’t say “required. ” He didn’t say “re- |
quired.” He simply said they determined rather. than to
_ pursue: the effort to:develop their own line that they would
come back, and they are gradually phasing ‘out of any of
. the Hillman private label products and replacing them. with, --
_ Topeo..I don’t see the point, I think, technically, Mr. Mor- _
rison, you may have a valid objection that Mr. Fenn is ei-
ther repeating hearsay or is stating an opinion without lay- -
ing the foundation for that opinion, but-:I can’t get very a.
excited about this technical ene: (181) so I am going |
to overrule it.
Mr. Morrison : Thank you. :
- Tue Wrrness: In answer to your question, Mr. Grimm—— -. <a
Tae Court: I think everybody is agreed that an. ~~ ll
- tive.to join Topco is to get the availability of their privat
‘ . Jabel brands. Isn’t that right, Mr. Morrison? - ee
‘ Mr. Morrison: I think, your Honor, certainly, it is true, hoe
that is why anyone. gets into any arrangement where he . ;
"ean acquire private labels. I am not so sure that Topeohas = =~
—— ae ee
86 |
| (2 " &
es Caeaie: He didn’t say that. ‘4 7 oe
- Mr. Morrison: I am not sure that Topco has any advan-
tages that any others might not. have had, or that. there
_mnight not have been other kinds of alternatives. I don’t
dispute that. — .
‘Tue Court: The question was whether the man came
. into Topco because he owned or had available a source of
diverse, quality-priced competitive private label brands. He
was just asked what was one of the incentives to coming in,
and was the answer to get private.label brands and the an-
_ Swer was yes, to get private [182] label brands. Let’s go on
: from there. ya 3
By Mr. Grimm:
Q.. What is, Mr. Fenn, Topco’s position with reference to
private labels of members who are coming into Topco? .
A. Well, first, as I started to say, in order to build a sue-
cessful private label program and gain the benefits of the
‘umbrella effect that you get, it takes a, broad, consistent
promotion program over a sustaitied ‘period.
THe Court: Mr. Fenn, I am going to interrupt. I think
_ that isn’t answering the question. The question is what is
your policy with respect to private - labels already pos-
- sessed by new members when they join Topco? Must they —
drop them? Can they continue them? Are. they required to _
take some. quota of Topco, or what? What is your policy? |
Tue Wirness: Our-policy is that what they do with their
own brands is their business, but if Hillman’s, for example,
had their own brands on, say, 150 items, and these are gen-
erally items which are bigger volume items, the items |
which ‘are more generally promoted, if they wanted to ©
[183] keep all of these items on their own brands and
also take on Topco products, we would recommend that :
they probably shouldn’t come into Topco because we don’t
think they would be successful in establishing the brand,
because if they don’t put the promotion on the sugar, and
the coffee and the peaches, and so forth, they will never get
theother items established. *
In other words, i in our discussions, we talk about what it
—————— ; ;
| 87
- takes, what it does take to make a , successful brands pro-
_ gram. In most cases, as I have indicated, the members have
| joined Topco. They pay a large fee, 9 significant fee, that
"is fixed, ahd not only would they not: be successful, but if:
they don’t have a successful program for which they are
paying a large fixed fee, they will not be a happier, satis-
fied member. So in general, we do encourage them to give
full support to the Topco program, but there is no—— —
THe Court: N oO effective sanction once they are mem- .
' bers? a a
‘THe Wrrness: That’s pac |
THe Court: But you discuss the subject befere théy be-
come members so there is kind of a ee gentleman’ a
' agreement?
THe WITNEss: We try to tell them what we think it will
' take to make a successful program.
THE Court: Is. this a ies time to terminate for the
day?
~Ma-Ganix: I en eo so, your Honor.
THE Court: We will ante until 10:00 o’clock leer.
row morning.
My: guess is that we can start fairly necatetiy vat ten. I
don’t think we will have a long call, = we will go until
four tomorrow.’
Mr. Gaium: Very well.
Tae Court: For your information.
_Mr. Grium: Thank you.
THe Court: All right, we are adjcaraed.
(Whereupon, an adjournment was taken at 4 :40 o’clock
pm. until a, or 26, 1969, at 10:00 o’clock
am.) —
| [185] 4 [Caption Omitted in Printing]
: oo Before Jupar Wi,
Wednesday, February 26, 1969,
10:30 oclock a.m.
The trial was resumed varsiinat to adjourniment.
_ _ PRESENT:
Mr. Morrison
Mr. Tate
Mr. Jones; 4
Mr. Loughlin? |
“Mr. Haskin
. Mr. Grimm
Mr. O’Halloran.
= - ;
e* ..¢@ e- . *
[ 186] ‘By Mr. Grime :
_ Q. Mr. Fenn, ventaedbiry you hadierved. to some extent, to
- , the introduction of Topeo branded products by a retailer.
. Based upon your experience in Topco and in the industry
generally, can you tell the Court the approximate length of
time which would be required for a new member to intro-'
duce Topco branded products into his market?
A. I can answer that in part by referring to [187] an
_ arrangement we have in our bylaws at the present time, of
practices relative to the service charges for new members.
_It gives recognition to the fact that it takes a long time for |
‘a new number to introduce, establish-and start gaining foil
benefit from a private label program. .
Our system of service charges involving Topco branded
‘products calls for a half rate of charge for the first full
year, three-quarter rate charge for the second ‘full year,
_- and then the full rate beginning the third’ year.
Q.. Would the fact that a member had his own private
‘label products in some items prior. to becoming a Topco
‘member, have any effect on the length of time which it ~
would take to introduce Topco products into his stores? —
’ A. There might: be some offsetting advantages arid dis-
advantage. By this I mean that if he has had some experi-:
ence in procuring and merchandising private label -prod- —
. ucts under his own brand, or some other brand, he has
been indoctrinated to some of what it takes to put a pro-
gram like this across. But a large part of this is really the
introduction of. new brands, new brands in the market
place, new [188] names to get acquainted and sold-to his .
employees, to his organization, to,his customers, and in = ~
many cases new suppliers with whom he will be working.
_ Q. Are you generally familiar with the location of new
stores constructed by Topco members?
'_ A. Yes, we are, when they are involved in Topco brand
licensing.
Q. How does that information come to you?”
o A. It has béen our practice about twice a year to ask the
My
members where they plan to open new stores for which they - ,
will request Topco brand licenses, and then after they have
the stores: under construction, OF Spee, we dues ma
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