Balancing Act

The impetus, in part, that brought the National Grocers Association together was the view that the playing field had begun to tilt in favor of large chains. Members realized they needed a strong voice in Washington, especially on issues of antitrust and mergers and acquisitions. Predatory pricing plagued independents from the beginning with the Federal Trade Commission looking into a drawn out price

The impetus, in part, that brought the National Grocers Association together was the view that the playing field had begun to tilt in favor of large chains. Members realized they needed a strong voice in Washington, especially on issues of antitrust and mergers and acquisitions.

Predatory pricing plagued independents from the beginning with the Federal Trade Commission looking into a drawn out price war taking place in Indianapolis where Kroger was a player.

“The biggest thing was price discrimination, and Tom [Zaucha, NGA president and chief executive officer] remained a strong advocate for us on that. If it wasn't for him, a lot of us wouldn't be here,” said Jere Lawrence, president of Lawrence Bros., Sweetwater, Texas, a former NGA chairman and long-time board member.

Mergers and acquisitions present ongoing challenges for independents. While there are opportunities to acquire stores that are being divested as a result of the merger, vigilance is required when it comes to market-share concentration, said Tom Wenning, NGA's executive vice president and general counsel.

Frank DiPasquale, NGA executive vice president, points to the foiled attempt by Ahold to merge with Pathmark in 1999 as a major win for NGA. “Given Ahold's strength at the time and its cash position, such a merger had the potential of affecting many of our members [in the tri-state area].

“The strategy had been to convert high/low operators to EDLP and use the format to drive the evaluation down of other potential acquisition targets. We quite effectively elaborated to the Federal Trade Commission their ultimate goal,” DiPasquale explained. Ahold withdrew its acquisition agreement with Pathmark.

NGA successfully fought to protect the Robinson-Patman Act of 1936, a federal law prohibiting anticompetitive practices by suppliers, specifically price discrimination. Most recently, the law was challenged in 2005 by the Antitrust Modernization Commission that wanted to repeal it.

“Given the current state of pricing, one could conclude that our efforts fell on deaf ears,” commented Mike Needler, chairman and CEO, Fresh Encounter, Findlay, Ohio, proving classic fair play issues never go away.

Wenning said most regulatory issues take on a life of their own and often require persistence and years to fight.

“Over the years, we've probably had a very significant success level on issues such as repeal of PACA [Perishable Agricultural Commodities Act],” said Wenning. He and Zaucha spent more than a decade fighting to repeal PACA and eventually did in 1995. “That was a win that saved independents millions of dollars in licensing fees they would have had to pay,” Wenning noted.

Sometimes new initiatives that arise — establishing electronic benefits transfer systems for food stamps to be interoperable across state lines, for example, require negotiations with other industry segments. Wenning said it took about four years to arrive at a level field so that independents as well as the food industry and food stamp recipients would benefit from an efficient and productive system and the cost of equipment and processing wouldn't adversely impact the industry.

“We worked with other associations both at the state and national level,” said Wenning.

In the late 1980s, Zaucha exhibited the leadership that he has come to be recognized for by championing the repeal of a little known provision in the tax law, section 2036(c) of the Internal Revenue Code. This provision prevented the use of “estate freezes” and if not repealed would negatively impact family-owned and operated businesses' ability to avoid costly estate taxes. Zaucha served as chairman of the Small Business Legislative Council's Coalition on 2036(c) and led its efforts to win repeal of the measure in 1990.

“It made a significant difference in the ability of family-owned businesses to plan and avoid excessive estate taxes,” said Wenning. Zaucha received kudos on this effort from the president of the U.S. Chamber of Commerce.

Going forward, Zaucha's successor will oversee the following carry-over issues from the current year:

  • Employee Free Choice

    Zaucha said he could bet that concessions were made to the unions in order for the Obama administration to get buy-in on health care reform, which included a potential tax on so-called “Cadillac health plans.” The unions oppose such a tax. Expect card check to resurface.

  • Estate Tax

    It was technically repealed on Jan. 1, but members of Congress want to revisit it and either extend it at its current exemption level of $3.5 million at a maximum rate of 45%, or make other adjustments. “For our members' planning purposes and continuity, we'd like to see the level raised to $5 million and the maximum rate lowered to 35%,” said Wenning.

  • Tax Reform

    Proposed legislation such as repeal of the “last in, first out” inventory accounting method — many independents use this method to value their inventories — could result in a phantom tax, said Wenning. Rep. Charles Rangel, D-N.Y., also has tax reform proposals that could pose a challenge to NGA members.

  • Nutrition Labeling Meats

    A supplemental proposed rule by the U.S. Department of Agriculture's Food Safety and Inspection Service that would require retailers to provide nutrition information for major cuts of meat and poultry either on the label or at point-of-purchase and on ground meat packages would add additional costs for independents.

  • Interchange Bank Fees

    NGA's ongoing antitrust, class-action lawsuit as a member of the Merchants Payment Coalition is coming to the end of the discovery process. Wenning expects the lawsuit to move to the trial phase next year. Meanwhile, Wenning said Congress needs to act and reform the system.