ISLE MILK PRICES HIGHEST IN NATION
While consumers are crying foul,
some state dairy industry officials
say the prices are fairBy Rob Perez
Some stores offering discounts
Star-BulletinShopping for milk in Hawaii can quickly sour people looking for bargains.
Local consumers pay the nation's highest prices -- by far. And the premium is especially steep if consumers don't shop around.
"Somebody's making a lot of money off milk in Hawaii," said Elisa Odabashian, a San Francisco-based policy analyst who follows milk issues for Consumers Union, publisher of Consumer Reports magazine.
Consider these differences:
A gallon of Meadow Gold at Sam's Club, a members-only warehouse store in Pearl City, cost $3.69 on a recent shopping visit.
On the same day, the regular price for the same type of Meadow Gold at Oahu's major supermarket chains -- Foodland, Safeway, Times, Star, Daiei -- was $5.59 to $6.19 a gallon. That's as much as 68 percent more.
Even customers at Waianae Store, a small neighborhood market more than 30 miles from town, got better deals. The Waianae price: $3.99 a gallon.
Such glaring disparities, especially in light of the huge gap between local and mainland milk prices, are prompting consumers to question whether they're being gouged.
"It's not just Hawaii cows the industry is milking," said Manoa resident Steve Lane. "It's Hawaii consumers."
But an Oahu milk processor, several supermarket chains and state agriculture officials say consumers are paying fair prices, considering the high tab of doing business here.Milk costs more to produce in Hawaii because many materials have to be shipped from the mainland, such as dairy feed and packaging supplies, industry and state officials say. Also, local processing operations aren't as efficient as mainland ones because the local ones deal in much smaller volumes. Consequently, they must charge more per unit to recover operating costs, industry officials say.
Another factor: Milk from Oahu dairy farms is as much as $1.05 more a gallon than raw milk on the mainland -- even before the milk is processed, a costly step.
The state-regulated minimum price paid to Oahu farmers for 100 pounds of raw milk is set at $12.20 above the Northern California price, or the equivalent of $1.05 a gallon more.
"When you add all of that, there's a big difference," said Glenn Muranaka, president of Meadow Gold Dairies, one of two processors on Oahu.
What's more, many supermarket customers don't pay regular prices because a store usually has discount specials, retailers say. Also, the chains have private-label milk that typically sells for substantially less than the name brands of Meadow Gold, Viva and Foremost.
Competitive pricing
In addition, the chains say they give customers good values throughout their stores, consider their competition to be other chains -- not the big discounters or neighborhood retailers -- and believe focusing on one product can present a misleading picture."We look at the total food basket and price very competitively," said Debra Lambert, spokeswoman for Safeway.
The price differences are so large, however, that skeptics question whether such explanations provide the full story. They say supermarket chains substantially mark up milk knowing it is a must-buy for many people, especially families with children.
A recent survey by the International Association of Milk Control Agencies shows how far out of whack isle prices are with the rest of the country.
The average retail price for a gallon of 2% reduced-fat milk in Honolulu last year was $5.44, according to the association's survey of 42 large and small cities around the country. The next highest market: Seattle, at $3.08.
Everywhere else mainland consumers paid an average of $2.11 to $2.99 a gallon.
"No one (but Hawaii) pays over $5," said Odabashian, the Consumer Union analyst. "That's amazing. That's gouging. It's pretty clear."
Even some small retailers wonder about the chains' high prices.
At Waianae's Tamura Superette, where a gallon of Meadow Gold cost $4.69 on the day of the Star-Bulletin survey, general manager Royden Yamane said his store makes only several cents profit on each gallon, compared with more than $1 at some of the big chains.
Asked if he thought the chain prices were fair, Yamane said, "To the customers, no. But for the retailers, it is. They're out to make money."
To an industry outsider, trying to determine all the issues that go into pricing one of the most-purchased food items in a supermarket is no easy task. Numerous factors come into play at the farm level, processor level and retailer level.
Once the milk reaches the retailer, the store must decide whether to use the commodity as a so-called loss leader, pricing the product at or near cost to lure customers.
Throw in competition among the brands, including mainland imports, and the pricing picture gets even more muddled.
"It's a complicated process," acknowledges Safeway's Lambert.
In some situations, the pricing doesn't seem to make sense. Usually there's added cost when a retailer buys through a middleman instead of from the manufacturer.
But Warren Higashi, owner of Bigway Market in Waipahu, said he stocks his shelves with Meadow Gold from nearby Sam's Club because he buys the milk about $1 cheaper per gallon than if he were to deal directly with Meadow Gold.
"It's a crazy retail world," Higashi said.
One reason is volume. In the dairy industry, selling large quantities helps keep overhead in check.
That means independent processors seeking to gain volume often will sell milk to large customers, such as Costco or Sam's, at or near cost, said David Ikari, chief of the dairy marketing branch at California's Department of Food and Agriculture. "They practically give it away."
Company's costs
But if volume is such a big factor, how can neighborhood stores that sell far less milk have much lower prices than the chains?Cost plays an important role.
When Meadow Gold delivers milk and other dairy products to Tamura Superette or Sam's, for instance, it just drops off the merchandise. But when it delivers to the chains, a Meadow Gold employee stocks the shelves, keeps track of inventory, places new orders and handles other chores for Meadow Gold products, all at multiple store sites.
The Meadow Gold employee's duties are magnified because supermarkets sell many more types of dairy products than discounters or neighborhood retailers, requiring even more servicing.
Meadow Gold's Muranaka said a delivery driver may spend 20 minutes at a discounter compared with three hours at a supermarket.
"To service each one of those (supermarkets) is a lot of cost -- big time," he said.
Other factors
Tamura Superette also can keep its prices down because the company, unlike some of the chains, owns everything at its location, including the land, building and equipment, according to general manager Yamane. That translates into lower overhead.Muranaka cites another factor: supporting community functions. Meadow Gold's prices are boosted partly to reflect the financial support the company gives to charitable activities. "There's a certain obligation that a local organization has in giving back to the community," he said.
Foremost is the other Oahu processor, and its milk usually retails for even more than Meadow Gold's. Foremost declined comment.
Despite the higher costs associated with servicing the supermarkets, some in the industry say the chains could sell milk for much less and still make a reasonable profit.
One Costco official said he doubts the chains pay much more for their milk than Costco, which last month was selling Foremost at $3.69 a gallon. If the chains pay more, it's not to the degree their higher prices suggest, the Costco official said.
Safeway's Lambert said the company doesn't discuss specific pricing issues. Officials at Foodland, Hawaii's largest chain, didn't respond to requests for comment.
Arnold Laanui, assistant dairy buyer for Star Markets Ltd., said his chain marks up its gallon milk roughly 15 percent.
Day-to-day pricing
Whatever the margins, prices can change significantly with little notice.After news broke in early March that milk prices would be coming down this month, thanks to a big drop in the farm price, Daiei raised its prices for Foremost by 30 cents a gallon.
The price hike, to $6.19, brought Foremost in line with Daiei's Meadow Gold and Viva products.
After the Star-Bulletin contacted Daiei to ask why it was charging significantly higher prices than the other chains for brand-name milk, dairy buyer Don Young told the newspaper Daiei would be lowering those prices immediately by 21 cents a gallon.
He also said the early-March price increase was due to a February rise in wholesale prices from Foremost. The timing, he said, had nothing to do with publicity about the price decreases expected this month.
Even with those decreases, Hawaii prices still will remain far above those on the mainland -- a fact that occasionally captures the attention of profit-seeking mainland farmers.
Randall Kamiya, milk control program specialist for the state, said the farmers often inquire about what would be needed to start a dairy operation here.
"They're thinking they can make some good money," Kamiya said. "But when they look at the costs, there's no question -- they're out of here."
Hawaii easily has the nation's highest milk prices, as shown in a survey of 42 selected markets across the country. Here are the 10 most costly markets, plus the five least costly: The milk gap
HIGH
City -- 1998 avg. price/gallon*
Honolulu -- $5.44
Seattle -- $3.08
Denver -- $2.99
Las Vegas -- $2.94
Elko, Nev. -- $2.91
San Diego -- $2.85
Los Angeles -- $2.78
North New Jersey -- $2.75
Portland, Ore. -- $2.75
Boston -- $2.73
LOW
Madison, Wisc. -- $2.11
Rochester, N.Y. -- $2.21
Des Moines, Iowa -- $2.21
Augusta, Maine -- $2.28
Scranton, Pa. -- $2.35
*For 2% reduced fat milkSource: International Association of Milk Control Agencies
It pays to shop around for milk. Prices on Oahu vary substantially from retailer to retailer. Here's a sampling of gallon prices from mid-March. Shopping around
Source: Star-Bulletin survey
Some stores offering
By Rob Perez
discounts
Star-BulletinHawaii milk prices are coming down.
A 50-cent-a-gallon drop in the minimum price paid to dairy farmers in California and Hawaii is starting to show up at some local supermarket shelves, though to a lesser degree.
The declines will not change Hawaii's distinction of having the nation's highest milk prices.
The state, which regulates raw milk prices, last month said the Oahu farm price would drop the equivalent of 50 cents a gallon in April and May because of an identical decline planned for the same months in California.
After getting word from Meadow Gold and Foremost dairies earlier this week about a special price adjustment for April, Daiei responded Wednesday by dropping its gallon price for Meadow Gold 29 cents, to $5.69.
Daiei's Foremost line will drop the same amount, to $5.69, on Sunday, said Don Young, the retailer's dairy buyer.
Both prices are considered temporary discounts and will be maintained as long as the dairies give the discounts to Daiei, Young said.
Safeway, meanwhile, yesterday dropped its regular prices for its two private-label brands, Lucerne and Dairy Glen, both of which are made by Safeway in California. The Dairy Glen price fell 40 cents a gallon to $4.19, while the Lucerne price dropped 38 cents to $5.41.
Safeway's retail prices for Foremost and Meadow Gold products, which are not made by Safeway, have not changed.
Debra Lambert, a Safeway spokeswoman, said those prices will change if and when the cost to Safeway is adjusted.
But she said Safeway's two private-label brands are the company's priority. "The primary brand we want to sell is our own."
At Star Markets, Les Watanabe, operations manager for dairy products, said Foremost and Meadow Gold will go on sale probably next week. The current price of $5.95 a gallon likely will be discounted to the mid-$5 range, he said.
Watanabe also expects to drop the regular prices for Star's private-label brand, Golden Creme, by roughly 40 cents a gallon later this month.
