Discounters fight change in co-op ad rule

Discount Store News, April 24, 1989 by Ken Rankin

Discounters Fight Change in Co-op Ad Rule

WASHINGTON, D.C. -- Discount industry groups have opened fire on Federal Trade Commission plans to radically alter the agency's 20-year-old "Fred Meyer" guidelines banning price discrimination in co-op ad programs.

That same FTC proposal is also under attack from small retailers and co-op advertising program administrators who contend that relaxing the barriers against discriminatory promotional allowances would open the door for abuses by large "power buying" discount chains.

At the center of the controversy are the FTC's 1969 "Fred Meyer" Guides for Advertising Allowances and Other Merchandising Payments and Services. These guides, which interpret the federal Robinson-Patman Anti-Price Discrimination Act, require that manufacturer payments to retailers for co-op ads or other promotional activities be made available to all competing retailers on a proportionally equal basis.

Late last year, FTC anti-trusters proposed a series of changes in those ground rules, and in the process attracted howls of protests from groups concerned that any relaxation of the guides would result in price discrimination favoring large chains.

More recently, however, discount store industry leaders have been joining the chorus for different reasons.

Describing the basis of FTC's proposal as "illogical, unreasonable and contrary to actual experience," officials at the International Mass Retail Association called on the commission to hold public hearings before issuing any final changes in the standard.

The agency's present plan "will either raise prices on thousands of consumer products without any compensating benefits to consumers, retailers and competition, or it will dramatically reduce the amount of price advertising and, hence, price competition," IMRA government relations vice president Robert Verdisco charged.

IMRA's objections were focused primarily on one specific Commission proposal: the FTC's plan to drop current provisions of the guides barring manufacturers from refusing to compensate retailers for co-op advertisements containing discount prices.

Such a change would "permit and encourage manufacturers to require all retailers to advertise at no less than suggested retail prices in order to participate in co-op programs," Verdisco told the commission. "The proposed change would restrict the ability of IMRA members to advertise discount prices on thousands of frequently purchased items for which manufacturers have established suggested retail prices."

The anti-discounter plan also was attacked by officials at the National Association of Catalog Showroom Merchandisers who warned that the FTC scheme would "promote vertical price fixing."

Observing that the commission's co-op advertising guidelines are "widely followed by house counsel of corporations," NACSM general counsel Richard Kelly explained, "the proposal is likely to encourage retail price fixing schemes, which are already becoming prevalent in the marketplace, and could unnecessarily increase consumer prices by well in excess of $10 billion per year."

Withhold Payments

In a separate statement, officials at Service Merchandise, Nashville, Tenn., told federal antitrusters that if manufacturers are allowed to withhold payments for below list price co-op advertisements, they could effectively crush discount advertising.

"For example, what if a manufacturer increases his prices 15 percent and then instead of allowing a 3 percent advertising allowance, allows an 18 percent advertising allowance?" Service Merchandise attorney Gary Pack asked. "A retailer may be able to compete reasonably well if it loses an advertising allowance that is a few percentage points," but "there would be no way possible that such a retailer could compete" after losing 18 percent.