COMPTON, Calif. -- Ralphs Grocery Co. and Food 4 Less Warehouse Stores, both here, are under fire from produce trade associations and their membership, after the chains' fruit and vegetable suppliers received a notice setting forth fee schedules to assist in the opening of a new warehouse and conversion of acquired stores.
In the letter, Ralphs and Food 4 Less, both owned by Kroger Co., Cincinnati, instructed their vendors to elect one of three options regarding their contribution to Ralphs New Stockton Warehouse Opening Program. Option one called for a minimum 10% incremental stocking allowance, for a flexible four-week period, to be specified on purchase orders. The second option called for suppliers to provide 50 cases per item authorized delivered and invoiced at no charge. The final option was the cash equivalent of 50 free cases per item authorized to be deducted from initial purchase orders. According to the letter, suppliers who did not respond would automatically be enrolled in the third option.
Heather Flower, director of public relations for the Western Growers Association, Irvine, Calif., said the group received many calls from members who "were quite upset about Ralphs' demands." On behalf of WGA's members, president David Moore responded to Ralphs with a letter accusing the company of taking "the retailer fee concept to a new, even greater, self-serving level."
"It is a sad day for our fresh-produce industry," Moore's letter stated, "when fresh-produce vendors are required, without compensation or any other consideration, to provide to Ralphs and Food 4 Less the working capital it wants to open a new distribution facility."
Ralphs declined SN's request for an interview, saying the company "does not comment on private communications between [themselves] and [their] business partners." However, in their letter to suppliers, Sam Duncan and David Hirz, presidents of Ralphs and Food 4 Less, respectively, wrote that the collected fees would be dedicated to offsetting the expense associated with ramping up a full-service warehouse in Stockton, Calif., as well as the conversion of northern California Albertson's/Lucky stores and Price Rite stores, and bringing those newly acquired units up to company standards.
"We believe that the expense of merchandising and maintaining these stores with your itemization constitutes shared responsibility between the retail and vendor community," they wrote of the new-store billing portion of the fee schedule.
Ralphs' program was initiated as the U.S. Department of Agriculture and Congress were conducting separate investigations into slotting fees. Arthur LaLonde, vice president of Los Angeles-based Valley Fruit & Produce Co., is one of a few grower/shippers who have gone on record as opposing the retailers' program.
"Occasionally, a company will ask for help when opening a new store, but [Ralphs] just overstepped that boundary with this letter and somebody had to say something," LaLonde told SN. "I said in my letter, 'we have recently put in a new warehouse as well, but we didn't ask for, nor did we expect, help from anyone."'
Flower and LaLonde both said that the majority of grower/shippers are frightened of losing business if they object to the terms of the program. The general consensus among their supporters is that retailers are aware of and taking advantage of that situation.
"It sounds like they're just saying, 'Give me something or get out' and that's just not right," said another produce manager, from a Midwestern grocery chain, who requested anonymity. "This borders on extortion and I don't agree with this way of doing business at all. Suppliers have bills and payments and have to make a living too."
The WGA has also questioned the legitimacy of the program. Moore stated in his letter, "The fact that Ralphs/Food 4 Less mandates this 'fee' without discussion or negotiation with vendors is distasteful to fair business dealings, and in Western Growers Association's opinion, this action just may border on antitrust violations."
Flower, the WGA spokeswoman, said the organization is reviewing various recourses and weighing options.
"[All] associations really need to speak out on the issue because it's not something the growers should have to risk losing business over," she said.
Ralphs has not responded to the WGA's invitation to meet and discuss the matter and explain -- in Moore's words -- "why [they] think this [fee] is a reasonable and necessary financial burden for the fresh-produce industry to underwrite." LaLonde said he hasn't heard from the retailer, either, though it continues to do business with Valley.