ROCHESTER, N.Y. -- Wegmans Food Markets here -- along with Procter & Gamble and nine other manufacturers -- agreed last week to pay a total of $4.2 million to settle charges that they conspired to remove cents-off coupons from the western New York market.
The companies admitted no wrongdoing, but said they chose to settle with the New York state attorney general to avoid a lengthy and costly trial.
The $4.2 million settlement will be returned to consumers in the 16-county part of the state known as western New York, which includes Buffalo, Syracuse and Rochester, in the form of coupons.
The coupons will be published in Sunday newspapers in western New York and carry a $2 face value. They will be redeemable for any grocery product made by any manufacturer -- even those not named in the lawsuit -- provided the products are not alcohol- or tobacco-related.
The settlement, which is still subject to court approval, is said to be the largest cash payout ever made to New York consumers as the result of an antitrust lawsuit brought by the attorney general's office.
The lawsuit and settlement stem from a controversial 14-month "zero-coupon test" that began in February 1996 and was spearheaded by Procter & Gamble, Cincinnati, manufacturer of Tide, Bounty and many other grocery products.
The test became controversial -- due to attention from the consumer press and the New York State attorney general, Dennis C. Vacco, and the perception that people would be paying more for groceries.
"The people were basically clueless until the attorney general got a hold of the issue," said Ken Harris, a partner with Cannondale Associates, Evanston, Ill. "It was a simple concept. People had the feeling that something was being taken away from them.
"Who could argue with the attorney general going up against 'the big, bad companies,' " Harris said. "It made for great sound bites."
The aim of the zero-coupon test, P&G said, was to find more efficient ways than couponing to deliver value to consumers. The money it would have spent on coupons was redirected to promotions that benefited all consumers, not just those who clip coupons, P&G said. Harris said other manufacturers dropped couponing in western New York before the P&G test, but did so quietly. The P&G test, he said, was "like Babe Ruth pointing to center field before hitting a home run."
Although he doubted the settlement would greatly affect the use of couponing as a strategic weapon, Harris said manufacturers would be under increased scrutiny.
"The larger message is that the government is telling large companies, 'We're watching you,' " Harris said.
The compromise, announced last week, settles a lawsuit filed by Vacco in U.S. District Court in Buffalo, N.Y., charging antitrust violations.
Vacco accused the chain and the manufacturers of conspiring to drastically cut back the number of coupons published in Buffalo, Syracuse and Rochester newspapers.
There is no law requiring companies to circulate coupons, state investigators said. However, when companies jointly agree to stop distributing coupons, the practice becomes similar to price-fixing in that it limits competition.
In a statement last week, P&G said, "The results showed consumers, on average, during the test, paid the same without coupons as they did previously with coupons. The test is over, we've accomplished our goals and coupons have been back in New York since April 1997."
Attorney General Vacco said the manufacturers resumed couponing after his office began investigating the case for possible violation of antitrust laws. However, he said, "they must be held accountable for the injury done to consumers while they unlawfully withheld coupons.
"Many shoppers, including the elderly, families with young children and those on limited budgets, rely on coupons to save money on their grocery bills," said Vacco.
P&G, along with the nine other manufacturers named as defendants, will pay a total of $3.7 million to settle charges that they violated the Sherman Antitrust Act and the Donnelly Act. None of the settling parties have admitted wrongdoing.
"We settled this case for several reasons," P&G said. "First, the test is over, we've gained the learning we wanted and it's time to put this matter behind us. Second, settling now avoids protracted litigation that would be very costly and highly distracting to our organization and would not benefit our consumers, our business or the taxpayers of New York.
"Finally, we've always said the allegations were unfounded and the agreement acknowledges that we absolutely deny any wrongdoing was done in this test."
The other manufacturers involved in the settlement are Clorox Co.; Colgate-Palmolive Co.; Conopco Inc. (Lever Bros. Co.); Dial Corp.; DowBrands, L.P.; James River Paper Co.; S.C. Johnson & Son; Pillsbury Co; and Recklitt & Colman. Under the terms of the settlement, none admitted wrongdoing.
Wegmans was named as a defendant because it approached the manufacturers to limit couponing, the lawsuit alleged. But the chain denied it acted illegally.
"We were working with our suppliers, but there was no conspiracy to get rid of coupons," said Jo Natale, Wegmans' spokeswoman and consumer services manager.
Natale said the chain was not opposed to coupons, but rather the "inefficient and expensive process of distributing coupons, at a cost the consumer ultimately bears."
Wegmans said the company's goal had been to lower the cost of goods through more innovative promotions.