Advisory opinion letter to Mr. Winard

We have been advised by members that in the immediate future they plan to use advertising, labels, and packaging in the sale of white bread in response to and somewhat comparable to a program now being

ADVISORY OPINIONS .1857 utilized nationwide by a wholesale baker that is a competitor (sample bread package enclosed).

The program entails prominently printing on an end label or package end: the word “Free” in bright colored letters of approximately threequarters of an inch (34”), and below the brand name and loaf size also in the same size (approx. %”) and color lettering. Between the word “free” and brand name in smaller lettering of a different color, approximately one-eighth inch (%”) would be an indication of some sort of give away meant to appeal to children. The exact nature of the giveaway has yet

to be determined.
For example:
Language of Proposed Language of
Competitor’s Loaf Independent Bakers Loaf
Red Free %4” Color A Free at %4”

Blue Disney character 1%” Color B Give away %”

Blue Sticker inside %” Color B Give away '%”
Red Wonder %” Color A Brand name %” Red
Red . Giant 34” Color A Size %4”

It is contemplated that this loaf will be sold at the same price as previously offered to the public.

Because the competitive nature of the situation requires a prompt decision, an immediate response is essential to the membership. If additional information is required please advise the undersigned.

Yours very truly,
Harold Greenwald, Esq.
Richard Kelly, Esq.

Discount incentive plan proposed by Baumgold Bros., Inc., a wholesaler of diamonds and precious jewelry. (File No. 743

7007)
Opinion Letter
May 14, 1974
Dear Mr. Winard:

This is in response to your letters dated July 23 and November 6, 1978, as elaborated in a telephone conversation on January 24, 1974, requesting an advisory opinion concerning the discount incentive program of Baumgold Bros., Inc. It is the Commission’s understanding that Baumgold Bros., Inc., diamond cutters, a New York corporation, having its principal office at 580 Fifth Avenue, New York, New York 10036, is engaged in the

wholesaling of diamonds and precious jewelry in all 50 states of the United States as well as in foreign countries. Baumgold sells its merchandise on the following terms: (a) 4% discount if merchandise is paid for in cash; (b) 3% discount if merchandise is paid for within 30 days; and (c) 6 months net.

Baumgold presently is borrowing money from its banks and paying 8%% per annum with a requirement for compensating balances. “Compensating balances” means that the borrower must maintain a deposit with the banks equal to a certain percent of the money loaned. Baumgold wishes to eliminate, if possible, the immediate 4% discount for cash and the term “6 months net” which is offered to all of its customers, and at the same time, wishes to increase its sales. The new policy Baumgold proposes is to announce the following to all its customers:

With respect to our customers who either pay cash upon delivery of merchandise or who discount their bills under the provisions of our standard invoice permitting a discount of 3% if the invoice is paid within 30 days, Baumgold Bros., Inc. has adopted a policy effective—— which shall be applicable to all of its customers. Under the policy, Baumgold customers who either pay cash for mer- : chandise or who discount their bills within the 30 day period, under which they obtain a 3% discount, will be offered an additional discount which will be keyed into their total volume of purchases from Baumgold in the calendar year. As to such customers, Baumgold’s letter would provide that:

(a) An additional credit of 1% shall be granted as of December 31, 1974, payable within 3 months of that date, to the extent that purchases of 1974 exceeded purchases of 1973, provided, further, (b) If purchases in 1974 as above outlined exceed purchases of 1973 to the extent of 50% or more, the discount which will be granted as of December 31, 1974 shall be 2% to the extent that 1974 purchases exceed 1973 purchases.

This policy shall not be applicable to customers of Baumgold Bros., Inc. who did not discount their bills in 1973. As to such customers, and new customers, the new policy shall be applicable in the year following any year in which bills are paid for in cash or bills are discounted within the thirty day period as aforesaid. Baumgold desires to reduce the amount of interest it is presently paying to banks with respect to merchandise which is being held by its customers but not paid for within six months. In other words, “carrying” its customers who take advantage of the “six months net term offered” under its present procedure costs Baumgold in excess of 414%

ADVISORY OPINIONS 13509 (i.e., 6 months at an annual rate of 84%), the interest charge they are presently paying, without taking into consideration the bank’s requirement that compensating balances must be maintained by Baumgold. As outlined above, the subject incentive plan as proposed by Baumgold would result in a price discrimination cognizable under Section 2(a) of the Robinson-Patman Act. Granting a 1% rebate on increases in purchases would discriminate against a new customer who paid cash or within 30 days, but who had not been a customer during the prior year. It also would discriminate against a customer who paid cash or within 30 days but who did not increase his purchases. Such discrimination would be illegal if the effect may be substantially to lessen competition or to tend to create a monopoly.

With regard to giving a total of 2% as a discount to a customer who increases his purchases by 50%, Baumgold further discriminates against those customers who increase their sales by a significant amount which probably would not be attainable by all customers, but do not reach the 50% increase level. For example, a customer who increased his purchases by 45% would only earn 1% on his increase. Such discrimination would also be illegal if the effect may be substantially to lessen competition. By direction of the Commission.

Propriety of the Beauty and Barber Supply Institute compiling a list of the terms of delivery offered by various suppliers to