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U O .f ., ... A... .l- Uh“ Cs. £15.)! This is to certify that the thesis entitled THE ECONOMIC EFFECTS OF ‘THE MICHIGAN BEVERAGE CONTAINER LAW ON A PACKAGE SYSTEM presented by RICHARD SJOLANDER has been accepted towards fulfillment of the requirements for M. S. degreein PACKAGING . Dr. James W. Goff __4 Major professor Date 3I MAY I979 0-7639 PLACE IN RETURN BOX to remove this checkout from your record. TO AVOID FINES return on or before date due. DATE DUE DATE DUE DATE DUE I91 P IS? 6/15 Kz/ProI/Accapres/CIRC/DateDueForrns_2015.mdd ~ pg] "" THE ECONOMIC EFFECTS OF THE MICHIGAN BEVERAGE CONTAINER LAW ON A PACKAGE SYSTEM BY Richard Sjolander A THESIS Submitted to Michigan State University in partial fulfillment of the requirements for the degree of MASTER OF SCIENCE School of Packaging I979 ABSTRACT THE ECONOMIC EFFECTS OF THE MICHIGAN BEVERAGE CONTAINER LAW ON A PACKAGE SYSTEM BY Richard Sjoiander Using a case study of Flint, Michigan and Fort Wayne, Indiana, the effects of the Michigan Bottle Bill are determined. The price of beer is up in Michigan and sales are down as a result of the law. Both de- creasing sales and a swing away from cans are found to be partially the result of wholesale and retail marketing strategies which discourage can sales. A bottle bill is found to be a very expensive method of dealing with a small portion of the litter problem. Detailed analysis of pric- ing at all levels in the system finds price increases to parallel cost increases, i.e. least at the brewer level and greatest at the retail level. The Bottle Bill has made a highly capital intensive industry more labor intensive. Alternative litter legislation is also explored. ACKNOWLEDGMENTS The views expressed in this paper are those of the author and based on observations of the implementation of the Michigan Bottle Bill from before its enactment until May, l979. My special thanks go to Dr. James Goff who was instrumental in keeping me a disinterested observer both during the early part of the study when my biases pushed me toward the pro-Bottle Bill cam and during the latter months when my opinions changed to an anti-Bottle Bill position. My thanks also to the Reynolds Metals Company, Flexible Packaging Division who were interested in this study and who generously supported it through a grant to the School of Packaging, Michigan State University. I would also like to thank the retailers, wholesalers, and brewers in Flint, Michigan, Fort Wayne, Indiana and elsewhere who gave me their time and knowledge, shared with me their problems, and allowed me to observe their businesses. It is upon these observations and interyiews that this study rests. You remain unnamed as individuals in this paper, but to you as a group I extend my thanks. ii ACKNOWLEDGMENTS . . . . LIST OF TABLES . . . . LIST OF FIGURES . . . . LIST OF APPENDICES. . . INTRODUCTION. . . . . . PURPOSE OF THE MICHIGAN TABLE OF CONTENTS BEVERAGE CONTAINER LAW. THE LAW 0 O O O O O O O I O O I O O O O O O O 0 HISTORY THROUGH ENACTMENT . . . . . . . . . . . METHODOLOGY 0 O C O O O O O O O O O O O O O O 0 THE EXPERIMENT AREAS. . . . . . . . . . . . . . . . . COMPARISON OF FLINT AND FORT WAYNE PRIOR TO NOVEMBER I978 . . FLINT, MICHIGAN NOVEMBER I978 THROUGH MARCH I979. . . . . . . FORT WAYNE CONTROL AREA, NOVEMBER I973 THROUGH MARCH I979 . . THE MICHIGAN PACKAGES . . . . . . . . . . . . . . . . . CHANGES IN THE PACKAGE MIX AND PRODUCT MIX. . . . . . 0 THE EFFECT OF ALTERNATIVE PRICING . . . . . . . . UN-REDEEMED DEPOSITS. . EMPLOYMENT. . . . . . . LIMITATIONS OF THE STUDY. CONCLUSIONS . . . . . . APPENDICES. . . . . . . BIBLIOGRAPHY. . . . . . RETAIL BEVERAGE STRATEGIES ON Page ii Iv vi N omoxr l 2 l 5 28 29 32 36 38 5h 56 57 6i 66 7O LIST OF TABLES Table I. 2. 3. 5. 6. 7. 9. IO. PERCENT CHANGE IN SALES DURING TWO FOUR WEEK PERIODS. PERCENT CHANGE FOR BEER PRICE. . . . . . . . . . . . . PERCENT CHANGE BY PACKAGE TYPE IN FOB PRICE . . . . . PERCENT CHANGE IN WHOLESALE BEER PRICE. . . . . . . . FLINT, MICHIGAN WHOLESALE BEER PRICING. . . . . . . . PERCENT CHANGE IN RETAIL BEER PRICE . . . . . . . . . RETAIL BEER PRICE FOR 6-I2 Oz. BOTTLES AND CANS . . . SUPERMARKET PRICE SURVEY. . . . . . . . ... . . . . . SUPERMARKET PRICES SURVEY . . . . . . . . . . . . . . NATIONWIDE PRODUCT-PACKAGE MIX. . . . . . . . . . . . Page AIS-1&6 ..li8 .. SO .. 5i 52-53 .. 58 LIST OF FIGURES Figure Page I. DISTRIBUTION OF BEER PACKAGES BY TYPE OF CONTAINER ....... 1h 2. BEER BOTTLES .......................... I7 3. EMPTY CONTAINERS IN STORE AISLE ................ 22 A. TOTAL BEER SALES IN MICHIGAN BY YEAR .............. 60 LIST OF APPENDICES Appendix THE MICHIGAN BEVERAGE CONTAINER LAW . . THE MICHIGAN BEVERAGE CONTAINER LAW . . > > > 0 THE MICHIGAN BEVERAGE CONTAINER LAW . . 8. PROPOSITIONA............. vi Page 66 67 69 INTRODUCTION This paper is an observational study of the effects of the Mich- igan Beverage Container Law, which went into effect December 3, i978. It covers the period from September, I978, three months before the enactment of the law, through March, 1979, four months after the law took effect. The study limits itself to beer packaging and off-premise retail sales. Two areas are studied, Flint, Michigan as an experiment area. and Fort Wayne, Indiana as control area. Emphasis is placed on changes at the retail level, but wholesalers, brewers, consumers, government, in- dustry and environmental groups were also consulted. PURPOSE OF THE BOTTLE BILL The primary purpose of the Bottle Bill is to eliminate bottles and .cans from litter. A secondary purpose is to conserve natural resources. First, if talking about a simple litter reduction, it would appear easy to do a survey of litter and then come up with solutions to eliminate it. This, however, was not done. In fact no one bothered to do a litter study in Michigan until almost two years after the bill was passed by referendum. Defining litter and solid waste, of which litter is a part, will help to clarify the issue. Solid Waste: Discarded solid matter disposed of in an orderly fashion according to the laws or norms of society. Litter: Discarded solid matter di5posed of in a disorderly fashion in violation of the law. Solid waste then is, by definition, an economic Issue and being such can be dealt with using economic measures. Litter, on the other hand, is a behavioral problem. Thus to combat litter will require measures which change the behavioral patterns of individuals currently exhibiting undesir- able behavior patterns, I.e. litterers. This distinction between litter and solid waste makes otherwise seemingly illogical behavior more understandable. This explains why no one bothered to find out what litter was in Michigan or how much of it might be eliminated by removing the portion of litter com- prising beverage containers. The nonreturnable beverage container became a symbol of American life that everyone used and recognized and an outstanding I James Goff, "Litter and Solid Waste,” Lecture at Michigan State University, March, l978. 3 example of the wasteful society.I Thus, when the results of the litter study were finally published in February, l979, the headlines read, "Con- tainers l8% of Litter"2 rather than emphasizing or even mentioning the other 82% of litter. Thus the attention of the state was upon the small portion of beverage litter to the exclusion of all mention of the other 82% of litter untouched by the Bottle Bill. The l8% figure itself is also interesting. The study states, ”the primary purpose was to relate the exposure of persons to litter."3 Thus, the figures derived in the study do not reflect the amount of litter in the State of Michigan, but rather the amount of visual exposure of the papulation to litter. What we don't see can't hurt us. The study came up with several figures to depict dif- ferent aspects of litter: Beer and soft drink containers account for: 7.9% of the cost of litter clean-up. I2.2% of the total visual pollution caused by litter. This means the area covered by litter. l8.l% of the total volume of litter.u These figures say that, as the study is surveying how much litter the people see, a more accurate representation of that would be the figure I2.2% of litter by area. The l8% figure makes beverage containers appear to be a I Arthur Young 8 Company, Complying With The Michi an Container Law, (Arthur Young 5 Company, I978), p. 5. 2 "Containers 18% of Litter,” East Lansing (Mich.) The State News, 28 February, i979, p.5. 3 Daniel B. Syrek, A Surve of Michi an Roadside and Recreation Area Litter Prior to lm lementation of the Bevera e Container Law, ISacramento: Institute for Applied Research, l978I. IMimeographedI, p. #5. h Syrek, A Survey of Michigan Roadside and Recreation Area Litter Prior to........... pp. A. ll. L. larger portion of litter than the study by its own criteria of judgment found them to be. In summary, the purpose of the Bottle Bill would appear to be easing the social conscience of the citizenry of Michigan rather than eliminating litter. It does, however, seem probable that the Bottle Bill will elim- inate almost all of the bottle and can portion of litter in Michigan. This is supported by studies In Oregon.I THE LAW The Michigan Beverage Container Law2 is modeled after the Oregon law which preceded it by 8 years. It begins by defining several terms. These definitions are very useful in understanding the tepic. Beverage is any carbonated water, soda or malt drink. Thus all types of beers, sodas and even mineral waters are included as long as they are carbonated. However, still or non-carbonated drinks such as fruit juices, milk products, wine, and spirits are excluded. Beverage container means any airtight metal, glass, paper or plastic container for one gallon or less of beverage. Returnable container means a beverage container upon which a deposit of at least l0 cents has been Paid. Certified container is also a returnable, but the deposit is a minimum of 5 cents. These containers must be accepted for refund by at least two beverage manufacturers. An example of such a package is the export or ”long neck” beer bottle. I Don Waggoner, Ore on's Bottle Bill Two Years Later, (Portland: Columbia Group Press, l97hi, p. 7. 2 The law Is included as appendix A. S Non-returnable container is a container upon which no deposit has been paid and on which no refund will be given. A person is a consumer. A dealer is a retailer. A distributor is a wholesaler. A manufacturer Is a bottier or brewer. The law says that: I. 2. 3. S. No dealer shall offer for sale a non-returnable beverage container. A dealer shall refund full cash value of any container of a kind, size and brand which he sells. This means if a retailer sells l2 oz. cans of a given beer, say Stroh's, he must refund any l2 oz. Stroh can which a consumer brings in regardless of where in the state the beverage was purchased. A dealer need not charge a deposit for beverages consumed on pre- mises nor need he give a refund for those conatlners. He doesn‘t have to accept other containers for refund either unless he also has off premise sales. A distributor shall not refuse to accept from a dealer a container of any kind, size and brand which he sells, nor refuse to pay its full refund value in cash. This means that even if a retailer does not purchase a given package type from a distributor, the distri- butor must refund containers of that kind If the retailer gives them to him. Every beverage container sold or given to consumers in this state must be clearly marked with the refund value and the name of this state. This eliminates confusion as to the refund value of con- tainers which varies between 5 cents for certified beer bottles and no cents for glass two-liter soda bottles. Non-returnable 6 packages purchased in bordering states, although they may look like and, in fact, be the same as Michigan packages, cannot be returned for refund because they are not appropriately stamped. However, refillable containers in bordering states, i.e. soda bottles, may be redeemed in Michigan. The deposit-refund on these bottles is the same in the surrounding states as it is in Mich- igan. 6. Cans with detachable pull tabs are forbidden for beverages covered under the laW. There is no administrative agency Specified to write rules and guide- lines for the implementation of the law. Neither is an enforcement agency specified. The Liquor Control Commission is charged with certifying beverage containers. This allows for the lower 5 cent deposit if: I. Reusable by more than one manufacturer of sufficient volume. 2. More than one manufacturer will accept the container for refund. HISTORY THROUGH ENACTMENT The history of the Bottle Bill in Michigan dates back to the early l970's. Concerned environmentalists started vocalizing their interest and support of legislation which would: 1. Fight litter, and: 2. Conserve scarce natural resources. Around l972, the year that Oregon implemented the first Bottle Bill, legislation was introduced into the Michigan House of Representatives by Rep. Jondahl which came to be known as the “Bottle Bill." According to Jondahl this act had been proposed to him and written by an East Lansing High School student. The act was based on the Oregon law and except for 7 minor changes is the law which is in effect in Michigan today.I Beverage container legislation was proposed repeatedly during the next four years. Each time it was unsuccessful in getting through the legisla- ture. Then in l976 the Michigan United Conservation Clubs, (MUCC), started a campaign to take the bill directly to the people. The MUCC with its member clubs representing Sports, outdoor, recreation and environmental groups started a highly successful petition drive to place the Bottle Bill on the ballot as a referendum issue. Governor Milliken of Michigan was the first to sign. Within a few weeks AO0,000 signatures, nearly double the required number, had been collected to place the issue on the November, l976 ballot as Proposition A (See Appendix B). The campaign both for and against the bill was intense and highly emo- tional. It was fought on two different bases. On one level the environ- mental costs versus the economic benefits and convenience of one-way containers were debated. But in a larger, symbolic context, the throwaway and its slogan "No Deposit, No Return,“ became the focus of a battle over opposing life styles and the values supporting them. Industry saw non- refillable containers as a sqmbol of an efficient system, while environment- alists portrayed them as a symbol of a negative, throwaway society.2 The prOposition passed in the l976 election with light voter turnout by a margin of 2 to l. The Bottle Bill went into effect two years after its approval by referendum as is specified in the Michigan Constitution. Any change to the law as approved by the voters requires a three-fourths vote of the legislature rather than the usual simple majority vote since I Telephone Interview with Lgnn Jondahl, House of Representatives, Lansing, Michigan, January, I979. 2 Robert E. Snow and David E. Wright, ”No Deposit, No Return: Tech- nology and Values in the Michigan Bottle Referendum," (Lyman Briggs College, Michigan State University, 20 October, I977). (Typewritten), pp. l, 2. 8 this was a referendum issue. This has made it difficult to even consider changing the law even in such ways as specifying an administrative agency which would be charged with enforcing the law. Representatives of both the Liquor Control Commission and the Attorney General's Office have expressed the need for clarification as to who will be charged with this task.I The bill itself specifies only that the Liquor Control Commission shall deter- mine container certification. The actual enforcement of the law is in the hands of the Prosecuting Attorneys in the 83 counties of Michigan. In rebuttled to arguments in favor of an administrative agency both Trpresent- ative Jondahl and Tom Washington, Executive Director for the MUCC, have stated that the law is largely self-implementing and that neither rules nor an adMinistering agency are required. The Liquor Control Commission, acting upon repeated suggestions from the beverage related industry, did prepare a list of rules to be appended to the Bottle Bill clarifying the procedure for Implementing the law.2 However, these rules died in a joint committee during late summer of I978 being neither approved nor cast out (which would have allowed for revisions). The reasons for this action were two. First, the pro Bottle Bill committee members considered the rules superfluous because the law was to be self- implementlng. Second, the opponents of the Bottle Bill held that the I Michigan Compiled Laws, Sections ##5, S7] - #45, 576 (I976), Michigan Beverage Container Law. Pat McCarthy, "Debate and beer prices mount with new deposit law,” Lansin State Journal, l3 February, I979, p. 18. Otis White, ”Bottle battle: 'Unclear'," State Journal, l8 February, I979. pp. Bl, l2. "LCC gears up for bottle ban debut," Commerce Re Ister, (August, I978), p. ll. 2 Department of Commerce, Liquor Control Commission, Bevera e Container and Carton Rules (R h36,2001). (Lansing: Dept. of Commerce, 26 June, l978), PP. I - So 9 Liquor Control Commission was overstepping the bounds of power given it In the law.I Consequently, interpretation and enforcement of the law have fallen on the 83 Prosecuting Attorneys with a special task force having been set up in the Attorney General's office to handle the inquiries and complaints regarding the law and compliance with it on a statewide basis. During the months just prior to the implementation of the law, numerous inquiries were made to the Liquor Control Commission. People were seeking clarification to questions such as what "brand”, "Size“, and ”container“ mean regarding refunds at the retail level. Can the consumer be required to return bottles and cans in the original mother carton, i.e. 6 or 8 pack basket for bottles or l2 pack for cans - (answer - No). Must we accept dented or crushed cans? (They said yes on dented and were noncommital on crushed).2 The Attorney General's Office has, since their involvement began on December 3, I978, revised this interpretation and says any can must be refunded as long as the Michigan Logo, the brand, and the amount of deposit are legible. However, many retailers still refuse crushed cans because they mean more work and Special handling. Even newspapers have reported that dented or crushed cans need not be refunded.3 METHODOLOGY This Study was conducted in two areas. One experiment area within the state of Michigan and far enough from the bordering States to discourage I James V. Higgins, "Committee fight over bottle ban,” East Lansing State News, A October, I978, pp. l0 - ll. 2 Michigan Compiled Laws, Sections Abs, S7l - hhS, 576 (l976), Michigan Beverage Container Law. 3 Paul Cox, ”Watch Crushed Cans: No deposit returned," East Lansing (Mich.) The State News, l December, i978, p. l. l0 area consumers from purchasing their beverages outside the State. One control area, chosen for Similarity to the experiment area except not located in a State having a Bottle Bill or Similar prohibitive legislation. Data was collected through direct observation during frequent visits and the use of unstructured interviews. The sample was chosen by solicit- ing the aid of industry trade associations at the retail and wholesale level. At the brewer level the relative closeness of the brewery to Lans- ing, Michigan was the criteria for selection. Consumer reactions were observed in sample Stores. Interviews with trade associations, labor unions, environmental groups, package suppliers, package recyclers, and state agencies were conducted where necessary to complete the data. This study covers the period of September, I978 through March, l979. The most common data base is the l2 month period of March, I978 through MarCh I, I979. THE EXPERIMENT AREA Detroit is the logical first choice for studying the effects of a Bottle Bill in an industrial state. However, it was eliminated for several reasons. First, it is difficult to find a similar city out-of- State. Second, advisors at all levels in the beverage industry warned that Detroit is typical of only itself, i.e. a city bouyed up with federal funds while suffering severe Structural unemployment problems and comprised of a p0pulation economically unbalanced towards low incomes. Lansing is the second choice because of its proximity to the Michigan State University. However, this proved to be one of two reasons for not choosing It. As the drinking age went from l8 to 2] within 20 days after the Bottle Bill became effective, it was thought that more constant data ll would be collected by avoiding areas of high college student, l8-20 year- old, populations. Lansing is also the state capitol. This results in a disproportionate number of clerical and other white collar workers and lower percentage of industrial workers. Flint is the third and final choice. It Is 60 miles from the nearest border and that is an international one with strict regulations on alcohol importation. It Is #0 miles from the nearest metropolitan area rendering it somewhat isolated even from the rest of the state where conditions may vary. The city has about 200,000 inhabitants and is characterized as an industrial town with the Buick Division of General Motors the largest com- plex. There are colleges, but they are small in relation to the size of the city. It is predominantly a union town and the sample stores were unionized except for the convenience stores. Control Area: Fort Wayne, Indiana was chosen for its similarity to Flint. Industry advisors agreed that although there are minor differences in the alcohol laws in Indiana, they are similar to those in Michigan. Fort Wayne is also a city of about 200,000. It is an industrial city with International Har- vester the largest plant. Isolation from Michigan is important to isolate the market from possible Shoppers crossing the border to avoid paying de- posits on beverages. Fort Wayne is 50 Miles south of the Michigan border and so Should be isolated. It is 75 miles to the nearest metropolitan area. The Experiment Sample in Flint: The sample In Flint was chosen with the aid of the Michigan Food Dealers Association and the Beer and Wine Wholesalers Association. It was comprised at the retail level of: l Hypermarket 8 Supermarkets l2 3 Convenience Stores The sample Included national, regional, local chains and independents. They were located both in the city and in the surrounding small towns. At the wholesale area level: 3 Wholesalers l Single brewer wholesaler, l two-brewer wholesaler and l multi-brewer wholesaler. The Control Sample in Fort Wayne: The control sample was much smaller. At the retail level It consisted of A supermarkets within the same chain. These were urban or in an adjoin- ing town. The wholesaler sample consisted of two multi-brewer wholesalers. COMPARISON OF FLINT AND FORT WAYNE PRIOR TO NOVEMBER, I978 The two test areas were very similar up until October, I978. Before that time the off-premise portion of retail beer sales in Flint was slightly more than 80% cans with the remainder being bottles. In Fort Wayne 75% of the beer was In cans. This is important because the figures com- monly quoted in the literature state a 70-30 package mix between cans and bottles. This lower can percentage is true for the aggregate sales, I.e. beer sold in the area, but is somewhat misleading in connection with a study of the effects of the Bottle Bill because the 70-30 ratio includes on- premise or bar and restaurant sales. These sales have typically been In refillable bottles. More importantly, however, these containers are specifically excluded from the requirement of a deposit at the retail sale level to consumers as they are not considered to contribute to litter. In effect then, they are exempted from the Bottle Bill. l3 The portion of refillable containers sold in supermarkets was signi- ficantly higher in Fort Wayne at 7% of total sales. In Flint refillables comprised only 2% of sales at the three supermarkets out of nine carrying any refillables at all. Averaging out the refillables sold in the sample over the sales of the entire sample area, Flint was 99+% one-way packages. This is a dramatically different picture of the market at the micro level than that which is commonly presented at the macro or aggregate level. This finding is generally substantiated by R. Weinberg in his Working Paper of August 8, I978, where he found that nation-wide only U% of off- premise sales were in refillable containers.2 Also industry spokesmen have said that use of refillable containers is not evenly distributed throughout the country. In Michigan, for example, refillables are more prominent in the lightly populated western part of the state than in the heavily pOpulous greater Detroit area of which Flint is a part.3 The figure below Shows the trend in overall beer sales (U.S.) and indicates that around l#% of packaged beer is sold in refillable containers. This is where the number for refillables as a percent of total sales is commonly derived. I This Is based upon sales data collected from the stores in the two similar areas with approximate data used for Stores where actual sales were unavailable. 2 R. S. Weinberg, "Working Paper: The Economics of the Malt Beverage Production/Distribution System, l976," (St. Louis: R. S. Weinberg and Associates, 8 August, I978), p. A-2. 3 Interview with B. Healey and B. Weatherstone, Stroh's Brewery, Detroit, Michigan, November, l978. lh FIGURE I DISTRIBUTION OF BEER PACKAGES BY TYPE OF CONTAINER NationalI Average 1976 Flint Michigan I978 0 IO 20 3O #0 SO 60 7O 80 90 I002 l'oa,"" «- J ’0‘ «0"3’ Cans Non-Returnable I Refillable Bottles Bottles This should be contrasted with the second figure which depicts the actual distribution of beer sales by package in the test area. The actual change then was from no refillable containers to all refillable containers. In Flint, then, a more accurate description of the conditions surroud- ing the Bottle Bill would be to call it the reintroduction of refillable beverage containers into the marketplace rather than an increase in their usage. This will help to explain some of the problems experienced during the transition period, especially at the retail level. In Flint most beer is sold cold at the retail level. Indiana law for- bids grocery stores from selling cold beer, however liquor stores can sell it cold. Another difference at the retail level is that advertising beer prices IS allowed in Indiana as long as they are separated from food Items or in a separate advertisement. However, the advertising first became legal during the fall of I978, and at the conclusion of the test period United States Brewers Association, Inc., Brewers Almanac: The Brewing Industry in the United States, (Washington, D.C., l977), p. 32. l5 supermarkets had not yet begun to advertise prices. Package dealers were advertising and this had an undetermined effect on the market. At the wholesale level there are several differences. First, the driver-salesmen work on commission in Flint whereas they are hourly paid in Fort Wayne. Had they been hourly paid in Flint too, a three week Strike from December 3 - l9 over the payment received for and means of handling empties would probably have been avoided.I Second, In Flint the five beer distributors have exclusive area franchises wherein they market a given brand of beer without competition from other distributors of the same brand. In Fort Wayne there are three distributors. However, distributors from other parts of the state may also deliver beer in Fort Wayne. This practice becomes practical only for servicing very large accounts and is estimated to involve 25 - 30 retail outlets in the area.2 This type of competition would not be practical with a Bottle Bill where more extensive servicing of the 3 customers is required, i.e. more frequent pickups and deliveries. FLINT, MICHIGAN NOVEMBER, I978 THROUGH MARCH. I979 This description will follow a chronological pattern as much as possible. The introduction period actually started back as long as two years before the enactment of the law. This discussion will begin there making the title of I “Beer and Wine Drivers Strike," Flint Journal, 5 December, l978, p. I. ”Beer and Wine Drivers Expect Long Strike,” Flint Journal, 6 December, l978, p. Al. 2 Interviews with Wholesalers, Fort Wayne, Indiana, May, I979. The Governor has recently, May, I979, called for a possible change in liquor regulations allowing for statewide competition. This would not be practical in Michigan as: I. Only practical for large accounts due to increased transport costs: 2. Large volume accounts require almost daily servicing for pickup of empties. l6 this section a bit of a misnomer. Central Depositories: .H. The 0.5. Brewers Association started conducting studies on the best method of complying with the Bottle Bill Shortly after its passage. Two studies published by Arthur Young 5 Company determined that the most econom- ical way for the beverage industry to handle the returnable containers would be through the establishment of central clearing houses for empty non- refillable containerS.I These would minimize labor In sorting, counting, Storing, resorting, recounting, restoring and so on for scrap materials. Under this system costs and profits would be shared according to market Share rather than identifying the owner of each Individual container. The Michigan Attorney General's office saw no problem in the establishment of such depositories with costs being shared proportionally by all the users, but the brewing industry itself shied away because they feared possible antitrust problems.2 Nothing much else happened until summer l978. That is when Anheuser- Busch, at that time the market leader in Michigan, announced that it would introduce the new "standard select" refillable beer bottle In Michigan: This bottle is Shorter than the traditional ”export" refillable and larger in diameter. It can be filled after minor adjustment on Stubby or N-R bottle fillers. This move had a major effect on the Michigan market and other brewers were quick to also go to this lighter bottle which takes up to a third less volume for storage and shipment.3 ‘Prior to A-B'S announcement I Arthur Young 5 Company, Complyingswith the Michigan Container Law, P. '0‘50 2 Interview with brewer, November, l978. 3 Hugh McDiarmid, 'Brewers gird for bottle shift,” Detroit Free Press, A October, l978, p. l7A. I7 the industry had been, at least publicly, planning on keeping the package assortment the same in Michigan after the law as before it with the excep- tion of the removable pull tab which was banned In the law. Almost all domestic brewers have changed over to either this or another even shorter refillable bottle for the Michigan market. Out-of-State consumers will recognize the Stubby refillable as a non-returnable bottle In their market areas. The notable exception to this trend is Miller, the new market lead- er ln Michigan, who has kept its packages the same as before the Bottle Bill. Even when the packages are the same, the labels must be different or complimented with extra labels stating Michigan and the refund value. This means that all products packaged for Michigan must be segregated through the entire distribution system. FIGURE 2 L__J k__..2 Standard Export Select BEER BOTTLES l8 One report of a Michigan marked can being purchased in Virginia is known to the author.I The real problem, however, IS non-Michigan marked containers entering the Michigan market. Such containers are in direct violation of the law. The decision to change to a new bottle came suddenly, but the market was quick to follow Anheuser's lead. At least one brewer had been Stock- piling the old export bottles purchased back at 2 cents a bottle In warehouses to be sure of an adequate supply. This sudden change to a new bottle found him stuck with a large supply of bottles to use in other than Michigan markets.2 During l978 the wholesalers were assessing their needs. One, who was already renting outside warehouse Space before the Bottle Bill, decided to build a totally new facility. This was ready for occupation early in l979. ' Another is adding on an additional building to handle the returns. The other three are creating the additional Space they require by either more efficient use of existing facilities and or using a larger portion of their warehouses for beer. Four of the five distributors added can crushers to their facilities during 0ct.-Nov. These are typically provided without cost to the wholesaler by either Reynolds Metals Company or Aluminum Company of America (ALCOA), including a semi-trailer in which the crushed cans are collected. In return the wholesaler contracts to sell all his scrap metal to the installing company. The fifth wholesaler carries exclusively Anheuser-Busch products. These packages all carry brewer Initiated deposits and are returned to the brewer for refund so there IS no material being scrapped at the wholesale level. Conversation with consumer in Virginia, April 5, I979. Interview with Brewer, 2 March, I979. l9 Retailers also did a lot of figuring and planning but only two in the sample added on to their facilities. One other store would have added on but cannot get approval for an expansion from the city. A fourth Store opened only months before the bill took effect designed a bottle room just off the main entrance. One other store built an enclosure in the back room to segregate the empty containers from groceries and other Items stored in the back room. There is one feature which is common to all of the constructions and adaptations at the retail level. They have underestimated the area required for handling container returns. These facilities proved adequate during the early months with the exception of December during the driver-salesmen Strike when there were no pickups of empty containers. However, by February rooms were becoming overcrowded and spilling over into other areas In the back rooms. It is appropriate to elaborate on the tepic of storage Space here. The newly opened supermarket with a built-in bottle room was built for handling a IOO% returnable beverage system. This store is designed to do about $200,000 in sales a week but is currently running slightly below that level. It has display area of 22,000 square feet and a bottle room of 600 square feet. The store now receives two deliveries and pickups per week from the distributors and yet the bottle room is not big enough. It was designed to hold all full and empty beverage containers but Since the Bottle Bill It has been used only for empties. The biggest return days at supermarkets are Friday afternoon, Saturday and Sunday. Thus, the heaviest buildup of empties is during the weekend when there are no pickups. Drivers typically come on either Monday and Thursday or Tuesday and Friday on a twice a week schedule and this means that the empties pile up all weekend. That iS exactly what happens, and at one store by Sunday a couple of pallets of empty soda bottles 20 are taken across the store to be placed in the main back room to free up the bottle room for sorting. It should be noted, however, that these are not beer containers which come in in such large quantities, but rather the pop- ular selling brands of soda In half liter bottles. Regardless, come Sunday night all the empties are loaded onto pallets and transported across the store so they can be picked up by the driver-salesmen when they deliver in the beginning of the week. There is an outside door on the bottle room, but it Is a time consuming process to deliver fulls, carry out and load empties onto trucks. It would cost the store too much money to have a stock clerk at $7.00/hour in the bottle room just to check in and out drivers. There- fore, all deliveries and pickups are made through the main back room where there normally is at least one clerk working. The sorting of bottles and cans is done by baggers at $3.00/hour. They are not allowed to check merchandise in or out of the Store. The other main problem with this bottle room (and other rooms observed which were similarly located in Stores) is that the architects did not realize the amount of space required to handle container returns. Many of the bottle beer Shells take up as much space empty as they do full of bottles. The comment has been made by many retailers that they had figured out how much space was required for sorting and storing empties, but had never con- sidered that the empty Shells would take as much space again just to store them until the empties come back as the sorting Operation itself requires. A second supermarket in the sample has a very small back room and no- where to add on to. The bottle sorting-storage area is separated from the produce preparation area by the row of bag-ln-boxes used for sorting beverage cans. Here it is amazing that the two activities do not mingle, but there is always a separation. Maintaining sanitation In the back room is an obvious concern here. This store uses between 6 and 8 pallet rack 2l Openings for storing empty beer and soda Shells, which amounts to one- fourth of the total storage area in the store. A third example of supermarkets would be the one store in the sample with a truly large back room. Here the sorting area was first designated as one back corner of the room. Then it was expanded by using one additional wall for sorting and stocking. When last there in March they had further expanded with racks of empty soda bottles opposite this new sorting area. The Space requirement keeps growing as the returns start coming in in increasing quantities. There is one characteristic which is common to all of these bottle rooms.. That is the sound and feel of broken glass underfoot. Bottles and cans are typically piled randomly into wheeled bins or racks In the front of the store where deposits are given. The bins are filled to overflowing at the front of the store then pushed into the back room for sorting and storage. One retailer expressed the opinion that he wanted more cans In his package mix because of the safety risk to his employees from broken glass. However, corporate policy limited his freedom in package me de- cisions. Corporate offices are In Detroit where cans are still sorted onto trays, a very labor intensive and expensive operation for the retailer, this may influence the decision to limit the number of cans In package mix.I The convenience stores In the sample are part of a chain using a cen- tral warehouse for most of its non-perishable merchandising not Including beer and wine. One Store has absolutely no back room and yet h0% of Its business is in beverages. What does a store do when caught with no back room at all? The empty Shells are kept In a walk-in cooler. The empty bottles and Interview with retailer, Flint, Michigan, March, l979. 22 cans are sorted, Stacked and stored between the aisles of merchandise in the Store. The picture below shows a mingling of soda containers--full and empty sharing the same display. It is reported that one Sunday evening there were customer complaints because customers could not reach the ice cream freezer as there were too many empty containers in front of it.I FIGURE 3 EMPTY CONTAINERS IN STORE AISLE " 1‘ ' L i- The common question from retailers is, ”what will happen in the summer when sales are up and the temperature is up and the beverages are consuned out-of-doors (i.e. more contamination is in the containers).” The obvious answer is that extermination costs will increase and so will unsanitary conditions in the stores. Poor sanitation, primarily at the retail level, will become one of the major problems with the Bottle Bill. Ed Bladen, who heads up the task force in the Attorney General's office dealing with I Interview with retailer, Flint, Michigan, 2 February, l979. 23 problems and complaints surrounding the bill, summarized the issue very well, ”all the slobs in our society have changed from littering our high- ways to doing it in our stores. Filthy,“ he points out, "doesn't mean residue from beverages in the containers, but containers which have been urinated in, deficated in, and the like."I He says filthy containers by this definition need not and should not be accepted for refund although they are coming into the stores. However, where does the line get drawn? At a store in Flint a clerk was sorting through a garbage bag of empty cans with a customer only to find that the bottom half of the bag was filled with household garbage: Another source of food contamination is germs being transferred to food products via handling by store personnel. In most Stores it Is either a check-out clerk or a bagger who checks in the empties and gives refunds to the consumers. The containers are physically handled by the Store personnel who may a minute later be ringing up or bagging groceries. There are not facilities at the front of most stores for personnel to wash be- tween jobs. The Michigan Department of Agriculture which is In charge of moniterlng health standards in stores makes no special notice of beverage return standards at this time. It is not a part of their check lists, although they admit that some problems may exist which will be handled by the department's field inspectors as they arise.2 It is difficult to imagine the conditions that the Bottle Bill really creates in the back rooms unless, as the retailers are quick to say, "You've been there.” Even with extra employees to sort and stack containers most back rooms at one or another time during the week look like the grandstands I Edward Blade, Speech, Bottle Bill Update Meeting, Michigan State University, 20 March, l979. 2 Telephone Interview, Department of Agriculture, Lansing, Michigan, April, I979. 2h after 80,000 beer drinkers watch a Michigan-Michigan State football game. "I can't say anything about this back room without using a string of four- letter words,” comments the manager of a Great Scott store near Detroit. "We even have the stairs to the men's room covered with cans.”l The return rate for a Store is the number of returns that a store receives as a percent of the number of fulls it sells. This rate varies from Store to Store and is an important figure for a number Of reasons. Stores make money selling fulls, i.e. there iS a margin between their cost and selling price. There is no way to cover costs on returns, they are Strictly a cost item. In the chain stores in the sample the amount of money budgeted for Operating expenses is determined as a percent of sales. De- posits paid by consumers are figured in as a part of total sales, but refunds are drawn off sales. This means that the more returns a store gets, the less money it is allowed with which to handle them. Some stores appear to be more convenient than Others for returning empty containers. This may be due to the location of the store as with some drive-through convenience stores which are experiencing high returns where the consumers can drive right up and empty the trunk or whatever. However, other stores in the sample are experiencing high return rates where the system would appear to be less convenient for the consumer. This may be due to either consumer habits, i.e. taking back all the empties when doing the weekly grocery shopping, or the difference could also depend on store policy. Some stores are taking back whatever the consumer brings In while Others are Strictly following the policy of only refunding types Of containers they sell. There does not appear to be any pattern In the sample of one type of store, i.e. supermarket or convenience, getting back more I Ronald Tanner, l'As Forced Deposits Hit Michigan Retailers Try To Return That Law,” Progressive Grocer, (February, I979), p. 7h. 25 containers than the other although the redemption patterns do differ. Supermarkets have heavy returns on Friday, Saturday and Sunday. Conven- ience Stores sell most fulls on Friday and Saturday. Returns are highest on Sunday followed by Saturday and Monday at convenience stores. It is suspected that stores where carry-out beverages are a small part of the overall business such as drug stores and bars have significantly lower return rates than do grocery stores as consumers do not think of returning containers there. However, these stores were not part of the Sample. The situation In Flint has improved during the first four months of the Bottle Bill in several ways. The wholesalers initially would accept only empty cans stacked on corrugated trays (as they come in full). This way they are easy to count and check for brand and Michigan logo. However, empty cans weigh next to nothing, a case of aluminum cans weighs just over a pound, and so they are very hard to store without having them fall over spilling cans all over the floor. They are also very time consuming to sort, difficult for the drivers to handle on the way out to their trucks from the retailers back rooms - especially if there is a wind blowing and they are impossible to transport back to the wholesaler's warehouse with- out having cans all over the truck. This problem was greatly reduced by going to the bag-in-box system of can sorting directly after the settlement of the Teamsters' strike. The bag-in-box is a system of sorting cans by distributor into boxes of a specific volume which equals ten cases of cans. The boxes are lined with polyethylene bags and when the box is full of cans it will contain 2&0 cans plus or minus about 6 cans. This plus or minus is the factor that scared off the wholesalers in the beginning and caused them to require that retailers sort the cans into trays. The wholesalers were worried about getting ”screwed" out of a few dimes in each bag through retailers not 26 prOperly filling the bags or putting cans that they do not carry, either from other distributors or the often mentioned Campbell's soup can. One wholesaler even developed a scenario where the driver would stop somewhere along the road before returning to the distributorship and empty out a few cans from each bag on his truck into his wife's car trunk.I The logic here is hard to understand when according to Ray Prince, public relations officer for the teamsters local, the driver-salesmen are making 25 - 35 thousand a year and such a heist would cost more in time than it could net. Since adopting the bag-in-box system the above-mentioned fears have become very secondary. "Sure we get some bags which are not full, but the drivers have become used to the bags now and they can spot them as soon as they pick them up and inform the retailer that he'd better watch the cou1t,” said one wholesaler. “If we get a bag that is more than a half a case short we count them here in the warehouse and call up the retailer and tell him we will bill him on our next stop. We haven't had any problems with them, the retailers, accepting this SO far."3 NO retailer in the sample had heard anything from the Wholesalers after three months of using the bag-in-boxes as to whether the count was right or not. The retailers were willing to adjust their filling of the bags If necessary because they were realizing substantial labor savings using the system and did not want to jeopardize the system by underfilling a can or two on the bags. Retailers expected the wholesalers to count them before crushing them. Unfortunately, the labor savings for the wholesalers are so large that they have no desire to Interviews with Wholesalers, Flint, Michigan, Nov. - Dec., l978. 2 "Teamsters Set Picket Lines at Groceries in 'Beer Strike',” Flint Journal, l2 December, l978, p. I. Interview with Wholesaler, Flint, Michigan, 27 March, l979. 27 monitor the can count closely as it would cost them more than it would be worth and so no wholesaler is counting the cans except where he suspects the count is short. Some convenience stores were so concerned about the count that they kept a running tab on the front of each box to assure 2h0 cans per bag. The practice was discontinued after two months because there were no com- plaints from the wholesalers and the process was so labor-consuming. In Summary, the bag-in-box system for handling returnable cans has the advantage of substantially reducing the labor cost of processing empty cans for both the retailer and the wholesaler. In an interview with a Detroit wholesaler, May A, I979, it was Inter- esting to hear the same arguments against cans in bag-in-box as were voiced in Flint prior to December l9, l978. Detroit is Still sorting cans into cases and explaining that it will cost more to use the bag-In-box system. This is in direct conflict with the results observed in Flint less than 60 miles away. Detroit has agreed to go over to bag-in-box with an expected Start in May, I979. Retailers have deveIOped their handling systems much more efficiently as the months go by. Particularily they are able to stock more precisely the number of empty shells required to keep up with the flow of empties and they keep up with the flow of returns as they come into the store. This may sound easy to do, but when returns are running as much as l5% over sales in supermarkets and 29% over sales In convenience stores It becomes quite a task to keep up during peak periods. Interviews with wholesaler, Flint, Michigan, 30 January, I979 and 25 February, I979. ‘ FORT WAYNE CONTROL AREA, NOVEMBER, I978 THROUGH MARCH, I979 The only major change in the Fort Wayne area was the introduction of price advertising for beer in the late fall. Interviews Indicated that this had had very little effect on sales. Note that the sample stores had not yet begun to advertise beer at the end of the study. Also the sample was limited to supermarkets where beer is considered by the retailers to be an impulse purchase. There might have been an effect on sales in convenience or package stores. One store In the sample decided in February, I979 to eliminate almost all of its refillable containers. This decision was based on severali factors. The packages, 2h/l2 oz. export bottles, are too bulky and don't make efficient use of the shelf space. The packages are so large that they are heavy and bulky for women shoppers. The packages are too large to fit into already (hopefully) full shopping carts. Two of the brands will be retained out of ten. One of the brands to be retained outsells the others A to l and the other is the store manager's favorite. The eliminated pack- ages will be replaced by l2/l2 oz. cans which the manager sees as giving more efficient use of the shelf space while also increasing convenience to the consumer. No mention was made of a labor savings on the handling of returns as a factor in the decision.I No changes were noted at the wholesale level except for a decrease In. competition from out----state distributors. This was contributed to a change in attitude of certain large accounts returning to the local distrib- utors due to the increased service possible on a local level. Interview with retailer, Fort Wayne, Indiana, 22 March, l979. 2 Interview with wholesaler, Fort Wayne, Indiana, 5 May, l979. 28 29 There was no change in space allocation at either the retail or wholesale level at sampled businesses. Changes in pricing and package mix are dealt with as separate topics. THE MICHIGAN PACKAGES The requirements placed on packages by the law are the following: I. All beverage containers must have at least a l0¢ refund value - unless certified and then the minimum is Sc. 2. All beverage containers must be clearly marked with the brand, Michigan logo and refund value as: l0¢ refund or Sc refund. 3. It is Illegal to sell cans with detachable parts, I.e. pull tabs. The methods for meeting these requirements are left up to the industry. For cans the stay-on tab has replaced the pull-tab. The required IOgos are either stamped Into the lids or printed on them. Thus the only part of the can unique for Michigan is the top. This special top has meant that Mich- Igan cans must be kept apart from all others during production, storage and distribution. This has led to a significant drop in the number of breweries shipping beer into Michigan as multi-brewery brewers consolidate their pro- duction for the Michigan market into one facility. Bottles are labeled either by incorporating the information into the existing label or by add— ing a neck label. The standard select bottle which is used for most bottled beer iS thus reusable by any brewery as the old labels are removed in the bottle soakers during the bottle washing process. The most common package prior to the Bottle Bill was the l2 pack of l2 oz. cans. This package has since dropped dramatically into second place. The paperboard package itself is indistinguishably different now to the consumer. The only change was the addition of a so-called zipper top which 30 allows one large front panel on the package to open for removal of the product and restoring the empty cans. In theory the container can then be reclosed for transport back to the retailer where the package will again be Opened for verification that there are l2 Michigan cans inside. In fact the zippers are easy to Open, but difficult for the consumer to reclose. This means if the cOnsumer opens the package in this way he may well hold on to the flap as a handle when returning it. If closed It is often taped and retailers seldom Open the l2 packs to count cans. The refund is given and the package is opened later when the cans are dumped Into a bag-ln-box. Can manufacturers did extensive advertising of their cans during the first month of the Bottle Bill, but little attention was paid to informing the consumer about the place of the l2 pack containers. This is a very con- venient package for the retailer as a minimum of labor Is required in ringing up the refund and dumping the cans Into a bag. Six pack can sales are currently very low. Many Stores have drOpped the package completely. Consumers have no convenient means of containing the empties for return to the store. Cans have been observed in the plastic ring carriers coming back to Stores, but this is a rare occurence as well as an accomplishment for the skillful consumer. Retailers do not like loose cans coming back in bags in Spite of the Alex Karris commercials selling the idea. The sight of a store clerk and a customer crouching on the floor together sorting through a bag of cans, lining them up on the floor, and then counting them is common and this process costs the retailer a lot of labor, especially if they must be individually sorted one more time in the back room. The 6 pack of bottles has become the best selling package in Michigan. This is due partly to the novelty of the package, the new standard select bottles. More importantly, this is the package which most retailers are trying to sell. Retailers perceive this as the most convenient package for 3i them to sort and return to the wholesalers. With the notable exception of Miller, all the major brands are using the standard select bottle which can be placed in any brewers master carton for refund regardless of the brand marking on the bottle label. This is a distinct advantage over the bottle separating by brand and as almost all of these bottles are returned in the 6 pack paperboard basket In which they are sold, these containers are less labor intensive for the retailer than brand sorted bottles and might be less labor intensive than l2/l2 cans. Here, however, the distinction IS difficult to make. In Flint cans In l2/l2 packs are probably equally convenient for the retailer as he uses bag-in-box. In areas where cans are brand sorted and stacked, the bottles win out by a wide margin. For con- sumer convenience the 6 pack basket is more convenient for returning the containers to stores than is the l2/l2 of cans. For the wholesaler cans in bags are less labor Intensive. He moves l0 cases at a time, they are light, don't fall over and break and number of handlings is minimized. The safety factor in the storerooms is Often overlooked. Glass bottles, especially randomly stacked bottles overfilling a bin break and this causes a safety hazard for store and warehouse personnel. The third package emerging in Michigan is the l2/l2 bottle. This package is large, heavy and flimsy. Major brewers Including Miller have designed l2/l2's for bottles which are basically two six packs glued to- gether with a handle in the middle. The configuration is h rows of three bottles each. They are gaining an Increasing Share of the market as more brands become available in them. Retailers complain of glue failures In their coolers. Consumers complain about the weight and inconvenience of carrying the large package. However, when the bottles are empty it does provide a convenient means of returning the bottles. 32 Three brewers are using what is known as the Stubby or throwaway bottle in Michigan. One of them uses the same lZ/l2 package of bottles with different labels in Indiana as well. In Michigan the deposit is 65¢. In Fort Wayne, Indiana the deposit is 30¢ and in Gary, Indiana, the package is non-returnable.I Some brewers have had three different l2 oz. bottles In Michigan at the same time with different refund values. AS time goes on the market is settling down to the standard select bottle, the Miller bottle and the l2 oz. can. Sales on 7 oz. bottles and 8 oz. cans, at l0¢ each, have fallen off. Sixteen oz. containers are way down as well, probably due in the first hand to retailer cut-backs In package assortment. The quart bottle has a small share of the market. CHANGES IN PACKAGE MIX AND PRODUCT MIX There has been a swing from a predominantly can market to a predom- inantly bottle market in Michigan. The derivation of a 80% can and 20% bottle package mix prior to the Bottle Bill is given in the "Comparison of Flint and Fort Wayne priot to November, l978" portion of this paper. The change to 69% bottles and 35% cans is a Significant one with many explana- tions. One reason for the change is the awareness of certain consumers that refillable bottles will be just that, refilled.2 This comes back to the ideological side of the Bottle Bill in fighting a throwaway society, as well as to concern over conserving natural resources.3 A second reason is I Interviews with brewer, 23 May, l979. 2 Hugh McDiarmid, "Beer Users Shun Cans Under New Deposit Rule," Detroit Free Press, 9 May, I979, p. 3A. 3 Snow, "No Deposit, No Return: Technology and Values in the Michigan Bottle Referendum, p. 2. 33 the lower deposit on cans. The standard select beer bottle, or ”Michigan Bottle'l as it is ad- vertised, has also had an effect on sales. This is a new package which has experienced heavy advertising Since its introduction in November, l978. A night Of television was not complete during the Introductory months with- out a message or two insisting that the glass bottle, made from plentiful resources, is the right container for Michigan.2 Anheuser-Busch launched its own attack on the Miller clear bottle with Its "Brown is Beautiful” campaign. Advertising has overwhelmingly emphasized glass packaging since December, l978. bro At the micro level in the Flint area several other variables developed which were at least as important in determining the switch. The best way to get the consumer to switch to bottles is to quit offering a selection of cans at the retail level. That IS exactly what the largest supermarket chain in Flint did. Prior to Christmas, l978 the wholesalers refused to pick up cans in bags. This chain decided that the labor requirement for sorting cans Into trays was prohibitive and so they refused to stock them. Several other Stores in the area followed their lead and went l00% to bottles for beer. Interestingly these stores continued to stock soda In cans be- cause the bag-in-box was instituted for soda from the beginning. A second important factor is the refunding for cans. The largest chain not only does not sell cans, but it also refuses to refund them. Cans are significantly harder for the consumer to return for refund than bottles. The unfortunate consumer may be in the uncomfortable position of being in a store with between I and 3 dollars worth of cans and having the I Hugh McDiarmid, "One Month After New Law Beer Bottles Crushing Cans,” Detroit Free Press, A January, l979. 2 Allen Pinto, ”Litter laws hit the big time," Modern Packaging, (January, I979), p. #9. 34 clerk refuse to refund them. There are several things the consumer can do when confronted with this situation. He can get angry and start an argument with the clerk, or he can take the cans with him, do his shopping and try another Store later or try to remember where he bought them. Or, he can simply leave the cans on the counter without receiving a refund. There are also other alternatives which have been tried, however, all of them point toward the same solution to the problem. Buy bottles because they are easier to get rid of. This is happening In Flint. Consumers are also refused refunds In many stores if their cans are dented or crushed.I The Attorney General's office says that a re- tailer must refund a can regardless of its Shape if it displays the Mich- igan logo, the amount of refund and the brand.2 This has not Stopped retailers from refusing them. The reluctance to sell cans extended initially back to the distrib- utor level. Cans were difficult for the drivers to take out and load on their trucks. ”You wheel out l0 cases to your truck and set them down to open the bay. By the time you've loaded in 2 or 3 cases a gust of wInd may have come along and blown the other cans all over the parking lot. They're a pain in the ass."3 The wholesalers themselves said the same thing, "handling cans has become such a serious problem that sales will be dis- couraged."II Since the advent of the bag-in-box for handling cans, the labor cost is down. However, store policies were made prior to this time and to date I Cox, "Watch Crushed Cans: No Deposit Returned," p. l. 2 Bladen, Speech, Bottle Bill Update Meeting. 3 Interview with beer truck driver-salesman, Flint, Michigan, ll Dec- ember, l978. h "Teamsters Set Picket Lines at Groceries In 'Beer Strike',” Flint Journal, l2 December, l978, p. l. 35 no changes have taken place. The Bottle Bill has also had the effect of eliminating small, slow moving brands and package Sizes from the retail shelf.I In this way the Bottle Bill has had a negative effect on competition. Retailers eliminate the off-brands, generally the ones with the cheaper price tags as well as some of the Imported beers. In other cases the number of package Sizes of a given brand may be cut back. The retailers blame this on the cost of sorting all the various containers and Storing them in the back room. “It takes me as much Space to store six bottles for a given brand as It does "2 was the way one retailer put it. He stacks his empties to store 9 cases, 9 cases high in the back room and cannot mix two brands, one on tOp of the other, without having to continually move cases to get at the ones under- neath. This is a real problem which has two solutions. One IS for the brewers with low sales in Michigan to adopt the standard select bottle, but the costs would be prohibitive for the volume. The other solution is for the retailer to switch to carrying only cans for the slower moving brands. The advantage here Is that can deposits are terminated at the dis- tributor level with the exception of Anheuser-Busch, so all cans which that distributor handles can be sorted into the same bag-In-box. This eliminates the back room problem. I Pinto, p. #8. Cynthia Kyle, “Bottle Ban: Delight, hassle or boondoggle?" Lansin State Journal, 26 February, I979, p. 82. 2 Interview with retailer, Flint, Michigan, l6 March, l979. THE EFFECT OF ALTERNATIVE RETAIL BEVERAGE STRATEGIES ON SALES Retail sales of beer are down overall in the state when compared with a year ago. The data is difficult to analyze on a macro level this early into the Bottle Bill due to extraneous variables in the system. Sales as reported by the Liquor Control Commission have been above one year ago until March, l979. This was not due to increased retail beer sales, but rather that the distribution system was completely emptied of beer in mid- November just prior to the introduction of the returnable packages. It took three months to build up inventories to the desired level which Inflated reported beer purchases. This desired inventory level amounts to about four days supply at the retail level and between 25 and #5 days supply at the wholesale level. In March statewide sales, that is beer purchased by wholesalers from brewers, were IO% lower than they were one year ago. At the micro level in Flint some very interesting trends have developed. The sample can be divided into three groups according to the store policy on can sales. The stores which have eliminated cans from their package mix have experienced a significantly greater drop in sales than those stores discouraging cans but still selling them. By discouraging can sales they have limited the number of packages they carry, typically eliminating 6 pack cans, but retained some l2/l2 cans. Further, they discourage can pur- chases by placing them on the top shelf of the cooler instead of the bottom where they used to be. Stores maintaining a business as usual attitude by retaining the same package mix as they had prior to the Bottle Bill have experienced a IO% increase in sales over the same time period as the other two groups have had decreased sales. As can be seen in the table, the control group in Fort Wayne experienced a l3% increase in sales over the same time period. 36 37 TABLE I Percent Change in Sales During two h-Week Periods I September, l978 and February.yl979 Sample Beer Sales , Cans as‘% of Beer Sale; % of Chanqe September Februggw Flint: Stores eliminating cans - 96%. 80% 0% Stores discouraging cans - IO% 8l% 35% Stores retaining pre-Bottle Bill Mix + IO% 78% 6I% Control Area. (Fort Wayne) + l3% 23% 7“% This is a very small sample but the trend is distinct. Those stores which discourage sales by limiting the package mix succeed in limiting their sales. It is not known whether overall sales would go up If all stores carried a full line of both bottles and cans, or if those desiring to purchase cans have switched their purchases to other stores. Conven- ience stores are reporting some customers saying that they now purchase beer from them because the nearby supermarket doesn't carry cans. The observed difference cannot be attributed to refund policy because some stores which discourage the sale of cans accept anything back which they can in turn give to a distributor. This is done by all of the stores retaining their pre-Bottle Bill package mix. This Is an Interesting policy of saying 'we won't sell it to you but we'll refund your deposit and absorb the cost of handling, storing and returning the container to a distributor for you at the same time we refuse to sell you such containers with product in them.I The refund is seen as a service function, but carrying the packages Private data from Retailers, Flint, Michigan and Fort Wayne, Indiana, September, l978 - February, l979. 38 in the first place is seen as a management decision.I PRICING There is currently much debate in Michigan about the price of beer. Environmentalist groups, with Tom Washington, director of the Michigan United Conservation Clubs (MUCC) at their head, are charging that the price of beer Is being set artificially high as a result of the Bottle Bill.2 The Governor has called for an Investigation of possible price fixing and non-competitive pricing of malt beverages.3 A result of this concern is that one of the major tasks given to the joint legislative com- mittee studying the Bottle Bill is that of investigating beer pricing and clarifying if non-competitive pricing practices have in fact occurred.I'I Industry, brewers, wholesalers and retailers have stated that they welcome such a study. They say it will show them to be completely free from non- competitive activities on beer pricing.5 This issue is a long standing one surrounding the Bottle Bill. Pro Bottle Blll people on the one side say beverage prices Should go down with an all-return system. This was a major point on the campaign platform for I Interview with Retailer, Flint, Michigan, 23 January, l979. 2 Tom Washington, l'Testimony Before the Committee to Study the Impact of the Beverage Container Deposit Law,“ Lansing, ll May, I979. Marty Hair, ”How State's bottle law is working," Detroit Free Press, 7 February, I979, p. C3. Sandy McClure, "Beer profiteering Is probed,” Detroit Free Press, 1+ April, I979, P. A30 I. "Officials look into lifting ban on prices in beer advertising,” East Lansing (Mich.) The State News, A April, I979, p. 3. 5 Robert S. Weinberg, l'Testimony before the Committee to Study the Impact of the Beverage Container Deposit Law,” Lansing, ll May, l979. 39 passage of the legislation.I Anti-Bottle Bill people say that prices must necessarily go up with the advent of an all-returnable package system as do some of the pro-Bottle Bill studies.2 Before going Into a detailed analysis of pricing at the various levels it will be helpful to review some of the major arguments on each side of the pricing Issue to give perspective to the discussion. Protagonist arguments: l. Historically beverages in refillable containers have been priced (retail) below non-refillables.3 2. The package material cost for refillables is spread out over several fillings which leads to a lower packaging material cost per filling than with non-returnables. 3. Some brewers are charging higher prices in Michigan than in surrounding states. A. Miller with the same package assortment as before the Bottle Bill is raising prices. I Michigan Public Services Commission, Economic Applysis of Energy and Em lo ment Effects of De osit Re ulation on Non-Returnable Bevera e Containers in Michigan, ILansing, Michigan, October, l975). 2 United States Brewers Association, Inc., Research Materials Supporting The United State Brewers Association Arguments Agginst Restrictive Packaging Le Islation, (Washington, D.C.: United States Brewers Association, Inc., I977), Chapter 8, P. 2. Myron H. ROSS, Beverage Containers in Michigan, (Kalamazoo: Kalamazoo Nature Center for Environmental Education, l976), p. I3. 3 Hair, ”How State's bottle law IS working, p. C3. h Applied Decision Systems, Sppdv of the Effectiveness of the Oregon Minimum Deposit Law, (Wellesley Hills, October, l97h). H0 5. Some wholesalers are charging as much for refillable bottles as they are for cans.I Antagonist arguments: l. Handling costs have increased greatly at all levels. 2. Distribution costs have Increased as package mix has swung to bulkier, heavier containers and everything comes back.2 3. Space requirements are up at all levels to handle the larger containers and to store the empties.3 h. Refillable beverage containers have been traditionally subsidized by non-refillable sales. 5. Handling costs are a greater portion of total systems costs than are package materials costs.5 Given this background let us proceed to analyze pricing at each of the three levels In the system: brewer, distributor (wholesaler), and retailer. This will be done over the twelve month period from March I, I978 through February 28, I979 in Flint, Michigan. These prices shall be compared against various other price and cost data to place them in perspective with changes in the general economic situation both attributable to the Bottle Bill and those independent of it which would have occurred even without the Bottle Bill. All comparisons will be in percentages which eliminate differences in I Washington, "Testimony Before the Committee to Study the Impact of the Beverage Container Deposit Law." 2 Interviews with retailers, Flint, Michigan, January, l979. Interviews with retailers, wholesalers and brewers, November, l978 - February, l979. h Weinberg and Associates, ”Working Paper,” p. 2. S Weinberg, "Testimony before the Committee to Study the Impact of the Beverage Container Deposit Law." Al Initial price levels. The first of these comparisons will be with price changes in Fort Wayne, Indiana, the control area chosen for similarity in size and structure to Flint, but without a Bottle Bill. This gives some idea of what might have been expected to happen in Flint had the Bottle BIII not gone Into effect in December. The second comparison will be with the Producer Price Index for malt beverages which is a measure of inflation in the industry on a nationwide basis. The third comparison will be between retail price increases and changes.in the Consumer Price Index which monitors Inflation in consumer prices and is here reported for the Detroit area. Brewer Level: Prices from the brewer are F.0.B., or Free On Board, meaning the wholesaler must pick up the beer at the brewery and pay for shipping it to his warehouse. F.0.B. prices rose in Flint an average of 7.29% from the largest two brewers as can be seen in the table below. TABLE 2 I Percent Chgnge, FOB Beer Price. March I 8 - February. I979 Flint, Michigan FOB Beer Price2 7.29% Fort Wayne, Indiana FOB Beer Price3 ll.2 % Producers Price Index (Malt Beverages)II 8.0 % Prices include tax but not deposits. 2 Michigan Liquor Control Commission, Unpublished data. Interview with wholesalers, Fort Wayne, Indiana, 5 May, l979. Prices including inbound freight. h U.S. Bureau of Labor Statistics, Producer Prices_§nd Price Indexes, (Washington, D.C.: Government Printing Office, March, l978 to February, I979). #2 7.25% turns out to be the smallest increase of the three indexes listed. This means that the price of beer at the brewer level in Flint rose less during this twelve month period Including the first three months of the Bottle Bill than what inflation did to the Producers Price of beer I That the F08 price rose as much as It did in Fort Wayne in- nationwide. dicates one of two things. Either the price in Flint would have risen much more without the Bottle Bill, or, as Is more likely, price adjust- ments other than inflationary were being made to the FOB price of beer in the Fort Wayne area. One major brewer did not raise Its prices from pre- Bottle Bill levels until March 5, I979. This increase is Included as all other brewers had already raised prices which ruled out randomness. It is interesting to note that the package material cost savings realized by a change to more refillable containers falls exclusively to the brewer. These savings, although hardly realizable this soon after the institution of the bill, may be at least partially responsible for the price not rising more than it did In Flint. TABLE 3 Percent Change by Package Type in FOB Price for Flintz March, l978 to March, I979 I2/l2 Can 7.2% 6/l2 Bottle 6.6% 2h/l2 Refillable Bottle 7.9% I Richard Sjolander, "Testimony before the Committee to Study the Impact of the Beverage Container Deposit Law," (Lansing, ll May, l979). 2 Michigan Liquor Control Commission, Unpublished Data. 43 Pricing can be further broken down by package type. Analyzing the price change by package type it is interesting to note that the refillable bottle went up most and the 6/l2 bottle which was a non-returnable prior to the Bottle Bill went up least. However, the differences here are too small to be used for indicating trends at this time. Wholesaler Level: Wholesale prices include: The cost of picking up the beer at the brewery, storing it in their warehouse, delivering to the retail outlet, stocking the product onto the shelves and price marking it to the extent that shelf space is available. With refillable containers the wholesaler also picks them up at the retail outlet and returns them to the brewer. Michigan returnable, but not refillable, containers are picked up at the retail outlet and dISposed of at the wholesale level (scrap) with one notable exception. Anheuser-Busch Is taking all Michigan containers back to a recycling center near their brewery in Ohio where the containers are sorted for resource recovery. TABLE h Percent Change In Wholesale Price of Beer March, l978 - February, I979 Flint, Michigan Wholesale PriceI 11.1% Fort Wayne, Indiana Wholesale Price: 8.0% Producers Price Index (Malt Beverages)3 8.0% I Michigan Liquor Control Commission, Unpublished Data. 2 Interview tieh wholesalers, Fort Wayne, Indiana, 5 May, l979. 3 U.S. Bureau of Labor Statistics, Producers Prices and Price Indexes. AA At the wholesale level the price in Flint rose 3.l% more than the producer price index or the wholesale price in Fort Wayne. This re- searcher beiieves, based on his interviews with wholesalers, that this increase above the 8% which would also be the predicted effect of inflation is an effect of the Bottle Bill. There are no cost savings accruable to the wholesaler as a result of the Bottle Bill. This excludes non-redeemed, wholesaler initiated deposits. This is for two reasons. First these windfall profits are only hypothetical in their size as far as pricing and cost determination are concerned at this early date. Secondly, It was the opinion of the wholesalers interviewed that If these windfall profits should materialize the government would step in and appropriate them. Therefore, they cannot be counted on for reducing costs. 0n the other hand, wholesalers have experienced very real additions to their costs. The change from 70-30 cansI to about 65-35 bottles has increased their freight costs from the breweries as well as their delivery costs, due to the reduced quantity of beer able to be carried In a given truck or rail car due to the increased Size and weight of a case of bottles as Opposed to a case of cans. The payload on a truck decreased from 2400 cases to I300 cases.2 They have also been required to Increase their warehouse space to handle the relatively bigger bottles and all of the empties. Many additional cost factors are covered elsewhere in this report in the discussion of wholesalers In the experiment area. One additional possible source of profit ascribed by Bottle Bill pro- ponents to the wholesalers would be the sale of recyclable glass and metal I 70-30 because wholesalers service both on-premlse and off-premise accounts. 2 Leo Seldo, ”Testimony before the Committee to Study the Impact of the Beverage Container Deposit Law,'I (Lansing, II May, l979). 45 containers. However, at best this can be seen as a break-even situation and so far it has definitely cost more to recycle the materials than they have earned in revenue. According to the Flint Environmental Action Team, an environmentalist group who operates recycling In Flint of sorted (by the donor) clear, brown, and green glass as well as aluminum and newsprint, ”It costs FEAT almost as much to take the materials to the recycling center as the agency is paid for them.I And, they don't have to count, collect, and sort the various containers, all of which amounts to additional costs for the wholesalers. The same trend of refillables increasing faster in price than pre- viously non-returnable containers is evident at the wholesale level as It was at the brewer level. At this level it is also possible to look at the margin, or mark-up over costs, on the various package types. Once again using Budweiser and Miller beers the data are summarized in the following table. TABLE 5 FLINT, MICHIGAN WHOLESALE BEER PRICING Package Typg and Date l2/l2 an 6/l2 Bottle 2h/I2 Ref. Bottle [Larch '78 March '79 Mgrch '78 March :29 Marrch '75 March '79 Bud FOB Brewer h,88 , 5,l8 4.79 5.02 h.3h h.72 Wholesale Price 6.50 7.20 6.50 7.20 6.35 7.I0 Margin l.62 2.02 l.7l 2.I8 2.0l 2.38 % Margin over Cost J 33.2% 39% 35.7% 113,1». 45.3% some % D in Margin Over Yegr I l0.8% IO.8% II.3% I ”Meijers stops recycling project,” Flint Journal. 6 December, I978: p. D'- I5 I TABLE 5 (cont'd) I2/I2 Can 6[I2 Bottle 2h/l2 Ref. Bottle March '78 March '79 Mgrch 178 Mgrch '79 MQLQhLZB March '29 Miller FOB Brewer h.83 5.2“ 4.7h 5.l4 h.l5 h.hh Wholesale Price 6.50 7.20 6.50 7.20 6.35 7.lO Margin I.67 l.97 l.76 2.06 2.20 2.66 % Margin Over I COSt I. lhj6% g 37.5% 371170 hoe 1% 53% 590% % D In Margih Over Yegr I I0.8% Ig,8% Il.8% The increase in the wholesale price is given in the table as a per- centage increase in margin over cost. Remember that an 8% Increase IS attributable to inflation. If wholesalers are to maintain the same profit- ability which they enjoyed prior to the Bottle Bill, then the percent margin which they Operate on must necessarily increase. This IS because they have incurred additional labor costs, distribution costs, and capital costs which must be paid out of their margin.2 By only Increasing their prices enough to keep up with inflation (somewhere between 7.2 and 8.0%) they would suffer a decrease in profits due to these increased costs resulting from the Bottle Bill. This does not say that wholesale pricing is now at that level which maintains their profits at pre-Bottle Bill levels, but I Michigan Liquor Control Commission, Unpublished Data. 2 "Beer and Wine Drivers Expect Long Strike," p. Al. ”Beer and Wine Drivers Strike," p. l. Interviews with wholesalers, Flint, Michigan, December, l978 - March, l979. A? only that some Increase above that caused by inflation is necessary at this level In the distribution system.‘ Retail Level: Retail prices for beer In both Flint and Fort Wayne have traditionally covered very little retail level labor costs. Typ- ically the wholesale driver-salesperson delivered the product, stocked it In the cooler or Shelves, and pricemarked the Individual packages. The only labor the retailer had was fronting up the displays between driver visits and ringing up the sales. This is true because almost l00% of the retail (off-premise) packages during the last few years have been one-way packages. The Bottle Bill changed this situation drastically. Now the display area holds less product due to the Shift from cans to bottles which take up more space necessitating more frequent stocking of the cooler by store personnel even though the drivers in many instances also make more frequent deliveries.2 A given shelf area will hold only between 50-60% as much product with bottles as with cans. This, however, is only the beginning of the additional retail labor cost. The retailer is the one who must make the initial refund to the consumer, counting the empties, refunding the money, sorting the empties by brand, container type and size (except certified bottles which need only be sorted by size). Then comes the problem of Storing the empties. This requires a great deal of space in store back rooms which were designed only as staging areas (not storage areas) for goods coming into the stores on a regular basis from their central warehouses. This method of using central ware- houses has freed Stores from having large back rooms, but causes a major problem now with the Bottle Bill. The areas are small and typically have I ”Beer Strike Ends,” Flint Journal, l9 December, I973. Po ‘- Interviews with retailers, Flint, Michigan, December, l978 - February, I979. as had only one to two pallets of beer as a reserve for fronting up the dis- play area between deliveries. With the Bottle Bill, the full containers are still there and as well empty containers must be stored. In addition to this the empty shells (cases for bottles) must be stored between the time when the full containers are Stocked and empties are returned. Many brewers are using fibreboard shells which do not nest. This means the Shells take up as much space empty as full. The point is that retailers have experienced additional costs. There are no opportunities at the retail level for cost savings as a result of the Bottle Bill. It is, then, not unexpected to find that the price of beer rose above the level of the cost Increases to them and above the rate of inflation which is here represented by the Consumer Price Index for the Detroit area. TABLE 6 Percent Change in Retail Beer Price March '78 - February '79 Flint, Michigan Retail PriceI 20% Fort Wayne, Indiana Retail Price2 ll.8% Consumer Price Index, Detroit3 IO.8% The retail price of beer in Flint is up 20% over the last l2 months. The consumer price index rose l0.8%,which accounts for inflation. The Data collected from retailers, Flint, Michigan. 2 Data collected from retailers, Fort Wayne, Indiana. 3 U.S. Bureau of Labor Statistics, Consumer Price Index, (Washington, D.C.: Government Printing Office, January, l978 to March, l979). '19 remaining 9.2% increase would appear to be caused by the Bottle Bill. In Fort Wayne the retail price of beer rose 5.9% during the year. This is an amazing 9% less than inflation and interviews with the sample retailers indicate that there would have been a somewhat larger increase but a change in pricing policy held price increases in these Stores down and changed their competitive position in relation to other stores. The retail margin actually dropped during the year. In the sample Stores there was a trend toward removing the few remaining returnable bottles sold. This was due to low sales in relation to Space allocations and not because of handling costs which are not identified as a distinct cost In the sample. When a store doing IOO to ISO thousand dollars in sales a week gets 25 cases of empties back a week they are not isolated as a cost center. However, it can be noted that none of the stores in the Flint sample had more than l0 cases of empties per week prior to the Bottle Bill. Flint retailers have then probably experienced an 8% increase In price at least partially as a result of the law. The other ll-l2%.Is explained by inflation. Supermarkets have raised their percent margins from arounl I5-l6% up to 25%. The national gross margin in supermarkets for all prod- ucts was 2l.7% in I977 and this produced a profit of 3%. Beer has been traditionally priced almost 7% below this average margin largely because it has 'taken care of itself' without requiring retail level labor. The Bottle Bill has changed beer to a labor intensive item. Labor as a portion of total retail expenses is ID times larger than the second most costly expense, property rentals.1 Here, as at the wholesale level, prices rose faster in Flint than I ”Composite Chain Report: Margin, Expenses, Earnings," from Cornell University, ”Operating Results of Food Chains,” Quoted In Pro ressive Grocer, April, I979, p. ll6. 59 either inflation or the Fort Wayne area would predict. This may indicate that other variables, such as the Bottle Bill, were affecting the market. ‘At the retail level the Bottle Bill has created expenses which are not offset by any reduction in cost. Therefore, to maintain their businesses at a constant level of profitability the retail price must go up. This has been the case. it should be pointed out once again that this does not mean that the current retail prices do maintain 'business as usual . Tley may be either too high or too low. The prices used so far in this section have been converted into per- centage increases for comparison purposes. The price increases compound through the system and it is the final 20% increase which the consumer faces and the Governor complains about. Governor Milliken has one joint legis- lative committee looking into beer pricing and in mid May, 1979 ordered another investigation to be conducted by his Consumer Protection and Regulatory Cabinet.I The change in retail price of beer in dollars and cents is listed in the following table for Flint and Fort Wayne. TABLE 7 Retail Beer Price for 6 - l2 02. Bottles or Cans March 1. l91§ Aarch L 1979 2 Flint, Michigan $l.88 $2.25 + deposit Fort Wayne, Indiana3 $l.9h $2.05 I McClure, "Beer profiteering is probed." "Milliken orders probe into beer price hikes,“ East Lansing (Mich.) The State News, 22 May, l979, p. l. Can Manufacturers Institute, ”Beer and Soft Drink Retail Prices,” (Washington, D.C., 8 January, i979), (Mimeographed), pp. h-é. 1 Data collected from retailers. Flint. Michigan. 5i This is what is upsetting people. The price of beer in Flint went from being 3% cheaper than in Fort Wayne to being 9% higher in one year. A study conducted in several states across the nation in January, I979 shows that everywhere from Maine to Washington beer is more expensive in I The results states with bottle bills than it is in neighboring states. of this survey are included in the tables below and on the next page. These data indicate that the increase in price in Michigan is consonant with pricing in other deposit areas. TABLE 8 PRICE SURVEY OF MICHIGAN AND ADJOINING STATES2 BEER 5 SOFT DRINKS - l2 OZ. 6 PACKS Week of January 8, 1979 Non-Deposit Nei hbogg_ Deposit-Michigan Wisconsin I Indiana Ohio ‘4J—-1 Beer-National (Brands-Cans) $2.28 + deposit $1.81» $1.97 $2.10 Beer-National (Brands-Bottles) $2.30 + deposit N.A. $I.97 $2.05 Soft Drinks-National (Brands-Cans) $i.90 + deposit $l.55 $l.75 $1.80 Soft Drinks-”Store Brands" Cans $l.37 + deposit $l.00 N.A. $l.05 Soft Drinks-National Brands l6 02. 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