Just in time for Easter egg decorating, Vons is offering a dozen large eggs free with a $10 purchase. That's good news for consumers, but the fine print tells the real story: "Save up to $2.19," the Vons coupon reads.
At a regular price of $2.09 to $2.19 a dozen at major Los Angeles-area chains, eggs are far from an everyday bargain. In fact, the price here is more than double the price typically charged outside California.
A few years ago, the lofty Southland prices got the attention of Cash J. Bonas, a fledgling lawyer who had just moved back to San Diego from Idaho. Bonas helped his sister and a friend file suit in 1996 against Lucky Stores Inc., Ralphs Grocery Co. and Vons Cos., alleging that the chains monitored one another's egg cases and conspired to fix prices. The supermarkets deny the allegations.
After many delays, the class-action suit is scheduled to go to trial July 9.
If it does, jurors will get a hen's-eye view of Southern California's rough-and-tumble egg business, with its jumbo egos, its cutthroat competition and murky pricing practices that even longtime observers say defy the laws of economics.
"The whole thing mystifies me," acknowledged Francine Bradley, a poultry specialist for the UC Cooperative Extension in Davis.
It is a system that enables chains to make a killing on eggs, even as many California egg farmers and distributors are squeaking by.
This is a high-volume, cyclical industry in which a penny a dozen at wholesale can sometimes mean the difference between bankruptcy and survival. The exact profit margins for processor-distributors and retailers are closely guarded secrets.
Consider these numbers.
As of March 1, farmers were selling large eggs for 51 cents a dozen. It costs processor-dealers 15 to 20 cents a dozen to clean and grade the eggs, put them into cartons and deliver them--and still retain a profit.
Assuming a retail price of $2.19 a dozen, that would mean a retail markup of at least $1.48 a dozen in Southern California.
Nationwide in February, the retail markup was 35 cents a dozen for all eggs, primarily large eggs, according to U.S. Department of Agriculture data.
Given that the high California levels are included in the nation's figures, the markup throughout the rest of the country is actually lower than 35 cents, noted Lee Schrader, a professor emeritus of agricultural economics at Purdue University.
The price of eggs fluctuates wildly. In early March, for example, the market moved up by 10 cents a dozen, as it usually does at Easter time. Similarly, after Easter it is expected to plunge at least 20 cents a dozen.
Eggs clearly contribute more than most other items to a big grocery chain's bottom line.
Because of the class-action lawsuit, Vons, Lucky and Ralphs would not respond to questions about their pricing policies.
Economists say it's simplistic to chalk up the egg prices in the Southland to "the high cost of living," which tends to get blamed for everything from housing to milk.
"Egg prices don't seem to follow any pattern, even though they're considered a commodity," said Jim Sinegal, president and chief executive of Costco Cos., a membership warehouse club based in Issaquah, Wash.
Many factors appear to be at play. For starters, supermarkets set their prices guided by that hoary catch phrase: whatever the market will bear. Still, the consistently high markup in Southern California disturbs Schrader.
"It amounts to an implicit agreement on the part of the retailers to take that margin," Schrader said. "I wouldn't say they get together and say, 'Let's put it to 'em on eggs,' but nobody has upset the apple cart. All it would take is one chain breaking out and advertising a reasonable price."
To be sure, the major retailers have contended in court that they often sell eggs at special discounts.
"Vons routinely puts eggs on sale at low prices--on occasion, the price of eggs is as low as 39 cents a dozen," said Gregory P. Stone, an attorney for Vons, in a statement.
But four years ago the high regular price of eggs prompted Carrie O'Husky, an Oceanside schoolteacher, and Sheri McCampbell of Hermosa Beach to serve as plaintiffs in the suit against the three chains. O'Husky is lawyer Bonas' sister; McCampbell is a friend.
In the suit, they allege that the chains use employees or contractors to monitor retail egg prices in the region. The price-monitoring system, the complaint says, enables the chains "to refrain from competing . . . and to raise egg prices to unreasonable and artificially high levels throughout Southern California."
Economist Lewis C. Solmon, an expert witness and former dean of the UCLA Graduate School of Education, concluded, "The Ralphs policy for eggs is to match the retail prices at Vons, and Vons' policy is to price products within 2-3 cents of Lucky and not higher than Ralphs."
Many other documents related to the case have been sealed in San Diego Superior Court.