BILL ANALYSIS �
AB 2258
Page 1
Date of Hearing: April 24, 2012
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Mary Hayashi, Chair
AB 2258 (Wieckowski) - As Amended: March 29, 2012
SUBJECT : Retail fuel sales: price discounts.
SUMMARY : Establishes conditions under which a retail fuel
discount program would not be subject to California's Unfair
Practices Act (UPA). Specifically, this bill :
1)Provides that, for purposes of the UPA, as specified, a person
or related person does not sell below cost if all of the
following apply:
a) The person or related person sells fuel;
b) The person or related person gives, extends, or offers a
fuel price discount, price concession, or price reduction;
c) The basis of the fuel price discount, price concession,
or price reduction is the purchase or purchases of another
article or product, or other articles or products, in the
same transaction or in separate transactions, from the
person or related person; and,
d) The total price of the fuel and the other article or
product, or the other articles or products, equals or
exceeds the total cost.
2)Provides the following terms and definitions:
a) "Fuel" means all grades of automotive fuel, including
diesel, plant-based, or other alternative fuels, sold to
consumers at the retail level;
b) "Related person" means a person, as defined in the UPA,
that directly or indirectly through one or more
intermediaries, controls, or is controlled by, or is under
common control with, the person specified;
c) "Total cost" means the aggregate cost of the fuel and
the other article or product or other articles or products.
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The separate costs of fuel and the other article or
product or other articles or products shall be determined
as set forth in the UPA, as specified. Cost shall be
measured over a commercially reasonable period of time.
Cost shall not include the fuel price discount, price
concession, or price reduction; and,
d) "Total price" means the price of the fuel, taking into
account the fuel price discount, price concession, or price
reduction, plus the price of the other article or product
or prices of the other articles or products. Price shall
be measured over a commercially reasonable period of time.
EXISTING LAW
1)Establishes, within state statutes governing unfair trade
practices, the UPA, the purpose of which is to safeguard the
public against the creation or perpetuation of monopolies and
to foster and encourage competition, by prohibiting unfair,
dishonest, deceptive, destructive, fraudulent and
discriminatory practices by which fair and honest competition
is destroyed or prevented.
2)Provides that the UPA shall be liberally construed that its
beneficial purposes may be subserved.
3)Defines, for purposes of the UPA, "loss leader" to mean any
article or product sold at less than cost:
a) Where the purpose is to induce, promote or encourage the
purchase of other merchandise;
b) Where the effect is a tendency or capacity to mislead or
deceive purchasers or prospective purchasers; or,
c) Where the effect is to divert trade from or otherwise
injure competitors.
4)Provides that it is unlawful for any person engaged in
business within California to sell any article or product at
less than the cost thereof to such vendor, or to give away any
article or product, for the purpose of injuring competitors or
destroying competition.
5)Provides that it is unlawful for any person engaged in
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business within California to sell or use any article or
product as a "loss leader," as defined in the UPA.
6)Defines "person" for purposes of the UPA to include any
person, firm, association, organization, partnership, business
trust, company, corporation or municipal or other public
corporation.
7)Provides for purposes of the UPA a number of definitions
pertaining to cost and requirements for calculating these
costs.
FISCAL EFFECT : Unknown. This bill is keyed non-fiscal.
COMMENTS :
Purpose of this bill . According to the author, "Californians
pay higher prices at the pump than the national average. In
early April, the average statewide price for regular was
approximately 38 cents above the national price for self-serve
regular. With budgets already stretched to the limit, many
consumers are relying on fuel discount programs to reduce their
purchase costs. These fuel discount programs offer reduced
prices on fuel purchases based on points or credits the consumer
accumulates for purchases of other products, such as groceries.
"California's existing below cost and loss leader statutes are
potentially ambiguous about how to treat fuel discount programs.
This threatens to eliminate many fuel discount programs in the
state. AB 2258 protects consumers' access to retailer fuel
discount programs by clarifying when such a combined sale is
below cost under California's below cost and loss leader
statutes. AB 2258 does not exempt retail fuel discount programs
from these laws. Retailers would not be permitted to undercut
competition by selling below cost, and smaller retailers would
still be protected against truly anti-competitive, below-cost
pricing."
Background . A loss leader is commodity offered at or below cost
to attract (lead) customers.
The UPA was established in 1941, including its definition of
loss leader and its provision making it unlawful to sell
products at less than cost for the purpose of injuring
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competitors or destroying competition. The loss leader law is
the protection guaranteed to small businesses that larger
businesses cannot undercut market prices to drive competitors
out of business.
This bill adds new language to the UPA outlining the conditions
under which a retail fuel discount program would not be
considered to be selling below cost under the UPA, specifying
that the total price of the fuel and the other products sold as
part of the fuel discount program must equal or exceed the total
cost of the fuel and the other products sold.
According to a September 15, 2011, report by Fox Business,
"Consumers are now spending between 5% and 10% of their income
at the gas pump, according to AAA's Fuel Gauge Report. To help
offset that pain, retailers across the nation have stepped up to
lend a hand by offering gas incentives programs...
"Unlike many credit card rewards programs that require
cardholders to spend thousands of dollars before reaping
rewards, several current gas discount programs allow customers
to earn rewards without unnecessary spending. Gas incentive
programs vary in terms, conditions and gas discounts, but most
require customers to use grocery rewards cards when buying
groceries, or pay for gas using retailer-issued credit, prepaid
or gift cards, to reap discounted gas prices at affiliated
stations.
"Gas incentive programs are typically formed through alliances
between a retailer or grocer and a gas company. When the
grocer's customer shops, she presents her store loyalty or
rewards card at checkout. Points based on the amount of
purchase (and in some cases, the items purchased) automatically
accrue on the card. When the card's points reach an established
level, the customer is entitled to a discount at the affiliated
gas station. The discount varies by program, but customers
typically receive a 10-cent per-gallon reduction for 100 points.
"In other programs, such as the ones offered by Kroger and King
Soopers, grocery store loyalty card holders receive a small
automatic discount on gas every time they scan their card at an
affiliated gas station and a larger discount once a certain
number of points have accrued."
"At California- and Nevada-based Safeways, shoppers earn a
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10-cent reduction per gallon (also on a single fill-up) for
simply spending $50 or more in a single Safeway transaction.
Rewards do not accumulate, and the maximum discount in these
states is 10 cents per gallon.
"Shell has national and regional alliances with several grocers,
including Kroger, Winn-Dixie, Ralph's and Save Mart
Supermarkets?After a Kroger or Winn-Dixie rewards card holder
swipes the card when buying groceries, he can take the card to
Shell and insert it into the pump. Based on the accumulated
rewards, the dispenser automatically rolls back to the
discounted price."
The California Energy Commission reports the following retail
fuel-sale statistics for 2010:
There were an estimated 9,800 retail fueling stations in the
state;
Gasoline retail sales totaled 14.86 billion gallons;
Projected retail diesel sales was 1.41 billion gallons;
Approximately 43% of taxable diesel sales and nearly all
gasoline sales were at the retail level;
The top 1% of retail gasoline stations in California sold
approximately 7% of the total gasoline;
The top 20% of retail gasoline stations in California sold
half the total gasoline;
The top 1% of retail diesel stations in California sold
approximately 28% of the total retail diesel; and,
The top 3.5% of diesel stations sold half the retail diesel.
California's 2011 gasoline market share shows "independents and
others" represented 4.9% of the sales market. The average
statewide price for regular gasoline was $4.28 for the week of
April 2, 2012.
Support . The Kroger Corporation writes, "AB 2258 is a measure
that is intended to preserve the ability of grocery stores to
offer 'customer loyalty discounts' on gasoline purchased at the
grocery store's retail gas location of an affiliated station gas
station. These customer loyalty programs, which provide
customers with reduced gasoline pricing based on the amount of
groceries purchased at the grocery store, are extremely popular
with consumers in California and the rest of the country.
"However, these programs are increasingly coming under legal
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attack by a few 'independent' gas stations that are taking
advantage of an outdated provision in California law that
generally prohibits 'below cost' sales. This statute, which was
originally enacted in the 1930's to protect smaller firms
against predatory pricing by much larger firms, has increasingly
become the favored litigation instrument for a very few number
of traditional gas stations that apparently want to preserve
their right to make a guaranteed profit on fuel sales at the
expense of consumers."
Opposition . The California Independent Oil Marketers
Association writes, "COIMA members have traditionally relied on
the current definition (of loss leader) as a tool in preventing
predatory pricing and marketing practices designed to eliminate
or curtail competition in big-box retailers and/or grocery
outlet fuel pricing schemes?The new definition?would completely
render the 'loss-leader' definition useless. Trying to
determine how full sets of product offerings, which are
continually subject to change, and their relationship to an
at-cost basis is a virtual impossibility for potential
plaintiffs. It also provides a huge advantage to defendants in
defending their practices.
"An influential study performed in California a few years back
documented how average fuel prices in Southern California went
up as the influence of an independent chain of fuel outlets was
lost when they were brought under a major oil company's
operation. Unfortunately, this all but guarantees the loss of
more small, independent fuel retailers in this state, with the
ultimate outcome a loss for fuel consumers."
Previous legislation .
AB 926 (Ruskin), Chapter 490, Statutes of 2009, requires certain
advertising of state contracting opportunities to include a
statement explaining current state law against the use of loss
leaders.
REGISTERED SUPPORT / OPPOSITION :
Support
California Grocers Association
Kroger Corporation
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Opposition
California Independent Oil Marketers Association
Western States Petroleum Association
Analysis Prepared by : Angela Mapp / B.,P. & C.P. / (916)
319-3301