ShopRite VP Responds to Accusations of Price-Gouging and Fraud

Karen Meleta admits that mistakes were made, and calls the new Philadelphia Beverage Tax "very confusing and complicated."

A 99-cent bottle of ginger ale becomes $2 at ShopRite. (Photo by Aria Fiorillo)

A 99-cent bottle of ginger ale becomes $2 at ShopRite. (Photo by Aria Fiorillo)

In the wake of the Philadelphia Beverage Tax — more commonly referred to as the Soda Tax — coming into effect, residents are fuming at both the city and at ShopRite, which seems to be one of the only major retailers prominently displaying the amount of tax added to an item, as seen in the photo above. Some have accused ShopRite of price-gouging and outright fraud — the chain was adding a surcharge to products that aren’t part of the tax — and of using the tax tags to make a covert political statement. Here, ShopRite vice president Karen Meleta responds.

Every time I turn around, I see someone posting a photo from ShopRite, and it seems that the company is being singled out here. Is ShopRite being targeted unfairly?
Actually, the feedback we are getting is very positive. Customers are appreciative of us showing the price increases and the impact of the tax. They’re using photos of our receipts to show how significant the tax is. And this transparency, this was our goal. As a brand, we are committed to offering value, and to raise the price without explanation would be wrong. In some cases, the tax exceeds the cost of the product itself.

That’s some crazy math. How does that work?
This week, we had on sale a gallon of Arizona Iced Tea for $1.88. That’s 128 ounces. The tax would be $1.92. That said, what we decided to do with these first two weeks of the new year is not pass the tax through to the customer on any items that appear on sale in our circulars. Because there was a court case that might have put an injunction on the tax and because we plan those circulars so far in advance, we didn’t want to print the circulars showing the tax only to have the court reverse it. But after these first two weeks, the tax will be shown in the circular.

I’ve seen some people accusing ShopRite of outright fraud, because there are labels at the stores showing an added tax on items that aren’t even included in the tax. Like hot sauce. Is this fraud or just a screwup by a store manager?
Let’s not blame the store manager. All of this pricing, the setup of the [point-of-sale] system, the printing of the labels, it’s all handled in a central location. What we did find was that we had a few items that were mislabeled. There are over 3,000 items impacted by this. We found three or four mislabeled. I’m not aware of any hot sauce, but there was a marinade — Grace Fish & Meat Sauce — and plain mineral water. And a lime juice. There were a few items labelled erroneously.

Were you told which items specifically had to be taxed or did you need to figure it out?
We literally had to go through all of our drink products by hand to determine which ones would be subject to the tax. It’s very confusing and complicated. If you read the original regulations, where there was some confusion was that the original regulation actually says that caloric sweeteners may also include sugars from concentrated fruit or vegetable juices that are in excess of what would be expected from fruits or vegetables. These include apple juice, cherry juice, grape juice, orange juice, pear juice.

We reached out to the city and asked how were were supposed to calculate this. How do we know if something has been reconstituted to its original sweetness level? What is the acceptable level of sweetness? My understanding is that they’re putting a hold on that particular aspect of it, keeping it at bay until there’s some clarity from a new federal guideline. A lot of work went into setting this up to make sure we comply with the law and that we’re paying and remitting the right tax.

Because of the way we are set up, we’re acting as a distributor to our stores. We distribute the almond milk that is subject to the tax. We distribute the Gatorade and sports drinks. Most of the sodas are distributed by the Cokes and Pepsis of the world, but most of the juice and dairy products come from our warehouse. It’s not just soda that’s being taxed. There are milk substitutes like cashew milk and almond milk.

There are some ShopRites very close to the county line. For instance, in the Far Northeast, there is a ShopRite just down the road from a Bensalem Acme, in Bucks County. Do you expect a loss of business in areas like this?
We’re absolutely concerned. We’ve heard from our customers who are telling us that they’re just going to shop outside of the city. The city stores in the city proper are going to be impacted. It’s inevitable.

These big labels seem like a bit of a message, not just information. Isn’t it really more of a political protest?
Our intention has been and always will be full transparency for our customer.

Is it true that ShopRite is actually charging the customer more than the $0.015-per-ounce called for in the beverage tax? I’ve seen the accusations of price-gouging out there.
No. And if there’s an error, please bring it to our attention. Sometimes what will happen is that a manufacturer will change the fluid ounces of a product without notifying us, so that bottle could be in our system at 18 or 20 ounces and then it becomes 16 or 18 ounces and we haven’t updated it in our system. We have between 50,000 and 75,000 products in our stores that we need to keep track of.

So you’re saying the tax is passing straight through without additions?
Yes. It is passing straight through. This is part of the reason why we are showing it. So customers can see exactly what we are adding and why, and so they can bring mistakes to our attention, as they have done.

But the imposition of the tax is clearly costing ShopRite more than the $0.015-per-ounce, right? Just in terms of infrastructure alone.
Absolutely. There is more work for employees. There’s the maintenance of it. Working with the distributors. Making sure we’re doing it all properly. Legal counsel. It’s a significant impact.

Well, you’re going to have to raise costs somewhere to make up for all that money spent.
I have not heard any discussion about that. We’re committed to keeping our costs low.

Why not just close up shop in the city and move all of your stores on the other side of the line?
There’s no question that this is going to impact our stores. We’re hoping that our customers continue to remain, even though that’s not what they’re telling us. We hope the long-term impact is not that it makes it not viable for us to be here.

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