Safeway Stores, Inc. v. Oklahoma Retail Grocers Assn., Inc.

Background

A state trade group of Oklahoma grocery stores sued a large grocery chain for selling several items below the statutory definition of “cost,” claiming those sales violated Oklahoma’s Unfair Sales Act. The grocery chain argued it was merely meeting competitors’ prices and that competitors’ use of trading stamps should be treated as a price reduction. The trial court enjoined the chain from selling below cost, and the Oklahoma Supreme Court affirmed. The case reached the United States Supreme Court because the chain claimed the state law and its interpretation violated the Fourteenth Amendment.

Reasoning

The Court accepted the lower court’s factual finding that the chain was not acting in good faith when it matched prices the chain knew or had reason to believe were illegal under state law. The Court also considered whether giving trading stamps with purchases was the same as a hidden price cut. It agreed with the state’s distinction: trading stamps operate across the board as a cash-like discount tied to total purchases, while selective below-cost price cuts are targeted loss-leader tactics. That factual and economic difference gave the state a reasonable basis to treat the two practices differently, and the Court deferred to the State’s policy choice.

Real world impact

States may bar selective below-cost price cutting aimed at luring customers and still allow trading-stamp or cash-discount systems. Retailers cannot lawfully retaliate by matching prices the State finds illegal. The decision leaves to states the practical choice of how to regulate promotional practices in competitive local markets.