Postage increase drives up food prices at the AC

VICTORIA BARBER

May 29, 2008 at 9:08AM AKST

The squeeze on rural villages has gotten 9.5 percent tighter now that the Alaska Commercial Co. has raised food prices in all of its outlets in response to the May 12 postage increase. The AC is the sole grocery store in many rural communities.

“When we saw the one cent on postage go up, we also saw all other methods of mail go up,” AC Vice President of Operations Walter Pickett said. “All this is very concerning to us, because at this point in time there are a number of people in our community on fixed income or low income.”

The AC ships its products to 24 rural outlets across the state through bypass mail — a special shipping method whereby large deliveries can be shipped out directly from a store or other business to an airline, bypassing the post office. It’s the cheapest method of shipping to rural communities.

While the U.S. Postal Service’s increase meant a penny more on postage for most Alaskans, parcel post and bypass rates went up 9.5 percent. It’s an increase that Pickett said the company had no choice but to pass along to its customers.

“The grocery business profits are about 1 percent, so every dollar we spend we make a penny,” Pickett said. “The margins are just so thin.”

This is the third year that bypass rates have increased. Prices went up 12 percent in 2007 and 7 percent in 2006.

Darus Macy, manager of marketing for the state of Alaska U.S. Postal Service, said that residents could expect to see more changes now that the Postal Service has a policy of adjusting rates every May.

“(Prices) may not always go up, but if you’re getting oil at $130 a barrel, or $140 barrel next year, obviously they are going to go up,” Macy said.

While rates are adjusted to cover the Postal Service’s cost, bypass will never be a self-sustaining venture. The program is federally subsidized and loses millions of dollars every year.

“Bypass is basically a community service, to make it easier for people in the Bush to get groceries and the things that they need,” Macy said.

But rural residents would hardly call buying groceries in the village “easy,” and recent in-store prices — also affected by severe food price inflation worldwide — have shocked even old-timers.

“Prices have always been high, but now they are outrageously high,” said Clyde Floyd, who has lived in St. Paul for 27 years. “Everybody’s talking about it, and between that and the fuel prices it kind of blows you away.”

Floyd said that the price increase has led him to question whether the AC is trying to take advantage of residents who have no alternative place to shop. He said that it is far less expensive to buy groceries in Anchorage and mail them to his house through the post office than it is to buy them at the AC.

Floyd also noted that prices were increased on products that were shipped to St. Paul before the new rate went into effect.

“I know things cost more in the Bush, but why does it cost half as much to go into town and mail it (to St. Paul)?” asked Floyd. “And it isn’t like they flew it in on airplanes, this is stuff that’s on the shelf.”

Part of the answer may have to do with the economics of bypass, with parcel post as its base rate. Companies shipping bypass don’t pay the fees that are included for many parcel-post packages and save an additional 2.73 cents per package (a package is anything bundled together on a large pallet for shipping).

These savings only take effect for packages between 36 and 70 pounds, so if an individual such as Floyd were to mail a 20-pound bag of flour to Saint Paul, he may be paying the same rate as the AC.

Then there is the cost of operating the grocery store itself.

“We’re not talking apples to apples here, when it costs 60 or 70 cents per kilowatt hour just to open the doors,” said Pickett, who also cited tripled fuel surcharges and food inflation for driving up prices.

As for the price increases on old store products, “when price changes go into effect everything goes up, that’s the way the retail business works,” Pickett said. “Otherwise it’s almost impossible to manage.”

Pickett said that the AC is responding to residents concerns by providing more “value” products, generic instead of name brands, and more canned vegetables instead of fresh, and by running specials.

He said the company is also working to lower the cost of overhead by using fuel-efficient technology and replacing old refrigeration equipment, boilers and furnaces. Pickett said that the AC is exploring the possibility of using alternative energy sources in its operations, though that may be years down the road.

“It does take a lot of effort to remain a viable community,” Pickett said. “We take it very seriously because that is our niche — rural Alaska.”

In the meantime, residents in that niche such as Floyd are working to avoid the AC as much as they can by using fishing and other subsistence resources to supplement their diet and shipping products directly from the store. And, of course, buying up every time they happen to be in the neighborhood of a Fred Meyers.
 
Victoria Barber can be reached at (907) 348-2424 or toll free at (800) 770-9830, ext. 424.