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Michael Dunne: I’m Michael Dunne. It’s right there in the title: convenience store. We all know that when we go to 7-Eleven or Circle K, we’re paying a little extra for the convenience of the transaction, and that a candy bar at one of these stores is probably going to cost a little more than at a grocery store or big-box store. But what we probably don’t know, and what a new report reveals, is that these convenience stores have been getting away with charging a little more between their own shelves and the cash register. Today on the show, a Willamette University law professor will join us to talk about how big national convenience store chains have been quietly upcharging customers for purchases, and how regulators and legislators have, by and large, been letting them get away with it. David Friedman is a law professor at Willamette University who writes extensively about deceptive pricing in the American marketplace. Professor Friedman, it’s great to talk to you. Thanks so much for coming on.
David Friedman: Thank you for having me, Michael.
Dunne: I was reading a really extensive article in The Guardian that you were quoted in, about how some of America’s biggest convenience stores, like 7-Eleven and Circle K, are quietly overcharging customers. Can you level set for the audience what’s going on here, as you understand it?
Friedman: It’s difficult to say what is actually going on within these retailers, or within their corporate structure. But what we know from this investigation from The Guardian is that this is indeed the case, and this is not an infrequent practice. There are items on the shelves at convenience stores that, when the consumer goes to the counter, are being rung up at a higher price. Notably, I didn’t see any evidence of anything being rung up at a lower price. So there are some questions about what is going on here systemically that is leading to this outcome.
Dunne: OK. From a legal perspective, even if it’s unintentional, just mistakes, is this breaking the law?
Friedman: Well, it is. It is a misrepresentation, in a deceptive way, of what pricing is. Depending on what the standard is, it’s certainly negligent, if not, and I’m using this term in a soft way, reckless. The expectation is that if a consumer goes into a convenience store, they’re going to pay the price that is advertised on the shelf. Now, one of the things that private plaintiffs sometimes run into, particularly in a class action, is a defense that essentially says, “Well, if the consumer is paying attention at the point of sale, they will see what the actual price is before they pay for it, and that is the moment of truth. If they see that the price is incorrect at the register, they can essentially just take the item back and walk away.” That is sometimes an obstacle that gets in the way of consumers actually showing an injury, because they had that opportunity. Nonetheless, if you look at the Federal Trade Commission’s guidelines, and particularly at what the Oregon Unlawful Trade Practices Act says about advertising, these are violations. Even if private plaintiffs lack a cause of action, regulators can step in and begin enforcement to crack down on these practices.
Dunne: Who’s responsible for the advertised price? As I understand it, a lot of vendors come into, say, a 7-Eleven, maybe a vendor for Coca-Cola or a vendor for Hershey bars. Are they the ones putting the pricing on the shelves, or is that completely the province of 7-Eleven?
Friedman: Well, from the standpoint of who the consumer really has a cause of action against, it’s the retailer that ultimately has responsibility for ensuring the transaction happens at the advertised price, because they have the power to modify it. And if you just want to apply some common sense to it, when you go to a convenience store, you’re doing business with the convenience store. You’re not circumventing them and going after the candy company or whoever the manufacturer of the item is.
Dunne: OK. I know you study the American marketplace. Are convenience stores perhaps ripe for this kind of thing? Obviously, they sell convenience, which often translates to speed. You can get in and get out really quickly. So I’m wondering: Is that ripe for mistakes or intentionality to occur with regard to pricing?
Friedman: You’re definitely onto something with that question. Let’s say, and this is not something we have evidence about, that the scheme was deliberate. We sometimes see things like this happening at department store retailers, right? If you’re advertising a price or a discount that is designed to get a consumer’s attention, what you’re trying to do is play around with the fact that they have limited time to shop around. So if you are dashing in because your car is still at the pump, and you want some candy or a drink, whatever it might be, you’re not there to comparison shop, right? You’re not there to really scrutinize the price. You’re typically not going to go into a convenience store like 7-Eleven, look at the price and then say, “Well, this is really expensive. I’m going to go to a Circle K instead.” It’s just not worth it. It’s not rational for a consumer to shop that way. It is much more rational for us as consumers to grab things, look at the total, see if it’s mostly right and then go. But we’re probably not going to notice if that transaction is 3% off, or 5% off, or especially 1% off. So yes, this is ripe for that, because the scrutiny is lower and the costs of shopping are much higher relative to the amount of money you might save by being careful.
Dunne: In the article I referenced, there were several consumers who noticed that the price on the shelf was different from what they were being rung up for, and I believe several of them said the cashier wouldn’t honor the shelf price. What is the responsibility of individual cashiers at a place like 7-Eleven or Circle K? If somebody comes up and says, “Hey, look, here’s a Kit Kat bar for $1.25, and you just charged me $1.37,” do they have the power to say, “Oh, OK, I’ll give you the lower price”? Or is this something where the corporate structure on pricing is set in stone?
Friedman: Generally, cashiers, whether we’re talking about a supermarket or a convenience store, don’t have the discretion to change what’s in the system. So as a matter of course, somebody who is really just working the front line at the register can’t say, “Well, I can give you this price,” if the system won’t let them do that. There are circumstances, and we’ve all been there, where if you see something mispriced, you might be able to get a manager to fix that for you. But how much trouble are you really going to go to, to haggle with a convenience store worker who says they can’t change the price? It’s not going to have that much of an effect, particularly when you think about the macro effect. But look, the retailers are responsible for what their cashiers do and don’t do, so that’s another way of thinking about it. But think about that example: A cashier denies the ability to change the price at that point. In private litigation, we would say what happens from that point on is up to the consumer, because they can just unwind the transaction and put the item back. And if they pay a higher price for it, that’s up to them. They were confronted with that choice.
Dunne: Now, I will say this: There is an item that many convenience stores sell that a consumer couldn’t put back, and that’s gasoline. And we’re certainly living in a situation where gas prices are fluctuating somewhat wildly because of all the pressure on oil and whatnot. Talk about that, because obviously that’s a big reason people go to convenience stores, to fill up their tank. But of course, if they fill up the tank, it says something on the display, and then they go in to pay for it, and it’s, like, no, it’s a different price. They can’t put it back, can they?
Friedman: They can’t, and you’re stuck. In Oregon, we’ve had an interesting experience with this. First of all, there are special rules in Oregon, and I think in almost every state, that regulate how gas stations and dealers of that sort advertise their prices, where they have to advertise their prices and how consistent those prices have to be. That’s kind of measured and matched up to the way consumers shop for gasoline, right? We’re typically looking at a price on a sign. We might have loyalty to a brand or a particular location, but a lot of that happens based on the assumption that gasoline is a commodity. In Oregon, several years ago, there was a dispute and a very expensive class action brought against British Petroleum, because it was not disclosed to consumers that if they went inside the convenience store or gas station to pay with a debit card, the gas station was going to charge them a 35-cent fee for doing that. The Oregon Supreme Court, or the Oregon Court of Appeals, I should say, did conclude that that was part of the price of gasoline, and that if there was a separate charge for a debit card, it should have been advertised. What’s behind that presumption is what’s behind your question, which is that it’s very difficult, if not impossible, to dispute the price of gas after you’ve taken it. If the true price is disclosed later, we’re in a different category entirely.
Dunne: OK. I’m also wondering this. I know Congress and state legislatures have been battling this concept of junk fees. Does this fit in the same situation, or is this a very different case?
Friedman: They’re in the same family when we’re trying to think about what the harm to consumers is and how to frame that harm. But there’s something that’s just different about plain old posting a price that you’re not going to honor at all. With junk fees, or what we also call drip pricing, it’s usually about a sequence: not learning the true price until later. The difference with what these convenience stores are doing is that this is all happening up front, and it’s happening in a way that may not be as noticeable as junk fees. If you think about junk fees, you go to a hotel and they charge you a resort fee, but you only find out about that later, at the desk. You’re going to notice that. With convenience stores, the consumer may not notice at all. But they’re in the same category. Both of those pricing tactics, or pricing phenomena, are designed to potentially lead the consumer to transact based on thinking the price is lower than it truly is.
Dunne: Where’s the government in all this? Are there supposed to be government agencies that regulate this kind of thing? Are there inspectors who are supposed to go out and say, “Oh, wait a second, this Kit Kat bar is $1.27 here on the shelf, but I see a receipt here that says you rang it up for $1.37”? Where does that fit in? I’m imagining that inspecting pricing at convenience stores, which obviously number in the hundreds of thousands around the nation, must be very difficult.
Friedman: Yeah. Look, the Federal Trade Commission absolutely has the authority to enforce the Federal Trade Commission Act, to conduct an investigation, to commence litigation and to address the practice itself. Whether or not consumers can individually prevent harm is not really relevant. I mean, it’s a factor in why you might regulate it, but you don’t have to show harm to any individual consumer. You can basically say, “Hey, this is a practice that is harmful in the marketplace.” So they could do that. The state attorneys general can also enforce state consumer protection acts. In Oregon, we have the Unlawful Trade Practices Act. The Oregon attorney general could begin an investigation and seek to enforce the similar rules Oregon has at the state level that mirror the federal level. The question is whether these agencies deem this to be a priority. If you really go back and look at the history of the regulation of deceptive pricing, somewhere around 1969 and 1970, the Federal Trade Commission in particular said this just isn’t really worthy of its time, essentially under the notion that consumers are smart enough to eventually sort this out, and that to the extent sellers engaging in these deceptive practices are harmful, competition will take care of that. That’s been the theory. And by the way, it was the Nixon administration that began that approach, and in every administration since then, Democratic or Republican, the Federal Trade Commission has essentially not changed that stance. So it comes down to priorities. And who knows, right? The politics of this may be changing, especially given what an issue inflation has become again, really for the first time in almost 40 or 50 years.
Dunne: Professor, my last question for you is this: Convenience stores fill a big niche in American consumerism, but they’re shifting a bit in some ways. What I mean by that is, somebody listening right now may say, “OK, big deal. So you paid 20 cents extra for a candy bar.” But with very noted food deserts, where supermarkets have left, especially in low-income areas, convenience stores aren’t just a place to go in and grab a soda and a hot dog. They’re kind of the only game in town for many people to get food. How is this impacting people who may have to spend a lot more at a convenience store than just a drink and a hot dog?
Friedman: You’ve put your finger on something. There’s definitely a lens that the public, and what I’ll call the regulatory class, has put on these things that reflects their personal bias. It is a much bigger deal when we’re talking about food, and about places where consumers don’t have options and don’t have the resources. These things do matter. A 5-cent miss on a gallon of gas can be a big deal over time, and so can a miss on a candy bar or the other items that people with lesser means in food deserts buy. It’s a bigger deal to them. What I’ve discovered in my research, and just in talking about these issues for the past 15 years or so, is that, remarkably enough, junk fees, which present a similar problem, really did capture much more attention in the academy and among regulators and lawyers. My theory about that is that junk fees, like hotel fees, airline fees and internet service provider fees, have affected the comfort class a whole lot more. So I think the attention has really gone there at the expense of looking at other things, like phony discounting that might happen in department stores or supermarkets. That is one way of theorizing some of the politics and the priorities behind this. And really, I think it’s an opportunity for policymakers to learn, to think about why junk fees are offensive and what the economics behind them are, and to ask whether you could apply those economics to other circumstances that affect different groups of people differently.
Dunne: It is fascinating. He is professor David Friedman. He teaches at Willamette University. Professor, I really appreciate you taking the time to talk with us.
Friedman: Michael, a pleasure. Thank you so much for having me.
Dunne: Before we go, our reporter joins us to give us a quick update on the outlook for the remainder of Oregon’s fire season. Julia Boboc is a reporter for us here at KLCC. Julia, great to talk to you. How are you?
Julia Boboc: I’m good, Michael. Thanks for having me.
Dunne: Yeah. So you just did a story about the remainder of the Oregon fire season. Tell us what you learned.
Boboc: Right. First and foremost, something I learned is that the date that marks the end of fire season is really about the end of the restrictions that come with it, so burning bans and such. A lot of people assume that Oct. 1 is automatically the end of fire season, but that’s actually just the first day it can be over. The Oregon Department of Forestry and local organizations have not decided that fire season is over. The risk is still present, so it was really important for these organizations and officials to remind people not to assume it’s over just because October’s here and fall is here.
Dunne: Yeah. Are they concerned that complacency could set in? That just because the calendar changes, people go, “OK, great, I can start burning refuse and leaves,” and that sort of thing?
Boboc: Definitely. For me especially, doing the story, it was kind of strange to be looking out my window and seeing that it’s cloudy. We’ve seen rain. It’s cold, and it’s getting colder. It feels like it would be, not a safe assumption per se, but an understandable assumption that fire season is over and there’s no risk anymore because of the weather we’ve been having. But Jessica Neujahr, the Oregon Department of Forestry spokesperson I spoke to, said the weather we’ve been seeing isn’t actually significant enough to reduce wildfire risk and make the grass and bushes on the ground moist enough not to carry a flame.
Dunne: Good advice. Good advice. She is Julia Boboc, reporter for us at KLCC. Julia, I appreciate your time.
Boboc: Thanks, Michael.
Dunne: That’s the show for today. All episodes of “Oregon on the Record” are available as a podcast at klcc.org. Tomorrow on the show, we talk with a Eugene woman who braved the ice-cold waters of the North Atlantic to attempt to swim the English Channel. I’m Michael Dunne, host of “Oregon on the Record.” Thanks for listening.
