United States v. Mrs. Smith's Pie Co., Civ. A. No. 74-419.

• Decision Date: 18 November 1976
• Docket Number: Civ. A. No. 74-419.
• Parties: UNITED STATES of America v. MRS. SMITH'S PIE COMPANY.
• Court: U.S. District Court — Eastern District of Pennsylvania

440 F. Supp. 220

UNITED STATES of America v. MRS. SMITH'S PIE COMPANY.

Civ. A. No. 74-419.

United States District Court, E. D. Pennsylvania.

November 18, 1976.

Walter L. Devany, William A. DeStefano, Norma B. Carter, Antitrust Division, Philadelphia, Pa., for plaintiff.

Ellis G. Arnall, Cleburne E. Gregory, Jr., Allen I. Hirsch, Thomas R. Todd, Jr., Arnall, Golden & Gregory, Atlanta, Ga., for defendant.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

NEWCOMER, District Judge.

This is an antitrust action brought by the government to challenge the acquisition of various other companies by Mrs. Smith's Pie Company. After considering the evidence, we have concluded that the acquisitions violated Section 7 of the Clayton Act.

FINDINGS OF FACT

1. The defendant, Mrs. Smith's Pie Company, is a Delaware corporation with its principal place of business in Pottstown, Pennsylvania. Mrs. Smith's produces pies, other kinds of desserts, and a few other products. It sells frozen products nationally, and fresh baked products in the Mid-Atlantic region. Mrs. Smith's is the largest producer of frozen dessert pies in the United States.

2. During calendar year 1972, Mrs. Smith's sold frozen dessert pies worth approximately $47,949,000. Of this, approximately $33,829,000 represented sales to groceries for eventual home consumption, and $14,120,000 represented sales to institutional or food service operations for consumption on the premises.

3. The Lloyd J. Harriss Pie Company ("Lloyd Harriss") is a Delaware corporation with its principal place of business in Chicago, Illinois. Lloyd Harriss is a producer of dessert products, including fresh and frozen pies.

4. Michigan Lloyd J. Harriss Company, ("Michigan Harriss") is a Michigan corporation, with its principal place of business also in Michigan. Michigan Harriss is a producer of frozen dessert products, including frozen pies and pie shells.

5. Douglas Cold Storage Company ("Douglas") is a Delaware corporation with its principal place of business in Michigan. At the time of the acquisition, Douglas was engaged in real estate and financial operations and acquisitions of equipment on behalf of both Harriss companies.

6. Food Industries of America ("Food Industries") is a Michigan Corporation with its principal place of business in Michigan. Food Industries processes fruit, primarily for the Harriss companies.

7. On May 11, 1973, Mrs. Smith's Pie Company acquired all the stock of Michigan Harriss, Lloyd Harriss, Douglas, and Food Industries. At that time, the four acquired companies (hereinafter collectively referred to as "Harriss") were under common management, ownership and control. Mrs. Smith's paid $5,268,000 for all the capital stock of Harriss, and thereby obtained administrative offices, production and storage facilities, a fruit processing plant, and the machinery, equipment and inventory contained in these facilities. The acquisition of Harriss enabled Mrs. Smith's to reduce transportation costs of raw materials and frozen dessert pies.

8. At the time of the acquisition, Harriss sold frozen dessert pies throughout the United States. During calendar year 1972, Harriss' sales of frozen dessert pies totaled approximately $11,981,000. Of this, approximately $6,163,000 represented sales to groceries for eventual home consumption, and $5,818,000 represented sales to institutional and food service customers for consumption on the premises.

9. A frozen pie is one that is frozen immediately after it is produced, and is shipped from the pie plant in a frozen state. A fresh pie (or ready-bake pie) is one that usually is baked immediately after it is produced, and is shipped from the pie plant in an unfrozen state. Some commercial marketed dessert pies share characteristics of both fresh and frozen pies. For example, in-store bake pies are frozen pies that are baked by the supermarket and sold to the consumer as fresh-baked pies. Similarly, Mrs. Smith's presently operates Pie Kitchens in which frozen pies are shipped to a local area, where they are baked by Mrs. Smith's and distributed to restaurants and supermarkets as fresh baked pies.

10. The most important equipment for making frozen dessert pies is a pie machine. A pie machine can make any kind of pie, fresh or frozen. A pie machine also can be set up to make other similar dessert products, such as turnovers, tarts, cobblers, danish, and pie shells. However, a pie machine cannot make most other desserts, such as cakes, ice cream or puddings.

11. Companies that make both frozen and fresh pies often have specialized plants which make only fresh or only frozen pies. This is not necessary, however, and some plants make both fresh and frozen pies. The only difference in machinery between a frozen plant and a fresh plant is that a frozen plant must have freezing equipment and large cold storage facilities, while a fresh plant needs an oven.

12. Although various individual pieces of equipment used in the production of frozen dessert pies can be used in making fresh pies and other desserts, a complete production line for manufacturing frozen dessert pies is not suitable for producing other dessert products.

13. Both fresh pies and frozen pies are manufactured in much the same way. At the end of the manufacturing process, the fresh pie is baked for consumption, and the frozen pie is frozen. Thus, frozen dessert pies are sold in a frozen state and must be baked or thawed before consumption.

14. Frozen pies are essentially non-perishable, while fresh baked pies have a shelf life of two to five days. Because frozen pies can be stored for long periods of time, they are produced to inventory demands, and several months' supply of a particular variety of pie may be made in one production run. Fresh baked pies, on the other hand, must be produced according to daily demand, and relatively small quantities of many varieties of pie must be produced every day. Because the production line does not have to be stopped as frequently to change from one variety of pie to another, frozen dessert pie production is more efficient than production of ready baked pies.

15. Although the ingredients and recipes for frozen dessert pies and fresh baked pies are practically identical, fresh baked pies may have preservatives and a thicker crust to protect the pie during transportation.

16. Because of differences in perishability, frozen pies and fresh pies are distributed in very different ways. Frozen pies are shipped in refrigerated trucks from the producer to frozen food warehouses operated by supermarket chains or distributors. Title to the pies passes to the distributor upon delivery to the warehouse. Frozen pies are sold in large quantities, and can be sold throughout the United States from a single plant. A distributor normally sells frozen pies to supermarkets or food service operations, which in turn sell to ultimate consumers. Frozen pies are displayed in the frozen food cabinet, usually in an area designated for frozen dessert products.

Fresh baked pies usually are distributed by the producer in small unrefrigerated trucks running regular routes. The pies are delivered directly to individual grocery stores or restaurants on a daily basis, and deliveries are usually on consignment. Thus, if a fresh baked pie is unsold at the end of its shelf life, it can be returned to the producer. Because of their short shelf life, fresh baked pies can only be delivered within a radius of 100-150 miles from the pie plant.

17. Fresh baked pies are more expensive to distribute than frozen pies, and they also entail higher labor costs because of the baking process.

18. Because appearance is more important in selling fresh-baked pies, fresh pies are usually sold in windowboxes or unboxed. Frozen pies normally are sold in boxes with pictures of the pie, or to the institutional trade in plain boxes.

19. Because advertising is important in the frozen dessert pie market, advertising and marketing costs are a barrier to entry into the market for potential competitors.

20. Both Mrs. Smith's and Harriss have established separate corporations or divisions for frozen dessert pies and fresh baked pies, probably because of the different methods of production and distribution for each product.

21. A frozen pie is not consumable until it is baked. Once it is baked, a frozen pie is practically identical to a fresh-baked pie. For example, it has the same shelf-life of from two to five days, and a consumer, or even an expert, cannot distinguish between a frozen pie, a commercially fresh-baked pie and a homemade pie.

22. Once a frozen pie is baked, its characteristics and uses are very similar to those of fresh baked pies and other dessert products such as tarts, turnovers, cobblers, danish, cheese cakes or Boston cream pies.

23. The United States Bureau of the Census publishes information on manufacturing which is divided into various classifications. The four-digit code defines industries in terms of groups of related products. The five digit code is narrower, and classifies more-or-less homogenous products. The most specific classification is a seven digit code. Frozen pie is a category in the seven digit code; therefore, the Bureau of the Census provides sales and other information for frozen dessert pies as a separate category from other desserts. Of course, the mere fact that the Census provides separate information for frozen dessert pies does not mean that frozen pies do not compete with fresh-baked pies or with other desserts. Competition is not a criteria for making seven digit classifications.

24. Selling Area Marketing, Inc. ("SAMI") also collects and publishes separate information for sales of frozen dessert pies. SAMI reports the movement of various products at the retail level by analyzing warehouse withdrawals as reported by participating customers. Of course, the mere fact that SAMI reports frozen pie as a separate category does not indicate any...