Fighting the monopoly of the large grocery store

In March, the National Grocers Association (NGA), a trade association representing independent grocery stores, released a white paper detailing the ways in which dominant retailers are abusing their market power over suppliers and marginalizing small grocers. The pandemic has exacerbated such abuses, the group argues, citing practices such as big box retailers demanding priority access to products in short supply, while small stores have been frozen. The group is calling for the enforcement of anti-monopoly laws, including the long-dormant Robinson-Patman Act, to tackle what it sees as “economic discrimination.”

Adopted in 1936, Robinson-Patman aimed to preserve the viability and diversity of small retailers by ensuring that large chain stores do not engage in price discrimination and other unfair business practices. For example, it is illegal for suppliers to charge small retailers more than large chains for the same product.

The NGA argues that it is time to revive Robinson-Patman and other anti-monopoly laws. “Lack of antitrust enforcement has crippled competition in the grocery industry and hurt American consumers,” said Chris Jones, senior vice president of government relations at NGA. “Economic discrimination is, in fact, a problem that extends far beyond our industry… [We’re calling] to Congress and the federal government to modernize and enforce antitrust laws. “

Smaller, family-owned, or employee-owned grocery stores sell 25 percent of all grocery products and play a unique role in the grocery market. According to the USDA, rural areas and low-income communities left behind by chain stores tend to rely more on these independent food retailers. Suppliers of new or local food products can also start selling to independent grocers before expanding into larger distribution, argues the NGA white paper.

While studies show that independent grocers can offer competitive or even lower prices on fresh produce compared to big box stores, their packaged goods tend to be more expensive. In part, this is because larger retailers, known as “big buyers”, can negotiate price concessions from manufacturers of packaged goods.

This purchasing power gap has widened considerably with the consolidation of grocery stores. As recently as 1997, Americans bought 20 percent of all grocery products from the four major retailers. In 2019, the top four retailers accounted for 43% of all sales, with Walmart alone capturing 1 in 4 dollars spent on groceries. Amazon’s online grocery sales have also tripled during the pandemic, just as the e-commerce goliath expands its network of physical Amazon Fresh grocery stores.

At some point, suppliers feel pressured to accept less favorable terms or offer special benefits to dominant buyers because they cannot afford to lose their business. These offers go beyond justifiable bulk discounts that reflect real savings, for example, by delivering an order large enough to fill a truck.

“The heart and soul of this whole issue of economic discrimination is the notion that companies can win solely on the basis of their size, not by competing better, but simply by being bigger,” says Stacy Mitchell, co-director. of the Institute for Local Self-Government. “The vast majority of the superior prices and terms Walmart gets are the product of its muscles, not superior efficiency.”

Mitchell and the NGA noted that independent grocers often join buying clubs to purchase goods by truck, creating efficient volumes for suppliers. But even then, they can’t get the same deals that Big Box stores have with controlling power. Suppliers must be on Walmart shelves or in the Amazon Marketplace to access customers; they don’t need to be in a handful of local stores the same way.

“Under threat of losing business from those electricity buyers, who in some cases have 35 to 40 percent or more of the manufacturer’s total sales, … those [suppliers] are forced to meet their demands, ”said David Smith, president of Associated Wholesale Grocers. “Because demand squeezes these suppliers, higher prices and less product availability are being forced on those who remain. In other words, small grocers not only miss out on better deals, they sometimes pay higher prices or receive poorer treatment as manufacturers make up the difference in concessions made to electricity buyers.

For example, in September 2020, amid the pandemic and widespread product shortages, Walmart imposed a 3% cost of goods penalty on any vendor who failed to deliver 98% of their order in full and on time. “This was at a time when the industry’s overall service level was only around 85%,” Smith explained. “So if you’re a supplier who can only deliver 85% of what your customers order and your most important customer… asks for 98%, where does this improvement come from? Now, we know that equates to a shortage for the rest of them out there. “

Indeed, CNN reported this spring that small grocers are still struggling to ensure an adequate supply of high-demand items, including toilet paper, canned goods and cleaning supplies.

“During the pandemic, providing for our friends and neighbors became even more difficult as our biggest competitors illegally took away our access to important stock items,” said Jimmy Wright, owner of Wright’s Market in Opelika, Ala. . an additional trip to the nearest large chain when they preferred to buy locally… and wanted to limit their trips to public places.

Here, Wright alleges that this differential treatment of small stores by suppliers violates the long unused Robinson-Patman Act. Under Robinson-Patman, suppliers cannot offer preferential prices or terms to dominant customers unless they reflect a real difference in the cost of doing business with them.

But price discrimination persists because federal agencies have not enforced the law for decades. “The FTC and the DOJ have quietly put [the Robinson-Patman Act] on a shelf somewhere, ”Mitchell said. “They struck down a law without involving Congress. “

Since the 1970s, a growing number of antitrust academics have argued that Robinson-Patman’s anti-discrimination laws are ineffective and prevent retailers from offering the lowest possible prices. In 2007, a commission approved by Congress even recommended that the law be repealed completely.

Certainly, even Robinson-Patman supporters have recognized in Congressional hearings over the years that the law contains critical ambiguities and should be improved. But the NGA argues that the low prices that electricity buyers receive are “sub-competitive” or lower than those that would exist in a competitive market because they are set by domination rather than fair negotiation. This ultimately hurts competition in the grocery market by putting some stores at a disadvantage just because of their size.

The NGA report calls on Congress to investigate discriminatory and anti-competitive behavior in the grocery industry and restore the original intent of the Robinson-Patman Act to make it enforceable again. “It’s been almost 100 years since the last law was passed here, so it may need a long-term update,” Jones said.

Comments are closed.