Why Independent Grocers Are Pushing For Better Antitrust Enforcement
The $1 trillion grocery industry has been at the epicenter of debates around supply chain shocks, processed foods, price inflation and profiteering. But after decades of lax enforcement, antitrust authorities have started taking a closer look at the industry, which is heavily consolidated at the national and regional levels. The FTC filed a lawsuit to block the controversial $26 Billion Kroger-AlbertsonsACI merger. Shortly after, the FTC released a long anticipated report detailing how the biggest grocery chains leveraged the Covid-19 pandemic to stay dominant at the expense of both smaller competitors and consumers.
Despite these pressures, independently owned grocers have maintained a solid market share position in many communities. They have also greeted the renewed antitrust oversight with enthusiasm.
Chris Jones is Chief Government and Industry Relations Officer and Counsel at the National Grocers Association.
Errol Schweizer: Who is National Grocers Association (NGA)?
Chris Jones: NGA represents independent supermarkets and the wholesalers that service them. So all of our members are privately owned grocers. Anything from a small mom and pop IGA to a regional chain. So we are the advocacy group in Washington that is advocating on behalf of the independent grocers and trying to steer federal policies in our favor.
ES: What is the market share market trajectory of independent grocers these days?
CJ: We're a pretty big chunk of the market, around a third, or 21,500 storefronts. And we've seen our numbers increase over the last ten years or so. So I think what we're up against in the current food economy is really challenging right now ever since Covid-19, as we've dealt with the problems of food price inflation, shortages, disruptions and it's been tough for the independents to navigate through those many challenges.
ES: I wanted to get your perspective on the FTC lawsuit around the KrogerKR-Albertsons merger and where NGA weighs in on that?
CJ: We've been nervous about this transaction from the very beginning. Our primary concern is that the consolidation has created such powerful buyers that control so much shelf space in the country that it gives them massive economic power over food product suppliers, anything from a CPG manufacturer to a producer. And with that power, we have seen the largest players use it to undercut the independent buyers by getting superior terms, whether that's better pricing, whether it's exclusive product offerings, package sizes, promotional allowances, what have you. The largest players are really able to use that muscle, what we call buyer power, to get better terms, but then use it to undercut the smaller players, which makes it really hard for the independents to compete, particularly in the center store. The Kroger-Albertsons merger made us nervous because you have the two biggest conventional supermarket chains that are merging to the point that they almost represent the same size of a grocer as a WalmartWMT. So I think the way we see it is that if you've got two massive buyers, that just harms everyone else's ability to play fair and compete on the merits. So our initial take on that is that if there is not some sort of constraint on the ability of Kroger and Albertsons combined to use their market power, then it's going to be a transaction that hurts everyone who's trying to compete with them. And it would hurt consumers as well.
ES: The FTC just released a pretty compelling report about how large scale grocery chains leveraged the Covid-19 pandemic to boost profit margins. I wanted to get your take on that report.
CJ: The report was started during the challenges we were experiencing during Covid-19 in 2021. And the idea was to look at the disruptions we were seeing in the marketplace, the higher prices, the shortages, and to see if there were any anti-competitive behaviors at the heart of it that were causing pain to consumers. And lo and behold, about two and a half years later, they released the report last week and found, unequivocally, that the largest players were taking advantage of Covid-19 to secure better terms from suppliers. They made the point that having product in stock was a point of competitive differentiation. And they knew they had this power to get first access to product in short supply. And so they ratcheted up “on time and in full” requirements from vendors. And that made it harder for the independent grocers to serve their customers. What you have since Covid-19 is that the largest players in our market were able to not only cut their way to the front of supply lines, but also as inflation went up, they were able to get products at lower prices relative to the competition. And then they're able to take more margin because of it, which raises the prices for everybody, for all consumers.
One thing to note, though, is there's still a lot more for the FTC to do. They cited census data, but the subpoenas that they sent out to the nine players in the marketplace did not include pricing information. So they were making connections between this bullying buyer power behavior and then the margins. So I think they left the door open for further investigation, both by the FTC and for Congress. And that's, of course, what we think the agencies and the U.S. Congress ought to be focused on right now.
ES: How do the FTC and the Department of Justice Antitrust Division coordinate or differentiate their efforts around making sure there are competitive grocery markets?
CJ: In grocery there's a big gap because you have the FTC, which focuses on supermarkets and retail more broadly and then you have the DOJ that focuses on the food and agriculture economy. And of course, these problems are interwoven. I think that is one thing that has really slowed the gears and prevented the agencies from being as effective as they could be, because you have this stratified enforcement posture. But after a few years of enforcement being ramped up, they're starting to catch their stride a little bit and plug in those gaps.
ES: What do you think of the rebuke of the FTC lawsuit against the Kroger-Albertsons merger, that the agency defines the grocery market too narrowly?
CJ: I think it's interesting. I think that's just kind of how antitrust law is practiced in the merger enforcement context. The enforcement body bring the suit and wants the market as narrow as possible. And of course, the company that the suit is filed against would like to see a broader market. I think the thing about market definition is very different depending on where you live. So grocery is a very local market. In some places you may have a consumer base that shops across channel. And people who go to dollar stores, who go to Walmart and go to their local grocery store, they may order on AmazonAMZN. Or you may have consumers who are only purchasing through 1 or 2 channels. I think what the argument that Kroger is trying to make is that the consumer behavior has changed so much that broadly, consumers cut across multiple channels to buy their products. But I think, at the end of the day, consumers need grocery stores. Everyone wants to shop at a place that's got a produce section, meats, a deli, a bakery. And I would call the FTC's argument stronger here because pretty much every American consumer needs that local grocery store.
I think where this gets blurred for us is that, in many cases, you've got the local IGA store with a Dollar GeneralDG across the shopping center. And Dollar General is able to get these smaller package sizes of goods from the manufacturers and by going to the antitrust enforcer and saying, “Hey, we don't compete with the grocery store. So that gives us the ability to get different terms and different products.” But of course we know that they're competing to some degree for those consumer dollars. So I think when you look at upstream buyer power, there is a really broad definition. But when it comes to merger enforcement, it really is a local market by market basis that we try to really look at the health of competition.
ES: What policy enforcement or legal remedies would NGA like to see in order to protect independents and make the grocery sector more diverse and compelling and not so damn consolidated?
CJ: There's a law on the books called the Robinson Patman Act that dates back to the Depression era. It prohibits price discrimination. If you're a wholesaler and you're able to purchase a product, a widget in the same quantity as a competitor, then you should be able to get the same price for that. But that law has fallen out of favor by the antitrust enforcement agencies and the courts for the last 40 years, to the point that there's hardly any enforcement of it.
The lack of enforcement of Robinson Patman has created an incentive in the marketplace to consolidate, because the more you consolidate, the more power you have. And when you don't have any constraints, when you don't have any price discrimination laws, then you can get away with whatever your trading partners will take. With the Robinson Patman Act, if we're able to purchase in the same quantities, in the same efficiency, then everyone should be entitled to the same price for goods. So I think we start there and then we try to build on that. I think in that example of the dollar store competing across the shopping center with the grocery store, you shouldn't have different package sizes for different channels if the two players are competing with one another. So we need to get rid of these distinctions and channels of trade that limit competition in the grocery sector. So I think those are the two things that we hope that Robinson Patman can tackle if the federal enforcers are able to file a lawsuit in court. But beyond that, Robinson Patman was passed in the 1930s, it's a very old statute. We also need to see some modernization of that, so that it tackles the various ways in which we experience and see discrimination in the grocery marketplace today.
ES: That makes sense. Any closing thoughts along these lines?
CJ: We're just happy to see this issue of grocery competition, of the health of the consumer, back in the forefront. Hopefully we can keep the momentum going.
