Large grocery store firms used their size to get a leg up on their smaller competitors as the pandemic disrupted supply chains, the Federal Trade Commission concluded in a report issued Thursday.
“Consumers are still facing the negative impact of the pandemic’s price hikes,” the FTC said in a news release. The report found that “some in the grocery retail industry seem to have used rising costs as an opportunity to further raise prices to increase their profits, which remain elevated today.”
“Dominant firms used this moment to come out ahead at the expense of their competitors and the communities they serve,” FTC Chair Lina M. Khan said in a news release.
The White House also responded to the report. National Economic Council Deputy Director Jon Donenberg, who also is Director for Competition Policy, said, “Today’s FTC report shows grocery retailers increased profits during the pandemic and have maintained or increased those margins even as their own costs have come down. President Biden knows grocery prices are still too high for hardworking families.”
The report relied on information supplied in response to orders the FTC issued in 2021 under the FTC Act to Walmart, Amazon, Kroger, C&S Wholesale Grocers, Associated Wholesale Grocers, McLane Co., Procter & Gamble, Tyson Foods, and Kraft Heinz. “The findings also draw from publicly available data on industry costs and revenues,” the commission said.
“Some companies — most often larger ones — used policies that imposed strict delivery requirements on their upstream suppliers and threatened fines for noncompliance,” the report said. “Walmart even tightened the delivery requirements its suppliers had to meet to avoid fines as the pandemic went on. In some cases, suppliers preferentially allocated product to the purchasers threatening to fine them, which may have affected competition between the companies that threatened these fines and those that did not.”
Walmart and Kroger did not immediately respond to a request for comment.
The National Grocers Association applauded the report.
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“This study confirms what independent grocers and their customers experience firsthand: dominant national chains or so-called ‘power buyers’ are abusing their immense economic power to the detriment of competition and American consumers,” NGA President and CEO Greg Ferrara said.
“In communities nationwide, independent grocers strive to compete on price, quality, service, convenience, and product range,” he said. “However, decades of lax antitrust enforcement enable grocery power buyers to coercively squeeze suppliers to comply with their trade demands, unfairly disadvantaging smaller competitors,
“The result — confirmed by the FTC’s study — is a less efficient consumer supply chain where buyer power dictates priority distribution of high-demand products and special pricing arrangements,” Ferrera added.
NGA quoted the report’s conclusion that “limited competition can lead to bottlenecks that increase the impact of supply chain shocks on different businesses and consumers while simultaneously creating opportunities for further entrenchment. … As supply chains normalize, some of these symptoms may subside, but the underlying issues remain.”
The report did not examine whether the specific firms that supplied information to the commission increased their prices “by more or less than their cost increases.” However, it did find that “food and beverage retailer revenues increased to more than 6% over total costs in 2021, substantially higher than their recent peak of 5.6% in 2015.” In addition, “In the first three-quarters of 2023, retailer profits rose even more, with revenue reaching 7% over total costs.”
“This profit trend casts doubt on assertions that rising prices at the grocery store are simply moving in lockstep with retailers’ own rising costs,” the report said, adding, “These elevated profit levels warrant further inquiry by the commission and policymakers.”
Citing the Government Accountability Office, the FTC report said retail food prices in the U.S. spiked 11% between 2021 and 2022. “For comparison, over the previous decade, annual retail price increases for food averaged about 2%,” the report said.
Transportation disruptions challenged all levels of the grocery supply chain, the report said. “In particular, respondents reported that demand for shipping products by truck far outstripped the available supply of both trucks and qualified truck drivers during the pandemic.”
In addition to labor supply disruptions, companies covered by the report “also said they were impacted by reduced production of new trucks due to chip shortages.”
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