Senate Judiciary Committee exploring the matter
From staff reports
David Smith, the president and CEO of Associated Wholesale Grocers, a National Grocers Association member, testified July 28 before the full Senate Judiciary Committee on the effects of economic discrimination and anticompetitive tactics by power buyers on independent grocers nationwide.
Consolidation and concentration in the grocery industry have been a central issue for NGA as independents face the anticompetitive tactics of larger chain grocery stores and e-commerce giants, which abuse their size to demand unfair terms from suppliers.
“The most effective way for lawmakers to understand how these issues impact grocers is by hearing from someone on the frontlines each day,” said Greg Ferrara, NGA president and CEO. “David Smith was the perfect fit to give testimony yesterday as he has years of experience working in the food supply chain and is hearing from independents in several states about how the lack of antitrust enforcement is harming their business.”
Sen. Richard Blumenthal of Connecticut commented on seeing the “rapid” consolidation of the food supply chain at the retail level.
“And now, entering this market is Amazon, which has used its economic power to bulldoze its way into new markets, not just groceries with the purchase of Whole Foods, but also entertainment, audiobooks, smart devices, gaming,” he said. “Every time, our antitrust enforcers have taken a narrow view and given these acquisitions the green light.”
Blumenthal asked what Smith sees as the impact of Amazon’s entry through its purchase of Whole Foods “as well as the data-rich resources that it is gaining through Amazon Prime and the Amazon marketplace enhancing the power of its acquisition,” he said.
“Amazon has unique access to vast troves of data that none of you can lay claim to and that economic power, I fear, will aggravate the kinds of bottlenecks that we’ve seen in our supply chain,” Blumenthal said. “By tying Amazon Prime memberships to discounts at Whole Foods and opening a new line of Amazon Fresh grocery stores, Amazon has cleared another path to potential monopolization of commerce. And it’s on track to double its sales over the next five years and overtake Walmart as America’s dominant grocer. Is that a cloud on the horizon so far as you all are concerned?”
Smith said the situation with Amazon is a further expansion of power buyers.
“The meat discussion we’re having today is really a single ingredient in an overall situation that is created when you have these power buyers,” he said. “Companies such as the manufacturers and producers are unable to get the pricing that they need because of the tremendous dominance that they have.
“When a singular retailer can have 30 or 35 percent of all of your sales, but yet you and your products may represent 1 percent or less of that retailer’s sales, there’s a disproportionate risk. And so the power buyers, what I was speaking about earlier with ‘harvest and invest’ and Amazon, I think they may have defined it.
“I think they may have actually come up with the very definition for ‘harvest and invest’ by leveraging Amazon Web Services to produce incredible income in order to be able to get into the retail business. And so, is that an existential threat to supermarkets? Yes. Is it an existential threat to suppliers? Of course, but having so much of an aggregated power with those companies, it’s a tremendous risk.”
Sen. Amy Klobuchar of Minnesota asked Smith how the loss of local grocery stores impacts consumers, particularly in rural communities. She mentioned the U.S. has about one-third fewer grocery stores compared to 25 years ago. Smith answered by sharing a story.
“One of our member retailers, which operates several different stores – and he already competes with the largest retailer here in the U.S – had been receiving a lot of requests to open a new store in an area that really only had a supercenter…and they wanted a full-service supermarket with really great prepared foods.
“So, he did his homework. And prior to going into the town, he had a service do a full book retail price check to make sure that the retail pricing there was comparable [to] the other markets where he was at that he was already competing with that competitor. And sure enough, he found that it actually was higher.
“So he checked that off the list and said that’s not really a concern, and he spent millions of dollars preparing the facility and opened it up. And after opening, the retail pricing in that market, because it was isolated, he was kind of carved out…the retail prices there at that competing store undercut him at every turn and anecdotally from the people from that competitor store. We were hearing that a store lost millions of dollars during that period of time that store was open and our member lost millions of dollars from his family business and ultimately closed.”
Klobuchar followed up asking about the dominance of power buyers and their anticompetitive behavior how that affects independent grocers.
“The power buyer, it isn’t directly related to efficiencies, it’s a misnomer,” he explained, “And what I was speaking to a moment ago is this notion of consumer welfare, Senator, that the consumer is benefitted by the lower prices, but those are very short term and actually, they pay more because of that ‘harvest and invest.’ [The power buyers] invest in those areas to drive out competition and then after the competition goes away [prices] increase. So the power buyers are using that positioning against the manufacturer, which they’ve even cited in their own SEC filings that that’s one of the biggest threats against their ability to compete for the manufacturers because it’s not proportionate to the risk.”
Klobuchar later asked what Smith views as a solution to the grocer issues he raised.
“All we’re asking for is a level playing field. Robinson-Patman, we thought, should ensure that we get fair terms and fair prices for the same product,” he said. “But what we’re dealing with is that it’s gone unenforced, and we really see nothing that is stopping the continued increase of market power by those power buyers.
“So, it’s the same thing, it’s transparency and fairness and an equal opportunity. That’s all that we’re asking for.”
Ferarra described the hearing as a “pivotal moment” for U.S. independent grocers.
“Anticompetitive practices by dominant industry players have been hurting community-based grocers for years, creating an unlevel playing field where they don’t have access to the same products and pricing as their larger competitors,” he said.
“For the first time in decades, there is momentum for antitrust reform and enforcement, and we hope this hearing will serve as a catalyst for bipartisan efforts towards meaningful action.
“Independent grocers have been at the heart of their community for years – this became clearer during the COVID-19 pandemic, as local grocers made heroic efforts to continue serving their customers. And they did all this in an unfair environment.
“Change is long overdue, and we look forward to keeping up the momentum over the next few months until we have reform and enforcement,” Ferrara said.
