The grocery aisle at a Walmart. (Photo by Marty Schladen, Ohio Capital Journal.)
In any case, for now, supermarket giants Kroger and Albertsons will not merge into a single supermarket giant to face off against Walmart, another mega-giant. But in many ways, the damage caused by four decades of failure to enforce relevant antitrust laws has already been done, says Stacy Mitchell, co-director of the Institute for Local Self Reliance and a leading critic of anticompetitive practices.
Having already done extensive work criticizing Amazon’s e-commerce behavior, Mitchell turned to the messages and found what she believes is a direct link between failure to enforce the Robinson-Patman Act from 1936, starting in the early 1980s, and the sharp decline in the number of grocers thereafter. and the rise of “food deserts” – distressed neighborhoods with no place to get healthy food. She said she has also found a less direct link to more recent price spikes at remaining grocery stores.
Causality
Writing in The Atlantic this month, Mitchell described how closely the decision not to enforce Robinson-Patman paralleled the decline of the competitive grocery market.
The law prohibits suppliers from making special deals with major grocers. But the Reagan administration dropped enforcement when it adopted a controversial doctrine embraced by economists and lawyers at the University of Chicago.
It said the goal of antitrust law was not fairness, but efficiency – and if a few big players were more efficient than many small ones, that was better for consumers. After more than four decades of lax antitrust enforcement by presidents of both parties, a growing number of economists and lawyers say the Chicago School’s claims were wrong on both counts.
Without enforcement in the grocery industry, competition decreased and grocers fled many neighborhoods, creating food deserts, Mitchell wrote.
“I became very interested in the history of food deserts, but I was surprised myself how much (non-enforcement) was causal,” Mitchell said in an interview last week. “Not only was it a factor for many, it was the factor.”
The Atlantic article describes how Robinson-Patman was hired in the 1930s to prevent A&P from forcing suppliers to sell at lower prices than A&P’s smaller competitors. The law was so effective that the eight largest chains together controlled only 25% of the market between 1954 and 1982.
Kroger is headquartered in Cincinnati. In the 1970s it even had to compete on its own turf with many others, including Thriftway, Marsh, A&P, Liberal and numerous independent IGAs. These competitors have now been bought up or gone bankrupt.
But when the Reagan administration stopped enforcing Robinson-Patman, and the biggest players began demanding special discounts from suppliers, suppliers demanded more from smaller grocers to make up for lost profits. That led to a “mass die-off” of small and medium-sized grocers and left many communities in food deserts, Mitchell wrote.
Fighting to become great
Perhaps predictably, research has shown that in 1970 “supermarkets were more likely to locate in urban areas with higher poverty and lower incomes” and that the trend was reversed by 1990 as grocers left those areas. Mitchell said the loss of competition undermined the need to serve individual communities, and serve them well.
“To have a food industry where there are loads of independent supermarkets and also chains, that just seems much better than where we are now, where we have many, many communities where there are no supermarkets and many, many others where we have only one choice from a supermarket; where Walmart is the only choice unless you want to drive across the metro to another store,” she said. “That is not feasible for your daily shopping.”
Mitchell said the main reason Kroger wanted to buy Albertsons was to keep up with Walmart. Kroger wanted to “try to gain the same level of purchasing power as Walmart. And that is the main motivation for the merger.”
Ohio Attorney General Dave Yost led several other state AGs in calling for the merger, saying it would actually increase competition in the grocery industry. In a court filing, they said such competition is currently robust as Kroger, Walmart and Albertsons compete with Dollar General, Family Dollar, Whole Foods, Aldi and others.
Just before the court rejected the proposed $25 billion merger, Mitchell predicted it would fail because of the case filed against it.
“The evidence is quite overwhelming,” she said. In documents submitted into evidence, “executives in the companies discussed their ability to raise prices in what one executive referred to as a ‘no-comp’ market, meaning the market had no competition.”
High prices
Frustration over inflation – especially at the supermarket – is believed to have played a major role in the outcome of the November 5 election. Mitchell said a lack of antitrust enforcement also played a role there — though not in a way as simple as creating food deserts.
She explained that the wave of mergers in the food industry triggered a similar wave of consolidation among suppliers who had to negotiate with the increasingly large companies.
“If they had to sit at the negotiating table with these big retailers, they had to go big too,” she said. “And so we saw a huge wave of mergers among them.
“Today you have a few major companies dominating the consumer packaged goods market. You walk down the aisles of the supermarket and you see many different brands, but those brands are actually owned by very few companies. You have PepsiCo. There’s General Mills. You have Kraft Heinz. You know, there are only a few of them, and right now those manufacturers have little competition because there are so few of them.”
Mitchell emphasized that such concentration was not the only culprit behind food inflation, especially during the pandemic. There were serious supply chain disruptions and labor shortages as workers tried to avoid contracting a deadly disease.
But Mitchell said suppliers and grocers have learned an unfortunate lesson during the coronavirus crisis.
“What they discovered during the pandemic is that they could raise prices without consequences, that they could use inflation as a cover to increase their profit margins,” she said. “And you know, if we had a competitive grocery market, consumers would have seen an expensive item from General Mills and opted for something else.”
Will the agent stay informed?
Amid the furor over high food prices, the Federal Trade Commission has taken some steps that signal renewed antitrust enforcement. In March, it published a report saying Kroger, Walmart and Amazon were taking advantage of the pandemic to raise prices and boost profits — and it said the companies still appeared to be doing so.
For example, Walmart took advantage of the supply crisis by requiring suppliers to deliver 98% of their orders “on time” and “in full” or risk severe penalties. With many basic products in short supply, that led to empty shelves for many of its competitors who lacked Walmart’s influence, the FTC said.
And the agency led the successful effort to halt Kroger’s attempt to merge with Albertsons.
But President-elect Donald Trump plans to replace Lina Khan — the FTC chair who led antitrust efforts against the retail, health care and digital conglomerates — with Andrew Ferguson, who is currently commissioner. Trump did this when he announced plans to staff his government with eight billionaires worth a combined $350 billion.
Announcing the change, Trump said Ferguson would stop what Trump says is censorship of conservatives on social media. It remains to be seen what Ferguson will do when it comes to supermarket giants.
This report was first published by the Ohio Capital Journal, which, like NC Newsline, is part of the national States Newsroom network.
