Credit: Brian J. Matis

In March, the National Grocers Association (NGA), a trade association representing independent grocery stores, released a white paper detailing the ways dominant retailers abuse their market power over suppliers and marginalize small grocers. The pandemic exacerbated these abuses, the group argues, citing practices such as Big Box retailers demanding priority access to products in short supply, while smaller stores were frozen out. The group calls for enforcing antimonopoly laws, including the long-dormant Robinson-Patman Act, to address what it deems “economic discrimination.”

Passed in 1936, Robinson-Patman was intended to preserve the viability and diversity of smaller retailers by ensuring that the big chain stores did not engage in price discrimination and other unfair business practices. For example, it makes it illegal for suppliers to charge small retailers more than they charge the big chains for the same product.

The NGA argues that it is time to revive Robinson-Patman and other antimonopoly statutes. “The lack of antitrust enforcement has handicapped competition in the grocery sector and harmed American consumers,” said Chris Jones, NGA’s senior vice president of government relations. “Economic discrimination is, in fact, a problem that extends well beyond our industry … [We’re calling] on Congress and the federal government to modernize and enforce the antitrust laws.”

Smaller, family- or employee-owned grocery stores sell 25 percent of all groceries 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. New or local food suppliers may also get their start selling to independent grocers before growing into larger distribution, the NGA’s white paper argues.

While studies find 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. This partially stems from the fact the largest retailers, called “power buyers,” can negotiate price concessions from packaged goods manufacturers.

This discrepancy in buyer power has dramatically expanded with grocery consolidation. As recently as 1997, Americans bought 20 percent of all groceries from the top four retailers. By 2019, the top four retailers claimed 43 percent of all sales, with Walmart alone capturing 1 in every 4 dollars spent on groceries. Amazon’s online grocery sales also tripled during the pandemic, just as the e-commerce goliath expands its network of brick-and-mortar Amazon Fresh grocery stores.

At a certain point, suppliers feel pressure to accept less favorable terms or offer special perks to dominant buyers because they cannot afford to lose their business. These deals go beyond justifiable bulk discounts that reflect genuine savings from say, delivering an order large enough to fill a truck.

“The heart and soul of this whole issue of economic discrimination is the notion that corporations can win solely on the basis of their size, not by competing in a better way, but simply by being larger,” explains Stacy Mitchell, the co-director of the Institute for Local Self-Reliance. “The vast majority of the superior pricing and terms that Walmart is getting are a product of its muscle, not of superior efficiency.”

Both Mitchell and the NGA emphasized that independent grocers often join buying clubs to buy goods by the truckload, thereby creating efficient volumes for suppliers. But even then, they cannot get the same deals as Big Box stores with gatekeeper power. Suppliers need to be on Walmart’s shelves or Amazon’s marketplace to access customers; they don’t need to have a presence in a smattering of local shops in the same way.

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

For instance, in September 2020 during the middle of the pandemic and widespread product shortages, Walmart implemented a 3% cost-of-goods penalty on any supplier that did not deliver 98% of its order in full and on time. “This was at a time when overall industry service level inbound was only about 85%,” explained Smith. “So, if you are a supplier that can only provide 85% of what your customers are ordering and your most significant customer … demands 98%, where does that improvement come from? Well, we know that it amounts to a shortage to the others that are out there.”

Indeed, CNN reported this spring that smaller grocers still struggle to secure a sufficient supply of highly demanded products, including toilet paper, canned goods, and cleaning supplies.

“During the pandemic, providing for our friends and neighbors got even harder, because our larger competitors were illegally taking away our access to important stock items,” said Jimmy Wright, owner of Wright’s Market in Opelika, Ala. “Opelikans were forced to make an extra trip to the nearest big chain when they preferred to shop 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 genuine 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 quietly put [the Robinson-Patman Act] up on a shelf somewhere,” said Mitchell. “They overturned a law without involving Congress.”

Since the 1970s, a growing body of antitrust scholars have argued that the anti-discrimination statutes in Robinson-Patman are inefficient and prevent retailers from offering the lowest possible prices. In 2007, a congressionally chartered commission even recommended repealing the law entirely.

To be sure, even proponents of Robinson-Patman have acknowledged in congressional hearings over the years that the law contains critical ambiguities and should be improved. But the NGA argues that the low prices power buyers receive are “sub-competitive,” or below those that would exist in a competitive market, since they are set by domination, rather than fair negotiation. This ultimately harms grocery market competition by putting some stores at a disadvantage solely because of their size.

NGA’s report calls on Congress to investigate discriminatory and anti-competitive conduct in the grocery sector and to restore the original intent of the Robinson-Patman Act to make it enforceable again. “It has been almost 100 years since the last law was passed here, so it could need some updating in the long run,” said Jones.

Claire Kelloway

Follow Claire on Twitter @clairekelloway. Claire Kelloway is a senior researcher-reporter for the Open Markets Institute and the lead writer for Food & Power.