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PORTSIDE CULTURE

FTC CALLS FOR FURTHER INVESTIGATION INTO PANDEMIC GROCERY PROFITS IN
US  
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Fiona Holland
March 22, 2024
JustFood.com
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_ Retailers' high profits during and since 2021 "warrant further
consideration", said the FTC. _

Kraft Heinz macaroni and cheese boxes in US grocery store,
Shutterstock

 

The US Federal Trade Commission (FTC) has demanded further assessment
of national food and drink retailers’ profits during the Covid-19
pandemic in a new report.

Its findings, published in the Feeding America in a Time of Crisis
study, looked at the supply chain shocks seen in the US during the
pandemic and their effect on grocery retailer competition.

Nine companies in total were investigated as part of the study which
was launched in 2021.

These included three retailers Kroger, Amazon and Walmart, US food and
beverage giant Kraft Heinz and meats processing major Tyson Foods, as
well as non-food consumer goods company Procter & Gamble.

Kroger is set to battle with the FTC in August over its proposed
merger with national grocery peer Albertsons.

In February, the US antitrust body said it intended to block the deal
due to its concerns over its negative impact on both retailers’
consumers and employees.

Three grocery wholesalers, C&S Wholesale Grocers, McLane Company, and
Associated Wholesale Grocers, were also assessed in the report.

Looking into data on grocery retail patterns during Covid, the FTC
found that profits of grocery retailers “rose and remain elevated”
overall, with food and drink retailers’ revenue being more than 6%
higher than total costs in 2021.

The regulators also found these profits were higher again in the first
three quarters of 2023, with revenue sitting 7% higher than total
costs for the year.

The profits “warrant further consideration by the Commission and
policymakers”, said the FTC, specifically as the data analysed could
not show whether companies boosted prices of products “by more or
less than their input cost increases”.

Responding to the findings in a statement, FTC Commissioner Rebecca
Kelly Slaughter said: “The study found some indications that higher
prices at the grocery store, which continued after the worst of the
pandemic supply chain disruptions were resolved, were not simply
mirroring the higher costs retailers faced, but actually may be
reflective of higher profits for those retailers.

“Since the study found that some aspects of the supply chain
disruptions we faced during the pandemic may have been harmful to
competition, the indications that profits may have increased during
the same time and remain high may be further indication that consumers
are not benefitting from competitive markets in the ways they should
when they do their grocery shopping.”

The FTC also found larger grocers were more likely to put “strict
delivery requirements” in place for upstream suppliers and impose
fines on those that did not comply. Walmart was one such example,
imposing delivery requirements that continued to be tightened
throughout the pandemic.

It also recorded some instances where “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”.

The pandemic also encouraged some retailers to “diversify their
supplier base”, specifically when it came to own-label products. In
turn, this led to some larger companies “exploring whether to build
or acquire manufacturing capacity to reduce their exposure to
concentrated markets”, the FTC said.

As a result, this left any “remaining buyers worse off”, as the
competition became more concentrated, “if those large customers buy
one of the few remaining

producers rather than building that capability from scratch”.

The pandemic also significantly reduced the level of trade promotions
(e.g. in-store via product placement, shelf space or advertising),
paid for by suppliers.

Some retailers were more dependent on these promotional payments than
others, the FTC said, which “made it harder for them to compete with
rivals that used different pricing strategies”, and made it easier
for other firms to further “entrench their dominance” in the
market.

* Food Prices; Grocery Chains; Food Justice;
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* Pandemic prices
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