Wednesday, June 07, 2023

Why are grocery prices remaining so high? Time to dust off an old law and support fair competition, writer argues

Image by Zek Tebbal, The New York Times
It's about impossible for smaller grocery stores to compete with galactic buyers like Walmart and Kroger, but without competition, food prices have gotten higher and will remain that way, writes Stacy Mitchell in her opinion for The New York Times. "To understand why grocery prices are way up, we need to look past the headlines about inflation and reconsider long-held ideas about the benefits of corporate bigness."

First off, there's no way for small stores or chains to "MacGyver" their purchasing power and cut prices that match big retailers. '"Food Fresh is the only grocery store in a rural stretch of southeastern Georgia. It has many five-star Google reviews praising its freshly butchered meats, tomato bar and friendly service. Yet it faces a threat to its survival that no amount of management skill can overcome. Big retailers like Walmart and Kroger can wrest deep discounts from suppliers, making it impossible for the store to come close to matching the chains' prices. Food Fresh's owner, Michael Gay, told Mitchell that big chains "have a handle on suppliers that I can't touch."

Is this competition at work? "Major grocery suppliers, including Kraft Heinz, General Mills and Clorox, rely on Walmart for more than 20 percent of their sales. So when Walmart demands special deals, suppliers can't say no. And as suppliers cut special deals for Walmart and other large chains, they make up for the lost revenue by charging smaller retailers even more. . . . This isn't competition. It's big retailers exploiting their financial control over suppliers to hobble smaller competitors. Our failure to put a stop to it has warped our entire food system. It has driven independent grocers out of business and created food deserts. It has spurred consolidation among food processors, which has slashed the share of food dollars going to farmers and created dangerous bottlenecks in the production of meat and other essentials. And in a perverse twist, it has raised food prices for everyone, no matter where you shop."

What's the history? "A level playing field was long a tenet of U.S. antitrust policy. In the 19th century, Congress barred railroads from favoring some shippers over others. It applied this principle to retailing in 1936 with the Robinson-Patman Act, which mandates that suppliers offer the same terms to all retailers. . . . For roughly four decades, the Federal Trade Commission vigorously enforced the act. . . . . Independent grocery stores flourished, accounting for more than half of food sales in 1958. Supermarket chains like Safeway and Kroger also thrived. This dynamism fed broad prosperity. Even the smallest towns and poorest neighborhoods could generally count on having a grocery store. And the industry's diffuse structure ensured that its fruits were widely distributed. Of the nearly nine million people working in retailing overall in the mid-1950s, nearly two million owned or co-owned the store where they worked. There were more Black-owned grocery stores in 1969 than there are today."

That's painful to hear. "Then, amid the economic chaos and inflation of the late 1970s, the law fell into disfavor with regulators, who had come to believe that allowing large retailers to flex more muscle over suppliers would lower consumer prices. For the most part, the law hasn't been enforced since. As a top Reagan administration official explained in 1981, antitrust was no longer 'concerned with fairness to smaller competitors.' This was a serious miscalculation. Walmart, which seized the opening and soon became notorious for strong-arming suppliers and undercutting local businesses, now captures one in four dollars Americans spend on groceries."

Is there an end in sight? "This has resulted in an ever-worsening cycle: As a system dominated by a few retailers lifts prices across the board — even at Walmart — consumers head to those retailers because of their ability to wrest relatively lower prices or simply because they're the only options left. . . . Meanwhile, the decline of independent grocers, which disproportionately serve rural small towns and Black and Latino neighborhoods, has left debilitating gaps in our food system. . . . Losing small retailers also stifles innovation. . . . This results in diminished selection for shoppers, who find store shelves stocked with only what the big food conglomerates choose to produce."

What can individuals do? "Stop big retailers from using their enormous financial leverage over suppliers to tilt the playing field. By resurrecting the Robinson-Patman Act, we could begin to put an end to decades of misguided antitrust policy in which regulators abandoned fair competition in favor of ever-greater corporate scale. . . . There is promising momentum. Last year an unusual coalition of Democratic and Republican lawmakers sent a letter to the FTC urging it to dust off Robinson-Patman. . . .These moves are already drawing fire from an old guard locked in bigger-is-always-better thinking. . . . In the early days of the pandemic, as Walmart and Amazon compelled manufacturers to steer scarce supplies their way and worsened shortages at local grocers,Gay [at Food Fresh] worked long days hustling to find alternate sources." Gay told Mitchell: "My meat is fresher. My produce is fresher. My customer service is better. Imagine if you made the playing field level. Imagine what I could do."

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