Is the FTC Looking at Grocery Chains as the Next Antitrust Target?

The Federal Trade Commission recently undertook an examination of grocery store supply chains and came out with a new report. Part of a broader White House examination of select industry supply chains and, among other things, price increases, the move comes on the heels of challenging supermarket giant Kroger’s proposed $25 billion acquisition of Albertsons.

Trying to separate the two might be impossible given the Biden administration’s announced actions to “lower costs for families and fight corporate rip-offs.” While the pharma, energy, and high tech industries have come under scrutiny, grocery stores are directly eyed as part of the “cracking down on unfair pricing.”

The new report “yielded several key insights regarding market structure, business conduct, and effects on consumers.” Here are two that speak directly to the issue of competition and pricing:

Some large purchasers pressed their suppliers for favorable allocations of products in short supply. — “At the outset of the pandemic, many companies suspended policies that would penalize suppliers for not filling orders of items that were in shortage. However, when suppliers could not fulfill every order, simply having product in stock became a point of competitive differentiation for wholesalers and retailers. To gain access to scarce products and therefore a competitive advantage, some companies—most often larger ones—used policies that imposed strict delivery requirements on their upstream suppliers and threatened fines for noncompliance.”

Grocery retailer profits rose and remain elevated, warranting further consideration by the Commission and policymakers. — “However, publicly available data on general grocery retail patterns reveal that during the pandemic, one measure of annual profits for food and beverage retailers—the amount of money companies make over and above their total costs—rose substantially and remain quite elevated. Specifically, food and beverage retailer revenues increased to more than 6 percent over total costs in 2021, higher than their most recent peak, in 2015, of 5.6 percent. In the first three-quarters of 2023, retailer profits rose even more, with revenue reaching 7 percent over total costs. This casts doubt on assertions that rising prices at the grocery store are simply moving in lockstep with retailers’ own rising costs.”

“The FTC’s report examining U.S. grocery supply chains finds that dominant firms used this moment to come out ahead at the expense of their competitors and the communities they serve,” said FTC Chair Lina Khan in prepared remarks.

As for the Kroger and Albertson deal, the agency wrote, “The FTC charges that the proposed deal will eliminate fierce competition between Kroger and Albertsons, leading to higher prices for groceries and other essential household items for millions of Americans. The loss of competition will also lead to lower quality products and services, while also narrowing consumers’ choices for where to shop for groceries. For thousands of grocery store workers, Kroger’s proposed acquisition of Albertsons would immediately erase aggressive competition for workers, threatening the ability of employees to secure higher wages, better benefits, and improved working conditions.”

This has the aroma of potential for eventual federal action, possibly even antitrust. Any action would likely be some time in the future — there would need to be more studies of the potential issues. Whatever the case, this isn’t necessarily bad news for commercial real estate. Reduction of consolidation would probably mean more chains maintaining a larger total of locations, rather than reduced needs and greater bargaining power with landlords.

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