FTC: Large Grocers Exploited Their Power During Pandemic

The Federal Trade Commission (FTC) has issued a report on the causes behind grocery supply chain disruptions resulting from the COVID-19 pandemic. The report also examined how supply chain disruptions affected competition among retailers, wholesalers and producers, as well as the impacts on consumers and businesses. 

The report’s findings stem from orders that the FTC issued in 2021 under Section 6(b) of the FTC Act. The organization ordered nine large retailers, wholesalers and consumer goods suppliers to provide detailed information to shed light on the causes of ongoing disruptions. The companies included Walmart Inc., Amazon.com Inc., The Kroger Co., C&S Wholesale Grocers Inc., Associated Wholesale Grocers Inc., McLane Co. Inc. Procter & Gamble Co., Tyson Foods Inc., and Kraft Heinz Co. The report findings also drew from publicly available data on industry costs and revenues.

[RELATED: Grocers Under Fire For High Food Prices]

According to FTC's “Feeding America in a Time of Crisis: The United States Grocery Supply Chain and the COVID-19 Pandemic” report, supply chain disruptions did not equally affect every retailer, wholesaler or producer. Instead, smaller firms, especially smaller grocery retailers, disproportionately faced difficulties obtaining products compared with larger firms. Some larger firms were better able to protect their product supply compared with smaller competitors.

According to the report, some larger companies re-imposed strict delivery requirements on their upstream suppliers during the height of the pandemic and threatened fines for noncompliance, pressuring suppliers to favor them over rivals. In some cases, suppliers preferentially allocated product to the purchasers threatening to fine them, giving larger companies a competitive advantage over smaller retailers at a time when having products in stock was a critical advantage for attracting customers. 

The report accuses large market participants of accelerating and distorting the negative effects associated with supply chain disruptions. Consumers felt the negative effects in the form of skyrocketing grocery prices and product shortages for essentials like toilet paper. 

“As the pandemic illustrated, a major shock to the supply chain can have cascading effects on consumers, including the prices they pay for groceries,” said FTC Chair Lina M. Khan. “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.”

The report found that the pandemic also prompted some larger firms to consider buying manufacturing suppliers to reduce their exposure to concentrated markets. The report warned, however, that moves by larger customers to buy one of the few remaining market participants, rather than building that capability from scratch, could leave the remaining buyers, notably smaller competing firms, even worse off.

Furthermore, the commission’s report accuses some in the grocery retail industry of still using rising costs as an opportunity to further raise prices to increase their profits. FTC cited that in the first three quarters of 2023, retailers’ revenue reached 7% over total costs, casting doubt on the assertions of some companies that rising prices at the grocery store were the result of retailers’ own rising costs.