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01/20/2022

Independent Grocer Testifies on Adverse Effect of Supply Chain Consolidation

Fresh Encounter CEO Michael Needler spoke before Senate subcommittee
Bridget Goldschmidt
Managing Editor
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NGA
Michael Needler Jr.

Michael Needler Jr., president and CEO of Findlay, Ohio-based Fresh Encounter Inc., which operates 100 grocery stores in Ohio, Indiana, Kentucky and Florida, and a member of the Washington, D.C.-based National Grocers Association (NGA), which represents the independent sector of the grocery industry, testified Jan. 19 in front of the Senate Judiciary Committee’s Subcommittee on Antitrust, Commercial and Administrative Law on the devastating effect of food supply chain consolidation on independent grocers. This issue has been a major focus for NGA. 

In his written testimony, Needler told the subcommittee “America’s food supply chain problems are a result of increasing concentration and unchecked buyer power by dominant retail chains who force suppliers to discriminate against independent grocery. The result is a system that benefits a select few at the expense of everyone else, including consumers, workers, and independent retailers and producers. Consumers have a narrowing range of choice to shop for the goods and services they need, entrepreneurs and independent businesses struggle to start and sustain businesses, and producers such as farmers and ranchers are forced to accept unfavorable economic terms, conditions and prices imposed by the largest members of a consolidated supply chain.”

Needler went on to observe that “grocery power buyers have taken advantage of the COVID-19 pandemic to further entrench their economic power at the expense of smaller competitors and producers. Independent grocers like me struggled throughout the pandemic to stock must-have products — such as essentials like paper towels and toilet paper, cleaning supplies, and critical packaged foods like canned soup. Meanwhile, large national chains have exercised their buyer power to demand on-time, complete orders, and in some cases to secure excess supply.”

According to the grocer, a key reason for this state of affairs is the lack of Federal Trade Commission enforcement of the Robinson-Patman Act, a more than 80-year-old law that prohibits anticompetitive economic discrimination against independent businesses that Needler asserts hasn’t been enforced in 20-plus years.  

“The rules prescribed in Robinson-Patman essentially aim to enable buyers the ability to buy goods at the same prices their competition does, so long as they are buying in similar quantities,” he explained. “What we are seeing in our markets is that our big-box competition has grown so large that they have the ability to exert considerable buyer power over the consumer packaged goods companies. They can dictate pricing, payment terms, product packaging, product delivery quantities and frequencies that are nearly untouchable to operators like myself.”

In his testimony, Needler maintained that the “tremendous economic power concentrated in the hands of a few grocery giants harms independent retailers and producers, the American consumer, and the U.S. economy in at least two ways … .  It results in economic discrimination on independent competitors and it increases food supply chain concentration.” The economic discrimination against indies affects prices, terms and product availability, and has only been exacerbated by the pandemic, during which panic buying “decimated” grocers’ shelves. When suppliers couldn’t produce the quantities of products needed to supply all retailers with their requested volumes, the suppliers placed allocations and restrictions on product flow to retailers and wholesalers, but “they did not apply these allocations equally [and i]ndependent grocery stores did not receive their fair share.”

On the subject of supply chain concentration, Needler observed: “When the big grocery chains drive out independent competitors, it increases concentration in grocery retail markets. This increases the buyer power of the dominant grocery companies. But it drives greater consolidation upstream in the grocery supply chain as well.” He pointed out that this concentration was “particularly acute” with respect to private label manufacturers, noting, for instance, that there was now only one major private label canned soup manufacturer.

Needler added that as well as “reduced product choice and increased prices for independent grocers and their consumers, greater concentration can result in anticompetitively low prices paid to independent producers, such as ranchers and farmers,” as well as leading to a less diverse food system, and creating a food supply chain that’s “less resilient and more vulnerable to disruption and shortages.” 

He continued: “We can win in retail grocery by offering service, quality, technology solutions, great shopping experiences and many more delightful attributes. However, when the rules of the game are not enforced, and those with the largest budgets dictate the rules of supply, then the smaller players will not be provided a fair opportunity to compete on the highest consumer decision point – price. Unfortunately, this ultimately ends poorly for the consumer as the smaller firms exit. Without true price competition, consumers ultimately pay more at the grocery checkout.”

Attributing the dwindling number of U.S. independent grocers to “the relentless economic discrimination and concentration imposed by dominant grocery chains with buyer power,” Needler asserted, “When independent grocers leave, small towns begin to fall apart, and our government spends billions trying to reverse the food deserts that form.”

He warned: “It’s too late after the independent grocers leave. Prevention is the only way to stop this erosion.”

Needler went on to take questions from subcommittee members.

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