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The Federal Trade Commission (FTC) today released a report on grocery supply chain disruptions resulting from the Covid-19 pandemic, finding larger industry players had a disproportionate influence on these issues’ negative impacts.
The report follows an FTC inquiry in November 2021, when it requested information from retailers and CPG companies including Walmart, Amazon, Kroger, Procter & Gamble, Tyson Foods, and Kraft Heinz, as well as wholesalers including C&S Wholesale Grocers, to detail supply chain issues they had faced, how they adapted, and potential impact to consumers and competition. This included review of internal documents from senior executives.
Larger companies with more power over wholesalers and producers fared better than smaller retailers during the pandemic, which presents future risks to competition, the commission said.
“Dominant firms used this moment to come out ahead at the expense of their competitors and the communities they serve,” FTC Chair Lina M. Khan said in a statement.
Closer look: The FTC report identified four notable findings:
- During the pandemic, when many products were in short supply, larger companies often implemented “strict delivery requirements” on suppliers and threatened fines to gain a competitive advantage, the FTC claimed. Walmart even made its requirements more stringent than its standard “on time in full” policy as the pandemic continued. This could have negatively impacted competition, as suppliers favored such retailers to avoid fines.
- Food and beverage retailers’ annual profits rose significantly during the pandemic, and continue to be elevated, “casting doubt” that higher prices are driven by higher input costs.
- Recognizing the risks of a concentrated supply chain, retailers during the pandemic began to look at expanding their manufacturing capabilities. If they buy producers rather than building up their own capabilities, it could further limit supply chains and competition among retailers.
- With high demand and limited supply, producers cut promotional spending, used to drive consumer demand, during the pandemic. Retailers that rely on promotions for their pricing strategy then had a tougher time competing with retailers whose strategy revolved around “Everyday Low Prices.”
The FTC said both the “significant size of trade promotions,” as well as continually high profits for retailers since the pandemic, warrant further examination.
Though Kroger was included in the report, FTC officials said in a briefing with reporters that the information obtained from Kroger was not used to inform the agency’s lawsuit to block the merger between Kroger and Albertsons, which it filed last month.