The next time you go shopping for food (and all the other things grocery stores in big chains carry) take a moment to think about what you are really paying for. There’s a must-read in The NY Times that explains why the food chain is being exploited by big chains.
Stacy Mitchell, executive director of the Institute for Local Self-Reliance, has a story that needs to be heard. (The link above should allow passage through The NY Times paywall.) There’s a saying “Size matters” and it does, but not in a good way here.
Food Fresh is the only grocery store in a rural stretch of southeastern Georgia. It has many five-star Google reviews touting 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 “have a handle on suppliers that I can’t touch,” said Food Fresh’s owner, Michael Gay. The chains wrest deep discounts from suppliers, making it impossible for the store to come close to matching their prices.
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.
Like other independent grocers, Food Fresh buys through large national wholesalers that purchase goods by the truckload, achieving the same volume efficiencies the big chains do. What accounts for the difference in price is not efficiency but raw market power. 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, something economists refer to as the water bed effect.
Read the whole thing — it’s a good look at how the lack of government opposition to mergers and consolidation has allowed a handful of big players to stifle competition and raise their profits. It leaves consumers paying higher prices, leaves people in areas the big chains won’t serve in a food desert, and means problems with any single big player ripple through the whole food chain — because there are so few alternatives.
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. The act allows large retailers to claim discounts based on actual volume efficiencies but blocks them from extracting deals that aren’t also made available to their competitors. For roughly four decades, the Federal Trade Commission vigorously enforced the act. From 1954 to 1965, the agency issued 81 cease-and-desist orders to stop suppliers of milk, tea, oatmeal, candy and other foods from giving preferential prices to the largest grocery chains.
As a result, the grocery retailing sector was enviable by today’s standards. 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 a 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.
Like so many other things, we can go back to Ronald Reagan.
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. Its rise spurred a cascade of supermarket mergers, as other chains sought to match its leverage over suppliers. If the latest of these mergers — Kroger’s bid to buy Albertsons — goes through, just five retailers will control about 55 percent
of grocery sales. Food processors in turn sought to counterbalance
the retailers by merging. Supermarket aisles may seem to brim with variety, but most of the brands you see are made by just a few
Leave it to Republicans to decree fairness was no longer a concern. The idea of a level playing field isn’t just about fairness — it’s about ensuring competition between players acts as a feedback mechanism to counter greed. The argument that consumers save because big players can offer lower prices because they are more efficient is only part of the story — and often not more efficient at all.
Lack of competition means:
- Lack of innovation — why change what is working to bring in profits?
- Lack of resilience — disaster hitting one big player can devastate the entire market. The pandemic certainly showed that, and climate change is only going to make it worse.
- Barriers to entry for new players means consumers miss out on what might change the industry and don’t get services the big players can’t be bothered to provide.
- Suppliers can be forced out of business by demands from the big players to give them concessions or lose their market. This forces them to either get big or get out, extending the problem.
- Pressure on worker wages. When workers don’t have a lot of choices of where to seek employment, they are forced to take what they can get. In an anti-union environment, that’s not much.
- Lack of market signals, to provide the feedback to indicate when prices are out of whack with regard to supply and demand.
- It makes it easier for a few big players to protect their market share and high prices when they can all read from the same playbook — such as blaming inflation, supply chain issues, etc. — for high prices while distracting attention away from the fact that they are making record profits.
And it is even more insidious. When you walk into a supermarket and see hundreds of different brands on the shelves, don’t think you are seeing competition in action. A handful of companies own dozens or even hundreds of brands.
Robert Reich takes a look at monopolization, and brings the receipts. It’s not pretty.
We need to bring back anti-trust. All of the problems Mitchell and Reich are warning us about are only going to get worse. It’s not just about the rising Fascism coming from the right. Climate change is going to cause increasing disruption. We need to bring back fairness as a national aspiration, however much the right rails against it. When push comes to shove, if fairness is not a priority, things will go full Thunderdome in the contest for survival. All those preppers with guns are just waiting for an excuse to exercise their ‘rights’.
The examples of bad behavior coming from the Right during the Pandemic don’t bode well for the chances of bringing this off, but it makes a huge difference. One of the things that got Britain through World War II was the willingness of people to stand in line, put up with rationing, and share hardship. This is not going to work in a world where the only thing that matters is increasing shareholder value.
It’s fitting to bring this up on Memorial Day, if only as a reminder that not all important battles are fought by armies on the front lines, not all sacrifice is borne by soldiers and their loved ones, or that the fight for a better world is not behind us.
By all means, follow Robert Reich, and check out the website for the Institute for Local Self-Reliance.