Want to fix food deserts and lower food prices? Enforce antitrust law, activist says

The grocery aisle at a Walmart. (Photo by Marty Schladen, Ohio Capital Journal.)

For now, anyway, grocery giants Kroger and Albertsons aren’t going to merge into a single grocery megagiant to confront Walmart, another megagiant. But in many ways, the damage caused by 40 years of non-enforcement of relevant antitrust law is already done, said Stacy Mitchell, co-director of the Institute for Local Self Reliance and a prominent critic of anticompetitive practices.

Having already done extensive work critical of Amazon’s conduct in the ecommerce space, Mitchell turned to groceries and found what she says is a direct link between non-enforcement of the 1936 Robinson-Patman Act starting in the early 1980s, the plummeting variety of grocers thereafter and the rise of “food deserts” — distressed neighborhoods lacking a place to get healthy food. She said she also found a less-direct link to more recent price spikes at the grocery stores that remain.

Causality

Writing this month in The Atlantic, Mitchell described how closely the decision not to enforce Robinson-Patman paralleled the decline of the competitive grocery marketplace.

The law forbids suppliers from cutting special deals with big grocers. But the Reagan administration abandoned enforcement when it embraced a controversial doctrine espoused by economists and lawyers at the University of Chicago.

It said the goal of antitrust law wasn’t fairness, it was efficiency — and if a few big players were more efficient than many small ones, that was better for consumers. After more than four decades of lax antitrust enforcement by presidents of both parties, a growing number of economists and lawyers are saying the Chicago School’s claims were wrong on both counts.

Without enforcement in the grocery space, competition declined, and grocers fled many neighborhoods altogether, creating food deserts, Mitchell wrote.

“I got very interested in the history of food deserts, but I was surprised myself how (non-enforcement was) very much causal,” Mitchell said in an interview last week. “It wasn’t just a factor amongst many, it was the factor.”

The Atlantic article describes how Robinson-Patman was passed in the 1930s to stop A&P from forcing suppliers to sell to it at cheaper prices than A&P’s smaller competitors. The law was so effective that the eight largest chains combined controlled just 25% of the marketplace from 1954 to 1982.

Kroger is headquartered in Cincinnati. In the 1970s, it had to compete even on its home turf with many others, including Thriftway, Marsh, A&P, Liberal and numerous independent IGAs. Those competitors have since been bought up or have gone out of business.

But when the Reagan administration stopped enforcing Robinson-Patman, and the biggest players started to demand special discounts from suppliers, the suppliers demanded more from smaller grocers to make up lost profits. That led to a “massive die-off” of small and medium-sized grocers and many communities were left stranded in food deserts, Mitchell wrote.

Fighting to get big

Perhaps predictably, research has shown that in 1970 “supermarkets were more likely to locate in urban areas with higher poverty and lower income” and that the trend had reversed by 1990 as grocers left those areas. Mitchell said the loss of competition sapped groceries of the imperative to serve individual communities, and serve them well.

“To have a grocery industry where there are lots and lots of independent grocery stores and also chains, that just seems much better than where we are now, where we have many, many communities where there are no grocery stores and many, many others where we have only one choice of a grocery store; where Walmart is the only choice unless you want to drive across the whole metro to another store,” she said. “That’s not viable for your day-to-day grocery shopping.”

Mitchell said the big reason Kroger wanted to buy Albertsons was to keep up with Walmart. Kroger wanted “to try to gain the same level of buying power that Walmart has. And that’s the main motivation for the merger.”

Ohio Attorney General Dave Yost led several other state AGs in arguing for the merger, saying that it would actually increase competition in the grocery sector. In a court filing, they said such competition currently is robust because Kroger, Walmart and Albertsons compete against Dollar General, Family Dollar, Whole Foods, Aldi and others.

Speaking just before the courts nixed the proposed $25 billion merger, Mitchell predicted it would fail because of the case presented against it.

“The evidence is pretty overwhelming,” she said. In documents entered into evidence, “the executives in the companies talked about their ability to raise prices in what one executive talked about as a ‘no-comp’ market, meaning the market had no competition.”

High prices

Frustration over inflation — especially at the grocery — is thought to have played a big role in the outcome of the Nov. 5 election. Mitchell said a lack of antitrust enforcement also played a role there — albeit in not as straightforward a fashion as in the creation of food deserts.

She explained that the wave of mergers in the grocery industry spurred a similar wave of consolidation among the suppliers who had to bargain with the increasingly big companies.

“If they were going to have to sit across a negotiating table with these big retailers, they needed to get big too,” she said. “And so we saw this huge merger wave among them.

“Today you’ve got a few big companies that dominate the consumer-packaged-goods market. You walk down the supermarket aisles and you see lots of different brands, but those brands are actually owned by very few companies. You’ve got PepsiCo. You’ve got General Mills. You’ve got Kraft Heinz. You know, there are just a few and at this point, those manufacturers face very little competition, because there’s so few of them.”

Mitchell stressed that such concentration wasn’t the only culprit behind food inflation, especially during the pandemic. There were severe supply-chain disruptions and labor shortages as workers tried to avoid contracting a deadly disease.

But Mitchell said suppliers and grocers learned an unfortunate lesson during covid.

“What they found during the pandemic is that they could raise prices without consequence, that they could sort of use inflation as a cover story to increase their profit margins,” she said. “And you know if we had a competitive grocery market, consumers would have seen a high-priced item from General Mills and chosen something else.”

Will the cop stay on the beat?

Amid the furor over high grocery prices, the Federal Trade Commission took some steps that signaled reinvigorated enforcement of antitrust law. In March, it published a report saying that Kroger, Walmart and Amazon took advantage of the pandemic to raise prices and pad profits — and it said the companies appeared to still be doing it.

Walmart, for example, took advantage of the supply crunch to require suppliers to deliver 98% of its orders “on time” and “in full” or face stiff penalties. Because many staples were in short supply, that led to empty shelves for many of its competitors who didn’t have Walmart’s clout, the FTC said.

And the agency led the successful effort to halt the attempt by Kroger to merge with Albertsons.

But President-elect Donald Trump is planning to replace Lina Khan — the FTC chair who led antitrust efforts against retail, health care and digital conglomerates — with Andrew Ferguson, who is currently a commissioner. Trump did so as he announced plans to staff his administration with eight billionaires worth a combined $350 billion.

In announcing the change, Trump said Ferguson would stop what Trump claims is censorship of conservatives on social media. It remains to be seen what Ferguson will do when it comes to grocery giants.

This report was first published by the Ohio Capital Journal, which like NC Newsline, is part of the national States Newsroom network. 

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