The U.S. Federal Trade Commission recommended Thursday that policymakers look further into profits at grocery stores that remain elevated since the pandemic and promotions that consumer products makers offer retailers.
The FTC also is suing to block Kroger's acquisition of smaller grocery store rival Albertsons, citing concerns the deal would hike prices for millions of Americans.
The FTC launched the study in 2021 when it ordered Walmart, Kroger, Procter & Gamble, grocery wholesalers and others to turn over detailed information relating to the supply chain crisis during the pandemic, which contributed to double-digit price increases on household necessities.
Big box and chain stores secured limited resources, leaving small independent grocers at a disadvantage, FTC Chairperson Lina Khan said on a public call to discuss the report. This harmed communities reliant on these smaller retailers and could have also strengthened market dominance of larger corporations, she added.
"If we end up finding that these types of practices violated any of the antitrust laws including the [Robinson-] Patman act, I'll be very interested in making sure we take swift action," she said without providing details.
The Robinson-Patman Act of 1936 is a U.S. antitrust law preventing large franchises and chains from engaging in price discrimination against small businesses.
Several representatives of smaller grocery operators spoke on the call saying that during the pandemic, they faced shortages of toilet paper, cleaning products and pet supplies as manufacturers prioritized their biggest clients.
"It was a true test of survival for a lot of our customers," said Brian Patterson, head buyer at Piggly Wiggly Alabama Distributing Co.
Walmart and Kroger are among chains that have touted gaining U.S. grocery market share. Kroger's most recent quarterly statements said it improved volume share consistently for the past five quarters. Walmart said it gained market share in "virtually every category," citing its lower prices.
Walmart and Kroger did grow share from 2018 to 2022, but only modestly, according to Coresight Research data.
The FTC said it will pass the report onto lawmakers, "where there has been broad interest" from members of both parties.
U.S. President Joe Biden has taken aim at grocery chains this year.
"Today’s FTC report shows grocery retailers increased profits during the pandemic and have maintained or increased those margins even as their own costs have come down," the White House said in an email to Reuters on Thursday.
In Thursday's report, the FTC found that a measure of annual profits for food and beverage retailers "rose substantially and remains quite elevated." The commission said revenues for grocery retailers were 6% over total costs in 2021, and 7% in the first nine months of 2023, higher than a peak of 5.6% in 2015.
"This casts doubt on assertions that rising prices at the grocery store are simply moving in lockstep with retailers’ own rising costs," the FTC said, adding that elevated profit levels "warrant further inquiry" by both policymakers and the commission, which is tasked with protecting the public from unfair business practices.
The FTC also said trade promotions, payments by consumer goods companies to retailers for favorable product placement in stores and on e-commerce websites, "may warrant further study."
The reduction in spending harmed traditional grocers that use a "high-low" pricing strategy with more frequent promotions, the FTC found.
Retailers that offer "everyday low pricing" with fewer promotions, like Walmart, benefited, according to the study.
Walmart did not immediately respond to a request for comment.
The FTC added that the report does not make claims of illegality.
"We're shedding light on what we're seeing in the market, which has broader relevance to policymakers beyond law enforcement.”
