1 Buyer Power and Economic Discrimination in the Grocery Aisle

NATIONA

L GROCERS ASSOCIATION

Buyer Power and Economic Discrimination in the Grocery Aisle:

Kitchen Table Issues for American Consumers

The National Grocers Association

Introduction

The National Grocers Association (NGA) represents independent community grocers across the

country, as well as their wholesaler partners. America's approximately 21,000 independent

grocers are the true entrepreneurs of the grocery industry, passionately committed to their

customers, their employees and the markets they serve. And they are at the heart of local

communities, where they provide jobs and boost tax revenue while bringing choice, convenience

and value to hard-working Americans.

Our members compete in markets that are increasingly dominated by a handful of national and

international chains. These dominant chains wield tremendous economic power to the detriment

of independent retailers and producers and the American consumer. For decades, they have used

their “buyer power” to dictate terms and conditions to suppliers, which in turn forces suppliers to

discriminate against independent grocers and drives consolidation throughout the supply chain.

Buyer power also harms small and mid-sized producers, such as independent farmers and

ranchers, who are paid prices far below competitive levels.

Although these problems are not new, the 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. Many independent grocers have 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—while large national chains have

exercised their buyer power to demand on-time, complete orders, and in some cases to secure

excess supply. In those months that small businesses struggled to keep products on their

shelves, dominant retailers such as Amazon, Costco, and Dollar General posted their largest

profits ever, and Walmart doubled the size of its e-commerce business.

Jeffrey Dastin & Akanksha Rana, Amazon Posts Biggest Profit Ever at Height of Pandemic in U.S., REUTERS,

July 30, 2020,

https://www.reuters.com/article/us-amazon-com-results/amazon-posts-biggest-profit-ever-at-height-

of-pandemic-in-u-s-idUSKCN24V3HL; Phil Wahba, Walmart’s E-Commerce Sales Nearly Double As Shoppers Go

Beyond Groceries in Online Orders, FORTUNE, Aug. 18, 2020, https://fortune.com/2020/08/18/walmart-ecommerce-

sales-covid-doug-mcmillon; Jeremy C. Owens, Costco Clears $4 Billion in Earnings For The First Time Amid

Record Growth, MARKETWATCH, Sept. 24, 2020, https://www.marketwatch.com/story/costco-clears-4-billion-in-

earnings-for-first-time-amid-record-growth-but-the-stock-is-falling-11600979558, Micah Maidenberg, Dollar

General, Dollar Tree Draw in Consumers Amid Economic Weakness, WALL ST. J., Aug. 27, 2020,

ATIONAL GROCERS ASSOCIATION

The result of increasing concentration and unchecked buyer power is a system that benefits a

select few at the expense of everyone else, including consumers, workers, and independent

retailers and suppliers: 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.

America’s buyer power problem was not inevitable. The antitrust laws were designed to address

these very issues, including by protecting consumers and suppliers from firms with buyer power

and by defending small businesses from the predatory tactics of large rivals. And for many

decades they did.

It was only in the last 30 years that policymakers and courts adopted an

orthodoxy that “mega”-sized firms are more efficient and better positioned to drive down

consumer prices, sacrificing other considerations that animated the antitrust laws.

Today, a growing consensus is emerging that the antitrust laws are a critical tool in the economic

toolbox to address rising levels of concentration and the harms that flow from these market

structures. Congress—on a bipartisan basis—and the public are increasingly understanding that

effective and timely antitrust enforcement should promote and protect competitive markets,

including by ensuring a level playing field and preventing large competitors from acting to

disadvantage smaller rivals and depriving consumers of the benefits of competitive markets.

This paper uses independent grocers as a case study to explore the problems that flow from

increased retailer buyer power and economic discrimination in today’s economy. Part I details

the many benefits of independent grocers. Part II discusses the growing concentration in the

grocery sector, and how dominant retailers threaten the health of the grocery ecosystem. Part III

describes the ways in which dominant players in the grocery industry use their buyer power to

impose discriminatory terms and conditions on suppliers that disadvantage smaller, independent

grocers and harm consumers. Part IV explores how antitrust enforcement has failed to maintain

a level playing field for independent businesses trying to compete against increasingly powerful

rivals.

I. Independent Grocers Benefit Local Economies, Competition, and Consumers

Small and mid-sized independent businesses are critical drivers of competition, economic

growth, and jobs in American communities. They compete on the basis of price, but also on

other important dimensions of competition that are often overlooked by bigger players—

https://www.wsj.com/articles/dollar-general-dollar-tree-draw-in-consumers-amid-economic-weakness-

11598548959?mod=article_inline (reporting Dollar General quarterly sales rose by about 19% in the second quarter

of 2020).

See Lina Khan and Sandeep Vaheesan, Market Power and Inequality: The Antitrust Counterrevolution and Its

Discontents, 11 H

ARVARD L. & POLICY REV. 235, 270 (2017) (citing the legislative history of the Sherman Act and

the Clayton Act).

ATIONAL GROCERS ASSOCIATION

including by offering higher quality, better service, more convenient locations, and a greater

diversity of products.

This is particularly true in the grocery sector. Independent grocers, which are family or

employee-owned grocery retailers, account for close to one percent of the nation’s overall

economy and are responsible for generating $131 billion in sales, 944,000 jobs, $30 billion in

wages, and $27 billion in taxes.

These grocery stores act as an economic anchor in their

communities, attracting consumers and generating foot traffic that creates opportunities for other

area businesses.

Independent grocers are also strong competitors. In addition to price, independent grocers

compete through food quality, variety, and availability; selection of healthy options; selection of

locally produced foods; cleanliness; checkout speed; and availability of staff; as well as

accessibility and convenience of location.

To remain competitive and keep food prices as low

as possible, independent grocers operate with a median net profit margin of about 0.7 percent.

Consumer sentiment reflects the benefits of independent and regional grocers. In a 2019 review

of grocery stores, Consumer Reports found that consumers overwhelmingly preferred regional

grocery stores over national chains, including the warehouse clubs and supercenters that

dominate the space.

The regional grocery stores included in the survey outperformed national

chains on a number of dimensions of competition, including price competitiveness, breadth of

goods, and produce quality.

Independent grocers also play a crucial role in ensuring food access and in meeting local

demand. Independent grocers serve smaller, rural communities as well as high density urban

ones. These stores are particularly important to inner-city and rural communities, many of which

would otherwise suffer from a lack of access to healthy foods.

A 2017 study found that from

2005 to 2015, the number of independent grocery stores in rural counties and in counties with

How COVID-19 Impacted Small Businesses Across the Food System: Hearing Before the House Small Business

Comm., 116th Cong. (2020) (statement of Jimmy Wright, Owner, Wright’s Market On Behalf of the National

Grocers Association), https://smallbusiness.house.gov/uploadedfiles/09-30-20_mr._wright_testimony.pdf

[hereinafter Testimony of Jimmy Wright].

Best Grocery Stores and Supermarkets, CONSUMER REPORTS, Apr. 16, 2019,

https://www.consumerreports.org/grocery-stores-supermarkets/best-grocery-stores-and-supermarkets

The average net profit for independent grocers in 2019 was 1.05 percent, and 35.1 percent of independent grocers

reported negative profit results in 2019. See National Grocers Association & FMS Solutions, 2020 Independent

Grocers Financial Survey,

https://blog.fmssolutions.com/blog/eng/2019-performance-enabled-independent-grocer-

success-amid-pandemic.

Consumer Reports, supra note 4.

Id.

In 2009, the U.S. Department of Agriculture (USDA) began mapping food access to identify communities where

there was low availability of affordable, nutritious foods. The USDA’s most recent data estimates that

approximately 17 million people live in food-desert communities. See Food Access Research Atlas, U.S. Dep’t of

Ag., Econ. Res. Serv., https://www.ers.usda.gov/data-products/food-access-research-atlas/documentation/#changes

ATIONAL GROCERS ASSOCIATION

growing Black populations increased, while the number of chain stores decreased in these areas.

In one striking example, Detroit, Michigan, a city of 700,000 residents (78 percent of whom are

Black), is served by only three locations of national chain grocery stores in its 143 square mile

area, but approximately 70 independent grocery stores.

Studies have also shown that

independent grocers are more likely to serve low-income areas, and that Supplemental Nutrition

Assistance Program (SNAP) benefits are more likely to be redeemed at independently owned

stores, particularly in rural areas.

In small towns and urban neighborhoods that are not served by independent grocers, many

consumers are left with no access to healthy food. For example, a 2018 study found that in

northern Tulsa, Oklahoma, there is no full-service grocery store, and the only option for residents

to buy groceries close to their home are dollar store chains.

Those stores offer only a narrow

selection of processed foods, and there are no fresh vegetables, fruits, or meats on the shelves.

In addition to offering competitive products and services, independent grocers also benefit

communities by creating opportunities and serving populations that are overlooked by large

chains. Independent businesses extend opportunities throughout rural, suburban and urban

America and protect local communities from being overly dependent on one business or

industry.

Many independent grocers are family-owned or employee-owned businesses that have been in

business for generations. Economic research has shown that a higher percentage of small

businesses in a community is strongly associated with greater economic well-being, including

employment growth.

Clare Cho and Richard Volpe, Independent Grocery Stores in the Changing Landscape of the U.S. Food Retail

Industry, ERR-240, U.S. Dep’t of Ag., Econ. Res. Serv., Nov. 2017,

https://www.ers.usda.gov/webdocs/publications/85783/err-240.pdf

Nathaniel Meyersohn, How The Rise of Supermarkets Left Out Black America, CNN BUSINESS, June 16, 2020,

https://www.cnn.com/2020/06/16/business/grocery-stores-access-race-inequality/index.html.

See, e.g., Powell, L., S. Slater, D. Mirtcheva, Y. Bao, and F. Chaloupka, Food Store Availability and

Neighborhood Characteristics in the United States, Preventive Medicine 44(3):189-195 (2007); King, R., E.

Leibtag, and A. Behl, Supermarket Characteristics and Operating Costs in Low-Income Areas, Agricultural Econ.

Rep. No. 839, U.S. Dep’t of Ag., Econ. Res. Serv., 2004.

Stacy Mitchell and Marie Donahue, Report: Dollar Stores Are Targeting Struggling Urban Neighborhoods and

Small Towns, Dec. 6, 2018, https://ilsr.org/dollar-stores-target-cities-towns-one-fights-back/ (identifying various

towns that have lost their only grocery store and observing that “[l]ocal grocers that survived Walmart are now

falling to Dollar General”). There is growing evidence that these stores are not responding to economic distress—

but rather causing it. In rural areas and urban centers, these dominant retailers have saturated communities with

multiple outlets, forcing full-service grocery stores to close and making it impossible for new grocers to open. Id.

Id.

See Cho and Volpe, supra note 9 (“In addition to improving food access, independent stores provide job

opportunities that may help attract residents and generate tax revenues that aid in development efforts.”).

See, e.g., Anil Rupasingha, Locally Owned: Do Local Business Ownership and Size Matter for Local Economic

Well-Being? (Fed. Res. Bank of Atlanta Community and Econ. Disc. Paper No. 01-13, 2013),

https://www.frbatlanta.org/-/media/documents/community-development/publications/discussion-papers/2013/01-do-

local-business-ownership-size-matter-for-local-economic-well-being-2013-08-19.pdf.

NATIONAL GROCERS ASSOCIATION

Independent grocers also foster innovation and new business growth at the supplier level by

stocking products from local and small-scale businesses. For example, independent grocers are a

critical distribution channel for local brands, many of which are not stocked at larger stores.

NGA member Woodman’s Food Market, which operates fifteen retail grocery stores located in

Wisconsin and Illinois, carries Mad Dog and Merrill condiments, Bucky Badger snacks, and

Huber jams and jellies that larger competitors do not distribute. In addition, various smaller

suppliers, including suppliers of spices, seasonings, sauces, sausages, and salad dressing brands,

have used independent grocers to enter the market before reaching the shelves of larger chains.

And during the pandemic, local craft distillers around the country were able to shift their

production capacity to manufacture alcohol-based hand sanitizer, a product they largely

distributed to consumers through independent businesses.

Without independent grocers, these

new entrants and smaller suppliers would lose a key channel to reach consumers and grow their

businesses.

Small businesses also have a proven track record of supporting their employees during crises.

According to a recent NGA and FMS Solutions study, about 85 percent of independent grocers

paid “hero pay” to their workers by increasing overtime pay or paying employees above their

normal rate of pay for working during the pandemic.

Wright’s Market, a family-owned

business serving the community of Opelika, Alabama, provided an extra week of pay to its

employees early in the pandemic and provided bonuses and overtime pay as the pandemic

continued.

Other small businesses have reporting staying open just to pay their employees, or

at a minimum, to preserve their healthcare coverage during the pandemic.

II. Dominant Retailers Threaten the Healthy Grocery Ecosystem

Despite the benefits of a robust independent retail grocery sector, grocery is becoming

increasingly concentrated. Independent grocers are constantly losing ground to a handful of

dominant retailers, to the disadvantage of both consumers and local communities.

Today, large, national chains increasingly control the grocery sector.

For example, Walmart

alone currently captures one out of every four dollars Americans spend on groceries

For example, New Holland Brewing Company quickly shifted its production to hand sanitizer at the start of the

pandemic, produced 1,000 gallons of hand sanitizer by the end of March 2020. Its hand sanitizer was delivered to

health care and emergency providers as well as grocery stores throughout West Michigan. See Coppercraft, New

Holland Produce 1,000 Gallons of Hand Sanitizer for Area Hospitals, KTVB7, Mar. 27, 2020,

https://www.ktvb.com/article/news/health/coronavirus/lakeshore-distilleries-create-1000-gallons-hand-sanitizers/69-

2ee9b6de-3bf8-4164-8ea0-16acf518e90b.

Testimony of Jimmy Wright, supra note 3, at 3.

Id.

Stacy Mitchell, The Imminent Small-Business Collapse, THE PROSPECT, Mar. 22, 2020,

https://prospect.org/economy/imminent-small-business-collapse-coronavirus

Courage to Learn: Agriculture, AMERICAN ECON. LIBERTIES PROJECT, Jan. 11, 2021,

https://www.economicliberties.us/our-work/ctl-agriculture

(the market share of the top four grocers in the United

States has increased from 25 percent in 1997 to 44 percent in 2018).

NATIONAL GROCERS ASSOCIATION

nationwide.

And in many areas Walmart’s presence is even greater: According to a 2019

study, Walmart captured more than 50 percent of grocery sales in 43 metropolitan areas in the

U.S., and more than 70 percent of grocery sales in 38 regions.

These chains’ dominance is even more striking given consumers’ preference for regional grocery

stores—where those stores exist—and consumers’ negative views of the grocery shopping

experience at large national chains. For example, in the Consumer Reports study, Walmart

received a “disappointing” overall score, and it received the lowest score of any store included in

the survey for employee helpfulness and attentiveness.

In addition to degrading the consumer experience, growing concentration has contributed to

stagnating wage growth and widening income inequality.

Large chains centralize employment

opportunities in a small number of American cities, and pay high wages to a select few. Large,

non-local businesses have a negative effect on income.

People who work for retail businesses

with fewer than 100 employees make about 30 percent more than employees working at chains

with more than 10,000 employees.

Even the smallest retailers—those with fewer than ten

employees—pay more, on average, than large, national chains.

Growing concentration has also harmed farmers, farm communities, and food production

workers. Because of their bargaining leverage, dominant retailers can and do aggressively drive

down the prices they pay to farmers, ranchers, meatpackers, and other suppliers.

The result is

that dominant retailers are capturing a greater and greater share of each consumer dollar spent on

food, while suppliers are forced to lower the prices they pay to farmers and the wages they pay to

Stacy Mitchell, Walmart’s Monopolization of Local Grocery Markets, INST. FOR LOCAL SELF-RELIANCE, June

2019, https://ilsr.org/wp-content/uploads/2019/06/Walmart_Grocery_Monopoly_Report-_final_for_site.pdf

Id.

Nathan Wilmers, Wage Stagnation and Buyer Power: How Buyer-Supplier Relations Affect U.S. Workers’

Wages, 1978 to 2014, 83 A

MER. SOCIOLOGICAL REV. 2 (2018),

https://journals.sagepub.com/doi/full/10.1177/0003122418762441

(analyzing panel data on publicly traded

companies and concluding that “[t]he spread of unequal bargaining relations between corporate buyers and their

suppliers has slowed wage growth for workers”).

Stephan Goetz & David Fleming, Does Local Firm Ownership Matter?, 25 ECON. DEV. Q. 277 (2011),

https://journals.sagepub.com/doi/abs/10.1177/0891242411407312

(“Economic growth models that control for other

relevant factors reveal a positive relationship between density of locally owned firms and per capita income growth

but only for small (10-99 employees) firms, whereas the density of large (more than 500 workers) firms not owned

locally has a negative effect.”).

Stacy Mitchell, Why Small Businesses Matter for Workers, INST. FOR LOCAL SELF-RELIANCE, April 18, 2018,

https://ilsr.org/how-small-businesses-benefit-workers

Id.

United Food and Commercial Workers International Union, Report: Ending Walmart’s Rural Stranglehold

(“Walmart’s entry into the retail grocery market in the early 1990s, and the company’s meteoric rise to become the

number one grocery retailer, gave it unprecedented buyer power over the packers to continue exerting strong

downward pressure on prices paid to suppliers, preventing the meatpackers, workers and farmers from recovering

their previous share of the consumer meat retail dollar.”)

NATIONAL GROCERS ASSOCIATION

workers, and market participants throughout the supply chain have less money to invest in

expanding their businesses.

All of this has a devastating impact on rural communities.

Historically, some have argued that the relentless drive to reduce labor and supply costs by

national chains is economically beneficial, and that a concentrated grocery sector is more

efficient and more innovative.

But in reality, industries with more small businesses are

consistently and significantly more innovative than industries dominated by a few large

companies.

And the purported tradeoff between efficiency and small and midsized businesses

is false. Smaller and medium-sized grocers often purchase products through cooperatives and

other mid-sized wholesalers to take advantage of the same economies of scale in distribution and

best practices in inventory management as national chains.

Grocery wholesale cooperatives

like Wakefern, Topco, and other NGA wholesale members provide scale economies that allow

grocers to match the efficiency of large chains while preserving the benefits of independent

businesses. For example, these wholesale cooperatives combine purchases to buy in the most

efficient manner possible (by the truckload) and provide other services at scale, including

advertising, technology, and risk management.

At bottom, the claim that power buyers deliver

greater benefits to consumers because they are more efficient is simply wrong.

Moreover, economic research suggests that dominant players do not pass their efficiencies on to

consumers. For example, one study examining the impact of grocery consolidation on food

prices in major urban centers found that while consolidation may have generated economies of

scale for supermarkets, those benefits are not being passed on to consumers, and many markets

are vulnerable to significant price increases due to high levels of concentration.

See id. at 2-4, 7-8.

Id. at 19 (“[T]his inevitably leads to lower wages for workers, less money for farmers, growers and ranchers and

fewer choices for consumers. Instead of providing rural economic development, Walmart stores become wealth

extraction points that bleed our rural communities dry.”)

The FTC has approved several major mergers between large grocery chains in recent years, including Kroger and

Harris Teeter in 2014 and Albertsons and Safeway in 2015. In some cases, the FTC has required divestitures to

address competitive harm caused by the mergers, only to see those divestitures fail. For example, the FTC required

Safeway and Albertsons to sell off 168 stores as a condition of the merger. Months after the sale, however, one of

the major buyers of the stores declared bankruptcy and shuttered the divested stores. Press Release, Fed. Trade

Comm’n, FTC Requires Albertsons and Safeway to Sell 168 Stores as a Condition of Merger (Jan. 27, 2015),

https://www.ftc.gov/news-events/press-releases/2015/01/ftc-requires-albertsons-safeway-sell-168-stores-condition-

merger; Brent Kendall, Haggen Struggles After Trying to Digest Albertsons Stores, WALL ST. J., Oct. 9, 2015,

http://www.wsj.com/articles/haggen-struggles-after-trying-to-digest-albertsons-stores-1444410394.

Wilfred Dolfsma & Gerben van der Velde, Industry Innovativeness, Firm Size, and Entrepreneurship:

Schumpeter Mark III?, 24 J.

EVOLUTIONARY ECON. 713 (2014),

https://www.researchgate.net/publication/272591124_Industry_innovativeness_firm_size_and_entrepreneurship_Sc

humpeter_Mark_III (“[W]e find that, in a number of different and robust model specifications, the contribution of a

presence of large firms to industry innovativeness is distinctly negative for industry innovativeness . . . . Small

firms, however, consistently, positively and significantly contribute to industry innovativeness.”).

See Steve W. Martinez, The U.S. Food Marketing System: Recent Developments, 1997-2006, U.S. Dep’t of Ag.,

Econ. Res. Serv., May 2007, https://www.ers.usda.gov/webdocs/publications/45818/11562_err42_1_.pdf?v=4803.8.

Id.

Kyle W. Stiegert, Impacts of Nontraditional Food Retailing Supercenters on Food Price Changes, Food System

Res. Group, Dep’t. of Ag. and Applied Econ., U. of Wisc.-Madison, FSRG Monograph Series No. 20, Feb. 2006,

NATIONAL GROCERS ASSOCIATION

All of this raises the question: if a concentrated retail grocery sector is harmful to consumers, the

economy, and local communities why are dominant retailers growing their control of the sector?

III. Retail Buyer Power and Economic Discrimination in Grocery

In the grocery sector, demands from power buyers impose disadvantageous terms, conditions,

and prices on independent grocers. This economic discrimination reduces the smaller rivals’

competitiveness through higher costs or reduced product supply or quality, and directly harms

competition, consumers, and the economy. Retail buyer power has also driven increased

concentration in the grocery supply chain, reducing alternatives for independent retailers,

producers, and consumers alike. This makes the supply chain more vulnerable to disruption,

ultimately raising prices and threatening supply, and creating a vicious cycle that enhances the

power of dominant retailers.

Buyer-side market power exists when a purchaser can use its bargaining leverage to secure sub-

competitive prices from its suppliers—i.e., prices or terms below those that would exist in a

competitive market—or impose discriminatory terms on the purchaser’s rivals—i.e., obtain price

or supply concessions that are not available to its competitors.

In the grocery sector, the large

national chains have buyer power because of their significant bargaining leverage over

suppliers.

This leverage exists because the national chains are critical “gatekeepers” between

grocery suppliers and consumers. These retailers control a substantial proportion of the shelf

space—whether physical or digital—that provides the key distribution channel for suppliers’

products.

For example, the top four national grocery chains controlled 44 percent of grocery

sales in 2018.

Critically, this dependency is asymmetric; the dominant grocery retailers are not nearly as

dependent on a particular supplier as the supplier is on the retailer. This is because a particular

grocery supplier’s products generally represent only a small fraction of a grocery retailer’s sales,

which may encompass tens of thousands of products.

And a dominant retailer often enjoys

several potential branded suppliers for a particular product in addition to selling its own, private

label brand versions. As a result, a dominant retailer has a substantial advantage over its

https://www.researchgate.net/publication/228790460_Impacts_of_nontraditional_food_retailing_supercenters_on_f

ood_price_changes (examining pricing data from 1993 through 2003 for 23 demographic metropolitan areas and

concluding “our findings suggest if supermarkets did receive efficiency gains from mergers, they did not pass cost

savings on to consumers”).

John B. Kirkwood, Buyer Power and Exclusionary Conduct, 72 ANTITRUST L. J. 625, 652 (2005).

Sofia Berto Villas-Boas, Vertical Relationships Between Manufacturers and Retailers: Inference with Limited

Data, 74 R

EV. OF ECON. STUDIES 625, 647 (2007) (analysis of U.S. wholesale and retail yogurt prices consistent with

“high bargaining power of retailers” relative to manufacturers).

Paul Dobson, Exploiting Buyer Power: Lessons from the British Grocery Trade, 72 ANTITRUST L. J. 2, 555

(2005).

Claire Kelloway and Sarah Miller, Food and Power: Addressing Monopolization in America’s Food System,

Open Markets Institute, Mar. 27, 2019,

http://www.openmarketsinstitute.org/publications/food-power-addressing-

monopolization-americas-food-system.

Id.

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suppliers in a negotiation because the risk for the retailer, if the supplier refuses its demands and

no deal results, is substantially smaller than it is for the supplier.

The paradigmatic example for this one-sided bargaining dynamic is Walmart. Its ability to

unilaterally demand concessions from suppliers is legendary. For example, in 2017, Walmart

announced a new requirement that suppliers for Walmart stores and Walmart’s e-commerce

business must provide on time and in full deliveries 75 percent of the time.

Since then,

Walmart has repeatedly tightened this requirement, raising the bar for on time, in full deliveries

from 75 percent to 85 percent and then to 87 percent in 2019.

In September 2020, while

manufacturers and suppliers throughout supply chains were struggling to safely meet demand

during the COVID-19 pandemic, Walmart raised the bar again, demanding 98 percent on time, in

full deliveries.

Walmart punishes suppliers that fail to meet its demands by charging a penalty

of 3 percent of the cost of goods sold—a devastating penalty in an industry already operating

with razor-thin margins.

Likewise, in its report on competition in the digital markets, the U.S. House Judiciary Committee

found that Amazon exercises significant market power over suppliers.

In one striking example,

the Committee found that Amazon and Walmart ignore minimum advertised prices set by brand

manufacturers, by which other sellers must abide.

One anonymous source explained that

suppliers have “no realistic threat” against Amazon, because they have no other path to reach

their customer base.

And the Committee cited internal Amazon documents showing that it

does not fear the consequences of failing to comply with suppliers’ policies.

Two of the anticompetitive effects that flow from unchecked retail buyer power in the grocery

sector are economic discrimination and supply chain concentration.

Economic Discrimination: For decades, dominant players in the grocery industry have used their

buyer power to impose discriminatory terms and conditions on suppliers that disadvantage

smaller, independent grocers and harm consumers. More recently, e-commerce giants have

Id.

Jennifer Smith & Sarah Nassauer, Walmart Toughens Delivery Demands for Suppliers, WALL ST. J., Mar. 6, 2019,

https://www.wsj.com/articles/walmart-toughens-delivery-demands-for-suppliers-11551914501

Id.

Thad Rueter, Walmart Pressures Suppliers on Delivery Times, PROGRESSIVE GROCER, Sept. 4, 2020,

https://progressivegrocer.com/walmart-pressures-suppliers-delivery-times

Id.

Investigation of Competition in Digital Markets Majority Staff Report and Recommendations, Subcomm. on

Antitrust, Commercial and Admin. Law of the H. Comm. on the Judiciary, 258 (2020).

Brand manufacturers often establish minimum prices to prevent retailers from freeriding off of other stores’

investment and promotions, product displays, and expertise. Id. at 258-259; see also n.1584 (citing an Amazon

internal document asking “Why did Walmart break MAP and we didn’t?”).

Id.

Id. at 259 & n.1584 (citing an internal Amazon document to “audit that we are price matching . . . any

diapers.com pricing. If this puts us in the soup with P&G on their pampers map price, so be it”).

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emerged using the same playbook. Because these powerful buyers are the gatekeepers to

consumers, suppliers are left with virtually no leverage to negotiate.

Examples of economic discrimination in the grocery sector include:

• Price discrimination: charging one purchaser a more favorable price than other

purchasers for the same product. Price discrimination in grocery can take the

form of failures to provide price promotions or packaging with a lower per unit

cost. It also comes in the form of less favorable payment terms. For example,

certain power buyers demand and receive “scan-based payment” terms from

suppliers, meaning they only pay once a product has been scanned for final sale to

a customer. Meanwhile, the same suppliers require independent grocers to pay

for products upon receipt (or within a fixed period of receipt), shifting the risk

that a product sits on the shelves to the grocers. These terms provide significant

advantages for dominant retailers, who in effect receive free credit on their

purchases and can stock a greater diversity of products, without taking on any risk

that the products will take time to sell, or will not sell at all.

• Product supply discrimination: refusing to supply products to independent

grocers that are made available to powerful buyers, or favoring power buyers on

allocations or delivery terms. For example, suppliers often enforce arbitrary

minimums on certain products to effectively make them exclusive to power

buyers. For example, one NGA member wanted to carry a 36-count jumbo pack

of a popular, high-end toilet paper, which is regularly available at Sam’s Club.

The manufacturer said they could only offer the product if the member committed

to 2,380 pallets of the jumbo packs—a volume that would have exceeded all of

the member’s sales of that product in the previous year. Independent grocers have

also been told that they cannot purchase “test” products for months or even years

after they have become widely available at Walmart or other large chains.

• Packaging discrimination: refusing to provide certain package sizes or

promotional packaging to certain grocers, while providing them to competing

retailers. Some manufacturers have stopped supplying large package size

versions of products—that some consumers associate with greater value—to

independent grocers while providing them to big box retailers or club stores. In

addition, Dollar General has used its buyer power to demand “cheater size”

products, which include smaller amounts in a package that can then be sold at a

lower price. These “cheater size” products create a false impression among

See, e.g., Albert Foer, Abuse of Superior Bargaining Position (ASBP): What Can We Learn from Our Trading

Partners?, AAI Working Paper No. 16-02 (2018),

https://www.antitrustinstitute.org/wp-

content/uploads/2018/09/AAI-Working-Paper-No.-16-02.pdf (detailing laws related to abuse of superior bargaining

position outside the United States and arguing that “a serious gap exists in the law regulating vertical relations” in

the U.S.).

NATIONAL GROCERS ASSOCIATION

consumers that they are paying a lower price for the same product they see at

independent grocers.

Economic discrimination has a two-fold effect on smaller competitors such as independent

grocers: First, the powerful buyer secures more advantageous terms for itself. Second, the

powerful buyer imposes higher purchasing costs or other disadvantages on its rivals, as suppliers

seek to make up for the discounts and other advantages they are forced to extend to the powerful

buyer with higher charges to other buyers. In many cases, the wholesale price offered to

independent grocers is higher than the retail price at wholesale clubs like Costco. As a result,

independent grocers often resort to buying entire pallets of must-have products from their

competitors.

Economists call this phenomenon “the waterbed effect,” and have explained how it harms

consumers as well as rivals:

While a large and powerful firm improves its own terms of supply

by exercising its bargaining power, the terms of its competitors can

deteriorate sufficiently so as ultimately to increase average retail

prices and, thereby, reduce total consumer surplus. Such consumer

detriment from the waterbed effect is more likely if the adversely

affected firms are already sufficiently squeezed, due to relatively

higher wholesale prices and, consequently, lower market shares.

Economists have observed this effect in the grocery industry, explaining that buyer power allows

dominant players to enter into a “virtuous circle” in which they use their power to undercut

smaller rivals and gain market share, which they then exploit to further undercut smaller rivals

and capture even more market share.

There is a foreseeable outcome of Walmart’s exercise of buyer power, described above, in

demanding ever higher requirements for on time and in full deliveries: Suppliers focus on

fulfilling Walmart’s shipments at the expense of Walmart’s competitors because Walmart is the

indispensable customer. Smaller grocers receive fewer on time, full deliveries, and are forced to

over-inventory products, which raises their costs and damages their ability to fairly and

For example, one NGA member purchased over $2 million in various products from Sam’s Club in 2015 and

2016, and over a $1 million from January through July of 2017, when Sam’s Club made the decision to stop selling

to its rival. Even with Sam’s Club’s markup and the added transportation costs, the retail price at Sam’s Club was

still lower than the price available to the independent—even through cooperative wholesalers that buy in large

volume.

Roman Inderst & Tommaso M. Valletti, Buyer Power and “The Waterbed Effect,” LIX J. INDUST. ECONOMICS 1,

2, (2011); see also Paul W. Dobson & Roman Inderst, The Waterbed Effect: Where Buying and Selling Power

Come Together, 2008 W

IS. L. REV. 331, 336-37 (2008) (discussing the circumstances that can give rise to the

waterbed effect, and how the phenomenon can distort downstream competition and harm consumers).

See Dobson, supra note 38 (noting that the circle is only “virtuous” for the dominant retailer but “vicious” for the

smaller, independents).

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effectively compete. As a result, consumers lose access to lower prices at their local grocers, and

in many cases lose access to must-have products from local grocers entirely.

Amazon has also exercised its economic power to impose prices on suppliers that are

significantly lower than the prices independent grocers pay. In many cases, Amazon’s retail

price is lower than independent grocers’ wholesale price. In fact, one NGA member tried to

offer diapers to an employee at cost, only to learn that the employee was paying a lower price for

diapers on Amazon than the NGA member was paying at wholesale.

The economic discrimination imposed by Amazon through its suppliers is also apparent in the

delivery space. On Cyber Monday 2020, UPS notified drivers across the U.S. to stop picking up

packages from a group of retailers, including Gap, Nike, L.L. Bean, and Macy’s, due to surging

demand and limited capacity.

There were no reports that UPS imposed similar restrictions on

Amazon, its largest customer.

Competition authorities outside the United States have investigated the problems associated with

buyer power and economic discrimination in the grocery industry.

For example, in 2000, the

U.K.’s Competition Commission released a study of the grocery industry that identified 52

practices by dominant grocery retailers that could have potentially distorting effects on supplier

and/or retailer competition. The Commission concluded:

These practices, when carried on by any of the major buyers,

adversely affect the competitiveness of some of their suppliers

with the result that the suppliers are likely to invest less and spend

less on new product development and innovation, leading to lower

quality and less consumer choice. This is likely to result in fewer

new entrants to the supplier market than otherwise. Certain of the

practices give the major buyers substantial advantages over other

smaller retailers, whose competitiveness is likely to suffer as a

result, again leading to a reduction in consumer choice.

For a detailed look at how Amazon became the dominant e-commerce supplier of diapers, see Lina M. Khan,

Amazon’s Antitrust Paradox, 126 Y

ALE L.J. 710 (2017) (“Through its purchase of Quidsi, Amazon eliminated a

leading competitor in the online sale of baby products. Amazon achieved this by slashing prices and bleeding

money, losses that its investors have given it a free pass to incur—and that a smaller and newer venture like Quidsi,

by contrast, could not maintain.”).

Paul Ziobro, UPS Slaps Shipping Limits on Gap, Nike to Manage E-Commerce Surge, WALL ST. J., Dec. 2, 2020,

https://www.wsj.com/articles/ups-slaps-shipping-limits-on-gap-nike-to-manage-e-commerce-surge-11606926669

In January 2020, UPS boasted a 9 percent growth in total volume across all products, and reported that its growth

was led by its largest customer, Amazon. See Press Release, UPS Releases 4Q 2019 Earnings, Jan. 30, 2020,

http://www.investors.ups.com/news-releases/news-release-details/ups-releases-4q-2019-earnings

See, e.g., OECD, Competition issues in the Food Chain Industry (2013) (incorporating submissions from over 30

competition authorities).

U.K. Competition Comm’n, Supermarkets: A Report on the Supply of Groceries From Multiple Stores in the

United Kingdom at 7,

https://web.archive.org/web/20070109000906/http://www.competition-

commission.org.uk/rep_pub/reports/2000/fulltext/446c1.pdf. The 2013 OECD survey of market conditions in the

NATIONAL GROCERS ASSOCIATION

The harms to consumers from economic discrimination can be substantial. As described above,

these practices may raise rivals’ costs, causing them to charge their customers higher prices.

Dominant retailers can raise their own prices if independent competitors are driven out of a

particular geographic market. And beyond price, consumers also lose on other dimensions of

competition—including convenience, service, and quality—when independent grocers are

hobbled or forced to close.

Moreover, all of these problems disproportionately impact rural

communities and urban centers, which are more likely to be served by independent grocers.

Dominant retailers such as national big box or club store chains often seek to justify

discriminatory treatment targeting independent grocers—and avoid condemnation under the

antitrust laws—by arguing that independent grocery stores are in a different “channel of trade”

and therefore are not competitors. But these channel distinctions do not reflect reality.

Independent grocery stores vary widely in size and format, including ones that rival the biggest

national chains in size.

And the evidence shows that consumers see big box or club stores and

“traditional” grocery stores as alternatives for an array of products, including core staples such as

produce, packaged goods, paper products, and cleaning supplies.

Although dominant retailers often tout the “efficiencies” of size and scale, there is little evidence

that their market power as buyers actually translates into lower consumer prices. In fact, studies

have found a link between higher levels of local retail concentration and grocery prices.

Rather

than passing their savings on to consumers, power buyers squeeze their suppliers for greater

margins. In other words, today’s market structure allows dominant retailers to transfer wealth

from farmers, manufacturers, suppliers, and consumers to their own bottom lines.

And

dominant retailers may rest on their laurels and become less efficient once the independents are

gone and competition reduced, destroying value entirely.

Supply Chain Concentration: Buyer power is also increasing concentration throughout the

grocery supply chain. Power buyers’ demands on suppliers for lower costs are forcing

consolidation among food and consumer goods manufacturers. For example, meat packing in

food supply chain across 30+ countries concluded that “increasingly dominant retail firms” was an already common

but increasing trend across many countries. OECD 2013, supra note 57, at 36.

John B. Kirkwood, Buyer Power and Exclusionary Conduct: Should Brooke Group Set the Standards for Buyer-

Induced Price Discrimination and Predatory Bidding?, 72 A

NTITRUST L.J. 625 (2005).

For example, NGA member Woodman’s Food Market is believed to operate among the fifteen largest grocery

stores in the world, averaging in excess of 235,000 square feet in size per store. See Complaint, Woodman’s Food

Mkt., Inc. v. Clorox Co., 833 F.3d 743 (7th Cir. 2016).

See Best Grocery Stores and Supermarkets, CONSUMER REPORTS, Apr. 16, 2019,

https://www.consumerreports.org/grocery-stores-supermarkets/best-grocery-stores-and-supermarkets

(detailing

grocery store attributes that are important to consumers).

See, e.g., Ronald W. Cotterill, Antitrust Analysis of Supermarket Retailing: Common Global Concerns that Play

Out in Local Markets, Food Marketing Policy Center 5-7 (July 2005) (summarizing economic literature on price

effects in the retail supermarket industry).

Nathan Wilmers, Wage Stagnation and Buyer Power: How Buyer-Supplier Relations Affect U.S. Workers’

Wages, 1978 to 2014, AM. SOCIOLOGICAL REV., Mar. 27, 2018,

https://journals.sagepub.com/doi/full/10.1177/0003122418762441

(discussing evidence that greater dependence on a

small number of powerful corporate buyers leads to lower wages).

See Kirkwood, supra note 36.

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the United States is now concentrated among just four firms—Tyson Foods, JBS, Cargill, and

National Beef. Similarly, just four companies—Archer Daniels Midland, Bunge, Cargill, and

Dreyfus—control as much as 90 percent of the global grain trade,

and another “big four”

dominates the global seed market.

Supply chain concentration is particularly acute in private label manufacturing—the grocery

supply sector that manufactures store brand versions of food products and consumer goods, such

as paper products. Store brands are important alternatives to branded products for consumers

and retailers alike. But under pressure from dominant retailers, the private label sector is

consolidating dramatically. For example, today there is only a single major private label

manufacturer of canned soups, and there is significant consolidation in private label

manufacturing in a diverse list of other products from canned fruit and pasta, to snack foods, and

paper products.

Concentration in the grocery supply chain does not insulate it from retailer buyer power; it

makes suppliers even more beholden to leverage. As manufacturers consolidate, they become

more dependent on the largest buyers, who represent a substantial portion of their sales.

Meanwhile, small and mid-sized grocers see their relative value to manufacturers decline, even

when they pool their purchasing through wholesale cooperatives. Although such cooperatives

may be highly efficient, and place tens of millions of dollars in purchases with a supplier, those

sales are a drop in the bucket compared to national retail grocery chains.

As a result, dominant retailers effectively dictate supply decisions to grocery suppliers. This has

become particularly acute in private label. For example, private label manufacturers are forced

to prioritize runs ordered by their biggest buyers, limiting capacity for products sought by

independents. They have also narrowed their available products in order to serve demand from

power buyers, reducing product diversity and consumer choice.

Invariably, products sought by independent grocers are the ones eliminated. Some private label

manufacturers have largely dedicated their capacity to dominant national chain grocers,

foregoing independents’ business almost entirely. Not only does this harm independent grocers

and their customers directly, through loss of these popular products especially for cost-conscious

consumers, it also reduces independents’ bargaining leverage with branded suppliers by

eliminating alternative sources of product supply to which independents might switch. As a

result, independent grocers are even less able to push back on discriminatory treatment imposed

by retail power buyers.

See Sophia Murphy, David Burch and Jennifer Clapp, Cereal Secrets: The World’s Largest Grain Traders and

Global Agriculture, O

XFAM RES. REP., Aug. 2012, https://www-cdn.oxfam.org/s3fs-public/file_attachments/rr-

cereal-secrets-grain-traders-agriculture-30082012-en_4.pdf.

See Kristina “Kiki” Hubbard, The Sobering Details Behind the Latest Seed Monopoly Chart, CIVIL EATS, Jan. 11,

2019, https://civileats.com/2019/01/11/the-sobering-details-behind-the-latest-seed-monopoly-chart/

See Dobson, supra note 38 (describing private label as an important negotiating level for grocery retailers).

NATIONAL GROCERS ASSOCIATION

In addition to 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. And, as discussed below, manufacturer concentration

can make the grocery supply chain more vulnerable to disruption due to natural disasters or a

pandemic.

IV. The COVID-19 Pandemic has Exacerbated Economic Discrimination in Grocery

In 2020, the COVID-19 pandemic has exacerbated the impact of economic discrimination and

buyer power in the grocery sector. Americans across the country experienced shortages of

staples such as toilet paper, cleaning products, and canned soup. Behind the scenes, unchecked

buyer power in the grocery sector made these shortages worse, and made their impact fall more

heavily on independent grocers and their customers.

As described above, the buyer-side market power of dominant retailers has increased

concentration in the grocery supply chain, making the system less resilient and more vulnerable

to disruption and shortages.

As concentration among suppliers has increased, grocery

manufacturing has also been consolidated to achieve the scale efficiencies demanded by power

buyers. As a result, a smaller number individual factories—built on a massive scale—have

become critical lynch pins in the supply chain. Closures of just a handful of meatpacking plants

led to food shortages, and outbreaks at other food processing and dairy facilities continue to

threaten future shortages.

A less concentrated supply chain with more distributed

manufacturing would have mitigated these impacts.

Buyer power and economic discrimination have come into play in another way during the

pandemic: the shortages have not affected all grocery retailers equally. Dominant retailers and

e-commerce giants have used their buyer power to pressure suppliers into prioritizing their

shipments over other retail customers, including independent grocers. In many cases, these

powerful buyers have secured inventory at the expense of other retailers. As one group of sellers

reported to the FTC, “Amazon’s hold over sellers effectively took food from the shelves of

neighborhood grocery stores . . . and moved it to Amazon’s own warehouses, where it earned

fees for Amazon.”

NGA members have been told by numerous manufacturers that, as a result of pandemic supply

challenges, they would receive reduced allocations or no allocations of popular staples and

essential products such as paper towels, toilet paper, cleaning and disinfecting products,

See Michael Pollan, The Efficiency Curse, WASH. POST, Feb. 5, 2021,

https://www.washingtonpost.com/outlook/2021/02/05/pandemic-food-resilience/?arc404=true

Id.; see also Mike Dorning, Coronavirus Spreads Beyond Meat Plants With Outbreaks at 60 US Baking,

Agricultural, Dairy Facilities, Raising Specter of Food Shortages, CHICAGO TRIB., June 10, 2020,

https://www.chicagotribune.com/coronavirus/ct-nw-coronavirus-food-meatpacking-plants-shortages-20200610-

qvgfl5cxt5crtjuye6oi23xeui-story.html.

Investigation of Competition in Digital Markets Majority Staff Report and Recommendations, Subcomm. on

Antitrust, Commercial and Admin. Law of the H. Comm. on the Judiciary, 258 (2020) (citing July 23, 2020 letter

from International Brotherhood of Teamsters, Communications Workers of America, United Food, Commercial

Workers International Union, and Change to Win to the FTC).

NATIONAL GROCERS ASSOCIATION

aluminum foil, and canned soup—meanwhile, after some initial shortages at the start of the

pandemic, those same products have been fully stocked at Amazon and on the shelves of big box

national chain retailers.

Independent grocers have also faced increased price discrimination, favoring dominant players,

as a result of the pandemic. The periodic price promotions that independent wholesalers and

grocers receive from suppliers, which allows them to discount at or below the prices charged by

dominant retailers, have frequently been suspended or cancelled during the pandemic. And to

make matters worse, some independent grocers that were forced to pass their increased costs on

to consumers were wrongly accused of price gouging.

Dominant retailers and e-commerce giants quickly recovered from supply chain shortages and

other challenges brought on by the pandemic. Dominant firms such as Walmart, Amazon,

Target, and Dollar General have reported surging profits and captured significant market share

during 2020.

But smaller retailers, including independent grocers, continue to experience

higher prices and shortages of key high-demand products. Due to the pandemic, independent

grocers have increasingly resorted to buying entire pallets of must-have products from wholesale

clubs like Costco, because their own wholesale costs from the supplier are higher than Costco’s

retail price (a problem that preceded the pandemic).

For example, in January 2021, an NGA member reported that its wholesale price for a popular

packaged food product was over 19 percent higher than the retail price for the equivalent sized

product at a local Walmart. Similarly, the independent grocer’s wholesale price for a branded

cake mix was 53 percent higher than the Walmart retail price. And the wholesale price for a

staple branded cracker, on a per ounce basis, for the independent retailer was nearly 20 percent

higher than the retail price at Dollar General. Other NGA members have reported paying higher

wholesale prices than the retail prices available at large chains for many of their top private label

products, including salsa, ketchup, mustard, barbeque sauce, peanut butter, canned fruit, soup,

broth, vegetable oil, granulated sugar, flour, and coffee, and numerous members reported paying

higher wholesale prices than the retail price for other popular branded products.

This economic discrimination is driven by the demands of the power buyers. Rather than

provide the same price to all of their customers, suppliers are forced to extend discounts and

Testimony of Jimmy Wright, supra note 3, at 5. For example, suppliers drastically increased the prices

independent grocers pay for must-have products like eggs and protein. Egg prices in particular soared to historic

levels, including a nearly $2.00 increase between March and April, despite a lack of evidence that suppliers faced

increased price or lower output at that time.

Jeffrey Dastin & Akanksha Rana, Amazon Posts Biggest Profit Ever at Height of Pandemic in U.S., REUTERS,

July 30, 2020,

https://www.reuters.com/article/us-amazon-com-results/amazon-posts-biggest-profit-ever-at-height-

of-pandemic-in-u-s-idUSKCN24V3HL; Phil Wahba, Walmart’s E-Commerce Sales Nearly Double As Shoppers Go

Beyond Groceries in Online Orders, FORTUNE, Aug. 18, 2020, https://fortune.com/2020/08/18/walmart-ecommerce-

sales-covid-doug-mcmillon; Melissa Repko, Target Reports A Monster Quarter, CNBC (Aug. 19, 2020),

https://www.cnbc.com/2020/08/19/target-tgt-q2-2020-earnings.html.

NATIONAL GROCERS ASSOCIATION

other advantageous terms to the dominant retailers and make up for their losses by charging

higher prices to other buyers.

V. Antitrust’s Failures to Address Buyer Power and Economic Discrimination

Prior to the late 1970s, the antitrust laws reached the harms that flow from buyer power. As the

Supreme Court recognized repeatedly in rulings across several decades of the 20th Century,

Congress passed the Sherman Act and the Clayton Act with the goal of dispersing concentrated

power and protecting the economic rights and freedoms of Americans as both consumers and

producers. An express goal of these laws was to ensure that small, independent producers had

the ability to compete without being unfairly muscled aside by big businesses.

For example, in

1945, Judge Learned Hand wrote in United States v. Alcoa that Congress was motivated to pass

the Sherman Act due to a preference for “a system of small producers, each dependent for his

success upon his own skill and character, to one in which the great mass of those engaged must

accept the direction of the few.”

And in 1962, the Supreme Court recognized that Congress

passed the antitrust laws to combat a rising tide of economic concentration, hoping to preserve

local control over industry and small business.

However, since the late 1970s, the antitrust laws have been increasingly eroded in significant

respects through court decisions and agency practice that rely on mistaken orthodoxies regarding

“business efficiency.”

This orthodoxy wrongly assumes that independent businesses cannot

achieve equivalent economies of scale, and it ignores the tradeoffs that so-called “efficiencies”

imposed by dominant firms have for consumers, producers, and independent competitors.

The elevation of “business efficiency” over other goals has led to at least three failures of

enforcement that contribute to America’s buyer power problem: (1) a lack of attention to buyer-

side market power, (2) a lack of scrutiny of vertical restraints, and (3) a failure to enforce the

Robinson-Patman Act.

1. Antitrust’s Failure to Address Buyer-Side Market Power

See, e.g., Bd. of Trade v. United States, 246 U.S. 231, 240-41 (1918) (enumerating the benefits of a

traderegulation that allowed country dealers and farmers to participate in wholesale markets in Chicago on more

favorable terms) (Brandeis, J.).

United States v. Aluminum Co. of America, 148 F.2d 416 (2d Cir. 1945).

See Brown Shoe Co. v. United States, 370 U.S. 294, 315-16, 333 (1962) (discussing the legislative history of the

Sherman Act and explaining “Congress was desirous of preventing the formation of further oligopolies with their

attendant adverse effects upon local control of industry and upon small business.”).

For a discussion of this shift in jurisprudence, see, e.g., Lina Khan & Sandeep Vaheesan, Market Power and

Inequality: The Antitrust Counterrevolution and Its Discontents, 11 HARV. L. & POL’Y REV. 235, 270 (2017);

Christopher R. Leslie, Antitrust Made (Too) Simple, 79 A

NTITRUST L.J. 917, 921–26 (2014).

JOHN KWOKA, MERGERS, MERGER CONTROL, AND REMEDIES” A RETROSPECTIVE ANALYSIS OF U.S. POLICY

(2015) (discussing evidence that mergers justified on efficiencies grounds have neither lowered prices nor led to

efficiency gains); Stacy Mitchell, Monopoly Power and the Decline of Small Business, Aug. 10, 2016,

https://ilsr.org/monopoly-power-and-the-decline-of-small-business/

(“Small businesses deliver distinct consumer

and market benefits, and in some sectors provide more value and better outcomes than their bigger competitors.

And they often achieve these superior results because of their small scale, not in spite of it.”).

NATIONAL GROCERS ASSOCIATION

The Sherman Act and the Clayton Act were passed in the late 19th and early 20th Centuries in

response to concerns that powerful sellers were acting in various ways to harm consumers and

small businesses. But as detailed above, economic power in today’s retail economy is

concentrated in the hands of powerful buyers who act as gatekeepers to consumers.

Despite the growing buyer power problem, courts have made it exceedingly difficult to bring a

case challenging the anticompetitive exercise of buyer power, and these types of cases are

extremely rare. One example is the Supreme Court’s 2007 decision in Weyerhaeuser Co. v.

Ross-Simmons Hardwood Lumber Co. In that case, a lumber supplier challenged predatory

bidding practices by Weyerhaeuser, a powerful buyer in the market for sawlogs.

The supplier

alleged that Weyerhaeuser’s bidding strategy was part of a scheme to drive its competitors out of

business. The Supreme Court set the same high bar for a predatory bidding claim that applies to

predatory pricing: in order to prove that the conduct was anticompetitive, the supplier would

need to show that (i) Weyerhaeuser bid below its costs, and (ii) there was a dangerous

probability that Weyerhaeuser would recoup its losses (through higher prices in the future).

Thus, under the Court’s reasoning, driving the lumber supplier out of business alone would not

be sufficient to bring a case—instead, the Court would only find harm to competition if there

was proof that Weyerhaeuser’s predatory bidding would result in sustained, supracompetitive

prices.

The Court’s treatment of predatory bidding is misguided because it assumes that the only

conceivable harm to competition could be sustained, supracompetitive prices. This focus on

price effects overlooks other key dimensions of competition, including the various ways that the

exercise of buyer power can harm quality, service, consumer choice, and the ability and

opportunity for entry by smaller competitors.

It also ignores empirical research, which has

shown various ways that dominant firms use predation strategies to limit and deter competition

and increase their market power.

Further, even where a plaintiff can point to price discrimination that harms competition, courts

have barred claims. In Boise Cascade Corp., for example, the D.C. Circuit overturned an FTC

decision finding a distributor/retailer of office supplies liable for exercising its buyer power to

extract discounts to the detriment of disfavored retailers.

In concurrence, Judge Williams

boldly declared that “it is black letter economics that price discrimination cannot occur if the

favored customers can resell to the disfavored.”

But this ivory tower “black letter economics”

ignores the real world impact of price discrimination on less powerful buyers (who bear a

disproportionate share of the seller’s total costs of production) as well as the downstream impact

See Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 549 U.S. 312 (2007).

See Kirkwood, supra note 36.

Sandeep Vaheesan, Reconsidering Brooke Group: Predatory Pricing in Light of the Empirical Learning,

12 B

ERKELEY BUS. L.J. 81, 82 (2015) (discussing evidence of predation in various industries, including the airline,

coffee, oil, shipping, sugar, telecommunications, and tobacco industries, among others).

Boise Cascade Corp. v. F.T.C., 837 F.2d 1127, 1148 (D.C. Cir. 1988).

Id. at 1149 (emphasis added).

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this has on consumers.

And as Judge Mikva explained in dissent, the D.C. Circuit reached this

decision despite evidence that profit margins were higher for the powerful buyer than for its

disfavored competitors, and even though the defendant failed to provide any evidence that the

price differences were justified by a lower cost associated with selling to the powerful buyer.

Although the U.S. antitrust agencies have brought a small number of merger cases premised on

buyer power,

they have not made buyer power an enforcement priority, much less challenges to

retailer buyer power. For example, a 2012 FTC retrospective study on the impact of grocery

store mergers on competition did not even address retail buyer power.

2. Antitrust’s Failure to Scrutinize Vertical Restraints

The antitrust laws distinguish between horizontal restraints (which flow from agreements among

competitors) and so-called “vertical restraints.” Vertical restraints refer to agreements and

arrangements among market participants at different levels of the supply chain. Classic vertical

restraints include resale price maintenance, exclusive dealing or distribution arrangements,

discriminatory pricing agreements, and tying arrangements that condition the sale of one product

on the purchase of a different (or “tied”) product.

The late 1970s and early 1980s marked a sea change in the application of antitrust to vertical

restraints. Prominent antitrust commentators, including Robert Bork, Richard Posner, and Frank

Easterbrook, argued that the antitrust laws should only be concerned with horizontal restraints,

and called for per se legality of all vertical restraints.

These commentators pushed a pro-big

business policy towards vertical restraints, arguing that antitrust enforcement had wrongly

overlooked “business efficiencies” created by vertical arrangements.

According to these

commentators, vertical restraints would promote interbrand competition (i.e., competition

By Judge Williams’ mistaken logic, competition and consumers would be equally well off if independent grocers

supplied themselves wholly through local dominant competitors such as Costco or Amazon rather than direct

relationships with suppliers.

Id. at 1153.

See, e.g., United States v. George’s Foods, No. 5:11-cv-00043 (W.D. Va. May 10, 2011),

http://www.justice.gov/atr/case/us-v-georges-foods-llc-et-al

.; United States v. JBS S.A. & Nat’l Beef Packing Co.,

No. 08CV5992. (N.D. Ill. Oct. 20, 2008), http://www.justice.gov/atr/case/us-and-plaintiff-states-v-jbs-sa-and-

national-beef-packing-company-llc; United States v. Anthem, Inc. & Cigna Corp., No. 16CV01493 (D.D.C. July 21,

2016), https://www.justice.gov/atr/file/903111/download.

Daniel Hosjen, Luke M. Olson, Loren K. Smith, Do Retail Mergers Affect Competition? Evidence from Grocery

Retailing, Fed. Trade Comm’n Bureau of Competition Working Paper (Dec. 2012). For example, the FTC’s

analysis of Walmart’s acquisition of the Supermercado Amigo chain in Puerto Rico apparently did not examine

whether the transaction would give the combined firm increased bargaining leverage to the detriment of competing

grocery stores or competition. See FTC Letter to Albert A. Foer, President of the American Antitrust Institute

(Feb 27, 2003), https://www.ftc.gov/sites/default/files/documents/cases/2003/02/ftc.gov-letterfoer.htm

See ROBERT H. BORK, THE ANTITRUST PARADOX: A POLICY AT WAR WITH ITSELF 288 (1978) (“Analysis shows

that every vertical restraint should be completely lawful.”); Richard A. Posner, The Next Step in the Antitrust

Treatment of Restricted Distribution: Per Se Legality, 48 U.

CHI. L. REV. 6 (1981); Frank H. Easterbrook, Vertical

Arrangements and the Rule of Reason, 53 A

NTITRUST L.J. 135, 158 (1984).

See id.

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between suppliers of different brands) more than they suppressed intrabrand competition (i.e.,

competition among distributors or retailers of the same branded product).

By 1977, advocates for so-called business efficiency reached the Supreme Court: In Continental

T.V., Inc. v. GTE Sylvania Inc., the Court ruled that non-price restrictions would no longer be

treated as per se illegal, but would instead by analyzed under the rule of reason.

The Court

reasoned that potential competitive harm posed by vertical restraints can be checked by

interbrand competition, and that courts should therefore conduct a fact-intensive inquiry into the

net effects of a given restraint on competition. While the Court’s decision in Sylvania was

limited to territorial restrictions, the case led to a seismic shift to the rule of reason for almost all

conduct other than horizontal price agreements.

In 1991, Judge Douglas Ginsberg examined how appellate courts were applying the rule of

reason to vertical restraints under Sylvania.

Judge Ginsberg examined every case that cited

Sylvania on the merits and found that defendants prevailed in more than 90 percent of the

cases.

He concluded that “courts of appeals are generally not engaging in the balancing of

gains in interbrand competition against losses in intrabrand competition that the Supreme Court

envisioned,” and that markets where there is any interbrand competition “have been effectively

freed from antitrust regulation of vertical nonprice restraints.”

Sylvania and its progeny also led to a significant decline in investigations and enforcement

actions against vertical restraints by the antitrust agencies. These changes had a predictable

effect: large firms became more aggressive as they realized that there was little to no risk

associated with conduct that had once been condemned as per se illegal.

In the grocery industry, this doctrinal shift allowed dominant players to emerge and use their size

to harm competition through vertical arrangements with suppliers, including by exercising buyer

power to disadvantage smaller rivals. And in the grocery space in particular, the law’s current

assumption that interbrand competition offsets restraints on intrabrand competition is misguided:

certain branded products are viewed as “must-haves” by consumers and the ability to display a

variety of brands—e.g., more than one brand of canned soup or cold cereal—is important to

independent stores’ competitiveness. NGA members’ experience during the pandemic has

shown that independent grocers lose business when they cannot carry must-have products.

See id.

433 U.S. 36 (1977).

Douglas H. Ginsburg, Vertical Restraints: De Facto Legality Under the Rule of Reason, 60 ANTITRUST L.J.

(1992).

Id. at 71.

Id. at 67, 76; see also D. Daniel Sokol, The Transformation Of Vertical Restraints: Per Se Illegality, The Rule Of

Reason, And Per Se Legality, 79 A

NTITRUST L.J. 1003, 1007 (2014), http://scholarship.law.ufl.edu/facultypub/546

(explaining that in practice, the rule of reason has led to “presumptive or even per se legality”).

NATIONAL GROCERS ASSOCIATION

3. Hostility to the Robinson-Patman Act

Congress recognized the benefits of independent retail and the threats posed by power buyers

when it enacted the Robinson-Patman Act, which it intended to “curb and prohibit all devices by

which large buyers gained discriminatory preferences over smaller ones by virtue of their greater

purchasing power.”

Among other things, the statute makes it unlawful to “discriminate in price

between different purchasers of commodities of like grade and quantity” if the purchasers are

competitors.

Leading up to passage of the statute, Congress found that in certain cases large

retail chains used their size to coerce suppliers to sell products to them at significantly lower

prices, or on better terms, than those provided to their smaller competitors.

The advantages the chains received were not necessarily based on their greater efficiency, but

were sometimes due to the chains’ ability to leverage their role as gatekeepers to large swathes of

consumers. The discriminatory advantages demanded and obtained by these buyers included not

only demands that suppliers sell to smaller, independent rivals only at higher prices, but also that

such competitors be denied promotional benefits that enhanced the large stores’ sales. Congress

determined that these practices should be prohibited, and that the then-existing provisions of the

Sherman Act and the Clayton Act were inadequate to do so.

To accomplish these “broad goals,” Congress passed the Robinson-Patman Act (15 U.S.C.

§ 13).

Across its multiple subsections, the Act prohibits different methods by which suppliers

can discriminate among their competing customers. Section 2(a) of the Act prohibits certain

discrimination over terms connected to the initial sale of a product to a wholesaler or retailer

(e.g., discrimination in prices charged, terms of credit, etc.), while Sections 2(d) and (e) prohibit

discrimination over terms promoting resale of the product to the end consumer (e.g.,

discrimination in advertising allowances, provision of in-store displays, etc.).

Congress

intended these sections, taken together, to be a comprehensive framework to “eliminate these

inequities” that put “independent stores . . . at a hopeless competitive disadvantage” against large

“chain buyers.” Id.

Despite Congress’s broad goals in 1936, enforcement against buyer power-driven economic

discrimination, including violations of the Robinson-Patman Act, has largely lapsed at the DOJ

Antitrust Division, the Federal Trade Commission, and by private plaintiffs. The DOJ Antitrust

Division has not enforced the Robinson-Patman Act since the 1970s, and has not brought a

criminal case under Robinson-Patman since the 1960s.

The FTC brought its last Robinson-

FTC v. Fred Meyer, Inc., 390 U.S. 341, 349 (1968); see also Volvo Trucks N. America, Inc. v. Reeder-Simco

GMC, 546 U.S. 164 (2006) (“Congress sought to target the perceived harm to competition occasioned by powerful

buyers, rather than sellers; specifically, Congress responded to the advent of large chain stores, enterprises with the

clout to obtain lower prices for goods than smaller buyers could demand.”).

15 U.S.C. § 13(a).

Fred Meyer, 390 U.S. at 349.

FTC v. Simplicity Pattern Co., 360 U.S. 55, 69 (1959).

Antitrust Modernization Commission, Report and Recommendations 316 (2007).

NATIONAL GROCERS ASSOCIATION

Patman enforcement action more than 20 years ago.

The agencies have not recently pursued

economic discrimination in the retail sector using the other antitrust laws either.

The hostility to enforcement against economic discrimination is not limited to the antitrust

agencies. In the last few decades, the courts have “read the 1936 Robinson-Patman Act almost

out of existence” by imposing heightened standards on price discrimination actions that disregard

the statute’s text.

100

For example, Section 2(a) of the Robinson-Patman Act prohibits price discrimination against

retailers where the conduct may “substantially [] lessen competition or tend to create a monopoly

in a line of commerce”—a standard similar to that applied to other unlawful conduct under the

antitrust laws, such as monopolization or anticompetitive mergers.

101

Meeting this standard is a

high bar under current interpretations of the antitrust laws, typically requiring the plaintiff to

prove market-wide harm to competition in a well-defined relevant market.

102

But Section 2(a)

also prohibits economic discrimination in cases where these showings are not met, so long as the

effect of the conduct may “injure, destroy or prevent competition with any person who either

grants or knowingly receives the benefit of such discrimination.”

103

Under this standard, price

discrimination that prevents one retailer from effectively competing with another is also a

violation.

Recent decisions by the U.S. Supreme Court and lower courts ignore and even contradict this

part of the statute. The courts have held that proving a Robinson-Patman Act violation requires

the same challenging burden as other antitrust cases—proof of substantial, market-wide harm to

competition.

104

Courts have rejected Robinson-Patman Act claims based on economic

discrimination where the plaintiff’s evidence failed to meet this high standard, even where there

is evidence that the conduct harmed the competitiveness of the disfavored retailer.

105

Some

commentators have even argued that economic discrimination “ought to be very, very

See Decision and Order at 1, McCormick & Co., Docket No. C-3939 (F.T.C. Apr. 27, 2000) (finding 3-2 a

narrowly applied Robinson-Patman violation by suggesting that market power should be viewed as a prerequisite for

the application of the Morton Salt inference); see also D. Daniel Sokol, Analyzing Robinson-Patman, 83 G

EO.

WASH. L. REV. 6, 2073 & n.77 (noting “McCormick might be better characterized as an exclusive dealing case

masquerading as a Robinson-Patman case. McCormick had a market share of about eighty percent and was

foreclosing competitors from shelf space.”).

100

Daniel Crane, Antitrust Antitextualism, NOTRE DAME L. REV. at 4 (forthcoming).

101

Compare 15 U.S.C. § 13(a) with 15 U.S.C. §§ 2, 7.

102

Ohio v. American Express Co., 138 S. Ct. 2274, 2288 (2018) (describing the three-step, burden-shifting

framework that applies under the rule of reason and concluding that plaintiff’s did not carry the initial burden of

proving that the challenged conduct had an anticompetitive effect).

103

15 U.S.C. § 13(a).

104

See, e.g., Brooke Group Ltd. v. Brown and Williamson Tobacco Co., 509 U.S. 209, 222-23 (1993); Volvo Trucks

N. America, Inc. v. Reeder-Simco GMC, Inc. 546 U.S. 164, 181 (2006).

105

Cash & Henderson Drug, Inc. v. Johnson & Johnson, 799 F.3d 202, 213 (2d Cir. 2015) (rejecting discrimination

claims for failure to show harm to competition generally); Smith Wholesale Co. v. R.J. Reynolds Tobacco Co.,

477 F.3d 854, 864 (6th Cir. 2007); Toledo Mack Sales & Service, Inc. v. Mack Trucks, Inc., 530 F.3d 204, 227

(3d Cir. 2008).

NATIONAL GROCERS ASSOCIATION

presumptively innocent,” applying Chicago School’s presumptions that all vertical restraints are

efficient.

106

In so doing, the courts and antitrust agencies are contradicting Congress’s policy judgment to

disfavor economic discrimination as presumptively anticompetitive. As evidenced by the

Robinson-Patman Act, Congress determined that discriminatory treatment imposed by buyer-

side market power was pernicious and should be prohibited.

Conclusion

Independent grocers have worked hard during the pandemic to continue to deliver a high-quality,

low-price shopping experience to consumers; but dominant buyer power threatens their ability to

do so. Many consumers have lost access to products at their local grocers. Moreover, rural areas

and urban centers that are served by independent grocers have suffered a disproportionate

impact, with consumers being forced to travel longer distances to find products they need at

more crowded large chain retailers.

Buyer power and economic discrimination will continue to threaten independent businesses and

American consumers and producers long after the pandemic is over—unless we change course.

Specifically, we propose:

• Investigations and Hearings. Through congressional investigations and hearings,

Congress should shine a bright light on anticompetitive practices in the food

marketing/grocery sector—with a particular focus on the discriminatory impacts

on rural and urban consumers, producers, and businesses.

• Congressional Oversight. Congress should use its inherent oversight and

authorization powers to hold antitrust enforcers accountable if they continue their

lax enforcement to check retailer buyer power and its effects.

• Legislation. The Sherman Act, the Clayton Act, the Robinson-Patman Act, and

state antitrust laws provide the tools enforcers need to curb discriminatory

practices by dominant retail chains. However, because of lax enforcement by the

antitrust agencies, a number of courts have barred private actions to enforce the

same antitrust prohibitions. Congress may need to step in to restore the original

purposes and vigor of the antitrust laws when directed at striking economic

discrimination in all sectors of the economy.

106

U.S. Dep’t of Justice, Competition and Monopoly: Single-Firm Conduct Under Section 2 of the Sherman Act,

2008,

https://www.justice.gov/atr/competition-and-monopoly-single-firm-conduct-under-section-2-sherman-act-

chapter-5#N_96 (summarizing commentary from panelists at joint FTC and DOJ hearings on Section 2

enforcement); see also Ill. Tool Works Inc. v. Indep. Ink, Inc., 547 U.S. 28, 44-45 (2006) (observing that “price

discrimination may provide evidence of market power” but “it is generally recognized that it also occurs in fully

competitive markets”).

ATIONAL GROCERS ASSOCIATION

• Enforcement and Agency Action. The FTC, DOJ, and states attorneys general

should investigate the arrangements between grocery power buyers and suppliers

to determine whether dominant retailer bargaining leverage is imposing

discriminatory prices, terms, and supply on independent grocers. This should

include the important issue of whether “channels of trade” distinctions among

competing grocery businesses are being used to evade laws against economic

discrimination.

o The FTC should immediately use its authority under 6(b) of the Federal

Trade Commission Act to study competition and concentration in the

grocery supply chain, including private label, and the impacts on

independent grocers and producers, such as farmers and ranchers. This

should include an inquiry into whether retail buyer power is driving

concentration throughout the supply chain.

o In these and other inquiries, antitrust enforcement should look beyond

price effects to include other dimensions of competition, including impacts

on quality, service, and convenience as a result of dominant retailer buyer

power, economic discrimination, and increasing consolidation. This

should include consideration of these issues in merger investigations in the

grocery supply chain.

o Other federal agencies such as the Small Business Administration and the

Department of Agriculture can also address these issues by studying the

benefits of small business to competition and the role of independent

grocers and farmers and ranchers in ensuring broad access to healthy

foods.