Jun 23, 2023
On June 15, The Capitol Forum’s Teddy Downey held a conference call with Stacy Mitchell, Co-Executive Director of the Institute for Local Self-Reliance, to discuss how big retailers leverage their financial control over suppliers— often at the expense of independent grocers—creating food deserts and driving up food prices. The full transcript, which has been modified slightly for accuracy, can be found below.
TEDDY DOWNEY: Good morning and welcome to everyone for our conference call today to discuss the Robinson-Patman Act and predatory buying in our economy. I’m Teddy Downey, Executive Editor here at The Capitol Forum. And with me today is Stacy Mitchell, Co-Executive Director of the Institute for Local Self‑Reliance, a research and advocacy organization that focuses on challenging corporate dominance and monopolized markets.
Before we get started, just a couple of things. If you have questions, you can email them to editorial@thecapitolforum.com. Or you can enter them into the go to webinar chat function. So please, if you have questions, please submit them and we’ll get to them towards the end of the call. And Stacy, thank you so much for doing this. I’m really excited to chat about this.
STACY MITCHELL: Thanks so much for having me. It’s always great to be here.
TEDDY DOWNEY: And so you wrote a big opinion piece in The New York Times recently called “The Real Reason Your Groceries Are Getting So Expensive.” And maybe a good way to start is what’s the real reason? What were you getting at in that New York Times piece?
STACY MITCHELL: Well, the story really has to do with the power of Walmart in our food system. I mean, Walmart’s this huge grocer. They capture one out of every four dollars that Americans spend on groceries. And a lot of how Walmart has attained that dominance in the grocery sector is by flexing its muscle over suppliers.
So it’s gone to grocery suppliers and said, we want special deals. We want discounts in pricing and terms that are not available to our smaller competitors. And suppliers look at Walmart and they’re like, “You’re this huge customer. We really cannot say no to you. You make up a huge share of our business.”
And so suppliers have been giving Walmart lower prices and they’ve been making up for that lost revenue by raising the prices that they charge to smaller competing retailers, especially independent grocers and the wholesalers that they buy through.
And so over time, this is, you know, basically this is not competition, right? I mean, this is Walmart using its financial clout, its financial hold over suppliers, to tilt the playing field, to compel those suppliers to give it better deals and to use that as a way to hobble smaller competitors.
And as Walmart has gotten bigger, of course, they’ve sort of caused this cascade of mergers in the grocery sector because Kroger and Safeway and these other grocers were like we need to get big like Walmart. And so we now have this highly consolidated grocery sector with just a handful of chains that really dominate, might get even more consolidated if regulators let Kroger buy Albertsons.
And that in turn, has then had this like domino effect in the sense that the suppliers, the grocery manufacturers, the meatpackers and so on, they look at the big retailers and they think, well, we need to be as big as them. Like we’re negotiating with these guys. We need to get bigger too. And so that set off a cascade of mergers among all of the big grocery processors.
And today, we have a handful of conglomerates, ConAgra, General Mills, PepsiCo. Those companies make virtually all the brands that you see in the supermarket. And so they don’t face a lot of competition. And they have been sharply raising prices and their profits have gone way up as they’ve been doing that. We’ve seen a lot about inflation. But inflation, in the grocery sector at least, has really been a cover story for price gouging on the part of these big food conglomerates.
And the thing about this is they have been raising prices across the board. And so consumers everywhere are paying more no matter where you shop. Even if you shop at Walmart, you’re now paying a lot more. And so prices overall have gone up. And yes, Walmart may still be squeezing those added discounts. So its prices might be somewhat relatively lower. But overall, Americans are paying inflated food prices because of this whole consolidation that really begins with outsized retailer power.
TEDDY DOWNEY: And you mentioned the Robinson-Patman Act, and I think I want to focus on that a lot in this discussion. Because ostensibly, that factors into why Walmart saw opportunity to get bigger. And I’m wondering if you can just walk us through a quick history of this Robinson-Patman enforcement and the difference between the supermarket chain store business and grocery business in the fifties, let’s say, versus today?
STACY MITCHELL: Yeah, absolutely. So, the Robinson-Patman Act was passed in 1936. And it tracks other antitrust laws in the sense that we have a history with regard to railroads and other industries saying, you know, we have to have a level playing field that all comers have to get the same terms, the same prices.
And so the Robinson-Patman Act says essentially that big buyers can get volume discounts where there’s legitimate volume efficiencies associated with supplying them at scale. But they can’t simply use their clout, their hold over suppliers, to get discounts that really aren’t justified by any cost savings. You basically have to make the same terms available to all retailers, big and small.
And Robinson-Patman was enforced by the FTC throughout the forties, fifties, sixties and a bit into the seventies. In those years, the agency kept a pretty sharp eye on not only the grocery sector, but retail in general, and really kept big retailers kind of in check in terms of that level playing field.
And if you go back and look at the grocery industry in the 1950s and 1960s, it’s pretty remarkable. It’s pretty, I would say, pretty enviable, based on where we are today. There were a lot more grocery stores. Even like the poorest neighborhoods and the most remote, small towns could generally count on having a grocery store, which of course, is not true today. A lot of those places are food deserts.
Independent grocers accounted for about half the market. So small grocers were really thriving in those years. But so too were the chains. I mean, Kroger, Safeway, some of these big companies were also doing good business. So it was a very dynamic market where there was a lot of choice. You had big grocers, you had small grocers. And that dynamism and the sort of diffused structure of the industry meant that the fruits of it, the profits, were widely distributed.
So you had all of these independent grocery store owners and other independent retailers thinking more broadly who were who were part of the backbone of the middle class. And that really diversified competitive retail sector started to really disappear in the 1980s when the agency stopped enforcing the Robinson-Patman Act. And Walmart in particular, very sort of astutely for itself, recognized that opportunity. And from the beginning, Walmart has kind of exploited this Chicago School era of antitrust in a couple of really key ways. And one is through predatory buying.
TEDDY DOWNEY: And I want to stay on Robinson-Patman. So there are a couple of, I’d say, sort of myths that I just want to explore and discuss around Robinson-Patman. One of them I think you mentioned, which is this this volume efficiencies, you know, sort of carve out. And another, I think in your call with Commissioner Bedoya, he said his team found an amendment in the Congressional Record during the discussion around Robinson-Patman Act, where an amendment was put forward to say different sizes of the same product are exempted. And that amendment was rejected, sort of seemingly showing that Congress explicitly rejected the sizing loophole that companies like to use. And can you talk a little bit about these sort of carve outs or get out of jail free cards or ways that companies and lawyers try to wish away Robinson-Patman? And whether or not you think they’re valid, I should say.
STACY MITCHELL: Yeah, it’s an interesting question. I am struck as just someone who is a close observer of the retail sector and of Walmart and other big grocers. You know, a lot of these — they sort of exploit their buyer power pretty openly as an indication. I mean, when law enforcement is like, oh, we’re not going to enforce this particular law anymore, what tends to happen is that people start acting like it doesn’t exist.
And so I think we’ve seen a lot of that among big retailers. I mean, you look at the Kroger/Albertsons merger and a lot of the analysts who’ve been talking about it, and to some degree, even the executives at Kroger, you see them saying things that really sound a lot like what they’re saying is that we do this deal and we’ll have more power over suppliers like Walmart does. And that’s why this is going to be a good deal for the company. And it’s like, well, exercising size in that way over suppliers is technically illegal. Yes, we haven’t been enforcing it in a long time. But that doesn’t change what the what the law says.
There’s been a lot of ways. I think some of what’s happened is the companies have engaged in sort of like… think of that example that if you ever watch The Wire that Bunny uses, the cop, he talks about how drinking in public is illegal, but cops don’t really want to spend their time like having to stop everybody who’s drinking in public. And so people started putting alcohol in paper bags. And then it was just a way that everyone could pretend like it wasn’t happening.
And a lot of the ways big companies have the sort of paper bag with Robinson-Patman is that they’ve argued that they make certain things for different channels. So they make special package sizes just for the dollar chains, for Dollar General and Family Dollar. They make special lines of goods and that’s just for the Supercenter channel. That’s what they’ll tell independent grocers and independent wholesalers who are like, hey, we want to get access to that same package size. We want the same pricing. Because ounce per‑ ‑ounce, you’re selling that a lot less than in the package size you’re giving me.
And the suppliers are say, well, no, no, that’s for the dollar channel or that’s a package size. That’s not available to you. And there’s been this idea that if you sort of created these different types of products, these different sizes, that somehow Robinson-Patman‑ didn’t apply.
And what I thought was really interesting, my organization hosted an event a few weeks ago that Commissioner Bedoya spoke at. And he talked about how his staff went back and looked and there was this amendment that was made or offered during the debate leading up to the Robinson-Patman Act. And the amendment was to explicitly allow differences in package size to be okay, to count as not a form of discrimination. And that was rejected. And I thought that was really interesting evidence that, no, Congress really did intend like a level playing field, like no getting around the intent of the law through these sort of shenanigans about different package sizes.
TEDDY DOWNEY: And one thing I’m really interested in is a lot of people talk about, okay, well, the price discrimination is coming from the distributors. It’s coming from the manufacturers or whoever. But really, in some ways, it’s kind of analogous to the whole PBM, Pharma issue where it’s like, well, there’s some inducement going on there. The big chains aren’t just magically getting lower prices. And you mentioned some of this overt conduct. I mean, I’m always struck by slotting fees and category management is just like so patently unfair. And I’m wondering, what’s your take on both how the retailer is important and the enforcement of as of Robinson-Patman, how that factors into the law and what you make of some of these like obvious, sort of seemingly problematic conduct at the stores, like slotting fees and category management. And then, obviously, what they’re doing to get the lower prices.
STACY MITCHELL: Yeah. I mean, the retailers are the most powerful players in the set-up. Walmart is more powerful than all of these suppliers. And you’ve got a lot of these big companies, Clorox, ConAgra, General Mills. You know, you go look at their 10-K filings and they disclose to investors, hey, we depend on Walmart for 20, 25 percent of our business and we’re at huge risk if they decide to stop doing business with us. So there’s definitely a subservient relationship there.
At the same time, these big suppliers, these are not exactly like shrinking violets themselves. These are enormous companies. And the way I started to think about ‑‑ and they’re up to, I think, in some cases, a lot of exploiting their own market power in ways that are anti-competitive.
The way I started to really understand it, the more I’ve looked at it, is that the big retailers and the big CPG companies are really like they’re co‑conspirators. And essentially, if you are willing to do what Walmart wants of you, and you keep Walmart happy, then you’re given a certain room in which to exploit your own market power and kind of do well for yourself too.
And I think to your point that this really plays out a lot in the category captain relationships. So, hey, Procter and Gamble, you get to be the category captain for this whole category. And as long as you’re delivering for Walmart, you can also exploit that position to grow your own market share relative to smaller companies in that space. Slotting fees work kind of the same way.
And so, we shouldn’t understand these big CPG companies, these big grocery suppliers, Tyson and others, as victims so much as like the kind of Robin to the Batman and Robin scenario here. I don’t know if that’s the right analogy, but it’s like it’s a duo, sort of a criminal duo, to take advantage of this bottleneck that these two, both the processors and the retailers, have kind of created together. They do well. And meanwhile, consumers pay more. Farmers and other upstream producers are seeing their incomes decline.
And then smaller companies, smaller brands, I mean, they don’t stand a chance here. How do they even get onto shelf space? Because we’ve lost so many smaller retailers and you can’t just start selling to Walmart. And even if you can get a foothold there, you’re going to be knocked out because the category captain doesn’t really want you to exist.
And so, that’s the situation we’re in. And again, I think it’s kind of understanding, to your point, the PBMs and the pharma companies. Yeah, there’s some rivalry, but there’s also ways in which they work together to enhance each other’s power. And I think we’re seeing that same thing in the consumer goods sector.
TEDDY DOWNEY: Yeah, and we have a couple examples of the FTC doing a Robinson-Patman investigations right now. They’ve got one into Coke and Pepsi and they’ve got one into Southern Glazer’s in the wine and spirits distribution market. I’m curious, for our listeners, the story there is ultimately most likely going to be not just about those distributors but also about the big change in those spaces. It’s going to be Coke, Pepsi, but also like a Walmart. You mentioned Kroger in your New York Times piece. And for Southern Glazer’s, total wine and some of the consolidated companies like that, the big retailers, bigger wine retailers, spirits retailers.
Is that how we should think about how these investigations go? I think for my purpose, I think it’s just kind of oversimplified a little bit that like, well, the distributor sets the price. And so, that’s basically that how Robinson-Patman enforcement happens. And I’m just curious because in The New York Times piece, you also mentioned all these cease and desist orders. And typically, those are to the distributors. But there has to be some understanding of that duo that we’re talking about, right?
STACY MITCHELL: Yeah, absolutely. And, I mean, historically, the FTC was doing dozens of cease and desist orders a year and bringing cases in some instances. And yes, there were distributors and producers, suppliers, that were on the receiving end of some of those. But there are also retailers. So Kroger and A&P, Grand Union, these big supermarket retailers, I think there was even one maybe against Macy’s, if I’m remembering right. But there were a bunch that involved retailers.
And so, if you go back and look at the legislative history of the law, it’s clear that Congress was really thinking about the power, particularly of A&P, and other big retailers, that that’s what this was about, that that’s really what drives the discrimination in the first place.
As a matter of enforcement, I think it’s great to see that the FTC is really picking this back up again. And I imagine as a matter of enforcement, you look at both. And maybe part of the way you start is with suppliers. If the end goal here is to really put retailers on notice, and suppliers, that this law really is in force, making that clear by beginning to look at different suppliers and looking to see if there’s evidence of that is a place to begin. But, yes, I think ultimately the target here really is the outsized power of Walmart, Kroger. And we can also talk about Amazon and Dollar General. There are other big retailers as well.
TEDDY DOWNEY: I’d love to talk about those other ones. So Kroger, specifically, when it comes to this type of conduct, I’m curious to see like, do you see any of that type of inducement from Kroger that we’ve already talked about from Walmart, when it comes to Robinson? And then also, I’ve been thinking more about sort of how the FTC thinks about merger reviews. You’ve got this case against Amgen and Horizon. That gets into the PBM issue. You’ve got this effort to revitalize Robinson-Patman. I’m wondering if any of this type of conduct that allegedly might violate Robinson-Patman could be relevant in this Kroger review in your mind.
STACY MITCHELL: Yeah. I mean, I certainly hope the FTC is looking at buyer power in looking at the Kroger/Albertsons merger. I mean, certainly there have been, I mean, Kroger has had a number of incidences where they’ve really been pushing around produce suppliers, really flexing their muscle in a lot of ways against suppliers. And they’ve got high slotting fees. If you’re a relatively small company, a brand of some kind, selling to, say, Albertsons, you’ve got to be looking at this deal and thinking, gosh. If Albertsons gets swallowed up by Kroger, and becomes this much larger company, do I even have a chance to be on that shelf? What will happen to slotting fees? What is the relationship that Kroger is going to have with big competing food producers?
So that whole issue of buyer power, I think, is a really big one in this case or in this proposed merger. And I think it’s not something that a divestiture does anything about. Sure, you could sell off several hundred stores, but that doesn’t change their buyer power at a national level.
So I hope that’s something that they’re looking at. And as I said earlier, I am really struck ‑ you go through a lot of the analysts’ comments when the merger was first announced. And the first thing that they often say is, oh, ‑yeah, the reason that this is happening is so that Kroger/Albertsons can have more leverage with suppliers to match the leverage that Walmart has.
And so essentially, the risk here is that we’re going to end up with Walmart controlling a quarter of the grocery industry and Kroger/Albertsons controlling another quarter of the grocery industry and flexing a lot of power, making it very difficult for other retailers, especially mid‑sized and smaller retailers, to continue to exist. And farmers seeing their incomes continue to decline, and food workers and so on up the supply chain.
And ultimately, consumers even being sort of more held hostage by the limited amount of competition, both in retail and in food production. So I think that there’s a lot of reasons to be deeply concerned about the buyer power issue, particularly with regard to this proposed merger.
TEDDY DOWNEY: And you touched on it in The New York Times piece. We’ve touched on it a little bit here. But when it comes to these really, really high levels of concentration and lack of enforcement of Robinson-Patman, can we spend a minute ‑‑ and I want to get back to Amazon and the Dollar stores, but I do want to spend a minute on like what are the real world consequences of this? You mentioned food deserts, difficulty to be a small business and the supply chain, lack of innovation. All of this is kind of touched on in the New York Times piece. You know, different communities being affected. What is the tangible consequence for the citizenry when these laws go unenforced and we get the system that we have today?
STACY MITCHELL: Yeah. I mean, Walmart’s outsized power is a big reason that we have food deserts. I mean, independent grocers ‑‑ and by independent grocers, I mean, not only like single store outlets, but also smaller like chains of like six or ten that are owned by a family that serve a particular metro or particular state. Those grocers have really been squeezed by buyer power.
And those are the grocers, you know, small grocers disproportionately serve rural areas and black and brown neighborhoods and cities. And so as they have disappeared, a lot of those communities have become food deserts, where you have people who do not have a grocery store anywhere nearby and they have to travel a long distance to get to a supermarket somewhere else. Or more often, just end up subsisting off the limited selection of processed foods that they can get at a gas station or at a Dollar General.
So there’s a relationship here between the consolidation of retail power and the undermining of these communities in eroding like the health and well-being of people. We’re seeing lower life expectancies in neighborhoods that lack grocery stores and there seems to be a relationship there. And just also just undermining the overall economic viability. I mean, if you don’t have a grocery store, it’s like a daily hardship. And it also just tends to drag down the ‑‑ it creates a drag on the whole prosperity and prospects of the places that you live.
And that is a direct result of buyer power. I mean, these are neighborhoods, you know, the geographers have coined the term supermarket redlining. So the big chains, like Kroger, Walmart, they don’t really want to be in these communities. What they want to do is like set up shop in the region and then exert such a kind of pull and sort of flex their buyer power in a way that they pull enough of the business away from those local grocers that they drive them out. And now, they sort of leave people to have to travel to their stores. But they don’t actually locate in these very small towns and in a lot of low income black neighborhoods and cities. And so people are just left with food deserts. So food deserts is a really big ‑ and‑ that’s a phenomenon that really started to take off in the nineties. And it’s no coincidence that it takes off at the same time we see this huge consolidation in grocery retailing happening.
Rising prices, we talked about. But then there are these upstream effects in the sense that if you are a farmer or if you work in food production of any kind, your wages have been squeezed because of the power of the processors and the retailers. The consumer food dollar now, you know, a much bigger share of that is being taken by the supermarket chains and by the processors. And less and less of it has been going to the people who actually grow and produce and manufacture and work at slaughterhouses and so on. And then that has all sorts of effects on the well-being of communities and on the middle class and so on.
So it’s really far reaching. And even places that still have grocery stores, they have less and less choice. There’s a lot of cities, a lot of metro areas now, where really Walmart has like 70 percent of the grocery dollar. Or maybe it’s just Kroger that really in western cities, it might be Albertson’s and Kroger that really dominate. So across the board, we’ve seen a lot of negative effects in the real world for people.
TEDDY DOWNEY: You mentioned innovation in The New York Times piece. And I remember, I think I read many years ago, a Wall Street Journal piece about how the only place new food and beverage products can get up and going is in Manhattan because the bodegas are the only ones willing to take a chance on a new sort of product that tastes funny or whatever. There’s a story about how coconut water broke by going to all the bodegas in Manhattan. And are there other examples of how innovation is affected by these big, consolidated supermarket chains?
STACY MITCHELL: Yeah, absolutely. Like if you’re a small startup brand, like your pathway ‑‑ and this is true not just in grocery but across retailers ‑‑ your pathway to getting a chance at having your product in front of people is through smaller retailers. Because generally, you’re not producing at a scale at that stage that’s big enough for the big chains. And smaller retailers, they sort of have interest in showcasing new products. It’s part of how they compete. And so that’s the pathway.
And as those retailers disappear, you have fewer and fewer options of introducing your product. And you can’t really knock on Kroger’s door and say, hey, give me shelf space, for a company that size. So the gatekeeping power of the big chains makes it much, much more difficult for smaller startup companies to actually break through.
And part of the consequence of this, you know, we don’t we don’t know what we’re missing. Because those companies never actually make it or maybe even start up in the first place. I think it’s really hard for us to even measure the extent of what the consequences of that are, because there’s just innovations and products that don’t exist as a result of that. And it’s hard to even see what’s missing, but there’s a lot missing.
TEDDY DOWNEY: I want to get to Amazon. But first, you mentioned food deserts and dollar stores. What’s the buyer power issue when it comes to dollar stores? How did they come into this conversation?
STACY MITCHELL: Yeah, there’s two big dollar companies. There is Dollar General and then there’s Dollar Tree. And Dollar Tree owns Family Dollar. So three brands, two companies. Those two chains have a lot of sway with some of the suppliers. Overall, they don’t have a huge share of grocery spending at a national level. But for the particular limited selection of products that they do sell, they have a fairly significant share and they’re growing very rapidly. Nearly half of all new retail stores that have opened in the last couple of years have been dollar stores. Like these companies are proliferating.
And so from the standpoint of Pepsi and the potato chip makers and so on, this is a growth area. And so that sort of enhances the buyer power that Dollar General and Family Dollar have. I have talked to a lot of grocers, particularly in small towns, who’ve had a Dollar General open up across the street from them. You know, Dollar General has a very sort of predatory location strategy. It’ll often go into these communities and locate literally next door to the only grocery store. And they don’t necessarily ‑‑ often they peel off maybe only 15 or 20 percent of the grocery stores’ business.
So they’re not more popular than the grocery store. But they tend to peel off just enough of the items that are profitable. I mean, if you think about a grocery store, you’ve got all that fresh stuff on the outer edges, the dairy, the produce, the meat. That stuff is perishable. It’s hard to make much of a margin on. Where you do make a margin on kind of cover your overhead is all the stuff in the center aisle, the packaged goods. So the dollar stores skim off your profitable item, sales of your profitable items. And then that can send you under.
And part of the reason that they’ve been successful in that skimming is that they have induced suppliers to give them pricing that is much, much lower than that independent grocer can get. I talked to a grocer in Kansas who was saying to me that the Dollar General across from her, they have the same rep for Pepsi. And Dollar General selling two liters for like $.79. And she’s like, I’m paying like $1.80. And I talked to the rep and she’s like, well, no, no. That’s just for the Dollar General. We don’t have that pricing for you.
And the grocer is like, look. I’m price competitive on a lot of the stuff that I offer, even against Dollar General. But people walk in the door and they see that $.79 on the soda and they think that I’m more expensive across the board. You know, that Dollar General is cheaper across the board. So it really just has this terrible effect on small grocers. And then you think about that town. Now the grocer closes. People have no choice but to shop at Dollar General or drive long distances. And often, those small towns sort of end up in a spiral of decline. So the outcome is like nothing that anyone wants. This is not a good outcome for the economy, for consumers, for the community. Like any way you cut it, it’s a bad outcome.
TEDDY DOWNEY: I’d say another scary thing about that story is that you hear about these sort of like important like price cuts at other supermarkets, like their rotisserie chicken and milk. But Pepsi being like the thing that people anchor their prices off at dollar stores, like, that’s another, I mean, we could go a whole other hour just talking about that, just being a concerning thing that that’s like an important food staple or whatever at a dollar store. Or how they think about the pricing.
So, that’s really interesting. I had not thought about the dollar stores, that angle. Amazon. Can we touch on Amazon? Because this is the king of price discrimination, right? Like that’s what they say they’re good at. I mean, again, it’s not implicit. It’s explicit. You know, it’s going on all the time. Where, to you, is the biggest Robinson-Patman issue when it comes to Amazon? And we have these cases in Washington and in California. Those are antitrust cases. But if you’re going to revitalize Robinson-Patman and you’re‑ going to go after Amazon what’s the conduct that you’re really concerned about that you see at Amazon? From just a buyer power issue generally maybe.
STACY MITCHELL: Yeah, there’s been a lot of reporting about the muscle they flex over suppliers and manufacturers. I mean, certainly in the book industry, there’s been lots of reporting on their ability to get a higher discount. In some cases, they’ll get books that have a release date, they’ll be able to release them ahead of when other booksellers are able to release them. I mean, all of these ways in which they’re able to coerce special treatment. And again, not related to volume.
I think it’s really important to go back and say, independent bookstores, other small grocers, they’re all buying through big wholesalers, who are buying by the truckload. This is not a matter of volume efficiencies. This is purely market power at work. So we’ve heard a lot ‑‑ you’ve seen a lot of reporting about Amazon’s ability to win those special prices, and in essentially use that muscle that it has with suppliers to vanquish its smaller competitors. I mean, that’s what this is. This is not competition. This is I’ve got a financial clout over a company and I’m going to use it in order to get them to discriminate against my smaller competitors and thereby drive those smaller competitors out of the market. That’s what this is.
One of the things I thought was very notable was during the height of the pandemic, when there were shortages and there were difficulties keeping shelves stocked, Amazon sort of flexed a kind of buyer power over third party sellers in the sense that it said to them, you know, you need to have sufficient inventory in all of our warehouses in order to meet demand. And if you don’t ‑‑ ProPublica did some reporting on this ‑‑ if you don’t, we’re going to drop you in the search results.
And so, these third party sellers, who maybe were selling through other channels, moved all of their inventory into Amazon because they’re like, well, we’ve got to keep Amazon happy. And so effectively, they cut off other retailers from having access to those supplies. And so that was a form of essentially the gatekeeper power, the buyer power, being exercised, in a way that meant a lot of competing retailers suddenly had empty shelves, both online and off.
TEDDY DOWNEY: And I think you just mentioned the shortages, which I want to stay on quickly. Do you think the recent developments and the way the system is now makes it more obvious to the citizenry and to the law enforcers and policymakers that this is an important problem to tackle? This is an important law to revitalize? You’ve got supply shortages. You’ve got inflation. You even have economists begrudgingly admitting that there’s a market power issue kind of behind inflation, not just a wage price spiral ‑‑ or actually not a wage price spiral. As you pointed out earlier, there’s sort of an obviousness to the bigness in these markets. How do you see all this affecting sort of the urgency and the interest around this issue and sort of how the public views the challenge?
STACY MITCHELL: I think it’s really shifted things. You know, I think it’s hard. You know, people look around and it’s hard to not notice that our economy doesn’t really work very well. Like, we can’t seem to like produce and supply like basic goods. There are lots of ways in which we’ve got these breakdowns in production. And certainly made worse during the pandemic. But these are often broader problems that in some cases started earlier and have continued on.
And the economy really doesn’t seem to be able to right itself. We’ve got lots of inflation and so on. And just in general, like at a big picture level, the fact that things are not working very well, the paradigm that we’ve been operating under, that if we allow big corporations to amass more and more power, if we have just a handful of big companies in every industry, it’s going to be this Shangri-La of efficiency and greater output and all of these things, and it’s going to benefit everyone. That whole idea just doesn’t even hold water as a concept at this point. Because most people find that they are worse off, not better off. And they look around and they see lots of basic problems in just the output of the economy.
I mean, the fact that we have this growing phenomenon of deserts, like food deserts, pharmacy deserts, hospital deserts, banking deserts, I mean, we keep having like new iterations of this. We’ve had this this sort of economic philosophy that has supposedly been about maximizing output. And yet we seem to have all these places that don’t even have basic goods and services.
So at that, like big picture level, the things that everyone can easily see, this situation is not working at all. And I think people understand now in a way that was not true ten or 15, 20 years ago. You know, we’ve been talking about Robinson-Patman for a long time and about retailer power. And if you looked, you could see how it was working. You could see the beginnings of all of this happening. But it hadn’t really fully run out to the to the level that we have now where I think it’s just pretty undeniable. And I think people sort of instinctively understand that we need to restore like an ecology, like a dynamic, productive ecology, to our economy where we have lots of different companies, producing different things, filling different niches, serving different kinds of communities, bringing different kinds of products to market, that that sort of dynamism, that competition, that sort of robust, diverse ecology, that that’s what’s really the key to like getting to an economy that’s actually productive and good for people.
TEDDY DOWNEY: I want to get it to other examples that you have of buyer power issues. Before we got on the call, you mentioned the alcohol market, the craft brewer. Maybe you could tell that story and any other examples that jump out to you as like where buyer power is sort of an obvious issue?
STACY MITCHELL: Yeah, I mean, there’s a lot of this happening outside the food industry. Like food has been a good place to sort of spotlight this story. But if you start looking around it, it is everywhere. So one example is that last year, Ball Corporation, which is by far the largest producer of cans, they jacked up their prices on cans and raised minimum orders for small craft brewers. And so craft brewers across the country suddenly found that their basic costs really increased a lot and it has made it harder for them to compete against Anheuser‑Busch, which is still getting the lowest prices from Ball Corporation.
We’ve seen this in toys. So Mattel has cut off supply to small independent toy stores. We’ve seen this in hardware, particularly during the pandemic. You know, Home Depot on earnings calls was talking about how we have these relationships with suppliers. So we’re getting all of their supply because we’re big and we’re able to do that.
We’ve seen this in in the kitchen and home goods sector. So, for example, like KitchenAid has stopped the big, you know, they make the mixers, the big stand mixers. They’ve stopped supplying independent retailers. Lifetime Brands, which is another big company in that sector, they have really said that they have like a sort of, they’re orienting their business around Amazon and basically, you know, other retailers be damned. Like we’ve decided to get on the Amazon bus, as it were.
And you see this too outside of even retail. So, one example, we did a report back in September called “Boxed Out” about predatory buying and the Robinson-Patman Act. And one of the examples that my colleague, Ron Knox, he interviewed someone who had an independent farm supply store in Illinois. And he was doing very well for a number of years. He was kind of the biggest local farm supply store in his region. And then Monsanto started talking to Bayer about merging. And suddenly, he was paying a lot more for the seed corn and soybeans that he ‑‑ for seed that he sold at much more than the big chain. They were charging the big chain farm suppliers much less. And he ended up losing his business as a result of that. So this buyer power issue is really quite rampant.
TEDDY DOWNEY: And we talked a little bit about that FTC, Robinson-Patman. If you had a magic wand or if you were in charge, what beyond the FTC launching some Robinson-Patman investigations. You know, they’re looking into some supply chain issues with big retailers. They mentioned that the rebates between pharma and PBMs is illegal under Robinson-Patman. They’re active. Who else would you like to see activity from? And are you seeing any interest from like state AGs or other law enforcers or policymakers with important power or Congress to address these issues? I’m curious what you think you would like to see and if there are any avenues of that, that are encouraging to you? Or anything you’re seeing right now that we should be paying attention to?
STACY MITCHELL: A couple of things. I do think it’s important for Congress to be like having hearings on these issues and really looking at them. Because part of the reason I think sort of looking at Robinson-Patman and predatory buying is so important is not only because of all the ways in which it’s harming our country that we’ve been talking about. But also, it’s a way of really understanding very clearly the fork in the road, the wrong turn, I would argue, that we made in the 1980s around antitrust.
You know, prior to the 1980s, one of the kind of North Star of antitrust was a fair playing field. And this notion that you would create fair competition. So in the case of retail, all retailers have access to the same terms, for example, Robinson-Patman. And in the eighties, we took this other turn and decided fairness doesn’t matter. That’s not what this is about. We really think the regulators decided what we really need is bigness, that bigness is the key to generating benefits.
And more than any other area of antitrust, Robinson-Patman really makes that choice very distinct and clear. And so I think it’s a very helpful place for advocates, for members of Congress, to be focusing. Because, as I said, this issue of buyer power is rampant across the economy. It has a lot of negative effects, and it’s a way of really crystallizing the policy choice that that we have in front of us. There are folks at the FTC, Chair Khan, Commissioner Bedoya, in particular, who have been arguing for this idea of returning to fairness. And I think it’s really important for the American public to understand that policy option, and I hope you really get behind it.
And so Congress has a really important role to play in in furthering that discussion and that understanding. And then hopefully going even further and thinking about, okay, well, if fairness is what we want to bring about here, what are the other things that we need to be doing to really shore up and revive antimonopoly policy?
The other thing I would name is I’ve been very interested to see the discussions in the New York legislature and beginning a bit in the Minnesota legislature around doing new state antitrust laws that maybe would include provisions around buyer power and other kinds of abuse of dominance, essentially. And I’m really interested to see where those legislative efforts go. Because there’s an opportunity for those states to put some new statutory language out there to make it more possible to get at some of these kinds of violations and open up some opportunities for state AGs to really go after some of these issues.
TEDDY DOWNEY: Yeah, I think even the sort of novel way that some of the states are starting to look at these mergers. Sort of like Washington State obviously lost that case to sort of block Kroger/Albertsons on the PE dividend. But when you look at those state laws, they’re often more robust or more open-ended or they have some kind of public interest standard or something like that. So it makes it more interesting and powerful. I mean, obviously, we have pretty ample, I think, authorities in the U.S. federal antitrust law. But the states have different authorities. And to your point, exploring those and enforcing those and changing those seems, I think, very interesting.
STACY MITCHELL: Yeah, I think that’s right. And I’m reminded now that I believe the Colorado Attorney General, Phil Weiser, has been talking with farmers and sort of soliciting input from farmers and other kinds of producers about the potential impacts of the Kroger/Albertsons merger. So he’s clearly very much focused on the on the buyer power issue.
And then the other thing, California has some good legislation on the books around sort of unfair competitive practices that I think starts to also get at some of these issues in a way that maybe hasn’t been sort of fully realized, but some opportunities there, I think, for California to go after some issues.
TEDDY DOWNEY: And I wanted to ask you, I guess this is maybe the last question. We’re out of time. But we talked earlier about sort of overt ways that companies just do business because they think Robinson‑Patman is just not enforced, but they’ll just do contracts or they’ll have policies that just completely ignore that it exists. And one of the things that intellectually is hard to grapple with, in the Amgen Horizon case, the answer from the lawyers in that kind of has caused me to think about how the law and how the discourse around these types of contracts like bundling and discounts and rebates and things like that, work, is that there’s this sort of like presumption that it’s an open market and that a lower price is what leads to the higher volume by people actually buying it.
But what’s really going on is you’re paying money in exchange for ‑‑ to your point earlier ‑‑ volume as a result of self-placement or category management. You’re paying money for the thing to get bought more, not just the lower price.
STACY MITCHELL: Right.
TEDDY DOWNEY: I mean, really it’s not an open market for a lower price. It’s like you’re paying for sort of better access, better position and worse access for your competitors as well. So I wanted to get your take on this notion, that in the law, bundling and discounts has sort of grown to be seen as okay, but that these contracts are actually not ‑‑ that’s not really what’s going on. Or how do you think about that issue? It’s like another myth around bundling and discounts and how things really work here.
STACY MITCHELL: Yeah I think that’s definitely right. And it seems true in the category captain scenario where you’re helping the big retailer in a certain way and sort of paying in some sense for access to the right shelf space, the eye level shelf space. And then you sort of manage that category in a way that you increase, you know, you put your products where you’re going to increase sales, and then you’re able to say, hey, look. I’m increasing your sales of toothpaste or whatever it is. And so we’re going to give ourselves some more shelf space or what have you. There’s just lots of sort of ways in which that, again, I think to your point, is like this is not actual price competition.
Something else that came to mind as you were saying that, that I’ve been thinking a lot about, is if we enforced Robinson-Patman, it actually situates competition in the right place. And what I mean by that is that retailers will compete around having the best selection, the best service, the best ability to help you find exactly the right product for your need. You know, the retailers will compete on what retailers should be competing on. And by enforcing Robinson-Patman‑, we then make producers of products actually compete head‑to‑head with one another.
If you think about it, like right now, if you’re a publisher of books, what we should want is for you to be thinking about how can I put out the best book at the best price that’s going to compete well against other publishers in this category. You should be price competing with those other book publishers. And if we had Robinson-Patman enforcement, you would be.
But what happens now is you think, well, actually, instead of trying to make the best book at the best price, what I should do is give Amazon the biggest discount. And Amazon is like, hey. This is great. We get a big discount on this book. We’re going to put your book at the top of the search results and that’s how you’re going to sell more volume. It’s not by making a better book at a better price versus other publishers. It’s by ingratiating yourself with Amazon. Amazon makes money. You make money. But the consumer does not necessarily get the best book at the best price. Do you see what I’m saying? And that’s because we’ve had this like stupid notion about not actually using antitrust law to situate the right competition, the right kind of head-‑to-‑head competition, that we actually need.
TEDDY DOWNEY: Yeah, and I think also there’s this kind of the presumption that the way it works is like fair and open is kind of – it’s just wrong at this point. These are not open fair markets when you actually dig in and look at these contracts, right? When you actually look at the relationships between big retailers and big producers or big distributors or big pharma and PBMs, like no one in their right mind would, well, this sounds fair. You know, that seems fair to me. So I totally agree with you.
STACY MITCHELL: Yeah, exactly. And if we actually had lots of competition, and if one retailer had a contract, it wouldn’t really matter. Because you’d be like, oh, I don’t like that. I’m going to go over here as a producer or as a consumer, right? But if you only have a few retailers, then basically those contracts become the law of the land and that locks out your actual competition as a result. So yeah, I totally agree with that.
TEDDY DOWNEY: I think that’s going to be probably one of the things I’m most interested to see out of this 6(b) into the FTC’s results from these investigations. It’s like what’s actually in these contracts? Because all this stuff is like hidden from us. I mean, I guess we kind of know what’s going on. But to your point earlier, just the overtness of the just like rejection of Robinson-Patman to the point where everyone runs their businesses through contracts with ostensibly violations of Robinson-Patman in the contract. I mean, I’m dealing with this with pharma and the PBMs right now.
But it’ll be really interesting to see what the FTC says about what they found in all of these contracts. Because PBMs, for example, just such a black box industry. And these contracts and these negotiations are such a black box. And a lot of times I think about, well, when there’s anticompetitive conduct, it’s like soft power. It’s kind of like you getting your way by sort of bullying people in different ways.
And that’s kind often how like a Google or Facebook, they’re always changing the rules on you. And so they’re making it kind of this crazy game if you’re in the supply chain. But when it comes to Robinson, it’s in the contract. Like the things that they’re getting, the benefits that they’re getting, they’re paying for something and the benefit they’re getting is, I think, in the contract.
And so anyway, to the extent that they actually start enforcing the law, it will really have a big profound impact on those contracts, I would imagine, and how the contracting process works. And as a result, the entire way the industry works, which is governed by those contracts, to your point. Do you think that’s a ‑‑ am I crazy to think of that as what might be interesting about how this all plays out?
STACY MITCHELL: Yeah, I mean, I love the point about bringing some daylight to what’s going on. The contracts across a lot of different industries as well,. PBMs especially, I mean, they get away with what they get away with, and the pharmaceutical manufacturers because of this lack of transparency in large part. And so, it would be a huge public service the more that the FTC begins to make some of those, through these studies, some of those terms and details of how all of this works public. It would be really great, bring some daylight to those industries and start to shift things. But I think you’re right, like a lot of it exists in these in these relationships and through these contracts that none of us get to see.
TEDDY DOWNEY: Well, Stacy, as always, I mean, we covered a ton of ground here. This is one of the most interesting conversations. I learned so much here. I can’t wait to keep following this and stay in touch with you. And I can’t thank you enough for doing this. This is really awesome and I really appreciate it.
STACY MITCHELL: Thanks, Teddy. I’m such a big fan of the reporting that The Capitol Forum does. And it’s always just such a pleasure to talk with you. So appreciate it too.
TEDDY DOWNEY: Thank you so much. And thanks, everyone, for joining the call today. This concludes the call. Bye everyone.
