War in the Aisles: Monopolies Across the Grocery Supply Chain Squeeze Consumers and Small-Business Owners Alike, Big Data will Only Entrench Those Dynamics Further

Published on Jun 12, 2024

This article is published in collaboration with The American Prospect.

You’ve grabbed a shopping cart, walked through the sliding doors, and checked your list for the week. Keep it simple—Monday, spaghetti and meatballs. Tuesday, of course, is for tacos. Wednesday, how about a stew. Can’t forget the cold cuts, bread, and Cheez-Its for lunch this week. Thursday? Oh yeah, the dinner plans. On Friday, salmon, asparagus, and potatoes.

Down the snacks aisle, you were tempted and grabbed more than what was on your list. Next, you head to the dairy section for cheese, milk, and Greek yogurt. A couple rows over, you take a look at coffee and drinks. Then it’s time to head to checkout.

It’s a quietly amazing experience. No other time in human history has delivered as many food options to the masses as the supermarket has. A great logistical project involving hundreds of thousands if not millions of people from numerous countries on nearly every continent on Earth has brought this abundance to your little town, a panoply of tastes and combinations previous generations could only dream of.

But then you remember that time when contaminated wheat gluten at a single manufacturing plant in Wangdien, China, caused a recall of almost 100 pet food brands, including 17 of the top 20 sold. Or a few years ago, when a strike of just 1,400 Kellogg’s workers at four plants led to a national cereal shortage, with footage of empty shelves across the country.

Moments like these reveal the truth about the seemingly endless set of options. Your supermarket choices actually narrow to a handful of suppliers making different brands whose prices are tightly coordinated. Step deeper inside the supply chain, and you find that the ingredients that make your food so addictive derive from an even smaller circle of titans.

What you end up learning, if you take the time, is that the supermarket, this tribute to human ingenuity, is actually a battlefield, a war between some of the biggest companies on the planet. And you are the guinea pig for their experiments.

In the grocery business, nothing is accidental. Every product’s placement, every advertisement, every coupon is a function of marketing wizardry and hardball tactics, in a bid for the eyes and wallets of consumers.

Because everybody needs food to survive, retailers and manufacturers are willing to try every pricing strategy known to man. The grocery store is where all facets of this new era of pricing come together, where attempts to squeeze more from shoppers are tested, analyzed, and put into action.

It started with traditional marketing like coupons and loyalty programs, hooking consumers by giving them a reason to come back. But more insidious schemes lurk inside the grocery store: price-fixing, product shrinkage, electronic shelf tags that change on a whim, and skirmishes between grocers and food producers, or even grocers and other grocers.

This cutthroat dynamic has accelerated consolidation across the food and retail supply chain. It has also kept grocery prices noticeably higher since the pandemic than other goods in the economy. Since the beginning of 2020, grocery prices have risen 25 percent, significantly higher than wages. Consumers experience the most reverberating effects, particularly low-income consumers who spend more of their paychecks on groceries. But food suppliers must also navigate the anti-competitive landscape and pay tolls just to get noticed. Meanwhile, independent supermarkets struggle to survive.

The story of how these towers of nutritional delight turned into rent-seeking alligator pits involves new technologies and fewer competitors for the grocery dollar at all levels. But every economic era has contained opportunities for food monopolists. Today’s difference lies in markets realizing the amplifying effects of this era’s more powerful, more granular, more invasive schemes to profit.

The final, surprising result could be a near future where grocery store consumers become the product.

Before Amazon and Walmart’s legendary logistics operations were even conceived, there was another everything store: the Great Atlantic & Pacific Tea Company, otherwise known as A&P.

The first grocery stores looked more like the average New Yorker’s bodega. They had basic goods like coffee and tea supplied in bulk, and your grocer would ladle them out. Quality from place to place was a dice roll. And if you wanted meat or bread, you had to go to the butcher and the baker.

A&P wanted to put all of a customer’s needs under one roof. The definitive book on A&P’s rise and fall, written by Marc Levinson, describes how A&P saw the rebuilding efforts in Chicago after the Great Fire of 1871 as an expansion opportunity into the Midwest. The company grew from 70 stores across 16 cities in 1878 to nearly 200 stores by 1900.

To get suppliers and producers to converge at one company’s locations was a logistical feat. But the speed at which A&P took over the manufacturing processes themselves—a vertical integration play—immediately drew critics.

First, the company hired an on-site chemist to manufacture baking powder for changing consumer tastes, and slapped the well-regarded A&P name onto the powder’s red tin.

On one level, A&P eliminated the cost of acquiring baking powder from an outsider, and signaled to other suppliers to lower their prices or risk being taken over, too. But more importantly, the in-store brand distinguished the company from its competitors. This strategy would be repeated across coffee, fresh produce, and in-house meat departments. By 1929, the company was the second company to reach $1 billion in sales; the following year, the chain reached a peak of 15,737 U.S. stores.

In the mid-1930s, Congress passed the Robinson-Patman Act (RPA) and the Miller-Tydings Act, taking direct aim at stores like A&P in defense of small grocers. But it could have been worse. Separately, Rep. Wright Patman introduced a “death tax” bill targeting chain stores. A&P spearheaded a massive lobbying campaign against it by bringing organized labor, producers, and consumers together. The campaign succeeded, and the death tax provision never became law.

Still, antitrust enforcers pummeled the company. “In 1938,” Levinson wrote, “[the FTC] required A&P to pay for brokerage commissions on purchases involving no brokers. A decade later, it restrained the Morton Salt Company from selling small quantities of table salt at $1.60 per case while charging less to customers buying by the rail car load.” By September 1946, a federal court ruled that A&P’s owners had conspired to violate the Sherman Antitrust Act by maintaining artificially low prices.

In Levinson’s telling, these RPA enforcement actions caused chain stores to raise their prices. “The discount revolution would be postponed by several decades, to help keep small businesses alive.”

But enforcement of predatory pricing waned, and in the case of Robinson-Patman, disappeared entirely after the 1980s. By the time the discount supermarket returned, building on A&P’s model, it was more sophisticated and more ruthless. And eventually, those lower prices, which devastated food suppliers and independent grocers alike, would find the opportunity to turn higher.

The seeds of food inflation today are planted long before items hit the grocery store. A recent book, Barons: Money, Power, and the Corruption of America’s Food Industry, written by Austin Frerick, details how a handful of families came to dominate meat processing, commodities such as corn and soy, and nearly every sip of coffee on the planet. A recent report from the progressive think tank Groundwork Collaborative details how four companies control between 55 and 85 percent of the market for beef, poultry, and pork processing.

Consolidation creates the illusion of product choice. Aquafina and Gatorade are both Pepsi products. Minute Maid and Simply are parts of Coca-Cola’s portfolio. Beverage makers are also in the snack game. Pepsi owns Frito-Lay, competing with other chip makers such as Utz Quality Foods and Kellogg’s Pringles. Pepsi even owns Gamesa, Mexico’s largest cookie manufacturer, popular for its Marias cookies. One of its top competitors for the snack dollar is Mondelez International, maker of Oreos, Wheat Thins, and Ritz crackers.

This dominance gives companies pricing power, and alongside the pandemic inflation they put that power to work. Pepsi and Coca-Cola each raised their prices by double digits over the past few years; because they control so many brands, customers had few options but to pay up. Keurig Dr Pepper, a subsidiary of the JAB coffee empire, doubled margins on U.S. non-coffee beverage sales in the third quarter of 2023 from the year before. For snacks, Groundwork quotes a Hershey executive on an earnings call last year, telling investors “pricing and productivity gains more than offset inflation and higher manufacturing and overhead costs.”

Sometimes this price inflation is of the illegal variety, involving collusion of small groups of food producers to raise the price. A notable win for consumers in Washington state came after Attorney General Bob Ferguson found that 19 chicken producers had driven up chicken and tuna prices since 2008; regulators anticipated returning 1.2 million low-income residents checks ranging from $50 to $120.

Another lawsuit brought forward by delis and restaurants against Hormel Foods resulted in an $11 million settlement. A New York Times Magazine article on federal antitrust enforcers and poultry tycoons details how even large fast-food chains such as KFC can be goaded into higher prices, dictated by even bigger chicken companies.

The food companies have gotten bigger because the outlets where they sell their products are getting bigger. At the height of its power, A&P took in about 16 percent of U.S. grocery market sales. According to a 2019 report from the Institute for Local Self-Reliance, Walmart captured more than 50 percent of that share in 43 metropolitan areas and 160 smaller cities. Other grocers in the marketplace are big—and the merger between Kroger and Albertsons, now under challenge from the FTC, could make them even bigger. But nobody has the share that Walmart has.

Walmart’s unique money-extraction capabilities can be inferred from how assiduously the company has fought to increase its share of dollars from federal anti-poverty programs like the Supplemental Nutrition Assistance Program, otherwise known as SNAP. Frerick estimates the company took in $26.8 billion in SNAP benefits last year, more than doubling the total collected in 2013.

“Walmart wants to capture every dollar of America’s underclass,” said Frerick, a former Treasury Department official. “Most people don’t realize how essential Walmart is to lots of parts of the country.” Outside of the most densely populated urban areas on the coasts, Walmart and scattered Dollar Generals fill the void left by shuttered independent grocers. Frerick worries about the mid-level grocers “collaps[ing] like the rest of America.”

Walmart learned well from its monopolist predecessor, particularly in how it deals with suppliers. The company demands the lowest possible prices from those suppliers, taking more of the grocery dollar for itself. And it demands logistical perfection, or the prices drop even further. Over a three-year period, Walmart raised the percentage that a supplier’s deliveries must be made on time from 75 percent in 2017 to 98 percent in 2020, with a 3 percent penalty on delayed orders, a large number considering the industry’s narrow profit margins. The implication was clear; sell to Walmart or get out of the business.

Another common grocery tactic sends prices higher. Retailers charge food companies “slotting fees” to acquire prime shelf space in stores. With limited space, especially for cold or frozen foods, companies get into bidding wars to present themselves to customers in the biggest stores. Eventually, you and I pay for these auctions in the grocery aisles.

The space is even more constrained because companies make room for their own store-brand products, like Great Value at Walmart or Private Selection at Kroger. These products are usually cheaper—after all, they don’t pay slotting fees—and have become more popular amid inflation. Outside companies get whatever space is left. This benefits the biggest food companies that can afford the cost of slotting.

Errol Schweizer, a nearly three-decade veteran of the grocery industry and former vice president of Whole Foods’ grocery division, told me that for every dollar in a grocery supplier’s operations, about a quarter of it goes toward a web of wholesaler and retailer fees. Meanwhile, federal oversight guidelines for slotting fees haven’t changed in nearly 25 years.

The battle for shelf space is difficult; though some food companies consider it unfair, legal action to remedy competition harms is rare, because of the cascading effects of speaking out. “They rarely come public,” Frerick told me, referring to suppliers that have reached out to him since his book was published, who fear retaliation from their market’s largest buyers.

However, an unlikely set of actors, Snoop Dogg and Master P, filed a lawsuit earlier this year against Walmart and Post, the famous cereal brand, alleging the two sabotaged Snoop Cereal by making it unavailable on shelves. On the surface, most coverage of the lawsuit fixates on the novelty of a discrimination case against the “first ever black-owned cereal brand.” But there’s more to the saga.

Broadus Foods, the duo’s brand, initially approached Post for a marketing partnership. The lawsuit alleges that Post refused, instead offering to purchase the cereal outright. The two turned down the offer and Post came back to the table, this time offering to manufacture, market, and distribute the cereal, with an equitable split of the profits. Snoop and Master P agreed.

But they allege that Post then slow-walked their cereal and didn’t get it stocked on store shelves, while Post’s own brands—Grape-Nuts, Honey-Comb, Raisin Bran, Fruity Pebbles, and more—remained prominent. Boxes of Snoop Cereal were stuck in Walmart stockrooms, with codes that told store staff not to display them.

It was a catch-and-kill situation, according to the plaintiffs, a way to destroy a competitor by locking it out of the market. “Because Snoop Dogg and Master P refused to sell Snoop Cereal in totality, Post entered a false arrangement where they could choke Broadus Foods out of the market, thereby preventing Snoop Cereal from being sold or produced by any competitor,” the complaint reads.

Legal counsel for Broadus Foods could not arrange an interview with the Prospect. Walmart and Post also did not return comment.

The war continues between giant supermarkets and their smaller competitors, a battle that came to a head during the supply chain crunch. A 2021 white paper published by the National Grocers Association, an independent trade group of over 1,700 retailers, detailed how wholesale prices offered to independent grocers were as much as 53 percent higher than the retail price at big-box stores.

This was an exacerbation of long-standing trends in the industry. Schweizer told me that big grocers have always applied pressure to suppliers and wholesalers, demanding steep discounts and custom packaging that competitors cannot access. The NGA report offered a revealing example. One grocer wanted to carry a 36-pack of toilet paper, the same as what Walmart’s bulk store Sam’s Club sells. “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.”

During the pandemic, the NGA report claimed, Walmart, Amazon, and others also pressured suppliers to serve them first, before any competitors. “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,” the report said. “Those same products have been fully stocked at Amazon and on the shelves of big box national chain retailers.” Independent grocers were also denied price promotions and discounts. This all tended to entrench the buying power of the biggest groceries.

The NGA report and media amplification sparked the FTC to launch a comprehensive study into the food and retail industry, based on publicly available data and information from grocery retailers, wholesalers, and producers. The report, titled “Feeding America in a Time of Crisis,” ultimately confirmed complaints that anti-monopoly advocates and smaller grocery industry firms had voiced for years, that power buyer retailers demanded that suppliers prioritize their orders, by imposing short deadlines and steep fines for noncompliance.

However, Christopher Jones, chief government relations officer at NGA, told me that the report missed the gray market of independent grocers having to buy goods from larger competitors. “It’s arbitrage,” he said. “It’s a cost-raising strategy [on rivals].”

The report also notes that retailers responded to supply chain risks through a mix of building out and acquiring manufacturing capacity. For example, like A&P before it, Walmart has also become a food supplier, building its own milk processing plant in Georgia, and a beef-packing plant in Kansas. The FTC warned that, given the incumbent market power of the largest retailers, such moves could leave smaller buyers “worse off.”

While the FTC carefully notes it did not directly study the relationship between grocery industry profits and input costs, the damaging of rivals had an effect that can be seen in publicly available data. Profits rose over total costs in 2021 and 2023 at a higher rate not seen since 2015.

Outside of battles for supermarket dominance and shelf space, consumers experience the trickle-down effects of experiments with pricing strategies. For example, there’s been a recent shift to repackage goods into smaller containers, without changing the price.

A report from Groundwork sheds light on these recent industry changes. Shrinkflation, or “price pack architecture,” in the industry’s preferred lingo, has been a hot topic on earnings calls from the last year. In the best case, packaging innovations cut down on environmental waste or align with what consumers say they want. But they’re also a method of extracting greater profits.

Take for example the explosion of mini-cans of soda. On the one hand, they appeal to consumers who may be more conscious of their dietary habits. However, as Groundwork puts it, companies use consumer preference to mask “introducing new smaller portions that can be sold at a higher weight per ounce.”

The story of falling inflation rates obscures how by repackaging goods, the consumer’s dollar is worth less than it was before. The Groundwork report compares inflation rates accounting for and excluding shrinkflation from January 2019 to October 2023. With shrinkflation included, the rates range from 3 to 10 percent higher, depending on the goods. These small hikes upward are “the path to higher margins,” as Utz’s CEO Dylan Lissette told analysts in 2021.

Other pricing strategies leverage consumer data. Groceries have previously used low-tech programs to understand customers, essentially personalizing pricing for each shopping cart. That long ribbon of coupons you get with your receipt initially just reflected the purchases you just made. That evolved into “rewards” cards, and subscription-based services to big-box stores like Costco or Sam’s Club. These entitle customers to a combination of either lower prices or targeted discounts over their non-member counterparts. But members give something up in the exchange: Grocery stores can assemble long and detailed purchase histories.

If a grocer can identify distinct patterns of buying, or when customers switch from one brand to another, they can build powerful and intelligent individual profiles to inform future promotions and overall pricing. In-store deals that require customers to “clip” coupons on digital apps give grocers access to even more personal information. There was already immense data available on consumers. But by linking them to individualized profiles, retailers gain a more granular look at who their customers are.

This insight into personal shopping habits opens up numerous possibilities. Walgreens has begun to use video screens in their refrigerated section. That enables rapid price changes at the click of a button, without having to deal with physical price tags. Digital price tags have popped up at Kroger and other stores as well.

As Phil Longman of the Open Markets Institute told me, with data in hand and a way to rapidly deploy it, retailers are driving consumers toward a future of surge and dynamic pricing models and eroding consumer surplus, economist-speak for the difference between what a consumer will pay for a good and what they actually paid.

“Surge pricing is definitely on the horizon,” Schweizer told me, though it’s only being talked about at this point. The conversations reminded him of when self-checkout was just an idea. Yet, “we’re on the opposite end of it now.”

This can help retailers eke out more revenue by knowing what a customer wants even before they do. But, grocery profit margins only hover around 1 to 3 percent. There’s a much bigger potential outlet for this data, and it’s the grocery industry’s hottest new trend: retail media.

Essentially, grocers can sell access to consumer shopping histories, which contain some of the most valuable information available: what people buy and when. Advertisers are willing to pay top dollar for that data. Kroger and Albertsons both have in-house retail media agencies, willing to work with advertisers to essentially sell your likes and dislikes while food shopping to the highest bidder.

This advertising is directed at people outside the grocery store: in their homes, while they look at their phones, anywhere. Walmart’s proposed acquisition of the TV manufacturer Vizio for $2.3 billion, critics note, is about gaining access to smart-TV users, to place more ads with sharply refined data. And though Amazon is a smaller player in grocery, its endless supply of data lends itself to a retail media play, in addition to the fact that it sells devices like Fire TV and streaming services like Amazon Prime Video that can be landing spots for data-rich ads.

The data trove can also empower retailers with additional negotiating power. If they know what customers like more than the suppliers, they can make even more overbearing demands for delivery and logistics.

“Selling groceries is incidental to how [grocers are] making profits. It’s an advertising-driven data factory,” Longman said. That’s why he thinks that the real stakes over the pending Kroger-Albertsons merger are less about a more concentrated grocer, and more about a richer database of consumer behavior.

For Schweizer, the first steps to addressing problems in the grocery industry have been taken by the FTC publishing its report on the industry. But that’s just the beginning: “Walmart is the center of gravity in this industry … You don’t deal with Walmart by creating another Walmart,” he said, referring to the Kroger-Albertsons deal.

In September 2022, FTC Commissioner Alvaro Bedoya gave a speech in Minnesota, signaling readiness to revive Robinson-Patman Act enforcement at the FTC: “Certain laws that were clearly passed under what you could call a fairness mandate … directly spell out specific legal prohibitions. Congress’s intent in those laws is clear.”

The following year, the FTC announced two investigations into the food industry, which appear to be focused on pricing strategies in violation of the RPA. The first targets Pepsi and Coke for soda pricing. The second is looking into Southern Glazer’s for selling to Total Wine at discounts unavailable to smaller retailers.

Stacy Mitchell, the co-executive director of the Institute for Local Self-Reliance, told me Bedoya’s speech represented a watershed moment, and the FTC investigations take it to its logical conclusion. For the grocery industry, it means the power of the chain stores—exemplified by their dominance over suppliers, ability to muscle out rivals, and unparalleled access to consumer data—may finally be tackled. And that could reverberate across the supply chain, to the big processors and food conglomerates.

Until then, Schweizer has concerns about the pricing strategies on the horizon. Surges on Uber and Lyft are frustrating, he said, but the prospect of such strategies brings into focus ethical concerns when applied to basic necessities. The war for your shopping cart, in other words, has collateral damage.