U.S. Senate hears from AWG’s David Smith on grocery retail ‘power buyers’

On behalf of the National Grocers Association (NGA), Associated Wholesale Grocers (AWG) President and CEO David Smith gave testimony on unfair business practices impacting independent supermarkets at a U.S. Senate Judiciary Committee hearing on competition in the nation’s food industry.

In the Wednesday afternoon session, titled “Beefing up Competition: Examining America’s Food Supply Chain,” Smith spotlighted the actions of so-called grocery retail “power buyers.” Earlier this year, in a press conference and white paper, NGA explained how anticompetitive behavior by big-box and online grocery retailers is creating marked disadvantages for independent grocers in supply and pricing.

Smith, addressing senators in the hearing via videoconference, noted that high levels of sales concentration enable large retailers to “act as gatekeepers to consumers.”

“AWG has had a front row seat to increasing levels of concentration in the food supply chain in recent decades, both at the retail level and among suppliers like meatpackers. Today, one in four grocery dollars in the United States are spent at Walmart. Our 3,100 stores, which comprise $22 billion in sales for the industry, can look like peanuts compared to the dominant retailers,” Smith said in his testimony to lawmakers. Walmart derives almost $300 billion of their $514 billion in retail sales from grocery. Kroger brings in $121 billion. We estimate Amazon, which doesn’t break out its grocery sales, is at approximately $70 billion. Finally, Albertsons brings in $61 billion and Ahold Delhaize brings in $44 billion. That’s almost $600 billion — or 60% of the entire industry’s sales — in the top five retailers.”

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AWG's David Smith told senators at the hearing, '“These retailers use their control over the market to advantage themselves at the expense of everyone else.'

Small food retailers are being squeezed as these big players and others use their scale to command more favorable supply terms, lower pricing, special product package sizes and first call on high-demand items, he explained. The disparity was especially pronounced during the COVID-19 pandemic, as independent grocers’ customers often found empty shelves and higher prices for essential products, whereas large competitors were able to procure sought-after items.

“These retailers use their control over the market to advantage themselves at the expense of everyone else. They dictate terms and conditions to suppliers,” Smith said. “Some even pressure suppliers not to sell certain products to independents. And because of their position as gatekeepers to so many shoppers, suppliers have no choice but to acquiesce.”

Sen. Richard Blumenthal (D., Conn.) asked Smith about Amazon’s rising power in the grocery arena since its acquisition of Whole Foods Market and recent openings of Amazon Fresh supermarkets. But the AWG CEO said Amazon’s growing influence is “really just a further expansion of the power buyers.”

Related:NGA calls for crackdown on grocery retail ‘power buyers’

“The meat of the discussion we’re having today is really a single ingredient in an overall situation that is created when you have these power buyers. Companies such as manufacturers and producers are unable to get the pricing that they need because of the tremendous dominance that they have. When a singular retailer can have 30% or 35% of all of your sales, but yet you and your products may represent 1% or less of that retailer’s sales, there’s a disproportionate risk,” Smith said in the hearing. “What I was speaking about earlier with ‘harvest and invest’ and Amazon, I think they may have defined it. I think they may have actually come up with the very definition for ‘harvest and invest’ by leveraging Amazon Web Services to produce incredible income in order to be able to get into the retail business. And so, is that an existential threat to supermarkets? Yes. Is it an existential threat to suppliers? Of course. But having so much of an aggregated power with those companies, it’s a tremendous risk.”

Sen. Amy Klobuchar (D., Minn.) asked AWG's Smith about competitive challenges faced by independent grocers and possible solutions.

In asking Smith about challenges for small grocers, Sen. Amy Klobuchar (D., Minn.) said “America has a monopoly problem” in grocery retailing and that the nation now has about one-third fewer grocery stores than it did 25 years ago. Smith pointed out that not only are independent grocers often thwarted by power retailers in entering new market areas, but it’s a “misnomer” to think that power buyers’ practices are purely for procurement efficiencies.

“This notion of consumer welfare, senator, is that the consumer is benefitted by the lower prices. But those are very short-term,” Smith told Klobuchar. “Actually, they pay more because of that ‘harvest and invest’. They invest in those areas to drive out competition, and then after the competition goes away, it increases.”

When Klobuchar asked about a potential solution to the anticompetitive situation for grocers, Smith said the tools are already in place but need to be enforced. In its white paper, NGA noted that current U.S. antitrust laws — including the Sherman Act (outlawing monopolies), Clayton Act (barring anticompetitive business practices) and the Robinson-Patman Act (prohibiting price discrimination by suppliers against retailers) — provide curbs discriminatory practices by dominant retail chains, yet antitrust agency and court enforcement has lagged.

“Certainly, I’m a grocer, but all we’re asking for is a level playing field,” Smith responded to Klobuchar. “Robinson-Patman, we thought, should ensure that we get fair terms and fair prices for the same product. But what we’re dealing with is that it’s gone unenforced, and we really see nothing that is stopping the continued increase of market power by those power buyers. So it’s the same thing, it’s transparency and fairness and an equal opportunity. That’s all that we’re asking for.”

The independent grocery sector now encompasses 21,574 stores nationwide, and independent supermarket sales totaled $253.61 billion in 2020, or about 33% of U.S. grocery sales, according to NGA. At a macro level, independent grocers represent 1.2% of the 2020 U.S. gross domestic product, with the industry’s total output topping $255 billion.

Earlier this month, Christopher Jones, senior vice president of government affairs and counsel for NGA, discussed anticompetitive behavior in the grocery industry at the Federal Trade Commission’s Open Commission Meeting, the agency’s first public meeting.