FAIR PLAY

DAVID GHITELMAN

Independent wholesalers and retailers should take inspiration from this year's Super Bowl victory by the New England Patriots, according to Jay Campbell.

"They weren't even supposed to be on the field," the president and chief executive officer of Associated Grocers, Baton Rouge, La., told SN.

"Statistically, the big guys were supposed to win. Statistically, the big guys did win," he added, noting that the St. Louis Rams outran and outpassed -- but failed to outscore -- the underdog Patriots.

Campbell said independents just want the same chance the Patriots enjoyed, an opportunity to face off against their competitors on a level playing field.

What stands in their way, according to Campbell, is the practice of manufacturers and suppliers granting advantages to their larger customers that are denied to independents, particularly in regard to pricing, packaging, promotions, payment terms and product availability.

To the National Grocers Association, Reston, Va., such advantages are not only unfair but illegal, Thomas K. Zaucha, NGA president and CEO, told SN.

Zaucha pointed to the Robinson-Patman Act, a 1936 antitrust law that bars suppliers from discriminating without justification among competing purchasers.

"We are looking for the Federal Trade Commission to enforce antitrust laws on a uniform and consistent basis," he said. "It is an ongoing educational, information-sharing process.

During the Clinton administration, NGA took FTC commissioners on a field trip to show them that mass merchandisers such as Wal-Mart and Costco compete with supermarkets, according to Zaucha. The NGA also sponsored a one-day briefing for FTC commissioners and staff that included discussions of trade fairness, he added.

And last year, Zaucha noted, NGA joined with a dozen or so trade associations representing small businesses in other industries to form the Coalition for Fair Competition and Consumer Choice.

"The issue is not exclusive to the grocery industry," he said, "and it is an ongoing process."

Among independents, the existence of an unlevel playing field appears to be taken for granted.

However, the issue of unequal treatment by suppliers is not one that many independents are eager to comment on publicly.

Several executives at well-regarded independent operators declined to be interviewed on this story, and others did not return calls.

On the other hand, Campbell did not hesitate when asked if the retail playing field is tilted against independents.

"There's no question about it," he replied.

Campbell described how manufacturers would sell certain types of packages only to retail club stores and inform supermarket operators that the sizes were inappropriate for them.

"Don't deny us the opportunity to succeed or fail," he said. "Let all the competitors get on the playing field."

On the other hand, he noted that pricing today is not as discriminatory against independents as it used to be. "Most manufacturers now have a pricing formula that they make known," he said. "As long as the manufacturer establishes objective criteria in pricing, then it is within the law.

"Our concern has always been to ask suppliers to allow us to carry the same products as our larger competitors, give us promotions in the same time frame, give us fair payment terms and give us the same packaging."

Jack Brown, chairman, president and CEO, Stater Bros. Markets, Colton, Calif., echoed some of the same concerns. "Pricing can be based on quantity," he told SN, "but the supplier should be sure all information on pricing breaks is provided so that retailers can decide how far up they want to go.

"On payment terms, there is major abuse. Some larger companies simply refuse to pay, and yet they still get product shipped to them. The result is the retailer who pays on time is paying their bills.

"In terms of promotions, suppliers have to be sure information is provided in a timely manner, not after the retailer has read about it in a competitor's ad.

"Ultimately, the issue is the customer. If the customer is not given the opportunity at an independent retailer to obtain the same products and promotions, then the supplier is squeezing that market entity out of the business."

One independent retail executive, who agreed to be interviewed only on the condition of anonymity, said, "I don't think there's any doubt about the unequal playing field."

He added, "We don't do billions of dollars of business, and so certain things are closed to us.

"Instead, we concentrate on building a mature, positive relationship with our customers. The things we do have -- our workforce, our customers, the people-side of things -- you can't write a check for this."

This retailer also said he didn't believe that lobbying the FTC would result in getting him better treatment from his suppliers.

"I prefer to focus on that which I can do something about," he said.

Other industry organizations tend to support this low-key, one-day-at-a-time approach to leveling the field.

Michael Sansolo, senior vice president, Food Marketing Institute, Washington, and president of FMI's independent operator division, told SN, "This is an extremely complex issue. It's difficult to get a level playing field. There are such things as economies of scale. There's a large issue here in terms of the wholesaler-retailer relationship."

Mark Baum, executive vice president, Grocery Manufacturers of America, Washington, told SN the manufacturers are not trying to squeeze independents out of the market.

"Nobody wants to have only one customer left," he said. "A diverse customer base is in the interest of suppliers."

He recommended that independents who feel unfairly treated work more closely with their wholesalers.

The NGA has previously found itself on the opposite side of an issue from other industry organizations often when it comes to large companies becoming bigger through acquisitions. (See story, Page 13.)

However, in looking for the FTC to step up its enforcement of the Robinson-Patman Act, NGA also finds itself fighting an uphill battle in terms of recent trends in antitrust law, according to experts.

An FTC spokeswoman told SN the commission is currently prosecuting no Robinson-Patman cases.

Robert Pitofsky, professor of law at Georgetown University and former FTC chairman, told SN, "I don't expect a resumption of extremely aggressive Robinson-Patman enforcement.

"In the 1950s and 1960s, when the FTC was very active in enforcement in this area, it was brutally criticized by academics and the courts. In a few cases, the U.S. Supreme Court urged the FTC to be more cautious."

Pitofsky said he met with NGA representatives when he was FTC commissioner from 1995 to 2000. "I asked lawyers for some of the smaller chains to give me some reason to believe there's a particular promotion that the little guys aren't getting," he said. "They came in with some preliminary stuff. We looked into it, but there was no case we could make out of it."

However, another antitrust expert offered an alternate strategy for the NGA to get some Robinson-Patman relief.

David Balto, a lawyer with White & Case, Washington, and former attorney for the FTC, told SN that the NGA should bring a civil suit under Robinson-Patman, a strategy that the American Booksellers Association, Tarrytown, N.Y., and the National Association of Chain Drug Stores, Alexandria, Va., pursued successfully.

Last year, the ABA settled a lawsuit against Barnes & Noble and Borders Group for $4.7 million. The suit alleged the chains illegally used their size to obtain major discounts from publishers.

In 1998, four major drug manufacturers agreed to pay approximately $350 million to settle a price-fixing suit brought by NACDS on behalf of 40,000 individual pharmacies. Two years earlier, 13 drug manufacturers settled a similar case for $373 million.

Zaucha said the NGA does not rule out the possibility of eventually bringing a civil suit. "Litigation is an option, although the burden of proof in a civil case is a fairly significant burden to overcome.

"Our position has been to look for uniform and consistent enforcement. A private lawsuit is very costly and very time consuming, and by the time you get to resolution, the companies you are trying to help could be out of business."