Fresh Encounter CEO Testifies at Hearing on Food Supply Chain Consolidation

As supply chain issues continue to dominate the headlines, CEO of Fresh Encounter Inc. and National Grocers Association (NGA) member Michael Needler testified on the effect of grocery chain consolidation and unchecked buyer power on independent grocers on Jan. 19 in front of the House Judiciary Committee’s Subcommittee on Antitrust, Commercial and Administrative Law. 

In his written statement for the "Reviving Competition, Part 5: Addressing the Effects of Economic Concentration on America’s Food Supply” hearing, Needler detailed the struggles his company and independent grocers face as well as their growing concerns.

“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,” Needler said.

Looking to confirm that his remarks are not geared toward drawing up new legislation, he confirmed his support is to enforce those that already exists. “I want to be clear that I’m not here to ask for new laws nor am I here to ask for any financial assistance,” he said. “I am here to shine a light on the lack of Federal Trade Commission enforcement of the Robinson-Patman Act, a law written in this very committee over 80 years ago to prohibit anticompetitive economic discrimination against independent businesses, and allow the free market to work.”

In 1936, President Franklin D. Roosevelt signed the Robinson-Patman Act into law, which was to check on large dominant grocers at the time. “The rules prescribed in Robinson-Patman essentially aim to enable buyers the ability to buy goods at the same prices their competition does, so long as they are buying in similar quantities,” Needler said. “What we are seeing in our markets is that our big-box competition has grown so large that they have the ability to exert considerable buyer power over the consumer packaged good (CPG) companies.”

When it comes to the consumer, Needler pointed out that “healthy competition forces all of us to get better. We can all agree though that when the rules are fair, the best players will play and compete."

"We can win in retail grocery by offering service, quality, technology solutions, great shopping experiences and many more delightful attributes,” he continued. 

Needler went on to explain that the rules need to be followed, otherwise there are negative consequences. “Those with the largest budgets dictate the rules of supply,” he said, adding, “then the smaller players will not be provided a fair opportunity to compete on the highest consumer decision point—price.”

Ultimately, Needler said it “ends poorly for the consumer as the smaller firms exit. Without true price competition, consumers ultimately pay more at the grocery checkout.”

Providing a wider lens of the role independent grocers play in the economy and jobs market, Needler said independent grocers generate “1.1 million jobs, $42 billion in wages and $36 billion in taxes.” New research from NGA shows that independent grocers account for 33% of overall U.S. grocery sales, up from 25% nearly a decade ago.

Needler told the committee that now is the time to level the playing field. “Over 80 years ago, Congress, led by this committee, wrote antitrust laws like the Robinson-Patman Act to prohibit anticompetitive economic discrimination against independent businesses,” he said. “Those laws are still on the books, but the Federal Trade Commission and Department of Justice have not brought a Robinson-Patman case in over 20 years.  It’s time to dust off these tools and go to work to protect the free market, independent businesses, the food supply chain and America’s consumers.”

In the hearing, Rep. Hakeem Jeffries (D-N.Y.) asked Needler what benefits independent grocers have on the community they serve and whether it is "fair to say that the sort-of, small, more independent grocer who’s got a familiarity with the communities that they serve, can actually be more responsive given the great diversity that we have in America across many different measures, as compared to if we just were served by the larger, big-box entities?"

Needler responded by telling the committee, "Yes, we feel that we’re very resilient and we can be very agile because we are smaller. We contract with hundreds of independent and locally owned farms to try to supplement our supply chain, we have multiple wholesalers, who are, you know upwards of $30 billion, so we’ve got the efficiency and we’ve got the resiliency, and I think that that ultimately could benefit us and has benefitted us through the pandemic."

Addressing the issue of empty shelves in grocery stores, Rep. Madeleine Dean (D-Pa.) asked Needler what "challenges do independent grocers like these have in stocking their shelves and continuing to grow our economy and feed America?"

 Needler answered by saying that he thinks "you need to look at it almost like a zero-sum game." He went to offer up an example to drive home his point. "If you push down on one side of a water bed, and the other side goes up, it doesn’t necessarily mean that because there was rising on one side, doesn’t mean that there’s more water in the bed, it’s just shifting, so if you have market power in a few that pushes the cost to the rest, it’s a zero-sum but it makes an unfair advantage for the long run and so the goal I think that we’re trying to have is a very stable supply chain in terms of pricing and a fair supply chain," he said. 

Looking at the end game, Needler said this current trend not only creates increased pricing for small grocers but through the entire system.

"So what challenge we would be facing is, as costs go up, throughout the entire chain, from producers to transportation, we can point to a lot of things and the gentlemen have already done a great job of articulating that—labor, freight, all very real, very real costs that we’re experiencing. But the biggest players are able to resist that, that’s good in the short term, but the suppliers have to pass that on, they have to pass that on and the only people that they will be able to negotiate—and really, we don’t have a choice—is the small guys like myself and we have to take the higher prices. 

Congressman David Cicilline (D-R.I.), chairman of the House Committee on the Judiciary Subcommittee on Antitrust, Commercial and Administrative Law, led the hearing.

Cicilline, an advocate for improving antitrust regulation across industries, in his opening written statement said, “Across the country, food prices are soaring, families are going hungry and small businesses are suffering.” He also said that “nearly every link of America’s food supply chain is dominated by less than a handful of corporations. We’ve seen consolidation trigger more consolidation, which has caused a domino effect throughout our nation’s food supply.”

Pointing out that competition matters, Cicilline said he was concerned about the shrinking competition taking place in the grocery sector.

“Beyond the cost of food, this unchecked consolidation has resulted in the presence of chokepoints throughout America’s food supply chain, creating much of the fragility Americans are experiencing every day,” he said. “In competitive markets, there are many businesses of different sizes that can offer a variety of solutions in response to disruptions, such as extreme weather. And if one supplier has a problem, others can fill the gap. The corporate consolidation we have seen in the food industry has destroyed that diversity.”

Last fall, The Federal Trade Commission voted to begin a 6(b) study on the impact of competition on supply chain disruptions. NGA SVP of Government Relations and Counsel Chris Jones in a Nov. 30 statement said, “This study is a key first step in promoting competition in the food supply chain, and we were pleased to see the FTC move forward with an unanimous vote.”