By Jessica DiNapoli and Siddharth Cavale
NEW YORK (Reuters) – The U.S. Federal Trade Commission recommended Thursday that policymakers look further into profits at grocery store operators that remain elevated since the pandemic and promotions that consumer products makers offer retailers.
The report comes as the FTC is suing to block Kroger’s acquisition of smaller grocery store rival Albertsons over its concerns that the deal would hike prices for millions of Americans.
The FTC launched the study in 2021 when it ordered Walmart, Kroger, Procter & Gamble, grocery wholesalers and others to turn over detailed information relating to the supply chain crisis during the pandemic, which contributed to once-in-a-generation levels of inflation and double-digit price increases on household necessities.
“Overall, our concentrated and brittle grocery food supply chains were quite vulnerable to shocks. Critically, the report finds that some in the industry took advantage of this moment of vulnerability,” an FTC official said on a call with reporters.
The official said the commission will pass the report onto lawmakers, “where there has been broad interest from members of both parties.”
U.S. President Joe Biden took aim at grocery chains earlier this year, accusing them of “ripping people off” at a time when food costs remain a problem and a political headache for the president.
In Thursday’s report, the FTC found that a measure of annual profits for food and beverage retailers “rose substantially and remains quite elevated.” The commission said that revenues for grocery store retailers were 6% over total costs in 2021, and 7% in the first nine months of 2023, higher than a peak of 5.6% in 2015.
“This casts doubt on assertions that rising prices at the grocery store are simply moving in lockstep with retailers’ own rising costs,” the FTC said, adding that the elevated profit levels “warrant further inquiry” by both policymakers and the commission, which is tasked with protecting the public from unfair business practices.
The FTC also said that trade promotions – or payments by consumer goods companies to retailers for favorable product placement in stores and on e-commerce websites – “may warrant further study.”
The FTC found that consumer products manufacturers reduced spending on these promotions during the pandemic because there were product shortages and high demand for everyday essentials, like toilet paper.
The reduction in spending harmed traditional grocers that use a “high-low” pricing strategy with more frequent promotions, the FTC found.
Retailers that offer “everyday low pricing” with fewer promotions, like Walmart, benefited, according to the study.
The FTC’s findings did not inform its recent case against Kroger and Albertsons, the FTC official said. “The information that was used to build that case was compiled via the typical merger review process,” she said.
The FTC also added that the report doesn’t make claims of illegality. “We’re shedding light on what we’re seeing in the market, which has broader relevance to policymakers beyond law enforcement.”
(Reporting by Jessica DiNapoli and Siddharth Cavale in New York, Editing by Franklin Paul)
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