Written by: A. Hamilton

A recent report by the Federal Trade Commission (FTC) reveals that major grocery store chains took advantage of COVID-19-related product shortages to engage in coordinated and illegal price gouging. These large grocery giants not only raised prices significantly higher than necessary to cover their additional costs but also exploited their market power to gain an unfair advantage over smaller competitors.

The FTC report, titled "Feeding America in a Time of Crisis," highlights the detrimental impact of dominant firms on consumers and the communities they serve. As the pandemic exposed vulnerabilities in the supply chain, consumers experienced skyrocketing prices for essential goods.

FTC Chair Lina Kahn was quoted, "The FTC report examining US grocery supply chains finds that dominant firms used this moment to come out ahead at the expense of their competitors and the communities they serve."

According to the report, in 2021, food and beverage retailer revenue exceeded their total costs by over 6%, compared to a peak of 5.6% in 2015. Furthermore, profits continued to increase during the first three quarters of 2023, with sales surpassing costs by 7%. These elevated profits indicate that rising grocery store prices are not simply a reflection of retailers' own rising costs but rather warrant further investigation by the FTC and policymakers.

While the Food Marketing Institute, representing large food retailers and wholesalers, refrained from commenting on the report, stating the need for additional time to review the findings, the National Grocers Association (NGA) praised the study.

The NGA, which represents smaller, independent food retailers, emphasized that dominant national chains are abusing their economic power to the detriment of competition and American consumers.

The report primarily stems from orders issued by the FTC in 2021, requesting detailed information about business practices from nine large firms, including Walmart, Kroger, Procter & Gamble, and Tyson Foods. Although the profit margin data is based on publicly available grocery retail patterns, it is unclear to what extent it applies to these specific companies, as stated in the report.

During the COVID-19 pandemic, essential products such as toilet paper, meat, milk, and hand sanitizer faced severe shortages, resulting in price surges.

Grocery companies attributed the supply chain bottlenecks to increased demand during lockdowns and COVID-related worker absences at factories, warehouses, and ports. However, the FTC report suggests that these grocery companies also engaged in price gouging, taking advantage of consumers in a time of crisis.

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The study further reveals that big food retailers imposed strict delivery requirements and threatened fines to maintain their advantage over smaller rivals, potentially entrenching their power. Additionally, these companies explored the idea of building their own manufacturing capacity or acquiring producers, which could harm smaller competitors by consolidating already concentrated markets.

As inflation rates reached a 40-year high of 9.1% in mid-2022, the recent easing of product and labor supply shortages has led to a slowdown, with inflation now hovering around 3%. However, the FTC report sheds light on the fact that grocery companies played a part in price inflation by engaging in unfair practices.