RETAIL INDUSTRY 2021 YEAR IN REVIEW

Supply chain disruptions have been front-page news throughout the COVID-19 pandemic. From the beginning when Americans began stockpiling basic items like sanitizer and toilet paper, to current shortages caused by increased consumer products spending and shipping delays, retailers have been faced with an environment that is constantly changing and requires nimble response. Now, the issue is getting formal treatment from the Federal Trade Commission (FTC), which is conducting a study to “shed light on the causes behind ongoing supply chain disruptions and how these disruptions are causing serious and ongoing hardships for consumers and harming competition in the US economy.” But looming behind that topical mission statement is a deep dive into the commercial strategies of large retailers and their suppliers that could have wide impacts on future FTC policy and priorities in the retail space.

In November 2021, the FTC voted 4-0 to use its authority under Section 6(b) of the FTC Act to order a study compiling information on the impact of competition in the ongoing supply chain disruptions. The FTC issued Special Orders to nine companies (three each) in the retail, wholesale and supply chain sectors, requiring them to provide answers to a broad array of questions covering supply chain disruptions. The orders seek detailed information aimed to uncover the cause of disruptions and to identify strategies employed by key competitors to maintain their market position in challenging times. In addition, the FTC is soliciting voluntary comments from market participants regarding their views on how supply chain issuesare affecting competition in consumer goods markets. The announced purpose of the study is to explore whether supply chain disruptions caused by the pandemic have led to bottlenecking, shortages, anticompetitive conduct or higher prices for consumers.

The FTC’s vote to conduct the study comes on the heels of an extended lobbying campaign by a number of interests calling for a comprehensive investigation of dominant retailers (and in some cases, dominant suppliers) and advocating aggressive related enforcement actions. In February 2021, the Center for Science in the Public Interest (CSPI) sent the FTC a lengthy letter requesting an investigation of trade promotion, category captain and online retail practices in the grocery retail industry. The CSPI letter complained that these practices drive up entry costs, put leading brands in control of retail decisions conferring greater advantages and ultimately limit customer choice on what products to buy. In March 2021, the National Grocers Association (NGA) held a press conference and released a white paper calling for a crackdown on so-called “power buyers” in grocery retail. The NGA stated that small food retailers are being squeezed by big retailers that allegedly use their scale to command more favorable supply terms, lower pricing, special product package sizes and first call on high-demand items. The NGA added that the disparity was especially pronounced during the COVID-19 pandemic, as independent grocers were often unable to stock their shelves and forced to pass on higher prices for essential products to customers, whereas increasing consolidation gave large competitors an advantage. The NGA reiterated its concerns in July 2021 at the FTC’s Open Commission meeting and in testimony before a US Senate Judiciary Committee hearing on competition in the food industry.

Subsequently, in October 2021, a coalition of independent grocers, pharmacies, restaurants, convenience stores and farmers formed the Main Street Competition Coalition (MSCC) “to encourage enforcement of the RobinsonPatman Act against anti-competitive tactics by dominant firms across industries.” The Robinson-Patman Act is a law prohibiting price discrimination by a seller among competing buyers for the same commodity, which is seldom enforced by the government. MSCC members include the NGA, National Community Pharmacists Association, American Beverage Licensees, National Association of Convenience Stores, Energy Marketers of America, Protect Our Restaurants, Organic Farmers Association, National Association of Truck Stop Operators, Western Growers Association and the National Beer Wholesalers Association. Eight members of the MSCC sent a letter to the FTC seeking assistance “in addressing the anticompetitive effects of economic discrimination,” and requested that the FTC order a study and “look beyond price effect to include other dimensions of competition, including impacts on quality, service and convenience as a result of economic discrimination and increasing consolidation.” As part of this inquiry, the MSCC asked the FTC to investigate arrangements between dominant retailers and suppliers to determine whether these arrangements result in economic discrimination that harms smaller rivals, including whether so-called “channels of trade” distinctions are being used to evade laws against economic discrimination; and examine whether economic discrimination and buyer power have led to concentration throughout supply chains, especially in the food and agriculture sector.

Although the FTC’s study is premised on supply chain disruptions related to the COVID-19 pandemic, many of the grievances aired by small retailers are not unique to the current circumstances. Thus the information sought by the Special Orders is much more encompassing than the simple remit laid out in the FTC’s resolution to conduct the study. For example, the model Special Orders specifically include requests related to company strategies that preexisted the pandemic, as well as general questions about the Order recipients that will be relevant after present disruptions subside, such as inventory, product pricing and allocation, trade promotions, category captains, suppliers, logistics and future business plans. The study, therefore, provides the FTC with a process to develop a deeper understanding of how the retail supply chain functions in the most successful companies and how those companies employ the business practices complained of by smaller competitors. By allowing the FTC to gather substantial information and documents through the compulsory processes outside the law enforcement context, this study can play a key role in how the FTC identifies and analyzes emerging competition trends and issues in the retail sector. The FTC previously held workshops on practices in the retail industry such as slotting allowances and category captains but those workshops and ensuing reports have not resulted in FTC enforcement. The FTC’s new leadership has indicated the agency will enforce the antitrust laws more aggressively; whether or not the FTC pursues enforcement action based on its findings in the current 6b study is an issue worth monitoring for all players in the retail industry.