It’s not just inflation, hidden grocery industry practices can also harm consumers

Like many of you, I am feeling the pinch of inflation at the grocery store these days. I understand at a basic level why I am seeing higher prices for certain items — fuel costs, weather and other logistical disruptions, and personnel challenges — and I try as best I can to change my buying habits so that I can stretch my dollars.

I am hopeful prices will moderate soon from easing inflation, but I’ve come to learn that there are less apparent practices in the grocery industry that influence prices and our buying habits.

Fortunately, as part of a broader investigation into supply chain disruptions during the pandemic, the federal government is now investigating these established but hidden industry practices that impact product choice and have the potential to harm consumers. Leading the investigation is the Federal Trade Commission (FTC), an independent agency charged with protecting consumers and promoting industry competition.

In late 2021, the FTC ordered multiple companies involved in the grocery supply chain, including Amazon, Kroger, Tyson Foods, and Walmart, to respond to questions and provide documents detailing trade promotion practices. The FTC investigation commenced following an outcry by the National Grocers Association and a coalition of independent grocers, farmers, restaurants and others about anti-competitive tactics by dominant players in the industry.

The national Center for Science in the Public Interest (CSPI) also joined the chorus in calling for a federal investigation. In a February 2021 letter to the FTC, CSPI asserted that certain industry practices not only impacted competition and consumers’ choices but also undermined consumers’ health.

CSPI pointed to the following practices as having a “profound impact on the food environment, and consequently, on market fairness and public health”:

• Cooperative marketing agreements — in which manufacturers pay retailers substantial fees for product placement and allocated space, promotional activities, and permissible price promotions — appear harmless if taken at face value. As CSPI notes, however, these agreements can limit space for competitors and create high entry costs for smaller manufacturers and fruit and vegetable producers.
• Category captain arrangements — in which retailers cede decisions about product placement, promotion, and pricing to the dominant manufacturer in a food or beverage category — typically result in retailers providing the dominant player with insider information about other manufacturers’ prices, sales, and promotional plans. CSPI notes these arrangements “virtually ensure critical retail decisions favor the captain’s brands at the expense of their rivals or potential rivals, raising serious antitrust concerns.”

Placing certain foods in prominent places increases visibility, accessibility and sales. Take a look at the vast selection of unhealthy items the next time you are idling in the checkout line. Retailers could support their customers’ health by more prominent placement of healthy items rather than pushing candy and soda. Unfortunately, the players that control placement and promotion through the arrangements described by CSPI are those that manufacture and distribute sweetened and salted processed foods, refined grain products, and sugary drinks — in short, junk foods.

Notably, these practices are not limited to brick-and-mortar grocery stores and have made their way to online food retail platforms, according to CSPI. Combined with sophisticated tracking and analysis of individual shopping and purchase patterns, premium placement on landing pages, banner ads, and email promotions, they can be powerful tools for manufacturers in driving food-buying decisions.

The pandemic has exposed systemic failures on multiple fronts, and food retail is the latest industry under the microscope. While the FTC’s examination will focus on pandemic supply chain disruptions, long-standing trade promotion practices in grocery stores that could proliferate to online food retail will also be under intense scrutiny. As part of the investigation’s public comment process, retail giants through their trade association have commented that these long-standing practices — which they say have been “an efficient way to sell products for decades” and which the FTC has suggested could “produce important efficiencies” — have no causal link to supply chain disruptions or the inflationary environment.

Regardless of whether the FTC takes enforcement action against industry players, Americans are deserving of a more transparent look into trade practices that create barriers to entry for fruit and vegetable producers and crowd out more healthy food choices. We certainly don’t need the industry tipping the scales against our ability to make healthier decisions.

Editor’s note: Craig Wilson is the director of health policy for the Arkansas Center for Health Improvement, an independent, nonpartisan health policy center in Little Rock. The opinions expressed are those of the author.