Washington, D.C. – On Wednesday, July 28, President and CEO of Associated Wholesale Grocers (AWG) and National Grocers Association (NGA) member, David Smith, testified in front of the full Senate Judiciary Committee on the effects of economic discrimination and anticompetitive tactics by power buyers on independent grocers across the country. The recording is available online here.
Find David Smith’s testimony here and key excerpts below:
Senator Richard Blumenthal (CT): …We’ve also seen the rapid consolidation of the food supply chain at the retail level, as you well know. And now, entering this market is Amazon, which has used its economic power to bulldoze its way into new markets, not just groceries with the purchase of Whole Foods, but also entertainment, audiobooks, smart devices, gaming. Every time our antitrust enforcers have taken a narrow view and given these acquisitions the green light. I would like to ask what you see as the impact of Amazon’s entry through its purchase of Whole Foods as well as the data-rich resources that it is gaining through Amazon Prime and the Amazon marketplace enhancing the power of its acquisition. Amazon has unique access to vast troves of data that none of you can lay claim to and that economic power, I fear, will aggravate the kinds of bottlenecks that we’ve seen in our supply chain. By tying Amazon Prime memberships to discounts at Whole Foods and opening a new line of Amazon Fresh grocery stores, Amazon has cleared another path to potential monopolization of commerce. And it’s on track to double its sales over the next five years and overtake Walmart as America’s dominant grocer. Is that a cloud on the horizon so far as you all are concerned?
David Smith: I think about it in your home state and our sister cooperative, Wakefern, with the ShopRites and the PriceRites stores that you have there and competing. The situation with Amazon is really just a further expansion of the power buyers. The meat discussion we’re having today is really a single ingredient in an overall situation that is created when you have these power buyers. Companies such as the manufacturers and producers are unable to be able to get the pricing that they need because of the tremendous dominance that they have. When a singular retailer can have 30 or 35 percent of all of your sales, but yet you and your products may represent 1% or less of that retailer’s sales, there’s a disproportionate risk and so the power buyers, what I was speaking about earlier with ‘harvest and invest’ and Amazon, I think they may have defined it. I think they may have actually came up with the very definition for ‘harvest and invest’ by leveraging Amazon Web Services to produce incredible income in order to be able to get into the retail business. And so, is that an existential threat to supermarkets? Yes. Is it an existential threat to suppliers? Of course, but having so much of an aggregated power with those companies, it’s a tremendous risk.
Senator Amy Klobuchar (MN): Mr. Smith, America has a monopoly problem and I discussed that in the opening, it affects many different businesses, from cat food to caskets. And we now have about one-third fewer grocery stores across the country than we had 25 years ago. How does the loss of local grocery stores impact consumers, especially in rural communities?
David Smith: Well fantastic question, Senator. I guess, let me tell you a story, one of our member retailers, which operates several different stores, and he already competes with the largest retailer here in the U.S and he had been receiving a lot of requests to open a new store in an area that really only had a supercenter there to serve the needs. And they wanted a full-service supermarket with really great prepared foods and everything else. And so, he did his homework, and prior to going into the town, he had a service do a full book retail price check to make sure that the retail pricing there was comparable, that the other markets where he was at that he was already competing with that competitor. And sure enough, he found that it actually was higher. So he checked that off the list and said that’s not really a concern and he spent millions of dollars preparing the facility and opened it up and after opening, the retail pricing in that market, because it was isolated, he was kind of carved out and the retail prices there at that competing store undercut him at every turn and anecdotally from the people from that competitor store, we were hearing that a store lost millions of dollars during that period of time that that store was open and our member lost millions of dollars from his family business and ultimately closed.
Senator Klobuchar: I think that’s an example of how it is too to be a new entrant as a small business. Just a quick answer on this one, what about the dominance of power buyers and their anticompetitive behavior how does that affect independent grocers?
Smith: Yeah, so the power buyer, it isn’t directly related to efficiencies, it’s a misnomer. And what I was speaking to a moment ago is this notion of consumer welfare, Senator, is that the consumer is benefitted by the lower prices, but those are very short term and actually, they pay more because of that ‘harvest and invest,’ they invest in those areas to drive out competition and then after the competition goes away it increases. So the power buyers are using that positioning against the manufacturer, which they’ve even cited in their own SEC filings that that’s one of the biggest threats against their ability to compete for the manufacturers because it’s not proportionate to the risk, as I mentioned earlier.
Senator Klobuchar: Mr. Smith, back there, we haven’t heard from you in a little bit. The same type of question, not on rule-making necessarily, but just what you see as a solution for some of the grocer issues you raise.
Smith: Thank you, Senator. Yes, certainly, I’m a grocer, but all we’re asking for is a level playing field. Robinson-Patman, we thought, should ensure that we get fair terms and fair prices for the same product, but what we’re dealing with is that it’s gone unenforced and we really see nothing that is stopping the continued increase of market power by those power buyers. So, it’s the same thing, it’s transparency and fairness and an equal opportunity. That’s all that we’re asking for.
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About NGA
NGA is the national trade association representing the retail and wholesale grocers that comprise the independent sector of the food distribution industry. An independent community grocer is a privately owned or controlled food retail company operating a variety of formats. The independent grocery sector is accountable for more than 1 percent of the nation’s overall economy and is responsible for generating more than $250 billion in sales, 1.1 million jobs, $39 billion in wages and $36 billion in taxes. NGA members include retail and wholesale grocers, state grocers associations, as well as manufacturers and service suppliers. For more information about NGA, visit www.nationalgrocers.org.
