Robinson-Patman Act bars price discrimination by suppliers
(Bloomberg) — When R.F. Buche buys Cheerios to stock his grocery and convenience stores in rural South Dakota, he pays $6.30 for an 18 ounce box. Walmart Inc. pays so much less that it can sell the cereal to customers for just $4.78.
That’s just one example where suppliers offer lower prices to big retailers than to the wholesalers who serve small grocers like Buche, forcing his customers — many of whom are poor and lack cars to travel to the nearest Walmart — to pay more.
“The pricing that these big box stores and chains are getting is made on the backs of us retailers who don’t have the strength to stand up and do anything about it,” said Buche, owner of Buche Foods and Gus Stops convenience stores. “We have no leverage, no negotiation power whatsoever.”
He and thousands of other small retailers hope to gain some relief in the Biden administration’s embrace of an antitrust law signed by President Franklin D. Roosevelt in 1936. Known as the Robinson-Patman Act, it was designed to counter the growing market dominance of the Great Atlantic & Pacific Tea Co. — better known as A&P — the largest grocery chain at the time.
Under the law, suppliers can give discounts for large orders, but they must extend the same offer to all retailers. They can’t selectively offer preferential terms, such as lower prices, promotional packaging or access to scarce inventory.
The law hasn’t been actively enforced for decades amid debate over whether it would push up prices for consumers. The US Federal Trade Commission thinks its time to bring it back.
“Congress’s intent in those laws is clear,” said Democratic FTC Commissioner Alvaro Bedoya, who visited Buche’s store on the Pine Ridge Indian reservation in South Dakota last month. “The reality is that the failure to enforce Robinson-Patman has raised prices on consumers in rural America and in urban America.”
With the encouragement of a bipartisan group of lawmakers, FTC Chair Lina Khan says she intends to resume using Robinson-Patman. The agency has already opened a preliminary probe into how Coca-Cola Co. and PepsiCo Inc. price their products and is examining other sectors.
In a policy statement last year, the FTC vowed to investigate the pharmaceutical industry and insulin costs in particular — invoking Robinson-Patman if needed — to curb illegal bribes and rebate schemes involving benefits managers.
Revived enforcement could shake up industries increasingly dominated by giant retailers such as Walmart, Amazon.com Inc. and Kroger Co. as well as warehouse stores such as Costco Wholesale Corp. It comes as the FTC reviews Kroger’s almost $25 billion deal to buy Albertsons Cos., which would unite the US’s two biggest traditional supermarket operators.
Its unclear how reviving enforcement might impact prices, a point opponents raise when pointing to inflation that, according to the latest US consumer-price index report, is running at a 6.5% annual rate. A 1977 Justice Department report on the law cited a Citibank consultant’s estimate that Robinson-Patman increased prices as much as $6 billion per year, but the agency didn’t attempt its own.
Private Robinson-Patman litigation between companies hasn’t had much effect on consumer prices, said Eleanor Tyler, a legal analyst for Bloomberg Law. If greater FTC enforcement does “raise prices, I wouldn’t expect it to be much,” she said.
The National Grocers Association, a group of independent retailers including Buche, has lobbied the Biden administration to reinvigorate Robinson-Patman enforcement. Sean Heather, the US Chamber of Commerce’s senior vice president for antitrust, said that’s a bad idea that “ignores its decades-long record of failure and would ultimately hurt consumers through less market competition and higher prices.”
Robinson-Patman applies to goods, not services, making grocery stores and food products a prime focus. But past cases also have involved retail gasoline, books, cars and office supplies. Kroger, Albertsons, Amazon, Costco and Walmart declined to comment on reviving Robinson-Patman enforcement.
They’re part of an increasingly concentrated US grocery industry, which is valued by Coresight Research at about $1.4 trillion. The 20 biggest retailers accounted for more than 65% of food sales in 2019, up from 35% in 1990, according to a US Department of Agriculture study.
Efforts to resurrect the Robinson-Patman law are bound to face opposition from big retailers, and the FTC would encounter legal hurdles if a case ends up in court, said Marc Levinson, author of “The Great A&P and the Struggle for Small Business in America.”
For years, Robinson-Patman was a mainstay of FTC enforcement. But the law fell out of favor as antitrust experts focused on consumer prices, arguing that retailer discounts would likely be passed on to consumers.
The FTC’s last Robinson-Patman suit was filed in 1988 against six book publishers that allegedly gave better pricing terms to large chain bookstores than their independent counterparts. The agency dismissed the case in 1996 saying that the industry had changed since the case was filed.
The FTC can challenge either a supplier for giving better terms to a retailer or sue a buyer that “induces” a supplier to give it more favorable treatment.
Prices aren’t the only complaint of smaller retailers. Suppliers aren’t supposed to give one retailer better promotions or warehousing facilities than are available to others, or offer special packaging to some and not others. That could include reserving larger packages for warehouse stores such as Costco or Walmart-owned Sam’s Club, or smaller ones for the likes of Dollar General Corp. and Dollar Tree Inc.
Jimmy Wright, the owner of Wright’s Market in Opelika, Alabama, said he’d love to sell smaller packages of goods, especially as soaring inflation prompts his customers to pinch pennies. But, he said, national brands will only sell him full-size packages, not the smaller “cheater packs,” as they’re called, that can be found at the 10 Dollar General outposts in his area.
“I’d like to get that package,” said Wright, who says he competes with Walmart, Kroger and Publix Super Markets Inc. in addition to dollar-store chains. “We’re just trying to hold our own.”
Smaller retailers also see Robinson-Patman as a salve for another irritant: seeing empty shelves at their stores while larger rivals have plenty of merchandise. The pandemic brought that to a head as supply-chain squeezes led to scarcity.
“In many cases we could walk the floor of our competition and see ample product,” said Michael Needler Jr., chief executive officer of Fresh Encounter, which operates stores in Ohio, Indiana, Kentucky and Florida. “And we couldn’t get it.”
Needler said he doesn’t blame the consumer-product goods makers for trying to please their largest customers. But, he said, it’s high time for rules that create a “level playing field” to be enforced.
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