Michael Needler, CEO of grocery retailer Fresh Encounter Inc., last week testified before the U.S. House Subcommittee on Antitrust, Commercial and Administrative Law on the impact of food supply-chain consolidation on independent grocers.
In his testimony, Needler (pictured left) told members of Congress that share concentration in the grocery market has given dominant retail chains “unchecked buyer power,” leading to favorable contract terms from manufacturers and, for independent supermarkets, unfair terms in supply and pricing. This system “benefits a select few at the expense of everyone else, including consumers, workers, and independent retailers and producers,” he noted. Consumers have less choice in shopping for goods and services; entrepreneurs and independent businesses struggle to start and sustain businesses; and producers like farmers and ranchers must accept unfavorable economic terms, conditions and prices, Needler explained in his remarks.
During the Jan. 19 hearing, titled “Addressing the Effects of Economic Concentration on America’s Food Supply,” Needler also noted that lawmakers and regulators have tools at their disposal to clamp down on unfair competition in the grocery arena, including the Robinson-Patman Act, which prohibits price discrimination by suppliers against retailers.
Findlay, Ohio-based Fresh Encounter operates 100 grocery stores in Ohio, Indiana, Kentucky and Florida under nine retail banners, including Needler’s Fresh Market, Community Markets, Sack ’n Save Supermarket, Germantown Fresh Market, Great Scot Community Markets, Chief, Save A Lot, Remke Markets and King Saver. Below are parts of Needler’s discussion with the subcommittee, excerpted by the National Grocers Association and with minor edits by Supermarket News.
Rep. David Cicilline (D., R.I.): Mr. Needler, you’re a third-generation Ohio grocer who is witnessing every day what is happening to America’s Main Street in the face of rampant consolidation by corporate giants. What can we do to make sure that independent grocers like you have a fair shot competing with the big-box companies, and what is your response to those that say that the independent businesses are looking for a handout or some special rules to just thwart larger, more successful competitors?
Needler: That’s a great question, thank you very much. Look, I think that we’re equipped to compete if the rules are fairly enforced. I think we’re asking you all to look at an enforcement strategy on the rules that are already there. If we can buy truckloads of the same lumber and same quantities that the large few can, then it’s not really an efficiency. It’s really a market power issue, right? So we can deliver product, we can serve our communities just as efficiently as they can if I’m buying a truck. Really, the incremental value of one truck, versus three trucks, versus 100 trucks, becomes marginal, and you can’t see much efficiency gain. If we could just get a fair shake to have a level playing field, we will compete. We’ll deliver products in efficient manners to rural communities, inner cities and the like.
Rep. Hakeem Jeffries (D., N.Y.): You testified, I believe, that grocery store conglomerates have used the pandemic to entrench their market power, and that process has hurt small and independent grocers. Could you elaborate on this testimony?
Needler: Sure thing. When we go to market, there’s a couple of ways you can go to become more competitive in the marketplace. The first way is to be an EDLP [everyday low price retailer], and I think we all know that the largest players get basically the lowest price on a regular basis. Smaller retailers like myself will pay a little bit higher on a regular basis, but then we’ll have promotion prices that we pass through, called allowances. There are also shopper marketing dollars, slotting dollars, so on and so forth, that the consumer packaged goods [companies] try to deliver to us. During the pandemic, because of the demand, they didn’t want to promote anything. As a result, our costs went up, meaning if four out of every five weeks we pay ‘X,’ then that fifth week we can pay less, we can buy in, we can be more efficient and we can try to flex and compete.
During the pandemic, we definitely had no ability to get those deals. Consequently, our costs went up, considerably higher than our competition on EDLP basis. In addition to that, we gained market share. And why did we gain market share? Because I think consumers wanted a smaller, more convenient shopper experience, a cleaner shopping experience, places they could trust a little bit better. That’s all well and good, but in spite of the fact that we gained market share, the CPGs acted almost irrationally. They continued to allocate additional products to our competition who had lost that market share. Why did they do that? Why would they act irrationally you might ask? It’s because of buyer power. So they exerted some of that quasi-monopolistic power.
You can look at the chicken farmer in this panel, who poses a very good example, but then you can think about a major CPG like Proctor & Gamble or Clorox, right? They are almost in the same boat as Ms. [Trina] McClendon [of Trinity Poultry Farm], when you’re competing or trying to sell to a huge organization. I’ll name Walmart, for example. Their power is so great that they can influence access to the products, they can influence the pricing of the products. In the short run, it might feel like a positive impact for the consumer. But in the long run, I can give very real examples where Mr. [Geoffrey] Manne [of the International Center for Law and Economics] said that it ultimately will impact the pricing in a negative way.
Jeffries: Let me stop you right there and ask you that question. So, if in the short term, these major conglomerates are able to extract lower prices based on their concentration of power but if that ultimately results in small businesses, small grocers, going out of business, how does that ultimately impact the consumer? Isn’t it logical, I believe as Ms. [Allison] Johnson [of the Natural Resources Defense Council] testified, that ultimately that will have an adverse impact on the consumer because once the competition is wiped out, the market will allow for them to dramatically increase prices?
Needler: Bigger isn’t necessarily bad. We’re just looking for a fair playing field. If they can use undo power to influence their supply, undo power then to take that margin, keep it and apply it to smaller markets, they can wipe the small independent [grocer] out of business. And at that point, and I’ve seen it happen, they will underserve the community with higher prices and higher out-of-stock conditions.
Jeffries: Is it also fair to say that the small, more independent grocer who’s got a familiarity with the communities that they serve can actually be more responsive, given the great diversity that we have in America across many different measures, as compared to if we just were served by the larger, big-box entities?
Needler: The answer is, yes, we feel that we’re very resilient and we can be very agile because we are smaller. We contract with hundreds of independent and locally owned farms to try to supplement our supply chain. We have multiple wholesalers, who are upwards of $30 billion. So we’ve got the efficiency and we’ve got the resiliency. I think that ultimately could benefit us and has benefitted us through the pandemic.
Rep. Joe Neguse (D., Colo.): Mr. Needler — and I know this has been discussed already during the course of this hearing — but independent grocers, which as you know, are family or employee-owned grocery retailers, often act as an economic anchor in their communities, attracting consumers, generating foot traffic. It creates opportunities for other areas’ businesses. Food & Water Watch recently reported that 70% of all grocery sales come from the four largest grocery chains in the country, up from 23% in 1993. I wonder if you could expound a bit on what that high level of concentration in the grocery market means for the ability of small and independent grocers to be able to keep their shelves stocked?
Needler: Thank you for your question, and I think your comment started out with the impact of independent grocers. I think a lot of us have either started our first careers in a grocery store bagging groceries, or we know somebody in our family who has. We teach ethics — work ethic — we teach accountability. And it’s a great starting point for a lot of the communities from an entry point in the workforce. We also are a great career for many people with good-paying jobs, with a good trade and a good skill. Cutting meat is not something that you can just come off the street and know how to do. We produce a lot of products in our stores, and we nourish our communities with healthy, wholesome products, which really is noticed when we leave [a market area]. When you create food deserts, all of a sudden someone realizes what they were taking for granted.
So, as you see, the growth and consolidation of these power buyers, they are able to influence — an undo influence — the supply chain and the suppliers. All we’re asking for is an enforcement of existing legislation, and maybe we need to tweak it and look at something that was written, you know, 70 or 80 years ago. But the fact is, what we’re trying to do is increase competition by just having a fair set of rules. If I’m going to buy as much as my competition, then hopefully that will allow me to have the same price That price is a very, very important determination in where people [make] their grocery choices. So, yes, fair competition is great. I’m not saying big is bad; I’m just saying we want to have rules that ensure folks like me can come to the table and get specific types of products. They [power buyers] hide under class of trade. They’ll give dollar stores a smaller item, and they’ll be charging more per ounce. But [it] looks like a cheaper price than something that’s on my shelf. … The CPGs won’t even sell that to me. That’s not fair. I want a fair table set for me to compete.
Neguse: Well, I certainly agree, and it touches on something you mentioned in your written testimony with respect to suppliers no longer allowing or eliminating the promotional allowances that they had typically done for independent grocery stores on many products. In any event, I think the request that you and independent grocers are making across the country is a reasonable one, for an even playing field. That statistic that I mentioned — the fact that we’ve gone from 23% of grocery sales in 1993 coming from the four largest grocery chains to 70%, literally almost three-fourths of the entire market — is a sobering statistic and should alarm every American. And this committee has a role to play in terms of doing its part to promote competition, which in turn benefits our constituents and consumers writ large.
Rep. Madeleine Dean (D., Pa.): What challenges do independent grocers like these have in stocking their shelves and continuing to grow our economy and feed America?
Needler: The crux of my position today is that if we could try to — Mr. Manne talks about the short-term impact of Robinson-Patman — but I think you need to look at it almost like a zero-sum game. If you push down on one side of a water bed, and the other side goes up, it doesn’t necessarily mean that because there was rising on one side that there’s more water in the bed. It’s just shifting. So if you have market power in a few that pushes the cost to the rest, it’s zero-sum but makes an unfair advantage for the long run.
The goal that we’re trying to have is a very stable supply chain in terms of pricing, and a fair supply chain. So what challenge we would be facing is, as costs go up, throughout the entire chain, from producers to transportation, we can point to a lot of things and the [panelists] have already done a great job of articulating that — labor, freight, all very real costs that we’re experiencing. But the biggest players are able to resist that — that’s good in the short term — but the suppliers have to pass that on. And the only people that they will be able to negotiate with — and, really, we don’t have a choice — are the small guys like myself. We have to take the higher prices. Actually, I was in a supplier meeting the other day, and they said, ‘We’re gonna pass this on, and we’ll keep an eye on whether the competition moves the retail or not. And if they don’t, we’ll come back to you.’ I don’t even know what I’m supposed to do with that. How do I explain that to my customer?
Rep. Val Demings (D., Fla.): Mr. Needler, over the past several years, Florida has seen a reduction of grocers in many communities, leaving many Floridians in food deserts. How are small and independent grocers helping address the problem of food deserts, particularly in underserved communities, including rural areas like the one I grew up in?
Needler: Well, I think you should start by looking at one of the biggest issues of a food desert. Once somebody’s gone, the barrier to entry really is the capital intensity that is required to open the store. Independent retailers have been nimble enough to take on different formats and different types of stores. My example would be that we’ve grown over the years because I’ve been able to take on a different type of store — a smaller format, a bigger format — and we’ve been able to be nimble and try to serve the community with what we’ve got. We don’t have to build a brand-new store. We just try to step in and keep it going as long as we can to serve that community, nourish that community. So I think independent retailers have been more willing to try and take risks versus playing large-scale capital allocations across markets.