FTC investigates supply chain disruption
RETAIL INDUSTRY 2021 YEAR IN REVIEW
Supply chain disruptions have been in the headlines throughout the COVID-19 pandemic. From the beginning, when Americans began stocking up on basic items like sanitizer and toilet paper, to current shortages caused by increased consumer product spending and shipping delays, retailers have been faced with a constantly changing environment and requiring an agile response. Now the issue is being formally addressed by the Federal Trade Commission (FTC), which is conducting a study to “shed light on the causes of ongoing supply chain disruptions and how these disruptions are causing severe and ongoing hardship to consumers and hurt competition in the US economy. But behind this timely mission statement looms a deep dive into the business strategies of major retailers and their vendors that could have broad impacts on the FTC’s future policy and priorities in the retail space.
In November 2021, the FTC voted 4 to 0 to use its power under Section 6(b) of the FTC Act to order a study compiling information about the impact of competition in the ongoing disruptions to the Supply Chain. 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 wide range of questions covering supply chain disruptions. The orders aim to obtain detailed information aimed at uncovering the cause of the disruptions and identifying the strategies employed by the main competitors to maintain their position in the market in difficult times. In addition, the FTC seeks voluntary feedback from market participants regarding their views on how supply chain issues affect competition in consumer goods markets. The stated goal of the study is to determine whether supply chain disruptions caused by the pandemic have led to bottlenecks, shortages, anti-competitive behavior or higher prices for consumers.
The FTC’s vote to conduct the study follows a long lobbying campaign by a number of interests calling for a thorough investigation of dominant retailers (and in some cases, dominant suppliers) and advocating for enforcement measures. aggressive applications. In February 2021, the Center for Science in the Public Interest (CSPI) sent the FTC a lengthy letter requesting an investigation into commercial promotion, category captain, and online retail practices in the industry. retail grocery. The CSPI letter complained that these practices increase entry costs, give big brands control over retail decisions conferring greater benefits, and ultimately limit customers’ choice of which 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 retail. The NGA said small food retailers are being pressured by large retailers who allegedly use their scale to demand more favorable supply terms, lower prices, special product pack sizes and first call on items. in high demand. The NGA added that the disparity was particularly 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 goods to customers, while growing consolidation gave an advantage over major competitors. 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 law against the tactics anti-competitive actions of dominant firms in all sectors”. The Robinson-Patman Act is a law prohibiting price discrimination by a seller among competing buyers for the same product, which is rarely 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 MSCC members sent a letter to the FTC asking for help “to address the anti-competitive effects of economic discrimination” and requested that the FTC commission a study and “look beyond the price effect to include other dimensions of competition, including impacts on quality, service and convenience due to economic discrimination and increasing consolidation. As part of this investigation, the MSCC asked the FTC to investigate arrangements between retailers and dominant suppliers to determine whether these arrangements result in economic discrimination that harms smaller rivals, including whether so-called “commercial channels” are used to evade laws. against economic discrimination; and examine whether economic discrimination and purchasing power have led to concentration along supply chains, particularly in the food and agriculture sector.
Although the FTC study is grounded in supply chain disruptions related to the COVID-19 pandemic, many of the grievances voiced by small retailers are not unique to current circumstances. Thus, the information sought by the special orders is much more encompassing than the mere mandate set out in the FTC resolution to conduct the study. For example, the special order template specifically includes inquiries related to business strategies that pre-existed the pandemic, as well as general questions about order recipients that will be relevant after the current disruptions end, such as the 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 works at the most successful companies and how these companies use the business practices complained of by smaller competitors. By enabling the FTC to gather material information and documents through mandatory processes outside of the law enforcement context, this study can play a key role in how the FTC identifies and analyzes trends and emerging competition issues in the retail sector. The FTC has previously held workshops on practices in the retail industry such as positioning allowances and category captains, but these workshops and subsequent reports have not resulted in enforcement. the law by the FTC. New FTC leadership says agency will enforce antitrust laws more aggressively; whether or not the FTC will pursue enforcement action based on its findings in the current 6b study is a matter worth watching for everyone in the retail industry.
Copyright © 2022, Hunter Andrews Kurth LLP. All rights reserved.National Law Review, Volume XII, Number 34