Large retailers drop prices following FTC report

Following the Federal Trade Commission’s report in March showing a number of large retail and grocery corporations manipulated pandemic-era supply-chain disruptions to increase prices and profits,  some of those companies have announced widespread price reductions.

On May 16, Walmart reduced prices on almost 7,000 food products and announced a new brand of low-cost specialty items. Amazon Fresh will reduce 4,000 products including groceries. Aldi, although not mentioned in the report, will cut more than 250 items with an estimated $100 million saved for consumers through Labor Day, according to its May 2 press release. Target, also not mentioned, announced May 20 it’s lowering 5,000 products in addition to the 1,500 it already reduced.

The announcements all follow the FTC’s report “Feeding America in a Time of Crisis” which found that large-market retailers “accelerated and distorted the negative effects associated with supply chain disruptions” because of the COVID-19 pandemic. This resulted in increased grocery prices, which remain elevated, and product shortages. According to the White House Council of Economic Advisers, major chains have experienced the highest profit margins in two decades.

The report is based on FTC-issued orders in 2021 to Walmart Inc., Amazon.com Inc., Kroger Co., C&S Wholesale Grocers Inc., Associated Wholesale Grocers Inc., McLane Co. Inc. Procter & Gamble Co., Tyson Foods Inc. and Kraft Heinz Co. The findings also draw from publicly available data on industry costs and revenues, the report said. It found that food and beverage retailers increased profits in the first three quarters of 2023 at 7% over total costs. Walmart topped the National Retail Federation’s 2023 Top 100 Retailers List with nearly  $500 billion in U.S. retail sales followed by Amazon.com with $232 billion and Costco Wholesale at $164 billion. Target moved to No. 6 with nearly $108 billion.

In an election year, the drops are likely politically motivated, said professor of economics at Missouri State University David Mitchell, director of the Bureau of Economic Research  and director of the university’s Center for Economic Education. He posits that the corporations named in the report may be brought before Congress, something the National Grocers Association called for based on the findings.

“Congress wants to look like they’re doing something about inflation,” Mitchell said. “Now (the companies) have something to show Congress that they’ve done. … I don’t think the costs actually changed. I think they’re trying to keep out of Congress.”

The report added the large retailers’ actions came “at the expense of their competitors and the communities they serve.

“Smaller grocery retailers disproportionately faced difficulties obtaining products compared to larger firms,” the report said.

Missouri Grocers Association Executive Director Dan Shaul said community grocers have asked Congress to investigate the allegations for some time. He recently went to Washington, D.C., with other organization representatives where they asked that the FTC be given more funding to further its investigation and to update the language on Clayton Antitrust Act’s 1936 Robinson-Patman Act amendment, which aims to protect small businesses from unfair competition and discrimination. The FTC report found corporations enforced penalties on distributors for delivery noncompliance, which caused preferential treatment.

“The major nationwide or worldwide companies have utilized buying power,” he said. “We are actually trying to get some laws changed in Congress to make sure that trust isn’t violated and that they aren’t getting better pricing than we could. So, the fairness in the marketplace is always a concern of ours.”

Missouri Retailers Association President David Overfelt, however, is cautious about Congressional involvement, saying it can result in unnecessary barriers and burdens that increase costs. There need to be solutions accompanying the findings.

“(The FTC) brought this up and made this claim – what is their solution?” he said. “That’s what needs to be seen. … It has merit, but I don’t know what the FTC is expecting out of Congress.”

Some are interpreting the recent price cuts as a sign of lowering inflation. However, because inflation happens at the level of the Federal Reserve, Mitchell does not anticipate the rates changing much. If the federal government wants to go back to a 2% inflation level, he estimates they’d need to increase interest rates. April’s consumer price index reduced by 0.1% to 3.4%. The CPI has increased by 22% since 2020, peaking in June 2022 at 9.1%. The May CPI will be released June 12.

“Prices will not go back to where they were four years ago,” he said. “Inflation ratchets those prices up, but not down. So that is where people are mad and confused and blaming Biden or Trump or COVID or whomever, corporations. But inflation is just the rate of change.”

Lowered prices don’t necessarily mean lowered inflation, Shaul agrees, saying that large companies can lower prices on some items while keeping others like electronics and clothing higher.

“While they may have lowered prices on some items,” he said, “inflation is still taking place in their store. It’s just somewhere else.”

The types of products large corporations are selling has shifted, as well. On May 16, Walmart announced that it topped quarterly earnings and revenue with an expected net sales growth of 3-4%. Groceries account for approximately 60% of the company’s U.S. sales. Walmart announced its new private-label grocery brand Bettergoods on April 30. The products range from $2-$15 and cater to special diets such as plant-based. Walmart is additionally upgrading 1,400 stores nationwide. The retailer reported an increase in higher-income customers and these changes aim to retain those customers who Mitchell said are “more repeat customers” and “lower cost to keep.”

“I think it’s not just forestalling legislation. I think they’re trying to compete for higher-end customers,” he said. “If you can get them and keep them and it’s easier to keep them than try to bring them back, then why not do that? I think it’s part of Walmart’s strategy. … They are in the business to make money. So it’s basically, ‘We’ve captured the lower-income customer. Where else do we go? What’s next?’”

Although questions still loom after the FTC report, one thing is certain: The industry is becoming increasingly competitive. The court of public opinion still often sways consumers in favor of local-owned businesses in light of the FTC report, Mitchell said. Customers may be more likely to select community grocers over large corporations. Local businesses also force competition for companies like Walmart and Target, and that contributes to keeping prices down. In light of these industry shifts, community businesses are likely to become increasingly hyper-niche to keep up with competition.

“The small have survived by being highly specialized,” Mitchell said. “You can’t compete on the cost. Walmart has the market. They will never compete on that basis. They have to compete on some highly specialized product or differentiation in service.”