Imagine going to the grocery store and the shelves being filled with locally produced goods. The fresh lettuce in the produce section was grown in a greenhouse down the street. The beef came from a cattle farmer you knew in high school. The baked goods were made by the familiar bakery downtown, which sources its wheat from a local farmer. Now, imagine all of this was priced so that the community the grocery store serves has access to this food easily — even in small, rural towns.
Today in the U.S. this sounds like a bucolic fantasy. Many community-rooted small and mid-scale farmers and ranchers would love to secure markets for their products in their community’s grocery stores. However, as of 2019 nearly 70% of U.S. grocery stores were owned by four giant corporations, led by Walmart — which captures a third of national grocery sales on its own —exerting even more extreme power regionally, controlling 50% or more of the food retail market in 43 U.S. metropolitan areas and 160 smaller markets across the U.S. according to a 2019 report by the Institute for Local Self Reliance. These massive national grocery chains cut costs by eliminating regional sourcing staff of the smaller grocery chains they’ve gobbled up, and instead, purchase food from their fellow dominant meatpackers and food processing corporations. Farmers seeking to plug into a regional food system are left on the outside, with fewer markets, untenable prices, and all too often, farm businesses on or over the edge of viability.
Mega-corporations have a wide reach spanning decades and are strangling the food system at every level. So what can independent grocery stores do to fight back?
In the process of vertically integrating and centralizing their procurement, dominant grocery corporations have locked independent farmers out of a broad swath of mainstream marketing opportunities. Nonetheless, regional farmers used to still have an avenue to thrive in the retail space: the independent grocery store. But today, the surviving independent grocery stores are also dealing with predatory abuses of market power by wholesale distributors, also known as “broadliners.” Broadliners aggregate massive amounts of food to distribute to grocery stores and control access to a majority of the types and brands of the food that are in most demand by consumers. To grow and profit, every grocery broadliner wants to hook a whale like Walmart or Kroger, which would mean a multi-million or perhaps even billion dollar contract. To help them acquire the biggest customers with the biggest contracts, they are prepared to offer huge discounts to get these retail whales in the door. To make up the cost of offering larger chains discounts, small independent grocery stores are forced to pay a premium to broadliners to get the same products on the shelf. But it doesn’t end there.
Independent grocery stores have increasing pressure to match the shopping experience that customers expect from big box retail chains. That space is all about convenience, creating a one stop shop with everything you need for the week on the shelf. Many of these products can only be purchased from broadliners. Independent grocers not only get less favorable prices from broadliners, but the contracts include minimum purchasing quantities. Sometimes this is a specific dollar amount, but often it comes in the form of a percentage. It is not uncommon for broadliners to stipulate that independent grocers must fill 70% of their store with their products if the grocer wants to do business at all.
Approximately 8% goes to small vendors, according to Danny Peed, general manager of Market Plus IGA in Enfield, NC, leaving an even smaller percentage available to purchase directly from small to mid-scale farmers in the grocer’s area. Peed explains, “If you look at just 35% left over from the broadliner, you’re forgetting now that you still got Coke, you still got Pepsi, you still got Frito Lay, you still got Sunbeam, you still got all your other small vendors that it’s still going to take at the very least another 8%.”
The result is what you see today. Nominal (if any) offerings of locally farmed products at big corporate chains, and limited offerings of locally farmed products at smaller, independent grocers. What’s more, because independent grocers pay more for the products, they face tighter margins in setting retail prices for their customers. They risk not breaking even if they don’t raise their prices. This is a difficult tightrope to walk for grocers, as the impact of corporate consolidation has hit consumer wallets too. Especially in rural towns, a grocer’s customers might not enjoy the purchasing autonomy in supporting local businesses at a higher price.
These mega-corporations have a wide reach spanning decades and are strangling the food system at every level. So what can independent grocery stores do to fight back?
James Watts is the Merchandising Manager at Weaver Street Market, a network of four co-op grocery stores in the Triangle area of North Carolina. Weaver Street Market enjoys significantly lower demands on purchasing percentages from broadliners than most grocery stores today, but that wasn’t always the case.
“The biggest distributor in natural foods had done a huge contract with Whole Foods that gave Whole Foods their outsized pricing power. All of us independent grocers were looking at each other going, oh, ‘what are we going to do? Okay, well, we better band together.’ And so we formed a trade organization and we started to negotiate as a unit. We collectively bargained with the broadliner and said, ‘Collectively, we’re your second largest customer,’” Watts tells us.
Weaver Street Market was able to receive a more favorable contract with a broadliner through collective bargaining, which is undeniably a tactic with merit. But the clientele that Weaver Street serves at its four locations tend to be affluent, and the stores are filled with organic, vegan, gluten-free, and premium items as well as prepared foods made at a central kitchen.
“I’m going to say this pretty clearly and upfront. Our retailing environment is different than the vast majority of independent retailers out there because most independent retailers have a contract with a distributor that requires a much higher percentage of overall purchases to go to that wholesale partner. In my case, we get somewhere between 20% and 30% of our purchasing at any given moment. If you are an IGA affiliate down in Southeastern North Carolina, your contract with your supplier probably requires you to buy somewhere between 70% and 90% of your food from them,” Watts explains.
IGA’S Danny Peed wants to take a different approach, but with a similar underlying
concept. Peed imagines a network of grocery stores mutually supporting an independent aggregator that collects food and products from farmers and other suppliers to stock independent grocers. This would allow the complete elimination of the broadliner contract. He stresses that a smaller model like this could allow small grocers to cater to the niche of their area.
“So to cater to a single customer, even if you got four of a product on the shelf and if you sell them at one a week or one every two weeks, you still satisfy that customer in the neighborhood. And it won’t really put you out, especially if you’ve got a centralized location where your other stores are within an hour or two away,” Peed says.
Aaron Johnson, who manages RAFI’s Challenging Corporate Power program, explains that he would like to see the Federal Trade Commission (FTC) take action against broadliners that use their market power to bully independent grocers into bad contracts. “We’d like to pressure the FTC to do an economy-wide rulemaking against exclusive contracting on the part of dominant firms. We want them to say: ‘If your firm controls more than 30% of the market share of a relevant market, which could be a national market or regional market, you can’t compel your customer network, your clients, to sign exclusive contracts with you.’” The FTC could also, for the first time in decades, enforce the Robinson Patman Act, which, Johnson explains, “was originally passed to protect community stores from being driven out of business by national chains, by prohibiting dominant wholesalers and retailers from offering or requiring anti-competitive preferential discounts, and then charging smaller or independent grocery stores unfairly higher prices for goods.”
The consistent vertical integration of markets affects every aspect of our food system. Independent farmers, grocers, processors, and more are all finding the market space they rely on to be increasingly hostile terrain. However, consumer tastes and preferences have been trending toward a higher demand for locally farmed goods, which is increasing pressure on the current market paradigm to shift. Farmers need a consistent customer to budget their growing seasons and many independent grocers want to meet the demands of their local communities with locally farmed goods. The question remains whether legislators will make an overdue course correction for working-class U.S. citizens, or if they will continue to feed a few mega firms that have a stranglehold on markets.
Joe Pellegrino is RAFI’s Communications Coordinator. Prior to joining RAFI, he worked as a photojournalist and studied agroecology and sustainable food systems at North Carolina State University. Aaron Johnson, Challenging Corporate Power Senior Program Manager, contributed research and subject matter expertise to this story.