Regulators Say Big Brand’s Favoritism “Harms Consumers” With “Higher Prices”

A week after federal regulators said they were suing PepsiCo, accusing it of breaking the law by offering favorable pricing to “a large, big box retailer,” the complaint has been unsealed. Many of the details are heavily redacted – including the name of the “large, big box retailer” – but what remains offers some new insights into the actions that regulators say have forced unsuspecting shoppers to pay more for Pepsi products “for years.”

The Federal Trade Commission’s lawsuit accuses Pepsi of violating the Robinson-Patman Act, which “prohibits price discrimination,” and prohibits sellers “from granting advertising and promotional allowances to their customers unless the same allowances are available to all competing customers on proportionally equal terms.” The end result, is the retailer that is allegedly obtaining favorable treatment from Pepsi can sell Pepsi products for less – and shoppers buying from other retailers end up paying more.

Sources have told a number of news outlets that the “large, big box retailer” mentioned in the complaint is Walmart. “To keep (Walmart) happy,” the lawsuit alleges, Pepsi provides it “with a slew of promotional payments, allowances, and services… while failing to make similar benefits available to competitors.”

As the country’s largest grocery seller, Walmart is often able to extract volume discounts from its brand partners, which then translate into lower prices for its customers. And there’s nothing illegal about that. Where the FTC lawsuit says Pepsi crosses the line, is by not offering those same discounts and promotional allowances to Walmart’s competitors.

This “favoritism toward (Walmart) harms consumers who shop at those other retailers,” including “family-owned neighborhood grocery stores, local convenience stores, mid-tier grocers, and independent retailers” by “forcing them to pay higher prices for Pepsi products… over the course of years,” the lawsuit claims.

Walmart is not a target of the lawsuit and has not commented publicly. But Pepsi is pushing back. “PepsiCo’s practices are in line with industry norms, and we do not favor certain customers by offering discounts or promotional support to some customers and not others,” the company said in a statement. It went on to accuse the FTC of having a “fundamental misunderstanding of the omnichannel retail marketplace and the important role that consumer product suppliers play in providing lower prices and value to consumers.”

The two Republican members of the five-member FTC also criticized the decision to bring the lawsuit, which was made over their opposition. Commissioner Andrew Ferguson, who was elevated to FTC chair in the new administration, called the lawsuit “partisan politics, pure and simple,” filed by the Democratic majority “on the eve of its eviction from power at the hands of the American voters.” His Republican colleague Melissa Holyoak called Pepsi’s actions “ordinary price concessions” that are not illegal.

But Democratic committee member Lina Khan, in one of her last acts as commission chair, cited a “mountain of evidence,” much of which is redacted in the lawsuit that’s publicly visible. “With the survival of competing businesses hanging in the balance, and with the relentless price increases American consumers have had to endure year over year,” Khan said the commission “will swiftly seek to lift the redactions in order to show the ways in which Pepsi violated the RPA (Robinson-Patman Act) on behalf of their preferred customer and how those violations raised prices for Pepsi products for competing retailers.”

At least one prominent critic of big business reacted favorably to the lawsuit. “The FTC is sending a clear message: it is illegal for a large supplier to collaborate with a big retail chain to drive smaller retailers out of business and dominate the market,” Stacy Mitchell, co-executive director of the Institute for Local Self-Reliance, said in a statement. Her organization once published a report criticizing Walmart’s “monopolization of local grocery markets,” which she said will continue if actions like Pepsi’s are allowed to continue. “By favoring a single large chain, Walmart, with discriminatory pricing, PepsiCo’s actions have fueled the decline of local retailers, the proliferation of food deserts, and rising grocery prices,” she said.

The lawsuit seeks to require Pepsi “to make its promotional payments, allowances, and services available to all customers and purchasers,” which could ensure that shoppers have access to the same prices no matter where they shop.

The case against Pepsi comes on the heels of the FTC’s successful effort to thwart the proposed Kroger-Albertsons merger. And Khan says the two efforts are interrelated. “Grocery stores have claimed that they must merge to position themselves to extract the same illegal concessions that (Walmart) commands,” she said. But “the answer to one power buyer extracting unlawful price advantages from suppliers is not to create another power buyer that can do the same thing. The answer is to enforce the antitrust laws.”

Each side of this dispute claims shoppers will lose if the other side prevails. It will ultimately be up to the courts to decide. In the meantime, when it comes to where and whether to buy Pepsi products, and how much they’re willing to pay – shoppers will have to decide for themselves.

Image source: Phillip Pessar