Lina Khan Can’t Help Herself: Seeks FTC Inquiry Into High Grocery Prices

Last month, I actually praised FTC chairwoman Lina Khan for targeting Pharmacy Benefit Managers (PBMs) that partially control drug pricing while also squeezing wholesale margins for all retailers that operate pharmacies.

As predicted, the honeymoon didn’t last long. Less than 30 days after unleashing the Kahn wrath against United HealthCare, Cigna and CVS Health, she is back loitering in familiar territory – attacking food retailers.

Earlier this month, the queen of litigation said she would launch an inquiry to “shed light” on why grocery prices remain high, even though she acknowledged that many prices have stabilized and some have even decreased.

“Grocery prices skyrocketed during the pandemic, due in large part to the higher costs and supply chain disruptions,” she proclaimed. “But we also know that in the years since, costs have fallen, and supply chains have improved. Many items, though, are still too costly, and many large grocery chains are still raking in enormous profits. The FTC has been focused on ensuring that no American faces inflated prices due to illegal business practices. It still isn’t clear that Americans are fully getting the competitive, affordable prices that they deserve,” she said.

Khan made her remarks at the first public meeting of the Strike Force on Unfair and Illegal Pricing, hosted by the FTC and Department of Justice in Washington.

In order to officially launch an inquiry, a full commission vote is needed – which shouldn’t be a problem since Khan and her two commissioner acolytes control three of the five votes.

Let’s analyze the absurdity of this whole exercise in real time. Beginning with COVID in early 2020, prices did indeed spike primarily because of the significant disruptions in supply chain systems. It took nearly two years for supply chains to sway back towards normalcy, but some of the toll left by those disruptions remained in place, particularly labor costs. By the end of 2021, as the impact of COVID waned, inflation remained a significant factor which (as always) helped retailers’ top and bottom lines. And while grocery price inflation certainly created economic challenges for consumers, so did higher fuel prices, rising housing costs, skyrocketing insurance premiums and the price of buying a new or used car.

Like many industries Khan attacks, it’s not as though there’s no truth to her allegations – I’ll be the first to admit that some food suppliers raised prices too aggressively (which is not illegal) and retailers certainly enjoyed the gains they made in 2022 and 2023, but those days are long gone.

As one of the best examples of free enterprise, the grocery industry self-corrects by the competitive nature of its being. While Khan battles against the Kroger-Albertsons merger, she conveniently forgets to include Walmart, Target, Amazon, Costco, dollar stores, drug chains, c-stores and other alternative channel merchants in her argument.

In the meantime, most retailers that sell groceries are now seeing that their comparable store sales are flat or slightly down, and their profits have also declined.

In late 2021, Khan and her sycophants launched another investigation into rising grocery prices during COVID. It took nearly two-and-a-half years for the large federal agency to issue a 20-page report that essentially produced little information of value.

As I did three years ago, I’ll ask the same questions: Where’s the illegality? What are you attempting to prove?

I suspect that after another lengthy trip down the rabbit hole, this inquiry will produce a whole lotta nothing.

Except wasting taxpayer’s money and hyping the ego trip that Khan craves.

‘Round The Trade

Hola Brian Niccol, sayonara Laxman Narasimhan. The fickle finger of fate (with help from former CEO Howard Schultz and some less than stellar sales and earnings results) struck Narasimhan on August 13, when Starbucks announced that he would be departing immediately as chief executive to be replaced by Niccol, who is currently CEO of Chipotle. Narasimhan, who took over from Schultz as top dog in March of 2022, was highly recruited to join the Seattle-based java enterprise after successful careers at McKinsey, PepsiCo and Reckitt Benckiser. Kevin Johnson also served as CEO of Starbucks prior to Schultz mounting his white horse for the third time in early 2022. And speaking of “Humble Howie,” Semafor reports that Mr. Humility owns 19 percent of an olive plantation in Sicily. You might say, “who cares,” but this is the same producer that sold Starbucks the olive oil for its Oleato drink (coffee with a tablespoon of olive oil) which it rolled out in 2022. The story noted that Starbucks paid $26.5 million to its Oleato supplier from October 2022 to September 2023. And by the way, it’s a vile tasting beverage.

According to Brick Meets Click/Mercatus Grocery shopping survey, Walmart remains king of the ecommerce grocery business, grabbing 37 percent of the online grocery market during Q2 this year. The research firm said that online grocery sales at the “Behemoth” increased 150 basis points to record levels to date. Not surprisingly, supermarket sales took the biggest hit from Walmart’s impact, dropping 250 basis points. Supermarkets now control 27.3 percent of all digital grocery sales. Moreover, another research organization – Numerator – said that Walmart is also the largest U.S. grocery merchant by dollar share (again, no surprise). The most interesting part of its report was that the Bentonville, AR-based mass merchant increased its national share from 20.8 to 21.4 percent for the period ended June 30, 2024. And if Lena Khan is listening (or even cares), Kroger’s piece of the national pie is 8.9 percent and Albertsons national share is 5.5 percent and both companies’ market shares are declining.

Costco which keeps hitting it out of the park. For the month of July, the national club store retailer posted net sales of $19.26 billion, a 7.1 percent jump over revenue accrued in July 2023. Moreover, U.S. comps increased 6.3 percent and digital sales rose 20.2 percent, all stellar numbers considering the state of the economy and the performance of its competitors. The Issaquah, WA-based juggernaut also announced that it has begun installing card scanners at the entrances of its stores, a move to reduce card sharing with non-members…the news was not as good at Grocery Outlet which saw its earnings plummet 42.8 percent in its recently completely second quarter ended June 29. The Emeryville, CA-based discounter, which has nearly doubled its store count in the Mid-Atlantic over the past three years, blamed the implementation of new technology as the primary reason for the profit decline. Overall sales remained healthy with a 11.7 percent gain. Comps were also above the current industry norm at 2.9 percent. However, CEO RJ Sheedy acknowledged that aggressive pricing from other competitors impacted Q2 same store sales which he said was continuing in the current third quarter.

Amazon posted solid sales and earnings in its recently completed second quarter ended June 30. Total sales increased 10 percent to $148 billion and profits rose from $6.7 billion to $13.5 billion. Analysts were slightly disappointed by those results partly because of comments made by CEO Andy Jassy and CFO Brian Olsavsky. “We’re seeing a lot of the same consumer trends that we’ve been talking about for the last year – consumers being very careful with their spend, trading down, looking for low ASP (average selling price) products, looking for deals. That continued into Q2 and we expect it to continue into Q3. The difference was that, again, we had very strong unit volume growth,” Olsavsky stated. One part of Amazon’s game that is seemingly not impacted by the economy is its annual Prime Day(s) promotion. It was another record-setting two-day event for “Godzilla” which reportedly raked in $14.2 billion, an 11 percent increase over last year.

Walgreens Boots Alliance is considering selling the entirety of its VillageMD primary care clinic business in an effort to focus on its core pharmacy operations, whose recent performance has been poor. If VillageMD is sold, it would mean that the Deerfield, IL-based drug chain would have failed miserably on a more than $6 billion investment (for 63 percent equity) that it first made five years ago. During the past eight months, Walgreens has closed dozens of VillageMD clinics and said it would ultimately close about 160 locations nationally.

Last month we reported that the recently authorized FTC ban on non-compete contracts was in serious jeopardy after Texas District Court Judge Ada E. Brown ruled that the FTC decision “lacks substantive rulemaking authority” on the matter. Two weeks later, while adjudicating a case that also challenged the ban, Pennsylvania District Court Judge Kelley Brisbon Hodge declined to block the original FTC decision. The only thing that seems clear at this point is that the FTC’s September 4 implementation date won’t happen. This is a ruling that will likely take years to resolve, most likely at the U.S. Supreme Court.

Could it be that Dollar General (DG) is serious about cleaning up the condition of its stores? Over the past six weeks, the Goodlettsville, TN-based mega dollar store chain has reached separate agreements with two Federal agencies over charges that have been lingering for several years. In early July, DG agreed to pay the Occupational Safety and Health Administration (OSHA) $12 million for multiple violations concerning store safety. It also agreed to implement new safety programs for its 170,000 associates who work at the company’s nearly 20,000 stores. Shortly after that settlement was announced, the dollar store king agreed to pay the U.S. Equal Opportunity Commission (EEOC) $295,000 to settle an age discrimination suit against one of its regional directors in Oklahoma. While the fines themselves are a mere drop in the bucket, the bigger issue remains whether DG makes a diligent effort to improve its culture and make its stores safer.

Local Notes

Two thumbs up to the folks at Bozzuto’s which just completed its semi-annual trade show held at Mohegan Sun in downtown Uncasville, CT. Simply stated, nobody does it better than the Cheshire, CT-based wholesaler when it comes to customer and vendor appreciation. They treat their independent retailers with great respect, professionalism and an overabundance of customer service. Additionally, they respect their suppliers and brokers who feel they are truly in a partnership. It’s kind of like it used to be and when you witness it in person, it’s inspiring and somewhat revelatory.

In ADUSA news – the big merchant has promoted Moira O’Toole to VP-pharmacy services where she will oversee prescription drug procurement, managed care reimbursement and network contracting, drug pricing, clinical program development, regulatory compliance, pharmacy systems administration and customer-facing service development. O’Toole has worked in the ADUSA system for 24 years and was most recently director of patient services. She’s based in Scarborough, ME, headquarters for ADUSA’s Hannaford banner.