Grocery Update #125: How Pepsico and Walmart Rigged Grocery Prices.

And What To Do About It.

Publisher’s Note:

The Checkout Grocery Update will be offline for the holiday season. We love you all. Be safe out there. See you in 2026.

And Happy Holidays!

How Pepsico and Walmart Rigged Grocery Prices.

And What We Can Do About It.

By Errol Schweizer.

For decades, we’ve suspected.

The biggest retailers get the best deals from the biggest brands, disproportionate to scale. Discriminatory to competitors. We called it “the Waterbed Effect”.

It was just a theory. That in order to balance their margins and keep the biggest retailers happy, CPG brands gave the lowest costs and deepest deals to the biggest Big Box stores, while charging the rest of the market higher prices and narrower discounts. We kind of knew, there were rumors, ex-employees, or economic modeling to show it must be happening. But retail and wholesale is really complicated, there are no real guardrails, laws go unenforced, the biggest pockets usually win, so it was hard to prove, the math was too hard to nail down.

Especially for independent and cooperative retailers, that no matter their scale, could not make this math work. Nope. Just look at the New York City region, some of the highest grocery prices in the country, but also the most densely populated and highest volumes. Sure, rents and utilities are higher. But coincidentally, the most disaggregated market in the country, no real monopolies. Is it also a coincidence that there is very little big box presence, that the many cooperatives and indies in NYC could not reflect national big box pricing on competitive items? Even with all this chatter of public grocery stores, they would still be beholden to this dynamic. It is how it is.

It was all just supposition.

How else could BIG BOX retailers prices be that low, even selling such items as a loss leader? How else could the BIG BRAND have over a dozen displays at any given time of the year, all over the store, on end caps, in aisles, on POPs, on pallet drops, in foyers, at the self checkout, everywhere you looked, at those prices? It did not add up.

Well, now it does.

Walmart controls around 30% of grocery market share in the U.S., monopolizes dozens of metro areas and is one of the top 3 grocers in nearly every major population center. Walmart grew through lack of enforcement of antitrust laws, predatory pricing that would put competitors out of business, plus globalized, efficient, large scale supply chains, and draconian vendor policies, such as 98% fill rates, one sided payment terms, and massive private label brand placement, deep EDLC pricing and rollback allowances and a non-union, precarious workforce. The Walton Family still owns nearly 50% of Walmart and are billionaires many times over. Economists have shown that Walmart drains wealth and value from communities, creating intergenerational poverty and hollowing out economies and local supply chains.

Also, like most people, I shop at Walmart. They are an impressive retailer and stock many things I need. But it doesn’t mean they are above the law or there aren’t immense contradictions with their business model.

Pepsico is the largest consumer packaged brand. 60% of its sales are snacks that dominate shelf space through vertically integrated supply chains and direct service wholesale. Pepsico is the top snack brand nationally and holds more than 50% snack market share in dozens of metro areas. It is also the #2 soft drink and a major beverage player in water, energy and sports drinks and more. Pepsico raised prices again and again during the pandemic, bragging they could keep raising prices and consumers would just take it, enriching shareholders through record profits. And what do you know? Volumes plummeted and Pepsico is now closing facilities and laying off workers, under pressure from “activist” investors to get back to fundamentals, like selling more chips and soda, while cutting costs and closing under performing facilities.

And as an occasional Lay’s and Fritos consumer, I can attest their workforce produces consistent, high quality products all over the country. That is not easy. But it’s no excuse.

And so here we are.

This newly unredacted FTC complaint shows that PepsiCo and Walmart worked together to rig grocery pricing, drive up pricing at competitors and protect Walmart’s dominance. Internal PepsiCo documents reveal a coordinated strategy to give Walmart better wholesale prices, penalize independent and regional grocers that tried to lower their prices and preserve Walmart’s “price gap” by pushing rivals’ shelf prices up.

Why is this such a big deal? Grocery prices have increased by over 35% since 2019. In PepsiCo’s core categories, prices have gone up even more, including soft drinks (67%), bottled water (40%), potato chips (37%) and tortilla chips (37%). Unit volume growth was well below price inflation. But sales growth? Astronomical. Soft drinks, up 76%, water, up 50%, tortilla chips, 52% and potato chips, 42%. Walmart is far and away PepsiCo’s biggest customer, at least three times larger than the next largest retailers (Kroger, Albertsons, Costco), and bigger than all three combined.

According to Stacy Mitchell of the Institute for Local Reliance (ILSR), a non-profit that led the effort to unseal the documents, “This conduct stretches back more than a decade — and it directly undercuts the central claim used to justify decades of non-enforcement of the Robinson-Patman Act: that letting big retailers squeeze suppliers leads to lower prices for consumers. Not enforcing the law led to fewer local grocery stores, more food deserts, and higher prices.”

According to ILSR, PepsiCo systematically violated the law by giving Walmart preferential treatment over competing retailers in ways that intentionally create an unfair competitive advantage in the resale of Pepsi soft drinks. The complaint demonstrates the real effect of price discrimination, known as “the waterbed effect”: ensuring higher prices at every retailer, except the one receiving the sweetheart deal.

According to the FTC’s complaint, PepsiCo worked to meet Walmart’s demand that it have lower retail prices than its rivals through:

• Tracking prices across the retail economy to ensure no retailer offered prices for Pepsi products as low or lower than Walmart’s price.

• Raising wholesale prices for non-Walmart retailers and reducing their discounts in order to push their prices higher and drive customers to Walmart.

• Funding Walmart’s promotional displays and price reductions while reducing promotional support to competing retailers.

As one example, PepsiCo saw Ahold Delhaize banner Food Lion as the “worst offender” to its Walmart strategy because Food Lion priced PepsiCo products below Walmart. So PepsiCo created a multi-year roadmap to force Food Lion to raise its prices.

“These newly unsealed allegations highlight the importance of transparency in our judicial system, particularly in cases like this one involving historic government investigations and conduct affecting small businesses’ bottom lines and millions of consumers’ pocketbooks,” said Katherine Van Dyck, attorney for ILSR.

ILSR has argued that, without enforcement of the Robinson-Patman Act, dominant retailers and suppliers can continue to engage in practices that eliminate competition. The Robinson-Patman Act was enacted to prevent large retailers from using their market power to secure unfair pricing advantages and drive small businesses out of the marketplace. The law has been largely ignored and unenforced by antitrust agencies since the 1980s. During that period, independent grocers’ market share plummeted from over 50% to nearly 25%, contributing to the proliferation of food deserts in both rural and urban communities. There are now 25% fewer grocery stores than in 1998.

“It is appalling that the Trump/Ferguson FTC dropped this case. Local independent grocery stores are being driven out of business — and their customers forced to pay higher prices — by two powerful companies who’ve been told, in effect, that they can violate the law with impunity,” stated Mitchell on social media.

“This now-defunct case was brought by the FTC under Lina Khan. They deserve huge credit for this investigation and for their commitment to the law and to the fairness it proscribes. There’s good reason for some hope though — state AGs are starting to take a hard look price discrimination with an eye toward bring actions. And a few states, including New York, are introducing bills.”

The National Grocers Association (NGA), the trade association representing the independent supermarket industry, said in a statement, “The unsealed Federal Trade Commission complaint alleging preferential pricing and promotional treatment for Walmart highlights longstanding concerns among independent community grocers about anticompetitive practices in the marketplace.

“Independent grocers are not asking for special treatment, only a level playing field, which ultimately supports local jobs, strengthens competition, and ensures consumers continue to have choice and value at the grocery store. NGA calls on the FTC to enforce the Robinson-Patman Act against the power buyers who violate the law by undercutting the competition by forcing their competitors and American consumers to pay higher prices for groceries.”

PepsiCo and Walmart are now facing a new class action lawsuit stemming from these allegations.

PepsiCo said in a statement that it “continues to operate in compliance with applicable laws and remains committed to providing all customers with fair, competitive, and non-discriminatory pricing, discounts and promotional value, regardless of size or channel.”

Walmart said it was aware of the litigation and that it remains “committed to negotiating on behalf of our customers so we can deliver value and everyday low prices.”

Matt Stoller of the American Economic Liberties Project gave a broader context on these issues in his weekly newsletter, stating that “the Atlanta Fed came out with a report showing a clear relationship between consolidation in grocery stores and the rate of food inflation… where monopolies prevail, food inflation is 0.46 percentage points higher than where there is more competition. The study showed that from 2006-2020, the cumulative difference amounted to a 9% hike in food prices, and presumably since 2020, that number has gone much higher.”

Stoller concluded, “Affordability, in other words, is a market power problem.”

What To Do Now:

• Demand federal regulators enforce Robinson-Patman at a national level. Level the playing field. Enforce price parity. End Big Box Price Discrimination.

• Push for state level anti-price discrimination laws. New York State and Rhode Island are looking at this. That matters.

• Tune into the Class Action suits naming both PepsiCo and Walmart as defendants, accusing the conglomerates of violating the Robinson-Patman and Sherman Antitrust acts by causing artificially inflated prices at “every single retailer other than Walmart for over a decade.”

• If you work for a retailer, demand brands give everyone the same deals as Walmart gets. Everybody plays or nobody plays. Prioritize brands that deliver. Prioritize emerging brands and new products. Play them off each each other.

• If you work for a brand that is not Pepsico and compete in these categories, demand retailers prioritize emerging brands and alternative products to break up these category monopolies.

• If you work for Pepsico or Walmart, or were recently laid off by them, and would like to step forward and tell us more, hit us up on Signal or WhatsApp.

• If you work in the food industry, be vocal about these issues. We called for documentation on the Waterbed Effect and heard crickets. That is understandable though. We can beat the blacklisting and fear mongering if more folks step forward. We all know the truth and many of us have the receipts. It’s a small community. So stay in touch. We will protect confidentiality. We got your back.

peace.

(Perspectives are 100% our own and not our sponsors’.)