Grocery Update #38: The Public Grocery Sector.

Also: FTC Revives Robinson Patman. And Kroger's $7.5 Billion Stock Giveaway.

Discontents: 1. The Public Grocery Sector. 2. Trump & Grocery Prices. 3. Kroger’s $7.5 Billion Giveaway. 4. FTC Revives Robinson Patman. 5. Tunes.

Thank you to all our readers and our paid subscribers! We will have only one or two more issues this year and then return the first week of January.

This one is loaded! Enjoy.

Main Feature:

1. How To Build The Public Grocery Sector.

A few years back, the deep freeze hit Austin, Texas, causing huge supply chain problems. The freeze compounded pandemic-era disruptions and inspired an analysis into why we should think about public sector grocery supply chains. With the concept now gaining headlines due to high prices, it is time to revisit these ideas and articulate the “How” moreso than just the “Why”, especially since people seem serious about implemention. In the spirit of solidarity, here is the sequel.

Public grocery stores are quickly becoming part of the conversation about food access. Consumers are grappling with high prices, the health impacts of ultra processed foods and a highly consolidated food industry. But a public sector grocery option is not as radical as it sounds. Like consumer owned cooperatives and employee owned enterprises, public sector groceries have always been a meaningful part of our food supply chains. This means that expanding them could be both viable and effective in making the food industry more sustainable, fair and affordable.

Why We May Need A Public Grocery Option.

There are many reasons why public sector grocery stores may be necessary. The grocery industry is highly consolidated, with just six chains controlling over 65% of sales nationally. Just two to three chains, usually Walmart, Kroger or Albertsons dominate the market share of dozens of metro areas across the U.S, with only a few exceptions. And the fastest growing sector of grocery chains are dollar stores, which are notorious for low wages, unsafe and understaffed stores, subpar quality and minimal fresh foods.

Many products on the grocery store shelves are likewise highly monopolized, with dozens of such categories, including cereal, cookies, beef, pork, chicken, chocolate, toothpaste, chips, snack bars, toilet paper, baby formula and soft drinks, each dominated by just a handful of conglomerates. This consolidation at all levels of the supply chain has resulted in enormous profits since the pandemic began, with much of the excess given back to shareholders in the form of dividends and buybacks.

Consolidation in turn has resulted in food price spikes of upwards of 30% since 2019, and even higher in many categories like meat, candy, soft drinks, chips, diapers and frozen foods. Demand for food has flatlined, meaning nearly 50 million Americans are skipping meals, eating less, trading down to lower quality items or using food banks. And food-related health care expenses, also known as non-communicable diseases, top $1.3 trillion annually, 30% higher than the grocery industry’s annual revenue. It is no wonder that grocery prices and ultra processed foods were major topics in the 2024 presidential elections.

Public sector grocery stores are thus being discussed as a potential solution to high food prices, corporate consolidation and rampant food apartheid. The city of Chicago is actively scoping them for areas abandoned by corporate owned chains, such as Whole Foods. And small cities in Florida and Kansas have also tried out the concept to alleviate food apartheid, to varying degrees of success and effectiveness.

But publicly owned grocery stores are not as fringe or as radical as they sound. In fact, they are already quite common, if you know where to look. Public sector grocery stores already exist- in the U.S. military.

The Military Industrial Grocery Complex.

Military personnel and veterans would be very familiar with the PX/BX, or post exchange/base exchange. Every branch of the military has its own exchange system, or retail store network, that provides goods and services for service members. These includes groceries/commissaries, department stores, gas stations and convenience stores, and can also include ancillary services like barbers, laundries and lawn and garden shops. The exchanges provide tax-free shopping and discount goods and services, with much of the revenue going right back into their installations.

The PX commissary network generates over $4.6 billion in annual revenue across 236 commissaries worldwide (the U.S has over 140 military bases overseas to protect American strategic interests, such as energy resources and global trade routes) and receives over $1.4 billion in defense spending annually, or about 1.5% of all defense spending. This puts the military commissary system somewhere in size between national chains such as Sprouts, which generated over $8 billion in 2023, and National Cooperative Grocers, a network of over 200 community owned cooperative stores that generated $2.5 billion in revenue in 2023. While the commissary system is not as big as Kroger ($150 billion), Publix ($50 billion), or Aldi ($40 billion), it would still place in the top 20 grocery chains by volume in the U.S. This size enables commissaries to leverage efficiencies in wholesale costs and logistics, with the backing of large, federally subsidized purchase orders, all to keep prices down for military personnel.

Grocery commissary prices can be 25-30% lower than typical retail prices, saving military families and veterans over $1.6 billion in 2023. Such military exchanges are all in the public sector. However, they still rely on the same supply chains as the private sector. These larger suppliers that have the scale and market penetration to keep up with the demand and standards of military procurement, including the same name brands on grocery shelves made by consumer packaged goods and meat/poultry conglomerates. Products are then supplied by broadline wholesalers who aggregate thousands of products, such as SpartanNash.

Exchanges keep their costs down by not only operating as cost (not profit) centers with a two to three percent markup, but also by leveraging their huge buying power to keep wholesale and logistics costs down. Government purchasing through post exchanges fulfill the basic needs of servicemembers at good prices, but are not always the best options, and plenty of service members elect to go to a “civilian” grocery store when they can get off base.

So the U.S. already has a viable, successful, operational public grocery sector, but only for our military. It shows that where there is a will there is a way. And it would not be too much of a stretch to “civilian-ize” post exchange commissary operations and pricing philosophy. It could work, especially if there were a large scale, committed effort to build multiple locations in a short period of time.

Leveraging Efficiencies Of Scale.

There are two models of scale that could keep costs down for public grocery stores, or public exchanges. There is the warehouse model, like Costco, Sam’s Club or BJ’s (although the membership fee that normally is a profit center would be eliminated). These stores take a maximum of @14% markup on goods, less than half or even a third of what many grocers need. They also carry a very limited assortment of basic items, pantry items and impulse buys, sold at high volumes so that their prices tend to be 50-60% cheaper than analogous products at traditional retail. Because warehouse stores emphasize limited assortment at high volumes, a public sector based on this model would still allow plenty of room in the marketplace for traditional grocery stores, cooperatives or natural/speciaty shops. This model would instead compete directly with dollar stores and mass marketers like Walmart, and supplement or replace food banks.

The other model to keep costs down would be the Aldi (or Trader Joe’s or Lidl) model. Aldi is a fast growing German discount chain with thousands of locations in the US. Like Costco, Aldi carries a very limited assortment of products, less that 1500 per location. The stores are small but relatively high volume. By planting a lot of stores in a given area, Aldi is able to buy large quantities of a small number of products through its warehouses and offer much lower retail prices than competing retailers selling a much larger assortment, leveraging store density and store sales volumes, the secret sauce of wholesale efficiency.

This is how Aldi math works. Let’s say Grocer A sells 500 units of peanut butter per week, but has 25 brands at varying price points, coming from a dozen different suppliers through a wholesaler. That means on average they are selling 20 units each of 25 different peanut butters, and having to buy those 20 units a week by the unit or 12 pack case from their wholesaler, who applies a markup to each of their products. Aldi on the other hand may be selling 500 units of peanut butter a week, but they only stock 2 varieties, meaning they are buying 250 units a week, probably by the pallet load through their own warehouse, directly from the manufacturer. This means their shipping costs are much lower and their case costs are also lower. Multiply that across the whole store, with 1500 products across over 150 consumer categories, and you get huge cost savings that are passed through to the customer, with retail prices that are sometimes 10-15% lower than Walmart and frequently half that of competing retailers on analogous products, yet still at similar quality and attributes. Applying these assortment, wholesale and logistics practices could bring down product costs to stores dramatically. (This cost model doesn’t factor into account Aldi’s non-union workforce, limited staffing and their stores’ low labor expenses, which also adds another 5-10% in customer savings, but at the expense of good paying jobs with pensions and union protections that could still be preserved in a publicly funded setting.)

Operational Best Practices To Reduce Food Apartheid.

The grocery business is also a game of percentages. Most grocers operate at a 40% margin above cost; specialty grocers are even higher at 45-50%. Discounters are at about 30% and mass marketers like Kroger and Walmart around 25%. Labor expenses as a percent of sales in most grocers are 10-15%, and overhead such as rent and utilities are another 5-10% of sales. Most grocers operate with a small profit margin, between 2 and 5%, which is why mass marketers have expanded store count so aggressively. Massive profits are the result of massive sales volumes off of this thin profit margin percentage.

An operational practice for public grocery stores would be to not budget labor and overhead by location, as grocery stores do, but to roll up and blend these expenses in municipal budgets. These store employees could then be municipal workers with union perks and protections, as there is much higher union density in the public sector.

All in, taking as many elements of cost off store balance sheets mean the retail markups of public grocery exchanges can be 20-30% less than a grocery store. This is the model that post exchange commissaries follow and they typically run a retail markup of 2-3%.

If public grocery stores can follow this retail math and one or both of these proven operational models, they could be the cheapest food outlets in the country, solving the need for lower cost groceries and disproving Donald Trump’s latest claims that he can’t lower food prices, despite running his campaign on promises to do so.

Low prices will allow SNAP recipient dollars to go much further, especially if such stores stock plenty of healthier options. Public grocery stores would also benefit from an expansion of SNAP, such as fully covering the retail cost of fresh produce, or “single payer produce”, to incentivize healthier eating. Every year, 10% or more of all grocery revenues are generated by SNAP redemptions, sometimes over $100 billion a year. SNAP multiplies in value when redeemed: for every $1 in SNAP redeemed, it produces over $1.60 in value for the community. SNAP feeds nearly ten times as many people as food banks. Building non-profit, cost-plus public grocery stores in areas abandoned or avoided by mainstream grocers could help reduce food insecurity, especially if the prices were further subsidized by an expanded SNAP.

And the overhead of public grocery exchanges could also include free delivery, with exchange staff using delivery logistics software to bring low cost or fully subsidized food to more people cheaply and quickly, further reducing food insecurity caused by the absence of physical stores from communities.

Tackling Monopolies+Values Based Procurement.

The third objective of public grocery exchanges, reducing corporate consolidation in the food industry, is a tougher nut to crack. This may be instead only be possible through greater antitrust enforcement, such as the FTC successfully blocking the Kroger Albertsons merger and the recent FTC Robinson Patman violation lawsuit against alcoholic beverage monopoly Southern Glaziers. The latter seeks to resurrect antitrust law that forbids larger buyers from receiving favorable pricing at the expense of their smaller competitors. Robinson Patman enforcement could disproportionately benefit the independent grocery sector in cities like New York, who could see lower prices as suppliers would be legally required to level set prices to their customers, regardless of scale or buying power. This would create a one-two punch with public sector retail for ensuring lower prices to more consumers, as long as independent grocers pass lower prices along to consumers.

But in the meantime, public sector retail will still be wholly dependent on the private sector for manufactured and processed goods to stock their shelves, as well as for wholesale and logistic services.

Another way to disrupt such consolidated supply chains would be to implement values-based procurement. Values based procurement is a fast growing food policy trend that builds on consumer demand for climate friendly, ethically grown and sustainably produced foods. Nearly every consumer survey shows that people want good food that meets their values. These trends get even stronger as consumer cohorts get younger. Such frameworks have already been adopted by dozens of cities and institutions around the U.S., to much success. N.Y. State is nearly ready to implement values based procurement statewide after the success that N.Y. City has had with municipal food programs such as school lunches, serving over a million students daily.

And there is a campaign to shift federal food procurement away from favoring the Tysons, Conagras and Cargills of the world to values based procurement, which mandates that purchases must follow guidelines around worker dignity and safety, animal welfare, community economic benefit, health and nutrition, and impact to the environment. Values based procurement also prioritize suppliers from marginalized backgrounds and non-corporate supply chains, including small, diversified family farms, immigrants and people of color, new and emerging brands, and farmer and employee owned cooperatives. The irony here is that public sector grocery stores may be a crucial vehicle for ensuring free and fair enterprise in the food industry.

Values Based Procurement Is Not Pie In The Sky.

Such procurement standards have already been road tested and proven viable in the private sector. They are heavily influenced by quality standards at natural foods discounter Natural Grocers, as well as more premium shops like Amazon’s Whole Foods Market and online grocer Thrive Market. And because values based procurement requires large volume purchase orders to meet the needs of stakeholders, they can keep their costs down, especially when the end consumer is a student eating subsidized school lunches. The main bottleneck for values based procurement, however, has been on the supply side, including at the processing and wholesale sector levels, where there are not always enough suppliers or processors to meet the demand for value-based food. This is especially the case for the mid-scale, regional processors that don’t fit neatly between cottage/hyperlocal processing and large scale, round the clock industrial processing.

But in the current food system model, even if public grocery exchanges leverage logistics and supply chain efficiencies to get the cheapest retail prices, they may still be beholden to big food while values based procurement ramps up in scale.

Public Sector Supply Chains.

There is one more solution here, that would take additional public investment and expertise. And that is to build a vertically integrated public sector food supply, from farmgate to retail. This could mean publicly owned processing and manufacturing that could aggregate demand for local, regionally and ethically sourced products into consumable, long shelf-life pantry items normally found at grocery stores. Think frozen fruits and vegetables, fresh and shelf stable soups, stews, ready to eat meals, snacks and baked goods.

Many grocery chains have already heavily invested in their own proprietary commissaries and processing for such products that they sell to other retailers and merchandise in their stores. Most grocers just contract out such production to co-manufacturers, a $200+ billion industry called the private label sector. So adding some public infrastructure would be complimentary and incremental to this sector, could on-shore production that has moved to lower cost providers overseas, or putting competitive pressure on the big, incumbent private label processors to improve their sourcing and production practices, all while increasing the assortment diversity at retail.

A public sector supply chain would thus aggregate and operationalize demand for ethically and sustainably grown ingredients. It would de-risk farming and food production for producers willing to abide by values based standards as long as they had a guaranteed market for their output. And because it would be sold through the public exchange system, using the math illustrated above, it would enable good food to be the most reasonably priced in the marketplace.

The Public Grocery Sector: A Brief Manifesto.

Public grocery stores are a smart and viable idea for good food advocates to pursue. They could be accountable and transparent to the communities, like food-co-ops, but with the backing of public resources to protect their mission from the fickleness and competition of the marketplace. Besides their main objectives, like solving for high prices, food apartheid and consolidation, they could also operationalize the Right To Food. Over 80% of Americans support the Right to Food.

Public sector grocery stores could be a vital part of an expansive, holistic tool kit to repair and rebuild the food industry into one based on solidarity, especially combined with other policies such as revived antitrust enforcement, windfall profit taxes, public buffer stocks, living wages, dignified jobs for all food workers, expanded employee ownership and protection of the right to organize.

Public ownership of grocery supply chains also solves for a major gap in Bidenomics industrial policy: federal funding of supply chains that primarily went to privately owned enterprises, without major structural changes to the economy.

And in the new Trump era, when DOGE billionaires are bragging how they will cull federal agencies, public grocery stores will need significant grassroots outreach and pressure to be funded, as well as careful and thoughtful planning to be implemented. They will then need scale and ambition to be successful, learning from the military commissary system and massive club and discount stores operations, while leaning into values based procurement standards. With renewed bipartisan interest in repairing the food system in an era of overlapping crisis, there couldn’t be a better time for public sector grocery stores.

2. Trump And Grocery Prices.

“Trump told NBC's "Meet the Press" that he won the election because of immigration and the economy.

"I won on the border, and I won on groceries," he told NBC's Kristen Welker. "Very simple word, groceries. Like almost -- you know, who uses the word? I started using the word -- the groceries. When you buy apples, when you buy bacon, when you buy eggs, they would double and triple the price over a short period of time, and I won an election based on that. We're going to bring those prices way down."

In August: “When I win, I will immediately bring prices down.”

In November: “I won on groceries. A very simple word, groceries.”

And this week: "I'd like to bring them down. It's hard to bring things down once they're up. You know, it's very hard," Trump said.

Trump 47 may soon preside over higher prices in staples such as eggs, already spiking from bird flu cullings. Mass deportations of migrant workers, tariffs on imports in categories like produce, where huge percentages of avocados, tomatoes, berries and vegetables are shipped across borders, perhaps food safety chaos from mismanagement and budget cuts to regulatory agencies will also contribute to higher prices. Consumers are already hoarding goods that are expected to climb in price after his inauguration. And companies are planning to take advantage of the panic to raise prices above their of cost inflation and harvest high profits, a “sellers inflation” redux. Trump may soon look back fondly on his campaign bashing Harris' inability to lower consumer grocery prices and wonder when he started getting blamed.

And if you like Trump on grocery prices, just wait until he tackles making Americans healthy again. Donald Trump: The Grifter That Keeps on Grifting.

3. Stop the Merger Coalition Opposes Kroger’s $7.5 Billion Wall Street Giveaway

“A day after failing in its bid to merge with Albertsons (and a day after Albertsons announced a $2 billion shareholder giveaway), Kroger abruptly announced a massive giveaway to shareholders—a $7.5 billion stock buyback, $5 billion of which is slated to be paid out on an accelerated timetable. The massive shareholder payout towers above the commitments the company had promised to reduce prices for consumers and to invest in wages during the recent merger fight. Flip flopping in less than a day’s time from a strategy of aggressive growth through the Albertson’s acquisition on Tuesday to one of dramatic downsizing through shedding $7.5 billion on Wednesday should be seen for what it seems to be - an attempt to buy shareholders’ mercy through a short-term boost to the stock price in order to save CEO Rodney McMullen’s job.

“During the recent three trials to block the merger, Kroger officials repeatedly expressed concern that rising competition from Amazon, Walmart and other nontraditional retailers represented an “existential” threat to Kroger’s market share. Within hours of that merger’s failure, it appears that Mr. McMullen’s first substantive action—apart from deciding to sue Albertsons—is to fleece $7.5 billion from the company’s treasury instead of making investments that would build market share. This $7.5 billion is on top the nearly $1 billion the Company already wasted on the failed merger.

“These funds could be used to: 1) invest in lower prices for consumers, making Kroger more price competitive; 2) invest in higher wages and more staffing to reduce turnover; 3) remedy chronically empty shelves; and, 4) provide better customer service. The $7.5 billion in share buybacks announced Wednesday are approximately 10 times the value of the promised investments in price reductions the company had said it would make if the merger were approved. The Company made a similar billion-dollar commitment to invest in wages.

“What else could a competent executive do to grow market share? They could do what Amazon, Walmart, Costco and Trader Joe’s have done: build new stores. Based on an average pre-tax cost of $35 million per store, Kroger could build 280 new combination stores, hire 125,000 new employees, give each loyalty household a $158 refund or fully remodel 3,268 stores.”

So when Kroger and Albertsons announce store closures, layoffs or cost cutting, remember this. They chose to give nearly $10 billion to shareholders instead of investing in employees, store experience or lower prices. It proves beyond a shadow of a doubt what the ultimate purpose of consolidate grocery is: using the grocery business as their ATM for upwards wealth accumulation, all on the backs of customers, suppliers and their workers.

4. FTC Revives Robinson Patman Act By Suing Alcohol Distribution Monopoly.

“The Federal Trade Commission sued the largest U.S. distributor of wine and spirits—Southern Glazer’s Wine and Spirits, LLC (Southern)—alleging the company violated the Robinson-Patman Act, harming small, independent businesses by depriving them of access to discounts and rebates, and impeding their ability to compete against large national and regional chains. This loss of competition ultimately harms consumers on choice and price.

“The FTC’s complaint alleges that by selling wine and spirits to small, independent “mom and pop” businesses at prices that are drastically higher than what Southern charges large chains—with dramatic price differences that provide insurmountable advantages that far exceed any real cost efficiencies for the same bottles of wine and spirits—Southern engaged in anticompetitive and unlawful price discrimination.

“Under the Robinson-Patman Act, it is generally illegal for sellers to engage in price discrimination that harms competition by charging higher prices to disfavored retailers that purchase similar goods. The FTC’s case filed today seeks to ensure that businesses of all sizes compete on a level playing field with equivalent access to discounts and rebates, which means increased consumer choice and the ability to pass on lower prices to consumers shopping across independent retailers.

“Since at least 2018 and continuing today, Southern has repeatedly discriminated in price between disfavored independent purchasers—which include neighborhood grocery stores, local convenience stores, and independently owned wine and spirits shops—and favored large chain purchasers of wine and spirits, such as Total Wine & More, Costco, and Kroger, the FTC’s complaint states.

“Southern’s discriminatory pricing is pervasive and deeply engrained in Southern’s business strategy and is accomplished through a variety of pricing mechanisms, according to the FTC’s complaint. Southern’s lower prices for large national chains are not derived from differences in Southern’s cost of distributing products to larger retailers, nor do they reflect legitimate attempts to meet prices offered to chain retailers by competing distributors according to the FTC’s complaint. Instead, the FTC alleges that Southern has squarely violated the Robinson-Patman Act by intentionally and illegally providing steep discounts without any market justification to a specific set of retailers.

“Southern has charged significantly higher prices for sales of identical bottles of wine and spirits during the same time period to independent retailers than to competing large chains, even when they are located a few miles or even a few blocks from each other. Price differences can be significant for the same bottle of wine or spirits, which directly impacts the cost for consumers.

“Southern engages in discriminatory pricing via a variety of mechanisms, such as by offering quantity discounts and rebates to large buyers that are inaccessible to small competitors and are not justified by differences in the cost of distributing products to different retailers, the FTC’s complaint states. For example, disfavored independent retailers frequently are not informed about large quantity discounts, rebates, and other special deals available to favored chain retailers, even when it may be logistically feasible for the independent retailer to participate in the deal.

“Southern’s unlawful practices have caused independent retailers to lose sales and customers. Small, independent retail businesses are a critical component of the American economy and provide valuable alternatives to megastore chains—to the great benefit of consumers, communities, and competition…

“The FTC’s enforcement action via the Robinson-Patman Act does not prohibit quantity discounts, also known as volume discounts. Instead, under the Robinson-Patman Act, volume discounts are permitted so long as a seller can demonstrate real cost efficiencies achieved from selling goods at different quantities to purchasers. However, as the complaint alleges, Southern’s price discrimination exceeds any such cost savings permitted under the Robinson-Patman Act.”

*Boom*.

5. Tunes.

For some odd reason, in the 1990s, I slept on Gang Starr. I always liked Guru’s (RIP) approach to rhyme and lyricism in his Jazzmatazz project, but only more recently did I realize how Gang Starr had perfected street-wise, conscious hip hop on records like Hard to Earn. Bonus Trivia: each episode of Marvel’s Luke Cage Season 1 was named after a track off of Moment of Truth. But Mass Appeal, from Hard To Earn, is where it’s at.

peace.