Concentration Of Ownership In Food Retailing: A Review Of The Evidence About Consumer Impact

Increased concentration in ownership of retail and wholesale food companies in the United States naturally leads to the question "How does concentration of ownership affect consumers?" Does it lead to higher or lower food prices, better or worse service, more or less choice between stores and among products, and more or less employment and earning opportunities in the food sector? Since the early 1980's the percent of total sales captured by the top four supermarket chains have gone from 18 to 22 percent; food prices decreased, food expenditures relative to income and employment and earnings have all fallen modestly. Choice and service are harder to measure. Competition at the local level appears to be alive and well since numerous types of food retailers offer attractive substitutes for food purchased in a grocery store. The relationship between concentration, prices and profits has been studied and examined for several decades using various economic and business theories and several sources of data. These studies speak to the overall behavior and performance of the industry and provide a perspective on the consolidation and shifts in power that appear to be taking place. The results of many of these studies are summarized in this paper. Findings focus on two major questions: 1) Does the concentration of retail food firms in local markets increase food prices and firms' profits? 2) Has the retail sector become relatively more profitable and, thus, more powerful than the manufacturing sector? The results are mixed, especially with regard to price. Concentration tends to be associated with both increased and decreased prices. Recent work indicates prices tend to increase in dry grocery items, but not in fresh and chilled foods. And, concentration at the wholesale level may lower food prices. Profits of the parent company generally rise with concentration, but the reason is unclear. Most studies conclude it is due to lower costs made possible by economies of scale in procurement or vertical coordination with suppliers and better use of information technology. There was no evidence that retailers' profits are increasing faster than food manufacturers' profits.