Consolidation's effect on food choices, costs is debated

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Posted: Thursday, December 12, 2013 12:00 am

Food industry acquisitions such as ConAgra Foods’ 2012 purchase of private-label manufacturer Ralcorp are driving up the cost of groceries and leaving consumers in the dark about the source of their food, asserts a new report from a consumer advocacy group.

The Grocery Manufacturers Association trade group, which includes ConAgra, disputes that, saying Americans spend less of their income on groceries than people in many other countries, and food manufacturers’ innovations are increasing consumers’ food choices.

In the report, the Food & Water Watch advocacy group examined 100 types of grocery products and found a high level of concentration. In a third of the categories, four or fewer companies controlled at least 75percent of sales.

Even among comparable products, Food & Water Watch said, consumers may not realize that when they are making a choice, several of those products are made by the same manufacturer.

For example, ConAgra makes three brands of margarine: Blue Bonnet, Parkay and Fleischmann’s; competitor Unilever makes five brands. The report also pointed out ConAgra’s multiple brands of popcorn, including Orville Redenbacher’s, Jiffy Pop and Act II, and multiple brands of frozen microwaveable dinners.

ConAgra declined to comment about the report.

It is also not obvious to consumers that some products positioned as more healthful are sold by firms that also make less healthful competitors; for example, Kashi cereal is made by Kellogg’s, better known for Frosted Flakes and Froot Loops.

“The largest mega-retailers and manufacturers control more of what we eat than you thought,” said Wenonah Hauter, executive director of Food & Water Watch.

The lack of choice extends to supermarket ownership itself, the advocacy group said, with Walmart, Kroger, Target and Safeway together controlling more than half of U.S. grocery sales in 2012.

Food & Water Watch called on the Federal Trade Commission to investigate the level of consolidation and reject future mergers that increase consolidation at the supermarket, including the pending $2.5 billion Kroger acquisition of Harris Teeter, a North Carolina chain of grocery stores.

Grocery industry analyst Jeffrey Cohen of IBISWorld market research firm said the grocery industry is “medium- to highly concentrated,” when Walmart, Target and Costco are included on top of major supermarket chains Safeway and Kroger, which operates Omaha’s Baker’s stores.

In the past five years, the number of individual grocery stores in the country declined at a rate of 2.1 percent a year, he said. Major chains have consolidated amid merger and acquisition activity, while smaller stores and chains are exiting the market, unable to compete in an industry with low profit margins.

“We have seen a pretty rapid consolidation within the industry,” he said.

He agreed that mergers can result in higher prices and said that other factors are also at work, like weather patterns and inflation resulting from the economic recovery.

“As there are less grocery stores in the industry, and as the bigger grocery stores just capture more market share and expand their profit margins even further, that does come at the expense of slightly higher food prices and also a more stinted selection of food items,” he said.

The Grocery Manufacturers Association did not dispute that major manufacturers control a large share of grocery brands, but said that the number of products available is growing and improving.

“Americans have access to more safe, nutritious and affordable food than ever before because of our strong commitment to meeting consumer needs and our commitment to creating the world’s most efficient and effective global supply chain,” spokesman Brian Kennedy said. “That is why consumers have access to over 40,000 items in the average grocery store and why Americans now spend less than 6 percent of their income on food, less than any other country in the world.”

He said manufacturers “will continue to innovate, to expand the number of choices for consumers and to provide consumers with an abundance of safe, nutritious and affordable food choices.”

Food & Water Watch said the consolidation is making it harder for small food manufacturers to gain shelf space at groceries, but that hasn’t been the case for many Nebraska food entrepreneurs, said Jill Gifford, manager of the Food Processing Center at the University of Nebraska-Lincoln, which helps food manufacturing startups get their products to market.

“None of the companies have indicated to me issues with consolidation,” Gifford said. “Because consumers are demanding more locally produced products, most of the grocery stores in our region are very receptive to including products from small local companies.”

Betsy Ashman, co-owner of the Firth, Neb., company that makes Sorriso’s Gourmet Pasta Sauce, said it has been harder to break into a bigger chain like Kroger or Walmart. Baker’s finally was convinced, she said, when the product grew popular enough at other stores that managers saw they were losing business by not carrying it.

She said smaller supermarket chains such as Hy-Vee, Super Saver, Whole Foods, Russ’s Market and Wohlner’s have been quicker to carry her sauces. Russ’s Market promoted Sorriso’s and other local products with big posters in the store showing the local people who make the products.

“A lot of people like that it’s local,” she said.

That doesn’t mean it’s easy for a small manufacturer to sell its products in a supermarket, even a receptive local grocery chain. Ashman’s firm has to persuade individual store managers to carry its products, stock shelves itself or pay a slotting fee, and host its own product demonstrations.

“It’s perseverance, in one word, because you get knocked down a lot,” she said.

Food & Water Watch said grocery marketing practices “cement the dominance of the largest companies at the expense of the innovation and local food companies.”

In a highly competitive industry, size has a benefit to consumers, said Sheila Lowrie, spokeswoman for Kroger- owned Baker’s.

For 10 years running, the chain has been able to reduce prices on a core list of grocery staples including dry goods, produce, meats and natural foods, she said. Higher profit margins also mean the chain can invest in technologies like its mobile app and can remodel stores, including a renovation now underway at its 120th Street and West Center Road store.

“We have the ability to leverage our size to help benefit our customers,” she said.

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