NGA delivers plea for help with labor, trucking shortage and retail concentration

( Photo courtesy By rmpublishing; Source pixabay)

Putting trucking issues and concerns about retail concentration in the crosshairs, the extraordinary transportation and labor pressures on the food supply chain were the focus of an hours-long House Agriculture Committee hearing on Nov. 3.

The hybrid in-person and virtual hearing was directed by House Agriculture Chairman David Scott, D-Ga.

Beside trucking and container ship shortages, the hearing also touched on vaccine mandates, the problem of retail market concentration and infrastructure issues. quote 1

Labor, trucking issues and retail concentration were addressed by Greg Ferrara, president and CEO of the National Grocers Association.

According to NGA survey data, he said more than 93% of independent grocers reported additional pay and bonuses to their workers in recognition of their service during the pandemic. 

However, Ferrara said the NGA was disappointed that Congress did not also step up and recognize frontline workers for their service to the country in any of the economic rescue packages passed in 2020 and early 2021. 

“Inadequate labor availability has become the single greatest challenge to the entire food supply chain,” he said. “As the pandemic has worn on, grocers and wholesalers have increasingly struggled to fill open positions throughout grocery operations, including warehouse workers, truck drivers, stockers, clerks, and the higher-skilled positions around the store perimeter, like butchers, chefs, bakers, and deli managers.”
Ferrara said NGA survey data finds that 85% of independents are increasing wages and making overtime hours available to their workforce. Quote 2

In addition, many independent retailers are instituting one-time signing and referral bonuses for new workers.

Despite all these efforts, independent retailers still face the most difficult staffing environments in memory and the “shortfall has a compounding effect,” he said. What’s more, he said the continuous and sustained high levels of consumer demand add pressure to the existing workforce.

Ferrara said the bottom line is that the independent retail workforce is “exhausted.”

NGA is urging policymakers to develop and implement vocational training and hiring programs that offer a pathway into the grocery industry, he said. 

While the NGA strongly supports the use of vaccines to stop the spread of COVID-19, the group also is concerned about the potential unintended consequences of the business vaccine mandate, he said. That mandate, from the Occupational Safety and Health Administration, is expected to be released soon in the form of an Emergency Temporary Standard (ETS). 

 “We encourage Congress and the administration to consider providing the food sector with flexibility in vaccinating our workforce. We hope that any ETS will mitigate any potential disruptions to the food supply that would occur should it place a significant burden on employers. The last thing we need is a worsening workforce crisis as the existing labor force works in overdrive to feed the American people.”

Trucks short

Quote 3The limits on freight capacity also are weighing on independent grocers, he said. 

“America is still short by more than 100,000 truck drivers and the problem is only getting worse,” he said. 

Ferrara said the retail industry has been heavily impacted by the ongoing truck driver shortage, which has only worsened during the COVID-19 pandemic. Freight costs have increased dramatically since March 2020, he said, with some NGA members reporting increases in costs up to five times higher than pre-pandemic levels.

In addition to higher freight costs, he said NGA members are also experiencing much lower inbound service levels of goods than pre-pandemic norms. Some members are reporting aggregate service levels as low as 60% compared to the high 90s before March 2020.

“A number of retailers and wholesalers are also reporting late deliveries that miss critical stocking windows, leaving some shelf space empty for longer periods than anticipated,” he said.

To increase transportation efficiency and capacity, he said NGA recommends adoption of policies that would mitigate the ongoing truck driver shortage, such as removing the commercial driver’s license (CDL) restriction on drivers age 18-20 from transporting across state lines. 

“Currently 49 states allow 18-year-olds to obtain a CDL, but federal law prohibits them from interstate delivery,” he said. 
NGA supports the Bipartisan Infrastructure Framework’s inclusion of the DRIVE SAFE Act in the legislation and continued flexibility in the Federal Motor Carrier Safety Administration hours of service regulations, he said.

Market concentration danger

Finally, Ferrara said market concentration is worsening product shortages by “depriving the market of much needed redundancies and driving unfair distributions of products in short supply.” 

“Retail concentration enables dominant retailers to use their immense economic power to pressure suppliers into prioritizing their shipments over other retail customers, thus harming independent retailers and their largely rural and urban customer base,” he said.

While shortages and limited availability of critical inputs and supplies affect everyone, the impact of these shortages are felt disproportionately by independent grocers and smaller players in the market, he said.

“Inconsistent distribution and apparent shortages of consumer goods has made it more difficult for customers of independent grocery stores to obtain high-demand products because we compete against dominant players with immense economic power that can wield tremendous influence over their suppliers,” Ferrara said.  Quote 4

Today, 65% of grocery shelf-space in America is controlled by five grocery retailers, he said. These “power buyers” have taken advantage of supply chain crunches to entrench their economic power at the expense of smaller competitors and producers, he said. 

In addition to supply inequities, independent grocers are experiencing unprecedented levels of price discrimination, he said. 

“Our largest competitors use their influence to maintain favorable wholesale pricing as independents experience a retreat of promotional trade spending, a critical marketing tool that allows independent grocers to compete on price.” 

A consolidated food marketplace, he said, is a system that “benefits a select few” at the expense of everyone else, including consumers, workers, and independent retailers and suppliers. 

According to the U.S. Census Bureau, in the past 25 years, grocery storefronts have shrunk by a third. Fifteen of the top 20 grocers in the 1980s either merged or were acquired by the 2000s. During this time independent grocers lost ground in many rural and urban areas where food deserts now exist, he said.

 

Walmart’s unfair clout

Ferrara called out Walmart and dollar stores in particular in his written testimony.

“The paradigmatic example for this one-sided bargaining dynamic is Walmart,” he said. 

“Its ability to unilaterally demand concessions from suppliers is legendary,” he said.

For example, in 2017, he said that Walmart announced a new requirement that suppliers for its stores and e-commerce business must provide on-time-and-in-full deliveries 75% of the time. 

Since then, Ferrara said Walmart has repeatedly tightened this requirement, raising the bar for on-time-in-full deliveries from 75% to 85% and then to 87% in 2019. In September 2020, while manufacturers and suppliers throughout supply chains were struggling to safely meet demand during the COVID-19 pandemic, Walmart raised the bar again, demanding 98% on-time-in-full deliveries. 

Walmart penalizes suppliers that fail to meet its demands by charging a penalty of 3% of the cost of goods sold, what Ferrara calls a “devastating penalty in an industry already operating with razor-thin margins.”

In addition, the proliferation of dollar stores in rural areas has created “economic discrimination,” he said.

“We call this brand of economic discrimination packaging discrimination” (i.e., refusing to provide certain package sizes or promotional packaging to certain grocers, while providing them to competing retailers), he said. 

“The dollar stores use their buyer power to demand ‘cheater size’ products, which include smaller amounts in a package that can be sold at a lower price. These ‘cheater packs’ create a false impression among consumers that they are paying a lower price for the same product they see at independent grocers. This provides dollar stores an unfair edge over traditional grocery stores who offer a greater assortment of healthy and nutritious foods,” he said. 

“In fact, it is often the case that dollar stores perform the bare minimum depth-of-stock and perishability requirements necessary to be authorized for a SNAP license.”

Proliferation of dollar stores throughout rural and urban America has not only pushed countless independent grocery stores out of business but is also contributing to food deserts and healthy food access challenges, Ferrara said.

Current antitrust enforcement efforts have failed to address these anticompetitive harms, he said. 

“That is why NGA is a founding member of a coalition that launched last week known as the Main Street Competition Coalition,” he said. 

The coalition is comprised of Main Street business groups and agriculture producers that are committed to promoting competition and reviving and reforming the Robinson-Patman Act, Ferrara said. 

“The coalition is not only concerned about anticompetitive economic discrimination in the food sector, but in other industries as well, including alcohol, convenience stores, pharmacies, restaurants, and in the shipping industry,” he said.

 

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