Public Policy Issues in the Supermarket and Grocery Retail Industry

The Supermarket and Grocery Store Industry consists of retailers that are predominantly involved in the procurement and sale of a vast variety of food items, including fresh fruits and vegetables, fish, meat, milk and milk products, and other sustenance products. Chain grocery retailing was a phenomenon that took off around the beginning of the twentieth century. Natural and organic food was and continued to be a successful and growing category in the grocery industry in the early 2010s. The largest consumer of natural and organic food and beverages was the United States, which claimed more than 50 percent of the market in 2011. The European Union and Japan were also important markets.

The Supermarket and Grocery Store Industry, which falls within the NAICS code 445110, reported a combined annual revenue of $714.9 billion, largely influenced by the revenues of the leading retail industry giants vis-à-vis Tesco PLC ($101.3b), Walmart ($72.2b), Kroger ($96.5b) and the Shwarz Group ($67.8b) respectively. However, this Industry also faces significant public policy issues that are summarized in this paper.

Labeling Regulations

Issue: The FDA has proposed regulations that would regulate grocery stores under a “Nutrition Labeling of Standard Menu Items at Chain Restaurants” provision included in the Patient Protection and Affordable Care Act (PPACA). The law was initially intended to provide a uniform standard for chain restaurants with 20 or more locations to comply with various state and local menu labeling laws, none of which have regulated grocery stores. By expanding these regulations to grocery stores, FDA would impose a $1 billion initial cost on grocery stores.

Interests: End consumers and grocery store shoppers have a stake in this issue as the new labeling laws will have an impact on their purchase decisions and value perceptions with respect to nutritional facts and information. Quite obviously, organized interests will include all the major grocery retailers and supermarkets, and the FDA, on account of the economic repercussions and reputational issues they have at stake.

Institutions & Life Cycle: In the U.S, this law is currently in the formulation phase and there is a debate as to whether it would limit restaurant menu labeling regulations to establishments that primarily sell restaurant foods. And since grocery stores are not similar to restaurants in that respect, there is every possibility that they might not be regulated under restaurant menu labeling. There are a few European countries where similar laws are currently in the enforcement stage, although the specifications of the same may vary.

Food politics

 Issue: Food politics are the political aspects of the production, control, regulation, inspection, distribution and consumption of food. The politics can be affected by the ethical, cultural, medical and environmental disputes concerning proper farming, agricultural and retailing methods and regulations. Government policy now plays a significant role in the production, safety, and distribution of food. Today’s governments have the authority to regulate the storage and preparation of foods, and the enforcement of these regulations has been strongly influenced by public outcry following outbreaks of food poisoning. Due to the buying power of the large supermarket chains they can put huge demands on producers, often pushing prices artificially low, whilst still making large profits on the food themselves with some products selling at over 400% the price paid to producers. This buying power also allows supermarkets to transcend national boundaries in sourcing food. However overly stringent policies, defeat to a certain extent, the bargaining power of the retailers, eats into their profits and diminishes their ability to reap benefits of volume and price.

Interests: This problem affects all the parties involved right from the supply to the purchase of food products as well as the government’s regulatory authority. Therefore, suppliers such as local producers, farmers, transportation agencies, and the supermarkets themselves are impacted.

Institutions & Life Cycle: Food politics is an ongoing problem across the world and is at varying stages on the life-cycle in different countries. In many cases, corruption plays a big role in determining the nature of these regulations. 

Abuses of buyer power

Issue: Consumers are the final link in food supply chains which are increasingly international. The processes and dynamics operating along such chains affect consumers in both positive and negative ways. Over at least 30 years, supermarkets in developed economies round the world have acquired an increasing share of grocery markets, and in doing so, have increased their influence over suppliers – what food is grown and how it is processed and packaged – with impacts reaching deep into the lives and livelihoods of farmers and workers worldwide. At national level in many countries, a large share of the grocery market is frequently in the hands of only a handful of supermarkets. One of the consequences of this concentration is a growing imbalance of bargaining power within food supply chains. Major Supermarket chains play a key role in shaping consumer demand and because of the power they wield in the marketplace, they have a strong influence over what consumers buy. Supermarkets can be seen as gatekeepers rather than passive transmitters of consumers’ wishes, and their gate-keeping role can work to the detriment of consumers and suppliers alike.

Interests: Consumers, suppliers, the supermarkets and consumer organizations are the affected parties in this case, with interests in this issue.

Institutions & Issue Life Cycle: With a mandate to inform consumers and act in their interests, consumer organizations have a vital role to play in preventing the negative effects of buyer power. Although at present there are several seemingly potent legal hurdles established to keep this problem in control, the sheer financial and influential prowess of giant supermarket chains is fairly capable to exploit potential shortcomings in the system. Effective measures to curtail unfair B2B commercial practices and the resulting detriments to small-scale producers and consumers are urgently needed, and remain an ongoing concern with a dynamic life cycle.

Conclusion

The Supermarket and Grocery Store Industry is experiencing the following three public policy issues at present: Labeling Regulations, food politics and abuses of buyer power. End consumers & shoppers, farmers, consumer organizations, transportation agencies, suppliers, and legal regulatory & government organizations cumulatively comprise of the interest groups, with respect to these broader issues. While all these issues exist at different stages in their respective life-cycles, it is reasonable to infer that some of them can be effectively resolved faster and easier than others. However, several aspects of the larger issues such as food politics and abuses of buyer power continue to be heavily complicated and the processes needed to resolve them, increasingly labyrinthine.