After the Marathon

In the postwar shift in U.S. grocery shopping from small corner stores to giant supermarkets, no chain grew more aggressively than Chicago-based National Tea Co. From its position as a middle-sized Midwestern chain in the 1940s, National spread south as far as New Orleans and west to Denver, absorbed 22 smaller chains with 485 stores in 16 states. The acquisitions helped double sales, made National stores the fifth largest U.S. grocery chain, with $1.2 billion sales last year from 941 stores. Last week, after a marathon investigation, the Federal Trade Commission voted 4-1 that National, between 1951 and 1958, had expanded in a way that substantially lessened competition, and was therefore in violation of the Clayton Act. The FTC allowed National to retain the 485 stores in question, but barred any further acquisitions for ten years without FTC approval.

Broad & Debatable. The decision is one of the broadest-and most debatable-ever made with regard to antitrust laws. The FTC has long worried about the increasing concentration in the food-merchandising industry. In earlier decisions it ordered three of the largest U.S. dairy chains, Foremost, Borden and Beatrice, to divest themselves of small companies they had acquired. It recently ordered Grand Union Stores to get rid of nine stores, and Consolidated Foods to spin off three chains as well as a dairy and a bakery; it is still investigating the Kroger Co. for 42 chain-store acquisitions dating all the way back to 1928. The Great Atlantic & Pacific Tea Co., by far the largest food chain, twelve years ago signed a consent decree ending buying practices that had led to extensive investigation and Justice Department antitrust charges, but second-ranked Safeway is so far untouched.

In the National case, 449 of the stores were in "new market" areas where National had never operated before. For the first time, the FTC penalized a company on grounds not of local restraint of trade but of antitrust violations resulting from "national concentration." The FTC's majority reasoning was largely based on local pricing variations within National's network. In areas where National's share of the market was high, so was the markup on prices; conversely, in more competitive areas, prices were lower. In Denver, for instance, where National had acquired 64.1% of the market, the average markup was 18% of the cost of the product; in Memphis, where National had only 24.1% of the market, the markup was 14.5%. The FTC charged that the stores in Denver, whose annual profits reached $1,600,000, were subsidizing stores in Memphis whose annual loss was $1,150,000.

Scrutiny & Dilemma. National has 60 days to study and answer the 2,200-page case record, will almost certainly appeal FTC's ruling to federal courts. Also studying it are other big grocery chains, which are now faced with a dilemma. Small chains and independent stores have revived so much that since 1958 giant chains have gained only .3% of the U.S. food market. Moving to meet such competition by opening new stores, the giants from now on will have to keep one eye on the business, the other on the FTC.

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