Revelations from FTC’s Unsealed Pepsi Case and Instacart Pricing Investigation

Two bombshell investigations reveal new details about food retailers’ underhanded pricing tactics. As consumers continue to struggle with rising food prices, an unsealed antitrust suit involving Walmart and Pepsi and a report on Instacart’s algorithmic pricing model demonstrate the ways large food corporations charge different prices to different consumers.

Pepsi Maintained a “Price Gap” for Walmart, According to Unsealed FTC Lawsuit

Grocery stores have long complained that suppliers unfairly charge them a higher price for the same products compared to Walmart. The grocery Goliath’s defenders contend that it posts the lowest prices because it’s especially efficient. But a recently unsealed lawsuit reveals how Walmart pressured one of the largest food and beverage corporations, Pepsi, to ensure a “price gap” between Walmart and its competitors.

The Federal Trade Commission sued Pepsi for offering special prices and marketing deals to Walmart that competing grocery chains could not access, violating the Robinson-Patman Act. Pepsi hired a high-profile antitrust lobbyist in early 2024 and, not long after, Trump’s FTC withdrew the case just before key details about it could be made public. The all-Republican commission claimed that the outgoing Biden administration rushed to file a weak case. The Institute for Local Self-Reliance motioned to unseal the suit and make its full allegations public: last week, they succeeded.

It’s clear why Biden’s FTC tried to bring this suit and why Pepsi fought to kill it. The complaint reveals that Pepsi and Walmart closely coordinate to ensure that Walmart always has the lowest price on Pepsi products. The complaint says, “Pepsi continually monitors Walmart’s retail price gap on Pepsi soft drinks as compared with the rest of the market and shares that information with Walmart,” providing a regular “Price Gap report.” This monitoring was allegedly frequent and highly detailed, tracking the Walmart price gap across different regions and retailers. Pepsi executives wrote in an e-mail that Walmart will “pressure [Pepsi] for actions” if the price gap gets too small. Pepsi complies because Walmart is by far its largest customer, so large that in Pepsi’s investor reports it must disclose that the risk of losing Walmart sales “would have a material adverse effect” on its business.

To keep Walmart happy, Pepsi went so far as to target grocery stores that put Pepsi products on sale, either by charging them more, pulling their marketing deals, or fast tracking more marketing money to Walmart. For instance, Pepsi singled out the chain Food Lion for trying to compete on price with Walmart and put together a plan to raise prices charged to Food Lion and cut back on their promo deals. The complaint also alleges that in 2019, Pepsi increased wholesale prices on some products for all customers except Walmart.

All in all, the FTC alleged that “Pepsi’s actions have had the effect of raising prices for customers of competing retailers by increasing costs and prices for those retailers.” This hurt consumers who do not shop at Walmart and unfairly disadvantaged Walmart’s competitors.

A few days after the suit was unsealed, a group of consumers accused Pepsi and Walmart of conspiring to raise prices together. They argue that Pepsi’s preferential pricing agreement with Walmart restricted competition, drove Walmart’s competitors out of the market, and illegally raised prices for Pepsi products. Whereas the FTC’s suit alleged Pepsi violated the Robinson-Patman Act, this private class-action suit alleges that both Pepsi and Walmart violated Sherman Antitrust Act prohibitions against price-fixing and exchanging competitively sensitive information.

Investigation Shows Instacart Offered Different Prices to Different Shoppers

Grocery stores change their prices constantly, but a new investigation reveals that they also charge different people different prices, at least when shopping on Instacart. Groundwork Collaborative, Consumer Reports, and More Perfect Union asked 437 people to log onto Instacart at the same time, begin an order from the same grocery store, select the same products, and record the prices offered. They found that prices for most products varied considerably.

Instacart showed different shoppers as many as five different prices on nearly three-quarters (74%) of the studied products. The average difference between the highest and lowest price offered was 13%, with some shoppers paying as much as 23% more for the exact same item at the exact same time as someone else. For example, more than half of test shoppers in St. Paul, Minnesota, got charged $5.99 for Quaker Oats, while about a third paid $6.69. Egg prices ranged from $3.99 to $4.79 at the same D.C. Safeway. Overall, shoppers’ total basket cost varied by an average of 7%, which can be the difference between a family of four saving or spending an extra $1,200 a year.

Corporations may use our digital data trails to offer personalized prices, through what some have deemed “surveillance pricing.” In this instance, researchers found no evidence that Instacart offered different people different prices based on their demographics (such as age, gender, or race). Rather, they posit that Instacart and the retailers it works with are running pricing experiments to see how much different groups of customers are willing to pay for a given product, using AI-pricing software created by a company that Instacart acquired in 2021, Eversight.

Instacart confirmed that grocery stores do run pricing tests on its platform and claimed that price test cohorts are randomly assigned. Instacart also said that only 10 grocery stores participate in these pricing tests and that they are “limited, short-term, and randomized.” Though the company did note that food manufacturers may use personal behavioral data to target shoppers with promotions (placing ads and product promotions for big food companies is an increasingly important profit center for Instacart).

The report argues that if every person in the checkout aisle paid a slightly different price for the same box of cereal, it’d cause an uproar. But shoppers don’t know that they’re paying a different price online. The rise of opaque, algorithmic price setting introduces many ways that ordering platforms, food manufacturers, and grocery stores can exploit shoppers and extract as much profit from them as possible. The report advocates for prohibitions on surveillance pricing and algorithmic price setting, which have been introduced in several states and in Congress. The Federal Trade Commission could also ban surveillance pricing as an unfair method of competition.

What We’re Reading

Four years after forming their first union, Starbucks workers still do not have a contract. Workers from over 145 stores have been on an open-ended strike since mid-November, most recently taking their “Red Cup Rebellion” protest to Starbucks corporate HQ. (CNN/Newsweek)

Data-sharing company Agri Stats is at the center of several meat price-fixing lawsuits. The Lever breaks down Agri Stats’s history and the current state of meat antitrust litigation. (The Lever)

Polling shows nearly two-thirds of Americans are stressed about holiday prices, including rising food prices. Prices for holiday food staples continue to rise above the rate of general inflation, reports find. (Forbes)