Strategic Movements: June 2020

Meat Packers and US Antitrust

The Justice Department has issued civil subpoenas to JBS, Tyson, Cargill, and National Beef Packing regarding beef packing purchasing and selling information. The Federal Justice Department and various state Attorneys General are concerned regarding recent buying and selling practices. From March through the end of May, the value of processed beef jumped 76% while the price paid for cattle dropped by about 8%. Is this pricing dynamic surprising when meatpackers work in a concentrated industry (73% of the processing capacity is held by these four meatpackers alone) and the meatpackers’ process capacity has been reduced due to coronavirus-related closings and demand-shifts from restaurants to grocers?  I think not.  Expect headaches but little legal action.

Chicken Price Fixing

Pilgrim’s Pride and Claxton Poultry Farms are caught in a price fixing scandal while Tyson Foods is cooperating with the Justice Department. Tyson approached the Justice Department, disclosed their actions, and sought leniency.  Allegations include issues of phone calls and text messages between salespeople at the chicken producers while they were negotiating major supply deals with restaurants and grocers. Statements like “Who is they? If they is illegal, don’t tell me,” from Jayson Penn, DEO of Pilgrim’s Pride, don’t look good.  This will be costly for some of these chicken providers.

CPP for Pricing Ethics?

Tyson and Cargill often attend the Professional Pricing Society (#PPS) conferences and have many Certified Pricing Professionals (#CPP) among their numbers.  To the best of my knowledge, Pilgrim’s Pride and Claxton Poultry Farms do not place corporate emphasis on interacting with PPS or encouraging that their employees pursue the professional designation. Maybe the PPS and CPP designation are good for more than improving pricing; they also appear to be good at discouraging illegal and unethical behavior. But my sample size might be too small to prove this.

UPS and FedEx: Parallelism is not Price Collusion

On May 28, UPS added peak delivery surcharges to manage e-Commerce demand during the coronavirus pandemic.  On June 4, FedEx added coronavirus-related surcharges as well. Parallelism in pricing is not proof of price collusion. UPS and FedEx both announced their price moves publicly, informing customers and shareholders of the moves. Unlike say a hypothetical private conversation between salespeople at Pilgrim’s Price and Claxton, which is illegal, an open notification to customers and shareholders of price moves is both legal and considered necessary, even though a competitor might gain the information as well.

Amazon and EU Antitrust

Margrethe Vestager, the European Commissioner of the European Union, is leading an antitrust effort against Amazon. What did Amazon do to gain her ire? They sold competitor’s offerings on their website, made copy-cat products, and then sold these generics at a lower price. Sounds like an action a typical grocer or retailer would take in the US. BUT: the EU is not the US and few retailers have as much market power as Amazon. In the best-case scenario for businesses, this will be expensive. In a worst-case scenario for businesses, it could signify the beginning of techlash.