Who’s to blame? AG Tong’s price gouging investigations spur criticism

Connecticut Attorney General William Tong announced in April that his office would investigate potential Connecticut grocery store price gouging following a Federal Trade Commission (FTC) report into COVID-era supply chain disruptions that found grocery store prices remained elevated even as the pandemic ended and inflation cooled.

The FTC’s report examined three major grocery chains – Walmart, Kroger, and Amazon – along with wholesalers and producers and determined that revenues and profits continued to rise after the 2020-2021 pandemic during which supply chains were disrupted.

“This profit trend casts doubt on assertions that rising prices at the grocery store are simply moving in lockstep with retailers’ own rising costs,” the FTC wrote, adding that examining the cause of rising profits was beyond the scope of the study, but that it warranted further inquiry.

Tong was joined by Democrat Senate Leaders Martin Looney, D-New Haven, and Bob Duff, D-Norwalk, at a press conference announcing the inquiry.

“Every time I go to the grocery store, it seems the price increases,” Duff, who sparked the inquiry, said. “The FTC notes in its report that publicly available data suggests that the increase of grocery prices is due to store increasing revenue, not inflation.”

“We’re now looking at a case of the crisis caused by the pandemic and the supply chain issues of course caused some increase in prices across a broad range of things, but there seems to be some indication that the price of groceries stayed artificially high,” Looney said, calling it “corporate opportunism.”

“We really want to find out whether there is any price gouging going on here in Connecticut, particularly at our supermarkets,” Tong said, adding that under Connecticut law, he can only look at retailers, rather than producers or processors.

Grocery prices in Connecticut have remained higher than in the rest of the United States, with Connecticut ranked 7 ^th by Consumer Affairs for seeing the highest rise in grocery prices over the last year. Despite inflation cooling over the last two years, it remains a political hot-button topic on the national level with polls showing it is one of – if not the biggest – concern for voters heading into the 2024 election.

But Wayne Pesce, president of the Connecticut Food Association, which represents grocery stores in Connecticut, says the rise in food prices “is complex and requires the expertise of a microeconomist not elected politicians,” and that the prices reflect not only inflation but increases in transportation, energy, labor, and operational costs, and he questioned the motivations behind the inquiry.

“Suggesting that retail prices begin and end at the checkout register, and accusing food retailers of price gouging, is disingenuous at best,” Pesce said in an email. “Grocery outlets furiously compete for customers and, more than anybody, are aware that today’s pricing environment is unprecedented in scope and negatively impacts their customers.”

“Unfortunately, a minority of Democratic legislators are focused solely on local food retailers who strive to keep their prices in check,” Pesce continued. “Will the AG’s office investigate the oil, utilities, healthcare, automotive, construction, and banking industries – or is this a national campaign talking point that’s landed in Connecticut for political gain?”

Republican leaders in the General Assembly, like Senators Stephen Harding, R-Brookfield, and Heather Somers, R-Groton, issued a statement highlighting Connecticut’s increased minimum wage and highway use tax on trucks as contributing to the increased food prices. “Democrat-supported policies have repeatedly driven up the cost of everything in Connecticut,” Harding and Somers said.

This is not the first time, however, that the Attorney General’s Office has investigated price gouging by retailers in the recent past, although the circumstances are different.

Rather than an inquiry initiated by politicians, rapidly rising gasoline prices in 2022 – sparked by the War in Ukraine – automatically triggered additional consumer protections due to rapid price volatility, prompting the AG’s Office to investigate price gouging complaints by consumers and file enforcement actions. Tong encouraged the public to report to his office “if you see anyone charging excessive prices.”

The AG’s Office received 320 consumer complaints regarding gas prices and the gas tax holiday, during which lawmakers suspended Connecticut’s normal 25 cent gasoline tax to bring some relief at the pump. Of those complaints, the AG’s office initiated 12 gas tax investigations and 93 price gouging investigations.

In the end, the AG’s Office filed enforcement actions against three companies – two of which were for issues related to the gas tax holiday. One retailer, Reeha LLC of Litchfield, did not lower their price in accordance with the gas tax holiday for ten days and paid $2,400 for the violation. The other gas tax issue was for Nunes Auto in Bridgeport, according to a press release at the time, leaving one business on the hook for price gouging.

While the press release indicated that the remaining 102 investigations were ongoing, the Office of the Attorney General said in an email that there have been no further enforcement actions since then.

Michael Fox, executive director of the Gasoline & Automotive Dealers of America, says he was frustrated at Tong’s announcement of price gouging investigations in 2022 – he’d received no notice from the attorney general prior to the press conference — and he’s not surprised there were few results.

Like Pesce, Fox says that the price at the pump is based on a confluence of factors: credit card fees, zone pricing, transporting the gasoline, labor costs, whether the gasoline retailer owns the property, and most notably the larger gasoline suppliers who set the price of gasoline with the actual retailer having no say in the matter.

“It’s because it’s true, but truth isn’t always the best defense,” Fox said.

“That’s the problem with the gas gouging word and the way he’s using it with grocery stores. There’s a ton of factors,” Fox said. “I don’t think there was one [gasoline retailer] who was charged and went to a trial and found guilty of gouging, not one. People may have signed a non-admission of guilt because it’s cheaper than fighting, and the attorney general’s office gets what they think they want.”

But one crucial point outlined by Duff and Looney during the press conference is out of Tong’s grasp – namely, that food processing and production are now controlled by only a few companies which can not only create bottlenecks in the supply chain but also potentially drive up food prices due to lack of competition and, allegedly, price gouging.

To that end, Democrats sought to expand Tong’s powers to investigate beyond the retail level in an amendment to Senate Bill 3. The amendment, which mirrored past efforts, would have expanded the definition of “vendor” to include distributors, manufacturers, retailers, suppliers, or wholesalers doing business in Connecticut, but it did not pass, getting held up in the House.

Fox fully supports expanding legislation so the AG’s office can investigate companies farther down the supply chain.

“They need to be able to go back to the distributors and see if they are overcharging us,” Fox said. “All of the current gouging legislation is based on a retailer, same as the grocery stores, not the wholesaler. He has to be able to start at the beginning of the chain, not the end.”

“Do I think we have to go after the real gougers? Yes,” Fox continued. “Stop using the people who aren’t the gougers to get a political windfall. Tong and Duff just seem to be touting the party line. I hate to say that, that’s just being honest.”

But Looney says that the latest inquiry into grocery stores is different from those like the gas stations which were born of crisis moments when the market is ripe for gouging.

“We’re looking at a different kind of profiteering and price gouging here. Our other law dealt with a situation that was of limited duration and either products or services that became crisis points because of a particular crisis,” Looney said, referencing claims of price gouging for dry ice and electric generators in the wake of severe storms. “What we’re talking about here is something much more pervasive, much more sophisticated; if the pandemic and supply chain issues are being used as a cover for a longer term rise in prices beyond what is being justified.”

“Connecticut’s grocers worked tirelessly throughout the pandemic, ensuring communities had access to essential supplies despite unprecedented challenges,” Pesce said. “Singling out independent and chain grocery retailers for rising food prices is like trying to shoot a single bird with a shotgun – it scatters blame widely and indiscriminately, missing the real target, causing reputational damage to these businesses not easily undone.”

“We will not stand idly by while corporate greed manipulates a public emergency for their own profit,” Duff said. “It is estimated that 50 percent of inflation is caused by price gouging.”

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