Mister Piggly Wiggly Gets Sued

It's a long and winding road that started in 1916 on Jefferson Street in Memphis, where a certain go-getter named Clarence Saunders opened a store with the purposefully mysterious name "Piggly Wiggly."

Saunders got rich the old-fashioned way -- by thinking up something his competitors in the retail grocery business hadn't -- the idea that grocery customers did not have to be waited on but could pick items off shelves, put them in carts and pay for them at the front of the store. Thus the supermarket was born and the Piggly Wiggly supermarket chain was launched -- not through cheating but through innovation.

Of course Saunders eventually got poor the old fashioned way as well, by losing his fortune, and control of Piggly Wiggly, in the stock market depredations that ultimately led to the big crash in 1929. Today Piggly Wiggly is a franchise operation that is part of C&S Wholesale Grocers, based in Keene, New Hampshire.

One wonders what Saunders would think of the complaint filed against C&S on June 19 in New Hampshire's federal district court. It is a class action lawsuit, alleging violation of federal antitrust law, against both C&S and another wholesaler, Supervalu. The plaintiff is a Boston-based retailer of fancy grocery items, DeLuca's.

The 16-page complaint tells a straightforward story.

C&S is the dominant grocery wholesaler in New England. Supervalu is likewise the big player in the midwest -- Illinois, Indiana, Iowa, Michigan, Minnesota, Ohio and Wisconsin. According to the complaint, the two wholesalers invaded each other's territory -- Supervalu by acquiring a company in 1994 with warehouses in Maine, Massachusetts and Rhode Island (Sweet Life Foods) and C&S by purchasing the assets in 2003 of a bankrupt midwestern wholesaler (Fleming).

That, of course, is good old-fashioned market capitalism. But what allegedly happened next is not. According to paragraph 37 of the complaint, just after Supervalu bought the Fleming assets "Supervalu and C&S entered into an Agreement to refrain from competing against each other by allocating markets and customers. They agreed that Supervalu would exit New England in return for C&S's agreement not to enter the Midwest."

Here's paragraph 39 of the complaint in its entirety: "Supervalu and C&S concealed the nature of their Agreement by publicly referring to it as an 'asset swap.' However, rather than swapping assets to facilitate competition, C&S immediately closed the three Midwest distribution facilities that C&S had purchased from Fleming and terminated 1,000 employees. In addition, shortly after the Agreement was consummated, C&S closed the three New England distribution facilities owned previously by Supervalu and terminated over 1,000 employees."

Astute consumers of grocery items in New England will note that Supervalu isn't just a wholesaler with a looming presence elsewhere -- in 2007, it became the owner of the Shaw's and Star Markets retail grocery chains. According to the complaint, C&S nevertheless continues to be the primary wholesale distributor for Shaw's and Star Markets.

There are two important points to be made here.

First, there is a difference between alleging things in a complaint and proving them. Presumably, C&S and its co-defendant Supervalu will mount a vigorous fight and deny every allegation in the complaint. Section 1 of the Sherman Antitrust Act makes it illegal to engage in a combination or conspiracy in restraint of trade -- but you gotta prove it happened.

Second, regardless of whether the allegations in the complaint are ultimately proven, the lawsuit is an eloquent argument in favor of using cooperatives to supply people with the food they need to live. The co-op on whose board I serve, the Hanover Consumer Cooperative Society, doesn't get its groceries from C&S -- it buys from a wholesaler called Associated Grocers of New England. Associated Grocers is itself a cooperative, owned by the food co-ops and mom/pop grocery stores that use it. For Associated Grocers, conduct such as that alleged in the complaint against C&S and Supervalu is simply out of the question.

It's all well and good that an investor-owned food retailer like DeLuca's has stepped forward to pursue this antitrust claim. But if C&S is as dominant as the complaint alleges, it's quite possible that most retailers are simply passing the cost of any antitrust violations along to their retail customers. To an investor-owned business, that's just the way it is. To a cooperative, owned by its customers, that would be unconscionable.