The Federal Trade Commission sued PepsiCo on Friday, alleging that it has engaged in illegal price discrimination by giving unfair price advantages to one large retailer at the expense of other vendors and consumers.
The benefiting customer wasn't named in an FTC statement about the lawsuit. But a source familiar with the case, who asked not to be named because they were not authorized to discuss it, said the retailer was Walmart.
PepsiCo said the lawsuit “is wrong on the facts and the law” and misunderstands the way consumer product companies help retailers provide lower prices.
“PepsiCo strongly disputes the FTC’s allegations and the partisan manner in which the suit was filed. We will vigorously present our case in court,” the company said in a statement.
The FTC said PepsiCo's practices included making promotional payments to Walmart but not to large grocery chains or independent convenience stores. The FTC said that lets Walmart lower its prices, but forces Americans to pay inflated prices for PepsiCo products unless they shop at Walmart.
“When firms like Pepsi give massive retailers a leg up, it tilts the playing field against small firms and ultimately inflates prices for American consumers,” FTC Chair Lina Khan said in the statement. “The FTC’s action will help ensure all grocers and other businesses — no matter the size — can get a fair shake and compete on the merits of their skill, efficiency, and talent.”
Walmart said Friday it had “nothing to add at this time.” PepsiCo said its practices “are in line with industry norms.”
“We do not favor certain customers by offering discounts or promotional support to some customers and not others,” the company said.
The FTC sued PepsiCo under the rarely enforced 1936 Robinson-Patman Act. The FTC said the act prohibits companies from using promotional incentive payments to favor large customers over smaller ones.
It was the second time in a little more than a month that the FTC has cited the Robinson-Patman Act in a lawsuit. In December, the commission sued Southern Glazer's Wine and Spirits, a large U.S. distributor, saying it illegally discriminated against small and independent businesses by giving discounts and rebates to larger stores.
In the waning days of the Biden administration, the FTC has been busy issuing consumer refunds, taking enforcement actions against companies the agency accuses of deceptive practices and finalizing rules it says are needed to make the marketplace more fair.
The FTC voted 3-2 to authorize staff to file a lawsuit for a permanent injunction against PepsiCo in the U.S. District Court for the Southern District of New York. Commissioner Andrew Ferguson, who is President-elect Donald Trump's choice to replace Khan, was one of the two dissenting votes.
The other commissioner voting against the lawsuit, Melissa Holyoak, wrote in her dissent that the case against PepsiCo was “the worst case I have seen in my time at the commission.” Holyoak said the majority of commissioners rushed the case out the door before they had enough evidence to support the allegations.
“Pepsi’s promotions to the retailer are not disguised discriminatory discounts but rather ordinary price concessions,” Holyoak wrote.
PepsiCo, based in Purchase, New York, is one of the world's largest food companies. It makes Pepsi, Mountain Dew and Gatorade as well as snack foods like Lay's potato chips, Doritos and Fritos. It also makes Quaker Oats, brekfast cereals and granola bars.
PepsiCo's prices have been the subject of some scrutiny since the pandemic. In 2022, for example, the company acknowledged shrinking its Gatorade bottles from 32 ounces to 28 ounces, but it didn't respond when asked why it charged more for the 28-ounce bottles.
In October, Democratic Sen. Elizabeth Warren of Massachusetts and U.S. Rep. Madeleine Dean of Pennsylvania sent letters to PepsiCo, Coca-Cola and General Mills accusing them of price gouging through shrinking package sizes.
PepsiCo has said its price increases were necessary because of the rising cost of ingredients, shipping, packaging and labor. But over the summer, the company said consumers were pulling back on snack and drink purchases or shifting to cheaper store brands.
PepsiCo responded by trying to make Lay's more affordable through a mix of product promotions, more chips per bag and value packs. Similar promotions were planned for Doritos and Tostitos, the company said.
FILE - Bottles of Diet Pepsi Wild Cherry are displayed at a market in Pittsburgh, Jan. 26, 2023. (AP Photo/Gene J. Puskar, File)
