The U.S. Federal Trade Commission sued PepsiCo on Friday, accusing it of engaging in unlawful price discrimination by giving a major retailer an unfair price advantage at the expense of other suppliers and consumers.
The FTC's statement on the lawsuit did not name the beneficiary customers. But a source who spoke on condition of anonymity because he was not authorized to discuss the matter said the retailer was Walmart.
PepsiCo said the lawsuit is "factually and legally wrong" and misunderstands how consumer products companies help retailers offer lower prices.
"PepsiCo strongly disputes the FTC's allegations and the partisan manner in which the lawsuit was brought. We will vigorously present our case in court," the company said in a statement.
The FTC said PepsiCo's practices included paying promotional fees to Walmart but not to large grocery chains or independent convenience stores. The FTC said this allowed Walmart to lower prices but forced Americans to pay high prices for PepsiCo products unless they shopped at Walmart.
"When companies like PepsiCo provide an advantage to large retailers, it tilts the playing field in favor of small businesses, ultimately driving up prices for American consumers," FTC Chairman Lena Khan said in a statement. "Federal The Trade Commission’s action will help ensure that all grocers and other businesses – regardless of size – are treated fairly and can compete on the basis of their skills, efficiency and talent.”
Walmart said Friday it had “nothing to add at this time.” PepsiCo said its practices were "in line with industry standards."
"We do not favor certain customers by providing discounts or promotional support to some customers over others," the company said.
The FTC sued PepsiCo under the rarely enforced Robinson-Patman Act of 1936. The FTC said the bill prohibits companies from using promotional bonus payments to favor large customers over smaller customers.
This is the second time in just over a month that the FTC has invoked the Robinson-Patman Act in a lawsuit. In December, the commission sued large US distributor Southern Glazer's Wine and Spirits, saying it illegally discriminated against small independent businesses by offering discounts and rebates to big stores.
In the final days of the Biden administration, the FTC has been busy issuing consumer refunds, taking enforcement actions against companies the agency alleges deceptive practices and finalizing rules it says are needed to make the market fairer.
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. Andrew Ferguson, the commissioner chosen by President-elect Donald Trump to replace Khan, was one of two dissenting votes.
Melissa Holyoak, another commissioner who voted against the lawsuit, wrote in her dissent that the case against PepsiCo was "the worst case I have seen in my time on the commission." Holyoke said most commissioners rushed the case before there was enough evidence to support the charges.
“PepsiCo’s promotions to retailers were not disguised discriminatory discounts but ordinary price concessions,” Holyoke wrote.
PepsiCo, headquartered in Purchase, New York, is one of the world's largest food companies. The company makes Pepsi-Cola, Mountain Dew and Gatorade, as well as snack foods such as Lay's potato chips, Doritos and French fries. The company also makes Quaker Oats, breakfast cereals and granola bars.
PepsiCo's prices have been under some scrutiny since the pandemic. For example, in 2022, the company acknowledged shrinking Gatorade bottles from 32 ounces to 28 ounces, but did not respond when asked why it priced the 28-ounce bottles higher.
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 driving up prices by reducing package sizes.
PepsiCo said the price increase was necessary due to rising costs for ingredients, transportation, packaging and labor. But the company said consumers are buying less snacks and drinks this summer or switching to cheaper store brands.
PepsiCo responded by trying to make Lay's more affordable through a combination of product promotions, more chips per bag and value packs. Similar promotions are planned for Doritos and Tostitos, the company said.