Justice Probes Salty Snacks’ Sales Practices

The Justice Department said Friday that it is investigating possible anti-competitive practices in the $15-billion salty snack-foods industry.

The probe is the latest instance of a growing federal crackdown on long-established retailing practices where manufacturers obtain preferential treatment for their products on store shelves, to the detriment of competitors.

Industry sources said Frito-Lay Inc., which controls the largest market share, is a focal point of the investigation. Without naming targets, the Justice Department said the probe has just begun.

A spokeswoman for Plano, Texas-based Frito-Lay, a unit of PepsiCo Inc., said Friday that the company knew nothing of an investigation and emphasized it “has been accused of no wrongdoing.”

The government is seeking information on whether Frito-Lay is locking out rivals by purchasing shelf space in grocery stores and securing exclusive promotions, executives at rival salty snack companies said.

Frito-Lay’s potato and corn chips, crackers and dips dominate many supermarkets’ snack shelves. The subsidiary had 1995 sales of $13 billion, or 42% of PepsiCo’s $30 billion in worldwide sales. Frito-Lay’s market share of salty snacks is estimated at 70% or higher.

Coming on top of a Federal Trade Commission antitrust lawsuit filed Wednesday against the Toys R Us retail chain, the government’s probe illustrates a more aggressive regulatory stance against retail practices that have been in use for decades, observers said.

Those practices, considered a legal gray area, involve powerful manufacturers buying or demanding prime shelf space, leveraging their popularity so much to the detriment of competitors that it may be considered unfair or illegal. The practice has long been applied in supermarkets, where some manufacturers pay fees to retailers in exchange for space, visibility or special promotions.

A line gets crossed when the practice quashes competition or prohibits a competitor from introducing a product, said Dan Doerflein, president of MTC International retail consultants in Aurora, Colo.

“The government has taken these cases to a level I have not seen in the past and I have been in retail for 28 years,” Doerflein said. “Aspects of Frito-Lay being mentioned have been going on as long as I can remember.”

Under the chairmanship of Robert Pitofsky, the FTC has pursued big companies that it thought were using their market power unfairly or illegally, said Barry A. Pupkin, an antitrust attorney in Washington.

“When a retailer moves from having market share to market power, certain types of activities that were viewed as legal or competitively neutral begin to move into the realm of competitively questionable to possibly competitively illegal,” Pupkin said. “If you are able to foreclose a large portion of the market, then competitive issues do arise.”

Rumors have been circulating about an investigation into Frito-Lay, said Don Beaver, president of the California Grocers Assn. Nicholas Iammartino, spokesman for Borden Inc., maker of Wise snacks, said Justice investigators have contacted his firm about Frito-Lay.

Word of the probe was first reported Friday in the Wall Street Journal.

The Justice Department had recently completed an investigation into Frito-Lay’s acquisition of certain plants of Eagle Snacks from Anheuser-Busch, but a Justice official said the snack industry probe was separate.

Beaver of the 8,000-store California Grocers Assn. said manufacturers are always fighting to get more space because “more exposure means more sales . . . and every doggone foot of that shelving is important to retail grocers.”

And retailers commonly accept “slotting fees” and promotional help from major food suppliers because it reduces the retailers’ risk in carrying the cost of storing, preparing and displaying food items.

But Beaver said his membership is opposed to any promotion that specifically excludes another product. “I’ve never heard of a manufacturer saying: ‘I don’t want any competition.’ . . . A retailer’s primary concern is running inventory out the door as rapidly as possible.”

Times wire services contributed to this report.