PepsiCo, Inc. (NASDAQ:PEP) saw its shares move slightly higher on Friday.
Now, the snack and beverage giant has landed itself in hot water after being hit with a lawsuit from the Federal Trade Commission (FTC), which alleges the company engaged in illegal price discrimination.
According to the FTC’s complaint, Pepsi granted unfair pricing advantages to one of its largest customers – a major big-box retailer – while raising prices for competing retailers and customers.
Reuters reports that the retailer is none other than Walmart Inc. (NYSE:WMT), citing a source close to the discussions.
“When companies like Pepsi give a decisive advantage to retailers of this size, it disadvantages small businesses and ultimately raises prices for American consumers,” said the FTC Chair, Lina M. Khan.
“The FTC’s action will help ensure that all grocery stores and other businesses – regardless of their size – are treated fairly and can compete on the basis of skill, efficiency and talent. »
The FTC alleges that Pepsi systematically gave preferential treatment to the major retailer by providing promotional payments, advertising allowances and other key benefits.
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These benefits, however, have not been extended to competing grocery chains or independent stores, which include small, local businesses.
The FTC argues that this created an unfair playing field and raised prices for consumers.
-Pepsi’s behavior is being investigated under the Robinson-Patman Act (RPA), which prohibits price discrimination that disadvantages small businesses and raises prices for consumers. The law specifically prohibits manufacturers from using promotional allowances to favor one retailer over others. The FTC believes that Pepsi’s actions violate the RPA and undermine fair competition.
The Commission’s vote to allow staff to seek a permanent injunction in the United States District Court for the Southern District of New York was 3-2, with Commissioners Melissa Holyoak and Andrew N. Ferguson who voted against.
This case marks the FTC’s latest action against price discrimination, following its December 2024 case against Southern Glazer’s, a major distributor of wine and spirits.
It is ultimately the court that will decide whether Pepsi’s pricing practices violated the law, and if so, what steps will be taken to remedy the situation.
According to Benzinga Pro, PEP stock has lost more than 11% over the past year. Investors can invest in the stock via the index iShares U.S. Consumer Staples ETF (NYSE:IYK).
The stock has been re-rated by the analyst at Barclays with an Overweight recommendation and a lowering of the price forecast from $183 to $158.
Price movement: As of Friday, at last check, PEP shares were up 0.86% at $147.80.
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