Photo: ANGELA WEISS/AFP/Getty Images
Since the early twentieth century, competition policy has sought to create level playing fields within the physical marketplace. Recently, antitrust has become a hot button topic on the global stage, particularly within the digital sphere. From the European Union’s Digital Markets Act (DMA) and China’s new anti-monopoly guidelines to Biden’s executive order addressing competition, countries around the world are attempting to address the market power of “Big Tech” through legislation designed to inspire innovation and competition online. However, major tech platforms are no longer distinctly online. Especially in response to the pandemic, business models have shifted, utilizing omni-channels and blurring the boundaries between physical and digital environments. However, regulations continue to focus on either firms’ physical market presence or their online presence, begging the question of whether omni-channels create mechanisms for tech companies to bypass current antitrust legislation, particularly in the food industry.
Q1: What is an omni-channel?
A1: An omni-channel is a retail strategy that seamlessly combines different avenues of hyper-personalized research and acquisition for consumers, while using an artificial intelligence (AI) platform to allow the retailer to gather data about customer preferences and buying habits. Omni-channels thus represent the dual integration of both digital and physical marketplaces. An example of an omni-channel strategy includes curbside pick-up, where consumers can research products online, make a purchase, and then retrieve their items in person. During the Covid-19 pandemic, many stores, such as Target, Home Depot, and Wal-Mart, relied on curbside pick-up to allow consumers the ability to access goods in a quicker manner than ordering from online suppliers.
An additional type of omni-channel allows consumers to “research” in physical stores but purchase online. For example, a customer shops in a brick-and-mortar store looking for a specific pair of jeans—a certain style and size—but the specific item is out of stock. However, there is a QR code next to that item’s would-be location. When scanned, the customer is directed to the online store, where the item can be purchased directly. The customer can then continue to browse items in person. This integration differs from typical multi-channel retail strategies. Multi-channels offer different methods of purchasing goods, but the online and physical stores are separate branches from one another, competing for profits. In an omni-channel, everything is integrated, facilitating consumer access, demand, and purchasing.
However, the true strength of omni-channels is the data accumulation from the integrated AI platform. Because of the different research methods and hyper-personalization for customers, consumer preference data is easily accessible to the firms—and available in enormous quantities. The amalgamation of different consumer access points permits firms to utilize that information to predict consumer demand and trends and to make more efficient decisions based on the accrued data. An interesting application of this omni-channel benefit has been occurring in the retail industry, especially in China. By scanning a QR code found in the store, online, or even on a metro advertisement, customers may try on clothes virtually using alternative reality technology. This technology combination instantly aids the store in amassing data on what customers prefer and what items catch their eyes. Moreover, when comparing with actual purchases, the firms can identify which trends occur overall. This data can be used to offer future recommendations for consumers, as well as identify which items to keep in stock, creating a more efficient business model built on consumer demand—all gained through the integration of AI within their sales platform.
Q2: What does a retail strategy have to do with monopolies?
A2: The omni-channel retail strategy is designed to integrate all physical and digital avenues, facilitating consumer access and permitting firms to respond to data on customer preferences. While omni-channels are easily visible within the retail markets, omni-channels have also been integrated into the food industry. Recently, Chipotle instituted analytic software from Microsoft to gather consumer insight data through its omni-channel business model. The integration allows Chipotle to directly target consumers with appealing advertising. For example, an office worker who opts for a weekly lunch burrito delivery would receive a message about the company’s free Monday delivery promotion. This insight-targeting scheme has led to successful results for Chipotle, as seen by its 30 percent customer increase since its implementation. Other examples are the intermediaries built to be omni-channels for consumers, like Grubhub, Instacart, and DoorDash.
With more data available, firms can predict demand to create a more profitable business model. However, a firm’s efficiency relies on the amount of data accumulated. Therefore, large tech companies are better positioned to reap larger profits since they already use this technology with their online platforms. Furthermore, by forming partnerships, these companies have the capacity to integrate their other business channels within their food retail channels. For example, with Amazon’s acquisition of Whole Foods, when Amazon Prime members shop, their online Amazon accounts are linked to their food purchases. In addition, other services are offered between the two systems. Amazon returns may be made in person at Whole Foods stores, while Prime membership offers a 10 percent in-store discount and one-hour pickup or two-hour grocery delivery. Furthermore, these channels’ data is transmitted back, analyzed, and can be used for recommendations not only for the online grocery portal for Whole Foods, but also for suggestions on what to buy on Amazon.com. Moreover, this data can allow firms to provide more tailored options and the capacity to offer lower prices, as any losses from non-profitable goods are offset with other business ventures.
If the vendor has more than one channel, the vendor has access to a larger customer demand sample size. The larger the sample size, the more advantage the vendor has. A larger sample size allows firms to personalize their offerings, drawing in more customers, which allows them to gain a larger market share. To compete, firms must adopt similar technologies and strategies. However, smaller firms might not have the capital to afford this technology. Therefore, to compete with these companies and to have similar access to such a large customer base, smaller restaurants or grocery stores must rely on other intermediaries, such as DoorDash, which controlled over 50 percent of total food deliveries in the United States in 2020. This need to remain competitive creates a dependency on the intermediaries, which in turn have been accused of hurting brick-and-mortar stores, particularly since larger platforms often charge exorbitant fees for smaller firms to be listed on these platforms. In the long run, this intermediary dependency could increase the number of smaller suppliers who can no longer compete since they cannot afford these fees and the cost of the innovative technology. Therefore, monopolistic behaviors are being reinforced with the concentrated market dominance of intermediaries, which is compounded when large tech companies begin to enter these markets with their sophisticated omni-channel platforms. While the introduction of these platforms has benefited consumer surplus, the question of how to grow competition within these sectors while protecting smaller producers from anti-competitive practices remains.
Q3: What does current legislation say?
A3: U.S. antitrust law has been regulating the nation’s physical market since 1890, when the first regulations were created to combat the railroad “trusts,” or monopolies. Many of the contemporary antitrust discussions have focused on how to regulate the digital sector. President Biden recently signed Executive Order 14036, Promoting Competition in the American Economy, which placed a focus on large tech companies by enforcing stricter merger scrutiny and requiring the Federal Trade Commission (FTC) to establish rules barring unfair methods of competition on internet marketplaces. However, the role of tech companies in physical markets is not mentioned. Furthermore, the order reiterates the government’s responsibility to enforce current existing antitrust legislation within the physical market, like the Sherman Antitrust Act, the Clayton Act, and the Packers and Stockyards Act, which collectively protect consumers from monopolistic business practices (such as price fixing), scrutinize mergers and acquisitions, and defend smaller producers from market concentration. Similarly, six proposals by Congressman Cicilline (D-RI) reflect European legislation with their stricter scrutiny on mergers or acquisitions within the digital market and resulting anticompetitive advantages. However, only the Ending Platform Monopolies Act (H.R. 3825) addresses potential unlawful conflicts of interest that can occur with online platforms maintaining different lines of business.
Across the pond, the European Union’s DMA proposal seeks to identify gatekeepers and presents several obligations these companies must fulfill to maintain competitive practices within the European Union. Again, this legislation only addresses market concentration in digital markets, but public comments on the proposal suggest that the DMA should extend into the physical market as well, since gatekeepers have footholds in both. Even the recent Chinese antitrust law update, Anti-Monopoly Guidelines of the Antimonopoly Commission of the State Council on the Platform Economy, does not specifically address this combination of markets. Instead, the law enforces competition promotion within the “relevant market,” which depends on a company’s market share percentage. This vague definition could allow regulators access to firms’ practices that embrace the omni-channel approach. However, if the physical and digital markets are continually treated as distinct markets, the seamless integration of the two in omni-channels could create a loophole for anticompetitive practices.
Q4: What are the future implications of the omni-channel dominance in the food sector?
A4: As stated above, omni-channels are efficient ways for companies to access consumer demand and to accumulate data. However, this capacity of larger firms to breach the different markets allows them to leverage their online presence and technology implementation. Therefore, to monopolize on hyper-personalized demand, the emergence of firms embracing brick-and-mortar stores will increase. This trend has already begun to occur. Amazon is opening grab-and-go stores, which are stores without cashiers that allow customers to purchase goods in person though their Prime membership accounts. An Alibaba grocery store also piloted similar technology-based stores. Another example is Instacart embracing its omni-channel advantage as an intermediary for partnering grocery stores. In a recent report, Instacart has begun establishing warehouses to facilitate grocery delivery, further cementing its capacity as an intermediary for consumers.
As these developments grow, consumer welfare will benefit from increased convenience, but smaller producers will be forced to integrate this new technological format. As a result, innovation could be stifled as this dependency is reinforced, making it difficult for brick-and-mortar stores to compete against tech platforms, as seen by the bicameral letter calling on the FTC to launch an investigation against food delivery platforms. Conversations have begun to shift toward regulating these platforms. For example, Nevada recently enacted SB 320, which addresses specific anti-competitive practices within these cross-market intermediaries.
Overall, omni-channels need to be included in the antitrust discussion. While the efficacy of these retail strategies has demonstrated benefits for consumers, the resulting technology dependency could lead to a stronger market concentration both online and in person, potentially reducing benefits to consumers over the long run. Furthermore, the lack of clarification within legislation should be addressed to close this potential loophole breaching standard divisions among marketplaces. If the physical and digital markets are treated as distinct markets, large tech companies will continue to ingest their competition as consumers are enticed by the easy access. Well, you are what you eat, and at least now it comes with free delivery.
Emily Benson is an associate fellow with the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C. Sarah Mortensen is a research intern with the CSIS Scholl Chair in International Business.
Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
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