Supervalu is accused of collusion

A lawsuit alleging collusion between grocery giant Supervalu and one of its competitors in the wholesale grocery business says neighborhood supermarkets and their customers pay more because of a deal between the two companies that limits competition.

The suit, filed Dec. 31 in federal court in Madison, Wis., says Eden Prairie-based Supervalu and C & S Wholesale Grocers Inc., of Keene, N.H., divvied up the regions in which they operate so that they wouldn't have to compete against one another. D&G Inc., which operates a small grocery known as Gary's Foods in Mount Vernon, Iowa, filed the suit on behalf of itself and other mom-and-pop operations.

"Supervalu bet the whole empire on the neighborhood grocer and now they just don't care anymore," said Dennis Dietrich, owner of the 16,000-square-foot Gary's.

Dietrich said his family's store, named for his father, severed a 40-year relationship with Supervalu three years ago after it closed a Des Moines warehouse and began taking on some $1,500 in extra weekly fees to ship groceries from Minneapolis. The suit alleges that Supervalu could close warehouses without fearing competition from C & S thanks to a deal the two companies struck in August 2003. The deal led to the closing of six warehouses -- three for each company -- in the Midwest and New England.

Dietrich said he now buys groceries from Edina-based Nash Finch Co., which has a Cedar Rapids warehouse just 17 miles from his store.

A Supervalu spokeswoman said the company would not comment on pending litigation. A spokesperson for C & S Wholesale Grocers, one of the largest privately held companies in the nation with some 70 warehouses around the country, could not be reached.

The lawsuit, filed by the law firm of Kotchen & Low, in Washington, D.C., alleges several counts of anticompetitive behavior that constitute violations of the Sherman Act. It seeks class-action status for a pool of plaintiffs in the "thousands." The court has not yet ruled on that request.

Supervalu, with $44 billion in sales in its most recent fiscal year, delivers groceries to some 2,700 retail outlets around the country, including the Cub Foods, Jewel-Osco, Shop 'n Save and Albertson's chains. The company operates 23 distribution centers, including one each in Maryland, Massachusetts and New York, according to its most recent annual report.

The distribution business accounts for about a quarter of all sales at Supervalu; it used to represent half of the company's business before its 2006 acquisition of Albertsons.

Supermarkets rely on a small number of distributors for groceries. In Minnesota it's either Supervalu, the smaller Nash Finch, or the Texas-based Affiliated Foods, said one longtime grocer.

It's hard to compare prices because the companies use a variety of fees, freight charges and promotional offers, said Dale Riley, owner of Fresh Seasons Market in Minnetonka.

"Am I paying more for Cheerios at Nash Finch than at Supervalu? I don't really know," said Riley, who formerly worked as an executive at Roundy's, the Milwaukee-based owner of Rainbow Foods, before starting his own grocery store chain.

"We're going to be a big deal to Nash Finch, versus nothing to Supervalu," Riley said.