wow npr shows it isn’t greedy corporations to blame for high grocery
prices
Are greedy companies to blame for grocery inflation? We looked at the
data
SEPTEMBER 9, 20245:01 AM ET
Headshot of Alina Selyukh
Alina Selyukh
This photo shows a woman in a red coat shopping in a supermarket in New
York on Jan. 27. She's facing rows of refrigerated shelves displaying
bottles of juice and clear plastic tubs of chopped vegetables. Fresh fruits
are on display in the foreground.
A woman shops in a supermarket in New York on Jan. 27.
Charly Triballeau/AFP via Getty Images
Are greedy corporations to blame for inflation?
Ariane Navarro thinks so. She recently pulled up her budgeting
spreadsheets from 2021 and was shocked by how much her family's
grocery bill has skyrocketed.
She's not imagining it: From February 2020 to this July, grocery prices
grew a cumulative 25.6%. That's higher than overall inflation, which was
21.6% during that same period.
"We have no other choice — we have to buy groceries," says Navarro, who
lives in Houston. "That's a basic need. And so [companies] use that to
kind of take advantage and keep raising prices."
It's a widespread sentiment — and a popular political refrain ahead of the
presidential election, as Vice President Harris pledges to crack down on
"price gouging" on Day 1.
It doesn't help that corporate executives have spent recent years touting
their pricing power on calls with investors, like when the CEO of
Cottonelle-maker Kimberly-Clark, Mike Hsu, said last year: "If the price
goes up on bath tissue, generally doesn't mean you're going to use the
bathroom less." Many makers and sellers of home and pantry staples have
reported record profits.
But just how much is this driving supermarket inflation? Data tells a
messier story.
Costs have jumped for grocers and food manufacturers
There's no dispute that food sellers and manufacturers have passed costs
on to consumers; they typically do, to varying degrees. And their costs
increased substantially from the start of the coronavirus pandemic.
This photo shows a grocery store checkout clerk working behind a
plexiglass divider at the ShopRite supermarket in Uniondale, N.Y., at the
start of the coronavirus pandemic. He's wearing a light blue medical-style
mask over his mouth and is scanning bottled beverages that are on a
black conveyor belt in the checkout lane. Aisles of food stand behind him
in the background.
A checkout clerk works behind a plexiglass divider at the ShopRite
supermarket in Uniondale, N.Y., at the start of the coronavirus pandemic.
Al Bello/Getty Images
First came the crush of shoppers stockpiling groceries to prepare for
lockdowns, right as operations slowed at meatpacking plants and
transportation companies. Shipping bills skyrocketed. Workers fell ill;
firms shelled out money for acrylic shields at cash registers and for other
anti-coronavirus measures. Prices surged for commodities, such as wood
pulp for diapers.
Later, Russia's invasion of Ukraine disrupted global food supplies,
particularly grains, vegetable oil and fertilizer. Avian flu, floods and
droughts led to spikes in the prices for eggs, oranges and chocolate.
Through it all, an exodus of workers from lower-paying jobs led companies
to push up wages that had been stuck for decades.
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Researchers at two Federal Reserve Banks — those based in Kansas City
and New York — say this is a key driver of higher grocery prices. Pay for
workers in food manufacturing and retail rose a bit faster than pay for
workers in many other occupations. A report from the Federal Reserve
Bank of Kansas City noted that processed food, which requires more
labor, accounted for the vast majority of price hikes.
Looking at companies' sales and expenses
Still, most shoppers wonder how far companies reach past costs to boost
profits. This is where it gets technical fast, leading to nuanced takes by
economists.
One specific allegation of pricing overreach came to light in an ongoing
court hearing that disclosed an email by a Kroger executive. In March, he
wrote that the supermarket chain's milk and egg prices were
"significantly higher" than was necessary to account for inflation. Kroger
later said the email was "cherry-picked" from "a specific period" that
didn't reflect its pricing approach.
This photo shows a customer loading his red pickup truck with cases of
bottled water after shopping at a Kroger grocery store in Houston on
Sept. 9, 2022. Wearing a green shirt, light pants and a baseball cap, he's
holding a case of bottled water while standing next to a shopping cart. A
Kroger store with the name
A shopper loads his truck at a Kroger grocery store in Houston on Sept. 9,
2022.
Brandon Bell/Getty Images
NPR crunched financial disclosures by a dozen of the largest grocery-item
makers and sellers, including Walmart, Pepsi, Oreo-maker Mondelez and
Procter & Gamble, which makes Pampers and Bounty.
The idea was to track changes not in the sheer dollar amount, which rides
the waves of our shopping sprees, but in the percentage of money that
stays in corporate coffers after a sale. Economists and accountants use
different metrics for this. The gross profit margin is one of them — the
portion that companies keep after paying just the direct costs to make or
stock their goods.
Companies' financial disclosures cover global operations, meaning lots of
variety in costs and prices. But for almost all companies that NPR
analyzed, between 2018 and 2023 the margins either declined or grew
less than 1%.
This company data doesn't offer a satisfying explanation for why families
like Navarro's are finding their grocery budgets stretched by pricier meat
and snacks.
So most economists look more broadly at U.S. retailers and food
manufacturers for clues about the industry overall.
The matter of grocery markups
Several government data sources offer similar takeaways. Take the
Census Bureau's report on corporations, which tracks total sales and
most operating costs. At food manufacturers, it shows profit margins
climbing and falling dramatically during the pandemic before settling near
pre-pandemic levels at the start of this year.
Sachin Shivaram, CEO of Wisconsin Aluminum Foundry in Manitowoc,
Wisc., realized during the pandemic how much his employees were
struggling with child care. Figuring out how to help them has been
challenging.
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This boss vowed to help his workers with child care. It hasn't been easy
Supermarkets, liquor stores and convenience stores are much less
profitable businesses overall. Their profit margins climbed more gradually
in recent years but got sticky at the top, meaning companies kept a
slightly bigger share of the money from sales as time went on, and they've
been slower to give up those gains.
Yet that's not quite the smoking gun to explain grocery inflation,
according to New York Federal Reserve researcher Thomas Klitgaard.
"Even though profit margins for grocery stores have gone up," he wrote in
a July report, "the increase appears to be only a small contributor to the
rise in food prices relative to the increase in their operating costs."
Economist Ernie Tedeschi has sliced this data another way to draw a
contrast between grocers and other types of retailers. Until March,
Tedeschi was the chief economist at the White House Council of Economic
Advisers. He wanted to track how much grocers' income has outpaced
increases in their costs — what he calls a markup above costs.
"Grocery was different" from the rest of retail, Tedeschi said. "Grocery
didn't pop as quickly in the depths of the pandemic, but it rose sort of like
a slow burn and it stayed tenaciously higher."
What does this actually mean about inflation?
The Biden administration has been eager to blame corporate greed. But
even a report that the White House put out this year acknowledged that
store markups don't fully explain food inflation.
"It's very difficult to tease out what's going on," said Tedeschi, who's now
at the Budget Lab at Yale University. "It's not — I want to emphasize —
dispositive proof that there is anything anti-competitive going on. That is
one explanation, but there are lots of other explanations."
One of them could be shoppers buying more private-label groceries, he
said. These store-brand products are usually cheaper than brand-name
ones but are much more profitable for the retailer. Data firm Circana found
U.S. shoppers spent 6% more on private-label items in 2023 than in 2019.
Then there's the fact that people have been spending big on groceries,
even as they shop less at other stores. And that's on top of an
unprecedented surge in spending in recent years — first as people
received pandemic relief checks and then as wages grew in many jobs.
"If supply is fixed and the buyers suddenly have more money, then prices
are going to rise — and that's kind of what happened," said Ian
Shepherdson, chief economist at Pantheon Macroeconomics. "There
genuinely was an increase in costs, but then there was this extra margin
on top. So the question is, how on earth did [retailers] manage to get
away with that? That to me is the big issue."
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Only this year did brands including Pepsi and Nestlé begin noting
pushback from shoppers. Walmart and Target have started promoting
discounts and lower prices. The cost of ingredients and shipping has
eased; wage growth has cooled. And so, many grocery prices have been
declining, including those for cereal, cheese and fruit.
Economists and accountants differ on how to measure markups, but most
agree that they have begun eroding. Navarro and many other shoppers
hope this means prices stop rising, at least for a while.
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