Grocery Store Inflation, Part 2

"Giant corporations are making record profits by increasing prices, and CEOs are saying the quiet part out loud: they’re happy to help drive inflation. American families pay higher prices and corporate executives get fatter bonuses." – Tweet by Elizabeth Warren, February 14, 2022.

Are rising prices due to fundamental economic and practical problems, or is corporate greed driving price indexes? Yesterday I wrote a post seeking to understand the causes of increasing prices in our inflationary economy. A few commenters on my post noted that corporate greed and profit-seeking are also an important factor. 

Avocados for sale yesterday…
what will they cost next week?

Yes, there's evidence that corporations that produce and sell food and household goods are using inflation to create higher profits, increasing prices faster than the actual costs require. For example, in the last quarter of 2021, Tyson's average beef price rose 31%, and their profits doubled. And Proctor and Gamble projected increasing profits in 2022 as the prices of their household products soared. (source)

CNN quoted a supermarket executive who came right out and said the quiet part:

"Our business operates the best when inflation is about 3% to 4%," Kroger CEO Rodney McMullen said on an earnings call with analysts Thursday [June 17, 2021]. "A little bit of inflation is always good in our business." 

Kroger can pass off costs to consumers when inflation hovers around that mark, McMullen said, and "customers don't overly react to that." (source)

In December, Senator Warren wrote letters to several CEOs of supermarket chains summarizing their greedy behavior. She posted copies of these letters which included the following statistics:

"In 2020, Kroger, reported $2.6 billion in profits, up 5.6% from 2019; Albertsons reported $1.89 billion in net income for 2020, an increase from $612.1 million in 2019, and Publix reported a 60% growth in profit for the third quarter of 2020. In 2021, these same companies continued to earn massive profits while pushing grocery cost increases onto consumers. " (source)

In addition to simply increasing retail prices at a higher rate than their costs increase, grocery stores have a number of ways to keep prices high. One of these is contracts with suppliers called cooperative marketing agreements, or CMAs, that reduce competition among brands and that nudge consumers to buy unhealthy over-processed foods. The Federal Trade Commission has been investigating CMAs, according to the Center for Science in the Public Interest. The CSPI recently wrote: 

"Americans’ health is not the only thing CMAs put at risk. CMAs can threaten fair competition by creating high entry costs. For example, exorbitant ‘slotting fees,’ which charge manufacturers to place new products on grocery shelves, disadvantage smaller manufacturers and producers who are then unable to introduce or expand product offerings. ‘Category captain arrangements’ are another anticompetitive grocery marketing practice in which retailers cede marketing decisions to the dominant manufacturer in a given food category, allowing them to make placement and promotion decisions for their products and even their competitors’ products." (source)

In an ongoing investigation, "the FTC asked Walmart, Amazon, and Kroger to produce the contracts that detail their trade promotion practices that determine product choice and marketing, including the total fees received. Additionally, the retailers must disclose their use of suppliers as category captains, including their identity, services, and fees received.”

FTC action has not been announced, as far as I know.

I have only scratched the surface of the issue of corporate greed and the fact that corporations use legitimate cost increases to create even higher prices for consumers, higher profits for their shareholders, and higher bonuses for their executives. 

Blog post by mae sander, 2022.