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Grocery Inflation Gets Political
A new survey shows consumers blame government policies the most for high grocery prices, but food suppliers and grocers weren’t far behind.
In the survey of 1,150 U.S. consumers conducted by The Feedback Group, respondents were asked to attribute responsibility for increased food and grocery prices on a five-point scale where five is “highly responsible” and one is “not at all responsible.” Government policies and actions received the highest mean score (3.86), followed by product manufacturers and suppliers (3.75), worldwide political conflicts (3.42), supermarket retailers (3.40), and labor supply shortages (3.23).
Factors viewed as least responsible were climate change factors (2.85) and farmers and growers (2.78).
The survey comes as inflation, particularly escalating food prices, is shaping up as a primary election issue this year. According to a recent Data for Progress survey, 27% of voters identified “the economy, jobs, and inflation” as their top priority when deciding their vote — and among these respondents, 51% cited inflation as their primary concern within this category.
A Yahoo Finance-Ipsos survey from last November found that 67% of respondents cited food costs as their top inflation concern, compared with just 15% for gas and transportation costs and 12% for housing.
The latest consumer price index (CPI) data released April 10 showed that inflation increased a faster-than-expected 3.5% on an annual basis in March, up from a 3.2% increase in February and well above the Federal Reserve’s 2% target.
Food at home prices rose 1.2% in March, reversing a continuous decline in the metric dating back to September 2022, when inflation finally began slowing after hitting a four-decade high. Grocery prices remain up about 25% over the past four years.
The spike in food prices has been largely attributed to food suppliers’ ability to pass through higher costs largely tied to the pandemic. Underlying costs have grown due to glitches in transportation and trucking, labor shortages, raw material and input constraints, in addition to ecological challenges like extreme weather and Avian flu. Russia’s invasion of Ukraine then prompted a spike in commodity prices for wheat, corn, and vegetable oils that are finally settling back down. Record profits from grocers, however, have also been called out.
In recent weeks, President Biden has taken a tougher stance on grocery chains, accusing them of overcharging shoppers and earning excess profits. A Federal Trade Commission report that arrived in March claimed that large grocery store chains exploited product shortages during the pandemic by raising prices significantly more than needed to cover their added costs and continue to reap excessive profits.
In a statement last week after the March inflation report was released, Biden said dealing with inflation “remains my top economic priority” and suggested that grocers could do more to provide relief to shoppers.
“Prices are still too high for housing and groceries, even as prices for key household items like milk and eggs are lower than a year ago. I have a plan to lower costs for housing — by building and renovating more than 2 million homes — and I’m calling on corporations including grocery retailers to use record profits to reduce prices,” Biden said.
In a recent column for Supermarket News, Scott Moses, the head of grocery, pharmacy, and restaurants for the investment bank and financial services company Solomon Partners, said he believes both grocers and the Biden administration are being wrongly accused of sparking inflation.
“While food inflation is finally moderating, it remains a severe challenge for most Americans and its causes should be more clearly — and correctly — understood,” wrote Moses. “There are enough subjects in American politics where some people exaggerate, mislead, and manipulate to try to drive support and votes; let’s keep that out of our grocery market, which is a lifeline to millions of Americans and simply too important to be a political football.”
The Feedback Group’s survey found shoppers continue to wildly overestimate supermarket profit margins. Shoppers indicated they believe their primary store has a net profit of 31%, a slight decrease from the results of the last two years in the survey of 35% (2023) and 33% (2022). According to FMI – The Food Industry Association, “The average net profit for a supermarket has been close to 1% historically (and as high as 3% in 2020).”
When asked on a five-point agreement scale if their primary supermarket is on their side when it comes to inflation and to rate if their store is good at communicating why product prices have risen in the past few years, shoppers in The Feedback Group’s survey gave supermarkets relatively low scores of 3.23 and 3.01, respectively.
“Clearly shoppers believe supermarkets could do more in terms of supporting them when it comes to fighting inflation, as well as communicating why product prices have increased,” said Brian Numainville, a principal at The Feedback Group. “This is especially important in light of the inaccurate profit perception we continue to find in our research.”
Discussion Questions
Should grocers be doing more to communicate how they’re keeping prices low and to explain the root causes of food inflation to shoppers?
What other steps may be necessary for grocers as food inflation appears set to remain a political hot-button issue in an election year?
Poll
Loading …BrainTrust
Paula Rosenblum
Co-founder, RSR Research
David Biernbaum
Founder & President, David Biernbaum & Associates LLC
I find it strange that people would blame grocers – a highly competitive industry – rather than suppliers/producers; in theory, most suppliers compete as well, of course, but they usually control brand (name)s…and isn’t the whole point of a brand to diffferentiate yourself to the point that you can exercise pricing power? But back to the question, I think grocers are well advised to stay quiet: studies show widerspread ignorance on fundamental issues like margins and profitablity, and unless a store has something specfiic to offer up, standing there and waving your arms is just likely to focus the discontent.
Individual grocers may not feel the best idea is to try to explain pricing and root causes of inflation, but they can lean on their trade organizations to do so on their behalf. The food manufacturers themselves drive much of the pricing dynamics at retail, and they have certainly not been shy about their need to pass along price increases to their customers. So of course, grocers can and should continue to work closely with their suppliers and brand partners to ensure they’re getting the best pricing possible, and of course work to pass along any savings to consumers. Finally, we also have to realize that traditional grocers only make up part of the food shopping equation, along with hyper/discount retailers including Wal-Mart, Dollar General, Costco, and others.
Yes, “ The food manufacturers themselves drive much of the pricing dynamics at retail.” And the grocers willingly take advantage of this to pad their pockets.
The root cause of inflation is monetary. It arises from an injection of too much money into the system. This is primarily caused by government. In the current instance the massive spending hikes of the pandemic followed by various huge spending bills of the current administration have been unhelpful. However, these are technical, economic arguments; they are not ones that grocers should attempt to explain or educate people on. Instead, grocers should lead by example and bring down prices where they can. After all, low price is one of the key determinants of where people shop so is an important driver of market share.
Companies retail and otherwise love the cover of inflation.
Let’s say an item is priced at $5.99 on the shelf. The vendor increases his price by 10%. If the grocer were to hold their absolute profit, their shelf price might be $6.25/$6.35. If the grocer were to hold their percentage margin, the shelf price would be $6.59. If the grocer were to target typical retail shelf prices, the new shelf price would be $6.99.
According to an analysis by the nonpartisan Economic Policy Institute, corporate profits accounted for 54 percent of food price increases between 2020 and 2021. For the four decades prior, only 11 percent was attributed to corporate profits, the rest to the cost of labor.
While inflation caused by macroeconomic factors and monetary policy was real, companies used it as cover to increase profitability at a faster rate. For the record, this isn’t a new phenomenon. It happened in every historical inflationary period. The only time it was simply under control was when the government legislated price freezes.
Let’s stack that up against the latest year-over-year changes in operating profit for various grocers:
Kroger: -25.0%
Albertsons: -12.3%
Ahold (US): -21.5%
Sprouts: -2.3%
Dollar General: -25.1%
There doesn’t seem to be much profiteering going on here!
Note: I have adjusted Dollar General to account for the extra week of trading in the prior year; so the 25.1% is more of a like-for-like figure. Without adjustment the decline is 26.5%.
Do I assume you are disputing the numbers of the Economic Policy Institute? If so, I am open to an explanation.
I am stating the actual, audited numbers that retailers themselves have reported. For the most part, they show declining profitability and weaker operating margins. That doesn’t suggest profiteering, at least at the present time.
Some shoppers are more interested in the convenience and selection of their store. Others are interested in price. Being competitive is important, and if there is a price-hike, sharing information about the “why” behind the higher prices will appeal to some of the store’s customers. It never hurts to be transparent.
It’s mostly a supplier issue, but I believe grocers are also enjoying record profits. Something is awry in the whole ecosystem. I don’t know what the government is supposed to do about it. Demand that Gatorade return to an actual 32 ounce bottle rather than the “shrinkflationized “ 28 ounces. It’s really capitalism at its worst. It doesn’t have to be this way. It really doesn’t
agree with the ‘shrinkflation’ argument, but Gatorade reduced package size to 28 ounces over a decade ago, and partially because it made more sense as a ‘single serve portion size’, whilst at the same time eliminating the old glass bottles to plastic to further reduce costs, and as more intense competition also accelerated.
But operating profits are down across most of the grocery sector. Kroger had higher operating margins in 2018 than it does now.
Unprecedented concentration of ownership of food companies is to blame. These giants can raise prices with impunity; while prices rise, their profits explode. I hope the FTC keeps an eye on potential new mergers.
Grocers that explain how they help consumers access essentials amid inflation and shrinkflation can earn trust and loyalty in this competitive category. To avoid controversy and defensiveness, grocers can emphasize their solutions like deals, volume discounts and affordable private labels.
Inflation has multiple storylines and is not an easy one to explain, especially to an increasingly ill informed public. Grocery stores are (mostly) a high volume/low margin business. Further, this is a highly competitive segment of retail. If Kroger suddenly hikes banana prices then Publix is right down the street. So in order to make the retailer the “bad guy” you have to buy into all of these businesses winking at each other while they raise prices.
You cannot just print out money like our Government did during the pandemic and expect it to not result in inflationary responses. The villain here is monetary policies, but it is far easier for our elected officials to blame all those greedy capitalists…shameful.
The businesses are winking at each other. Maybe not overtly, but by knowing how each will react.
It is important to note that grocery retailers are also manufacturers, controlling as much as 25% of revenues via private labels they each control in a vertically integrated supply chain. This is especially true with commodities such as dairy (milk and eggs) and bakeries – where they also own the plants. And these plants are based in the US, often close to the stores they serve. There is enough blame to go around, and definitely not just a ‘monetary policy’ issue. The grocers and CPGs that decide to help solve the issue today by dialing back some of risk mitigation / margin protection steps necessary two years ago during the global pandemic will now be rewarded by consumers. It’s time.
Most of the general public isn’t too bright. The prices on the retail shelves are all that people can see when they blame supermarkets and other retailers for inflation. That type of thinking is shallow, but it is also lazy. In my opinion, the bigger problem is that these people are allowed to vote.
Political factors play a role in inflation. Unprecedented inflation rates have been caused, in part, by government spending, rising interest rates, printing too much money, mishandling of the supply chain during and after the pandemic, wage pressures, and many factors that are related.
Additionally, there is a mob-theft epidemic, and rapidly increasing shoplifting, coupled with a troubling lack of law enforcement, and a defunded and underpowered local police force. The lack of fear, lack of law enforcement, and lack of prosecution results in more crime and theft, which causes prices to elevate.
There are increased costs associated with sustainability, transportation, and high energy and fuel costs, as well as the restrictive regulations and policies that were implemented by this administration. These regulations reflect a severe lack of knowledge about how retail operates, their own built-in limitations, and how their business models need to work.
The current administration, with no business experience, implies to consumers that retailers and suppliers are raising prices arbitrarily, and making loads of profits, from “shrinkflation”. The misnomer is very shallow, very stupid, but unfortunately, it is quite easy to sell to the not-so-bright public.
And who will question the nonsense? The media? No, because they are not only politically biased, but also very brainless about business themselves. – Db
I completely agree. Inflation is endemic across all sectors of the economy. If it was purely about food retailers and manufacturers grabbing more profit then we wouldn’t see price rises spring up all over the place. Too many people do not understand or ignore the impact of money supply.
Today’s high food prices can be traced back to the current administration’s war on oil which kicked the economy south three and a half yeas ago.
Not exactly. Regarding oil companies…in 2022, the world’s five largest oil companies, BP, Shell, Chevron, ExxonMobil, and TotalEnergies, earned a combined profit of over $200 billion, which was nearly 120% more than the previous year.
War on oil? The oil companies won.
From the Article, ” In recent weeks, President Biden has taken a tougher stance on grocery chains, accusing them of overcharging shoppers and earning excess profits. ”
The inflationary problems are a complex mix of variables, as everyone knows, much of that related to larger multi year overall economic decisions which are in part governmental. The Government, &/or President Biden’s people do not seem to undertsand Grocery operation, Most Grodery has a margin of 1%, or Less, as you all probably are aware ! The regular Mr/Mrs/Miss Smith shopper however may not know all of that. All they see is the final price point on the shelf. As Neil so adeptly pointed out — Grocery profits are Down! I Do beleive the Grocers are trying their best to hold prices where they can. Supply costs and Vendor costs may be a big part of the problem. and that is an external problem placed upon those entities as well.! It is easy to point fingers but killing the messenger (i.e. the grocer) is Not the correct answer. Blame is easy to cast and hard to own.
I absolutely agree. The federal government can’t even run itself properly. Can you imagine it running a grocery operation? Things would cost 10x the price, service would be 100x worse, and there would probably be shortages too. Politicians should step back and stop lecturing the private sector. Generally, grocery retailers do a good job for the public.