Shouldnt other grocers have the tail pinned on them, too?
In a courtroom, swearing on a stack of proverbial bibles, Kroger CEO Rodney McMullen said that the hike in grocery prices has been brought on by everything from the price of fuel to credit card swipe fees and not from it trying to gouge the consumer..
In the antitrust case brought by the Federal Trade Commission and nine state attorneys general against Kroger and Albertsons, Reuters reported that on the witness stand, McMullen made it a point that Kroger would absolutely not raise prices if the merger is approved. We believe over time, value will be increasingly important and you cant price your items above the market, McMullen said in court.
The FTC, however, has accused Kroger of overcharging consumers on essentials like milk and eggs and, during the first week of the trial, FTC attorneys pulled out an email from Andy Groff, Krogers senior pricing director, that indicated prices for those staples had been raised significantly beyond inflation rates.
But, Kroger said that Groffs email was misleading that the rise in egg prices was partly due to a severe outbreak of avian influenza that decimated bird populations. And that is true at least in part.
A USDA report from August 2024 confirmed that while egg prices in July 2024 were up 19.1% compared to the previous year, they remained below the peak prices seen in January 2023. The report projected further price volatility, with the likelihood of a 2.4% increase in 2024.
In a statement to Supermarket News, Kroger defended its pricing practices, asserting that it has a longstanding commitment to lowering prices through reduced profit margins.
Krogers attorney, Matthew Wolf, also fired back in his opening remarks, saying that the companys rising costs, including wages, warehouse fees, and transportation, have squeezed profits, not led to price gouging. Of course, the FTC didnt agree and its Deputy Chief Trial Counsel Susan Musser argued that the competition between Kroger and Albertsons helps keep prices low and that Krogers promises to reduce prices post-merger are unenforceable.
Pinning the tail on the wrong people?
Is Kroger correct in saying that theyre not the ones where the tail should be pinned? Possibly. There is data that clearly shows its at the mercy of certain food producers.
Notable examples include Tyson Foods, Heinz Kraft, and General Mills -- companies that saw theirprofit margins drop significantly leaving them little choice but to increase prices to cope with rising costs. And who's downhill from those increase? The grocers.
Joel Griffith, Research Fellow, Financial Regulations, Thomas A. Roe Institute for Economic Policy Studies,claimsthat grocer profit on $100 of sales is just $1.60 and that profit margins contracted as overall food inflation totaled 20.6% during the pandemic.
"The biggest grocers have experienced this margin crunch. The Kroger Co. eked out an operating margin of 1.93% this past year, a margin lower now than it was pre-pandemic. These trends are the opposite of gouging," Griffith argues.
Nonetheless, theres also data that suggests the entire spectrum of grocers should have a tail possibly pinned on them as a whole for continuing to raise prices post-pandemic. The White House Council of Economic Advisers reported that major grocery chains have been operating at the highest profit margins in two decades since the pandemic.
The profit vs. inflation math is puzzling
The funny thing is that overall inflation is slowly starting to cool, raising the question of why arent grocery prices coming down, too?
Phil Dean, chief economist at the Kem C. Gardner Policy Institute, says that what consumers dont understand is that when inflation is coming down, it doesnt mean prices are coming down, too.
Prices are still growing. Theyre just growing somewhat more slowly than they had in the last couple of years, Dean told the Deseret News. In fact, prices are still growing. Theyre just growing somewhat more slowly than they had in the last couple of years.
True. Just look at ConsumerAffairs grocery cart price indexpowered bygrocery price watcher Datasembly. The Index, which tracks the prices of 25 commonly purchased grocery items, rose only a few cents in July. But in August, the cost of those 25 items increased by $2.69 over July, a one-month increase of 1.7%
"Compared to August 2023, that shopping cart cost an extra $4.88, an increase of 3.1%. The data show the fight to tame inflation at the grocery store may be far from over," concluded ConsumerAffairs' Mark Huffman.
Photo Credit: Consumer Affairs News Department Images
Posted: 2024-09-17 15:33:41
