"Profiteering" is not the reason for soaring grocery prices, study shows

A new study has debunked Vice President Kamala Harris’ attempt to blame corporate greed for surging grocery prices
By Sam Bourgi
•
11 September 2024
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grocery prices, inflation

Four years after Covid, Americans are still dealing with ever-growing grocery prices, but is corporate greed really to blame?

A new NPR study crunched the financials of large grocery chains and suppliers, including Walmart, PepsiCo, and Procter & Gamble, and found no evidence of "profiteering."

“[F]or almost all companies that NPR analyzed, between 2018 and 2023, the margins either declined or grew less than 1%,” the report said.

In other words, the profits of large grocery chains and supplies stayed mostly flat during and after the pandemic.

According to NPR, there are many other reasons why grocery prices continue to rise.

For one, growing competition for labor has led to a sharp rise in wages, a cost that's often passed on to the consumer in the form of higher prices.

Second, there are more dollars swishing around in the economy.

The combination of rising wages, pandemic relief checks, and higher savings has given Americans more spending power.

But it also means there are more dollars chasing fewer goods, which is a precursor to inflation.

“If supply is fixed and the buyers suddenly have more money, then prices are going to rise—and that’s kind of what happened,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, told NPR.

The study also pointed out growing demand for “private-label groceries,” which are cheaper than brand-name products.

As Creditnews reported in July, the prices of cheaper grocery brands have grown between 1.3 times and 1.9 times faster than expensive brands—a form of so-called “cheapflation.”

Penny businesses can’t price-gouge customers

The NPR study echoes a recent analysis by New York University, which found that the U.S. grocery industry had a net profit margin of just 1.18% in 2023.

Economists say such slim margins mean grocers aren’t benefiting from price gouging.

The increase in grocers’ profit margins “appears to be only a small contributor to the rise in food prices relative to the increase in their operating costs,” said New York Fed researcher Thomas Klitgaard.

Corporate leaders, including Target CEO Brian Cornell, say price-gouging isn’t a viable business strategy in such a competitive landscape.

“We’re in a penny business,” Cornell said, adding that there’s nothing stopping Americans from shopping elsewhere if they don’t like Target’s prices.

“Is there a more competitive space than retail? Big multinationals, local retailers [...] physical stores, digital stores” give shoppers more options, said Cornell.

Some experts believe government officials are deflecting responsibility by blaming corporations for higher prices.

According to MIT lecturer Mark Kritzman, 42% of the inflation spike since the pandemic has come from government spending, not corporate greed.

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