Kamala Harris announced her new Trump-killing populist economic plan today:
Harris’s most surprising policy announcement was her plan to ban “price gouging” in grocery and food prices. While details were sparse, the measure would include authorizing the Federal Trade Commission to impose large fines on grocery stores that impose “excessive” price hikes on customers, her campaign said.
Hmmm. Is it true that grocery stores have been gouging us? Let's take a look at grocery store profits:
This is from an industry trade group, and it looks like maybe grocery stores were gouging us during the COVID outbreak, just like everyone else seemed to be doing. Corporate America must be yearning for another pandemic to bring back those good old days.
But that didn't last, and net profits now are back to their historical average. That's a pretty good sign that prices are back to normal too. On the other hand, there's this from the FTC:
Grocery store markups increased moderately during the pandemic and have stayed elevated ever since.
So take your pick. I'm inclined to give more weight to net profits, since it includes everything by definition. But there's one thing we can all agree on: grocery chains sure took advantage of pandemic shortages to screw their customers. They deserve some time in the barrel.
As another commenter put it elsewhere, it's not Giant and Aldi gouging prices, but Kraft and Nestle.
Yeah, there Are like what 3 companies at most controlling 80% or more of the market in every category?
But is the problem solely with the grocery stores? Big Food really went to town on price increases while they could get away with it....
3.5% net profit (before taxes…) is gouging??
I wouldn't say so. But I'm a "greed is good" guy.
Grocery stores are notoriously low margin endeavors--and makes money on volume. Why? Many items can spoil, so the they keep having to move product.
If a store has a ~2% margin on potatoes, and sale $1020 worth, they'll make $20 on a $1000 investment. If they can do that every day for a month, then that $1000 investment, re-invested every day, turns into $600 profit for that month--not a bad ROI. Up that to ~3%, and then it's a $900 profit on an initial $1000 investment. Now if you add up all the times that initial investment was re-invested, it would look like $30,000 invested yielded $900, i.e. only 3%.
You're not going to be able to do that every day for a month. And all it takes is for one shipment of bad potatoes or a shop lifter and your $600 dollar profit turns into a 400 dollar loss. And how many consumers are going to really notice a shopping bill of $101 versus $100. that's not the type of difference driving consumer complaints.
A shoplifter taking $1000 in potatoes?
That being said, this proposal is the stupidest thing Harris has come up with, and I hope that should she win, she'll just forget about this unenforceable and pointless plan.
I mean, how much money can you get by shrinking the markup from 6%? Perhaps 2%?
Stores have to take "shrinkage" into account.
Bird flu really affected prices for eggs and chicken, and people really noticed that. And there's a lot of market concentration in beef, pork and chicken markets along with all the snack foods. There are some smaller players, but there's no way they can ramp up production to compete with the big players.
There is the third leg of the grocery industry. Like most consumer industries its the consumer, the store and the investors. Right now the investors are the primary cause of foodflation. There have not been any huge disruptions of the food chain since we recovered from COVID.
I did find it interesting that WalMart has "rolled back" pricing on quite a few items. Now I wouldn't buy fresh meats or vegetables from WalMart but canned goods and sundries I don't have a problem with.
It seems to me that other retailers have kept prices artificially high as well. I look at Lowes and Home Depot and know many who work for both places. Markup on lumber is sill very high according to most people who work at those stores.
My "take" on this is - if, IF you had a cost conscious CEO and the company was privately owned pricing COULD be a lot lower than the big box retailer. The problem is that NO ONE wants to come out and say this.
The question is how much profit do you want to make?
The free market is not so free it appears. Wherever you turn companies like Home Depot and Lowes are "comp shopping" each other and pricing seems to rise and fall in lock step with each other.
Its frustrating
No one if going to lower prices if they don't have too. It's not like they'll pick up a ton of market share if their competitor can meet the lower prices too. Also, most places don't have the capacity to handle any big increase in market share. Big Box stores move into new territory and drive out local businesses, but that's mapped out years in advance.
It's not a free market when 6 companies own the means of production across hundreds of thousands of brands.
Back when I was working in the marketing and advertising industry it had devolved into a series of large holding companies which just bought out all the smaller shops. Between these large holding companies they raised prices so that small companies who were out-competing them on price were part of the "family" and were now priced evenly. The result was a floor on prices controlled by holding companies. Clients had no where else to go.
Strikes me as pretty smart politics to rail against "price gouging" but impose a rule that leaves some discretion about what an "excessive" price hike is. For instance, when DJT talks about bacon prices you can say Kamala said that's price gouging but when it comes to actually imposing fines somebody can point out KD's items and say the price hikes aren't really that excessive.
But maybe I'm just an old neo-liberal.
I don't know how much gouging is going on in grocery pricing. Maybe a little, maybe a lot. I'm not sure it matters, and whether the new proposal is a big help to consumers, we'll see. People ought to wait for details before criticizing the proposal. What it most likely is not, is "price controls," even if people who ought to know better are calling it that (Noah Smith, Catherine Rampell).
Why I think today's Harris proposals are important is that they signal we're in a new era. The time when big companies could do whatever they want while consumers had little recourse and government was reluctant to get involved except in the most egregious cases is over.
A lot of the shift began under Biden. Harris is going to take it further. People will call her a communist and they already are. But a new sheriff is coming to town. A change is overdue. We need some new thinking.
The purpose of a business is to create and keep a customer, not to extract every last dollar from the customer's wallet. (If you think it's the latter, you'd have flunked Bus 101 where I went to school.)
Since high prices/inflation are the subtext here, a fitting chart for where we are in historical cycles:
https://x.com/TBPInvictus/status/1824519497354465370
I've long thought the closest parallel for the Biden presidency was Reagan's. See historian Stephen Skowronek for the details. Anyway, this is one more way the two are alike. Neither was recognized as a great success during his first (or only) term. Looking back, it's been (or will be) a different story.
Reagan wasn;t seen as a success during his first three years in office. during that 4th year everyone came to realize his tenure represented a success. (entirely because of the Carter appointed Volcker as head of the Fed, but that's another story.)
Reagan wasn't a success unless we're talking about for the right wing project to transform society.
For the rest of us, and for the common good, he was (and remains) an abject failure and brutalizing enemy.
Grocery stores are spending more on services they rolled out for the first time (in most areas) during the pandemic - curbside pickup and home delivery. So net profit % makes more sense.
In this case, I don't think the grocery stores were the only gougers. Food producers and wholesalers all joined in.
I don't think an increase in profit margin of 1% meets the definition of gouger. Consumer's aren't even going to notice a 1% change in their grocery bill.
Exactly. Why can so few people figure out how much prices will go down if you reduce a markup by 1%?
Grocery corporations were gouging their customers and would continue to gouge them if those customers had not stopped not caring how much something they wanted cost and delayed gratification. For a while during the Covid aftermath Americans were willing to pay any price for what they wanted and the grocery and restaurant corporations obliged this quest for consumer prestige with high prices.
Actually there was some funny business going on at various food industry groups. The WA AG sued several consortiums covering poultry, eggs, salmon(!), etc. The investigations started in late 2020 and settlements started coming down in 2023. The Seattle Times covered the WA AGs work to claw back excess markups.
I did a wider search and it turned out a number of state AG offices had also investigated and reached settlements as the prime producers got greadier with the cover from the pandemic.
IIRC the poultry and egg suppliers blamed avian flu for the chicken and egg shortages and markups. Too bad they were ALSO bragging about their big profits to investors. Those mandatory 10-Q quarterly reports and yearly corporate reports blew that scheme wide open.
Mr general theory of the Covid era inflation and gouging is simple: price stickiness.
Normally B2B prices change slowly, usually declining, and are based on medium or long term contracts. The Covid economic shock upended this shook a lot of rust out of the system. During the chaotic price resetting many firms were able to pad their margins for a while, but now things are sorting themselves out again.
The reality is that price increases are coming mainly on name brand processed food and sugar drinks - things people don't actually need, but love to buy.
What about the shrinkage? And I'm not talking about the pool or shoplifting.
"...But there's one thing we can all agree on: grocery chains sure took advantage of pandemic shortages to screw their customers. .."
So you think their customers would have preferred empty shelves?
Again, averaging stores that aren't gouging with ones that are isn't going to show! Nor will it show any cornered market from distributors or manufacturers.