Who should a price-gouging crackdown hit, the stores or the brands?

Selling food to a grocery store is generally more lucrative than running one.

via Sherwood news

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Who should a price-gouging crackdown hit, the stores or the brands?

Selling food to a grocery store is generally more lucrative than running one.

J. Edward Moreno

8/21/24 12:06PM

Grocery stores are worried they’re going to be caught in the crossfire as talks of a price gouging ban take aim at corporate greed. 

Vice President Kamala Harris proposed a ban on price gouging on food and groceries, a policy proposal that comes when high prices have Americans on edge. Importantly, she didn’t specify what “opportunistic companies” the proposal would target, leaving it to speculation.

That’s an important distinction: Food suppliers, which operate at higher margins, tend to be the ones being accused of raising prices to unreasonable levels. Grocery stores, which already operate on razor-thin margins, think this proposal is pointing the finger at them. 

The National Grocers Association, a trade group that represents independent grocers, called the proposal “a solution in search of a problem.” The Food Industry Association, which represents food retailers, said Harris was conflating inflation with price gouging.

Grocery stores have reason to believe the government may be coming for them. The Federal Trade Commission has challenged a proposed merger between Kroger and Albertson’s, two of the country’s largest grocery chains, in part because it believes it would lead to higher prices. The FTC has also started probing “surveillance pricing” at grocery stores.

But feeling sticker shock while shopping for groceries doesn’t necessarily mean that the store itself is responsible for that.

A grocery store like Safeway or Walmart buys its products from a manufacturer like General Mills or Kelloggs. If the manufacturer raises its prices (as they have) then the grocery stores have to as well, or else they lose money. The stores also have some ability to negotiate those prices.

To be clear: low margins does not necessarily mean a lack of profit. Grocery stores rely on selling a high volume of products at low margin to keep profits up. But for a grocery store working with margins often lower than 2%, there isn’t as much room for them to set prices any lower than what they bought an item for.

“No single entity is to blame for food prices soaring more than 20% since the pandemic, and it’s a question economists will likely continue to study for years to come.”