Grocery prices are 30% higher than just 4 years ago. In the wake of World War Two, the grocery industry was born to ensure a cheap, convenient and abundant food supply. Decades later, the same industry leveraged pandemic-related supply chain crises to raise prices and reap enormous profits, all while selling less food. Sustained higher prices are not only a burden on consumer budgets, but are also an ongoing policy failure by the Biden Administration.
The U.S. grocery industry is a $1.03 trillion behemoth. According to data shared exclusively with Forbes by NIQ, across all grocery categories in all channels of trade, prices are up nearly 30% since 2019, while unit volumes are flat. What does this mean? Average shoppers are spending more money and coming home with less food. And Ozempic has nothing to do with it.
Despite the illusion of variety, most grocery categories are dominated by a handful of consumer packaged goods (CPG) companies that own troves of familiar brand names.
Soft drinks provide a textbook example of CPG domination. The top 3 companies, Coca-Cola
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Kraft Heinz dominates the packaged cheese category at 65% market share. Category unit volumes are up just 6%, while prices are up 21%. That is exactly the intention. “We are not going to be chasing volume,” according to the Kraft Heinz CEO, “We’re going to be looking to drive profitable volume.” In 2022-2023 Kraft Heinz profits skyrocketed from $225 million to $887 million, an increase of 448%. Gross profit margins reached 34%, up 400BP over Q3 2022.
Similarly, chocolate candy sales are up 34%, unit volumes are down 8% and prices are up 46%. The top 3 companies, including Hershey’s, Mondelez and Mars, possess over 80% market share. Hershey’s CEO said in 2022, “Pricing will be an important lever for us this year and is expected to drive most of our growth.” Hershey’s saw a 62% increase in profits in 2021. Hershey’s 30 brands control at least 46% of the candy category.
Top 10 price increase and volume trends across all grocery channels, 2019-2023. Data Courtesy of … [+]
Boxed cereal dollar sales are up 17%, unit volumes are down 12% and prices are up 33%. The top 3 brands, General Mills
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Beef demand is highly elastic. As prices go up, volumes go down. According to NIQ, beef unit volumes are down 14%. Prices have gone through the roof, up over 50% in just 4 years. The average beef price per pound is now over $7. So it wasn’t Impossible Burger or cultivated lab meat that killed demand. And no wonder. The top 4 meat processors hold around 50% market share. Tyson Foods
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Beef prices have increased 50% since 2019 as processors leveraged supply chain shocks to raise … [+]
Diapers unit volumes are down 11.7% while prices are up 38%, to over $13 a pack. Proctor & Gamble (P&G) and Kimberly Clark control 70% of the domestic diaper industry. P&G prices have stayed high while lower input costs drove 33% of their profits. The brand predicted an $800 million windfall, and an executive recently mentioned, “We continue to believe that the majority of that growth will be price driven with a negative volume component.”
The NIQ data also articulates an important pattern. Further processed commodities show higher price spikes than their base ingredients. Milk unit volumes are down 5.8% and prices are up 23.8%, while yogurt unit volumes are down 10% and prices are up over 47%. Yogurt is also heavily concentrated as an industry, with the top 4 companies, Danone, General Mills, Chobani and Lactalis, possessing over 70% market share. Potatoes also illustrate this trend. Fresh potato unit volumes are up just 3%, yet prices are up 31%. Potato chips unit volumes are down 3.5% and prices up over 43%. And most shockingly, especially for lovers of tater tots, frozen potatoes are up over 65% in price.
Price hikes have also taken the form of smaller pack sizes at the same price, a practice known as “shrinkflation”. A study from the office of Senator Bob Casey found shrinkflation in many categories, such as household paper products, up 35% in price with 10% shrinkflation; salty snacks, up 26% in price with 10% shrinkflation; and cleaning products, up 24% with 7% shrinkflation.
Much of this pricing activity can be explained by sellers’ inflation.
This is pressure from suppliers to increase prices. How? Professor Isabella Weber explains “that supply shocks allowed corporations to tacitly collude, hike prices, and rake in record profits…This is a form of implicit collusion,” she said. “Firms do not even need to talk to one another to know that a cost shock is a great time to raise prices.”
Alex Turnbull, a commodities analyst, echoes this, “When you go from 15 to 10 companies, not much changes. When you go from 10 to 6, a lot changes. But when you go from 6 to 4 – it’s a fix.”
And the record profits Professor Weber mentions? Groundwork Collaborative recently found that corporate profits accounted for 53% of 2023 inflation. EPI likewise concluded that over 51% of the drastically higher inflationary pressures of 2020 and 2021 were also direct results of profits. The Kansas City Federal Reserve even pegged this around 40%, indicating that sellers’ inflation is now a pretty mainstream idea.
Typical inflation dogma is that consumer demand and labor costs drive inflation. Like Larry Summers would say, blaming business for it is “bad economics.” These orthodoxies are not supported by the math. Corporate profits as a share of the national income are at historic highs, while workers’ share is lower than before the pandemic. And labor shortages get a lot of media attention. Retail labor costs increased as food workers demanded better pay and benefits after getting stressed out, sick and even dying at work during the pandemic. But even if retail labor costs went up 50% across the board, this would result in price increases of just 5-10% at grocery stores, hardly justifying the price hikes in steaks, yogurt or hash browns.
While workers get disproportionately blamed for high prices, Wall Street profit rates are the highest since World War Two and stock buybacks are at record highs. Walmart’s
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Grocery price hikes are the result of sellers’ inflation and companies prioritizing profits over … [+]
Up to 4 out of 5 consumers believe that “greedflation” is rampant. Consumers are still citing food prices as their number one economic concern: 94% are worried about food prices. Share of income spent on food increased 13% in 2022. Two thirds of consumers are spending significantly more on groceries than last year. US household purchasing power slipped 7% in the first half of 2023. Over 70 percent of Americans are financially stressed, with 58% living paycheck to paycheck. Food insecurity impacts 27 million Americans, up 12% over the last year. Meanwhile, high interest rates, rising debt, historically high housing costs, resumption of student loan repayments and reductions in SNAP benefits are squeezing household budgets. More than 40 million people fell below the poverty line in 2022. The economy is softly landing on the backs of the working poor.
So where is this heading? The USDA thinks prices may come down a half percent or so in 2024. The two measures of food inflation, or the rate of price increases, the CPI and the PPI, have both come down since January 2023. But the CPI still sits stubbornly higher by 1-2% every month. Even in June, when the PPI nearly zeroed out, the CPI remained above 3%. This means that the rate of price increases passed on to consumers continue to exceed price hike rates received by manufacturers. Sellers’ inflation in a nutshell.
It doesn’t have to be this way.
While a growing number of U.S. grocers have been pushing back on price increases, the French government secured lower pricing pledges from 75 food conglomerates that produce over 80% of groceries. The French government has threatened to claw back profits from violators. With the support of the French government, mass market grocer Carrefour dropped several Pepsico products over price hikes. Tesco resolved a pricing dispute with Kraft Heinz after the CPG giant stopped shipping products to the chain, a week after Mars resolved a similar dispute. Mondelēz resolved a spat with Belgium grocer Colruyt after the retailer stopped sales of Oreos. Mars also stopped delivery of 300 brands to German discount chains when the retailers refused to pass price increases on to customers. In Austria, a coder built a simple online tool to track price changes at supermarkets. Maybe the USDA or FTC could put that fellow on retainer.
For Congress and the Biden Administration, which have more recently taken a harder look at price inflation, this is a missed opportunity.
So what now? Over 80% of voters want lawmakers to crack down on corporate price gouging. Washington State is sending checks to low income consumers, funded by price-fixing settlements with poultry and tuna companies. At the federal level, Congress could summon food executives to Capitol Hill and claw back price-inflated earnings. The USDA and FTC could scrutinize the practices that CPG, retail, and wholesale oligopolies employ to elbow out smaller competitors, starting with slotting fees and “category captain” arrangements.
The FTC, which recently published ambitious M&A guidelines, could investigate food price hikes under Section 5 as “invitation to collude”. Congress could resurrect Robinson-Patman to scrutinize how bigger chains demand better deals, fill rates and payment terms at the expense of competitors. Or regulators could tweak the Sherman Act and police pricing on behalf of consumers. Congress could universalize SNAP and subsidize the difference that households are spending on groceries now versus in 2019. Or for just $80 billion or so, they could make fresh produce free. Such “culinary Keynesianism” sounds steep, but would still be a lot less expensive than the bipartisan $150 billion increase in federal military spending since 2019.
Beyond scolding food executives, there is plenty that Congress and the Biden Administration could do to actually make food affordable. But for the time being, missed opportunities mean prices will stay high. Millions will struggle to afford to eat. And so, cheap food is dead. RIP Cheap Food.