Grocery stores aren’t the most lucrative industry. They have a profit margin of only one percent. So when they get charged higher prices by suppliers, they have no choice but to pass those costs on to consumers.
But for political gain, Senator Elizabeth Warren (D-Mass.) is trying to blame grocery stores for high prices. On January 7, Warren tweeted a video clip from her appearance on MSNBC last week.
“What happens,” she asked, when “grocery store chains like Kroger dominate an industry? They can force high food prices onto Americans while raking in record profits.” She called for the use of the government’s antitrust power to “break up” grocery chains like Kroger.
Last year, Warren sent a letter to three grocery chains (Kroger, Albertsons, and Publix) condemning them for “passing costs on to consumers” and “taking advantage of inflation.”
But as Reason Magazine notes,
Warren could hardly have picked a worse industry to use as an example: Grocery stores consistently have among the lowest profit margins of any economic sector. According to data compiled this month by New York University finance professor Aswath Damodaran, the entire retail grocery industry currently averages barely more than 1 percent in net profit. In its most recent quarter, Kroger reported a profit margin of 0.75 percent, during a time in which Warren claims that the chain was “expanding profits” due to its “market dominance.”
In actuality, for much of the last year, grocery stores have seen enormous boosts in revenue, but not increased profitability, for the simple reason that everything has been costing more: not just products, but transportation, employee compensation, and all the extra logistical steps needed to adapt to shopping during a pandemic. Couple that with persistent inflation…. In 2019…[Warren] called for using the laws to forbid retailers from selling their own products. This would affect industry leaders like Amazon and Walmart, but ironically, it would have a devastating impact on grocery stores as well: Grocers increasingly rely on their own proprietary goods to stock cheaper alternatives alongside name brands. This provides not only less expensive options for consumers, but lower costs to the stores themselves. Store brands also help fill gaps created by external supply shortages.
If Warren wishes to truly rein in the costs of Americans’ groceries, the solutions are clear: Cool off inflation by paring back profligate government spending; remove protectionist restrictions to allow industries to get the supply chain back on track; in the longer term, cut back on red tape to better allow competition among suppliers.
But Warren won’t do any of that. For example, she voted for the $1.9 trillion Biden stimulus that helped increase the inflation rate and massively increased the size of the federal budget deficit.
