Written by : Amy Shen & Rijul Mahajan (Research Leads ), Arjun Tholakapalli, Veena Raigaonkar
In recent times, the rise in grocery prices has been labeled by the media, public, and political officials into what is known as price gouging. Price gouging is when retailers increase the prices of a good or service into what is considered higher than reasonable. This practice tends to happen during emergencies or shortages such that since the COVID-19 pandemic, public suspicions about price gouging have intensified. Therefore, it is essential to analyze U.S. economic data about grocery retailers to determine whether price gouging is genuinely occurring in 2024.
Price Gouging Misinformation
First, it should be noted that many news and media outlets strive to gain viewers through headlining an increase in grocery prices as price gouging. However, in most situations, the information in the articles does not provide supporting evidence, i.e. breakdowns of company financial statements, or a look into the rising costs of supply materials for a good. The media tends to focus on the rise in inflationary prices, or the item cost from now vs. previous years. Furthermore, considerable public and political discourse has been devoted to the issue of price gouging, particularly in light of the upcoming election. Hence, it is crucial to acknowledge that the topic of price gouging is often influenced by opinions and misinformation.
Hence, some of the articles cited in this writing contain public opinion. To ensure the most accurate information on price gouging, one should gather information about companies from databases such as FRED and the Census Bureau, to draw conclusions on the situation. Later in this article, information from these databases will be mentioned to help finally break down the question, is price gouging in grocery retail actually happening?
Price Gouging Claims from the Media
As reported in a Freight Waves article written by Michael Baudendistel titled “Are food companies guilty of price gouging?”, food prices within the Biden Administration have been raised 25-30% higher than what they were in 2019. Reasons for price raises can be attributed to increases in costs for component ingredients, manufacturing, labor, and sustainable packaging. During COVID, some CPG companies didn’t raise their prices fast enough when costs increased. This resulted in loss of profit during the pandemic. However, critics argue that companies are increasing prices to make up for the lost profit, leading to consumers buying cheaper brands and retailers selling at a higher price.
Kroger was recently in the spotlight as their executive, Andy Groff, admitted to price gouging in an anti-trust trial. As reported by CBS and Newsweek, the company increased prices for eggs and milk beyond inflation levels, aiming to pass on higher costs to consumers.
Price gouging or not, these high prices are becoming a crucial financial issue for consumers in their daily lives. According to CNBC, a recent poll from Kamala Harris’s campaign shows that 3 in 5 Americans (60%) think the country is in economic recession. Many households are failing to provide food for their families, primarily those with lower income.
Owing to the struggles that Americans have recently faced in high grocery prices, Vice-President Kamala Harris, also the running Democratic candidate for the 2024 Presidential Election, has proposed a ban on price gouging. As stated in The Wall Street Journal, Justin Lahart shares that a price ceiling would be imposed to implement a control on prices. However, economists contend that limiting a price can discourage sellers the amount of product that could get sold due to higher costs in supply. This would result in potential shortages for grocery items.
Producer Price Index (PPI) Trends in Retail Industry
Despite ongoing supply chain challenges retailers like Kroger are reporting higher profits, the Census Bureau’s Annual Retail Trade Survey showed that gross margins for food and beverage stores rose significantly from $213,407 in 2019 to $275,273 in 2022 – a 29% increase. This has raised concerns, reported by Newsweek, about whether these price increases were necessary or driven by the corporate strategy to boost profits at the expense of consumers.
The input price indexes from the U.S. Bureau of Labor Statistics for food and beverage stores, as reflected by the Producer Price Index (PPI) in 2019 to 2023, showed moderate increases, with some periods of slight decreases or minimal growth (Figure 1). The PPI rose by about 16% over this four-year period. In contrast, output prices, indicated by Gross Output data (representing sales or receipts), increased by about 24% during the same timeframe. This suggests that while input prices did rise, output prices for food and beverage stores grew at a faster rate, indicating that retail prices outpaced the costs of inputs during these years.
Figure 1 – Source: BLS
Data from the BLS (U.S. Bureau of Labor Statistics) on-Producer Price Index (PPI) and Gross Domestic Product (GDP) Gross Output Price Index provide further insights. Between 2019 and 2023, the PPI for food and beverage stores increased by approximately 15.7%, rising from an index value of 110.1 to 127.4. In contrast, the GDP Gross Output Price Index for the same sector increased by about 24.1%, from 104.2 to 129.3. As costs to produce and manufacture food and beverage products increased, the output price for those products also increased. In other words, the increase in cost to supply also increases the price of an item.
Additionally, data for the Producer Price Index (PPI) on Food and Beverage Retailers confirms that there was potential price gouging in the retail industry. This graph, which shows the year-over-year percentage change in the PPI, is crucial as it highlights the rate at which producer prices are increasing or decreasing, helping to gauge the rate of inflation and showing how rapidly prices are changing. Specifically, according to FRED, this data highlights the overall increase in PPI of about 7.3% from 2019 to May 2024 (Figure 2), the PPI percentage change explains otherwise (Figure 3).
Figure 2 - Source: FRED
Figure 3 – Source: FRED
Moreover, when comparing the PPI percentage change from 2023 to 2024, the graph shows a decrease in 18%. This implies that there is no current price gouging in the grocery retail industry because the absolute gross margin rate prices has decreased, even though prices remain elevated overall. Overall, although prices surged during the pandemic, the reduction in year-over-year percentage changes in 2024 indicates that grocery retailers are no longer aggressively raising prices.
Figure 4 – Source: FRED
Continued Elevated Food Prices
According to the Bureau of Labor Statistics, as of June 2024, food-at-home prices increased by 1.1% over the previous year, marking a significant slowdown from the 13.5% annual increase observed in August 2022. However, when compared to pre-pandemic levels, grocery prices have risen substantially. Between 2020 and 2024, based on the Bureau of Labor Statistics, food prices surged by approximately 23%. This cumulative effect means that, despite the recent deceleration in price growth, consumers are still paying significantly more for groceries than they did before the pandemic (Figure #5).
Figure #5 - Source: Bureau of Labor Statistics: Prices for Food and Beverages, 2020-2024
Egg Price Surge and Corporate Pricing Strategies
One of the most notable post-pandemic price spikes occurred in the egg market. In early 2023, egg prices increased by more than 59.9% compared to the previous year, largely due to the avian flu outbreak that wiped out millions of chickens, disrupting egg production. By January 2023, the average price for a dozen eggs had surged to $4.82, more than doubling from its 2022 price of $1.93 (Forbes). However, there is growing evidence that some companies may have capitalized on this crisis to inflate prices beyond what was necessary to cover increased costs.
Data presented by FRED compared the PPI on eggs vs. the average price for a dozen eggs using a percent change from a year ago (Figure 6). As producer price for eggs increase, the price of eggs would increase as well. For example, in January 2024 the PPI for eggs decreased at 49% meaning that the price of eggs decreased at 47%. Now as of September 2024, the PPI increased 121% which led to an increase in eggs price for 85%.
Figure 6 - Source: FRED
As previously mentioned, a Kroger executive admitted that the company had increased prices for essential items such as eggs and milk above inflation levels. The broader question of Kroger's potential price gouging goes beyond egg prices and can be examined by looking at the company’s gross margins, sales, and Cost of Goods Sold (COGS) on a quarterly basis since 2019. For example, Kroger’s Q2 2023 sales were $33.91 billion, with a corresponding COGS of $27.01 billion, yielding a gross margin of approximately 20%. Comparing this to earlier periods, such as Q1 2023, where sales were $45.27 billion and COGS $36.10 billion, the gross margin was about 20.3%. Despite the fluctuations in sales and COGS, the overall gross margins remained relatively steady around 20%, suggesting that Kroger's price increases were in line with inflation and cost changes, rather than excessive profit-taking (Figure 7).
Figure 7 - Source: FactSet
However, when evaluating Kroger's overall corporate pricing strategy through its gross margins, the data presents a more nuanced picture. Kroger's quarterly gross margins have remained consistent at around 20% from Q1 2023 through Q2 2024, with a slight uptick to 21% in Q4 2023. For instance, in Q2 2023, Kroger posted sales of $33.91 billion and COGS of $27.01 billion, maintaining a gross margin of 20%. This consistency in margins suggests that while price increases did occur, they were not significantly inflated beyond what was needed to cover rising costs, casting doubt on widespread price gouging accusations.
The company’s financials during this period do not show significant expansion in gross margins, which weakens the argument that Kroger engaged in widespread price gouging. While Kroger’s executive did admit to raising prices on key items like eggs and milk above inflation levels, the financial data does not strongly support the conclusion that the company’s overall pricing strategy was exploitative. The steady gross margins indicate that while price increases occurred, they were likely driven by legitimate cost increases rather than disproportionate profiteering. Afterall, with rising costs for name-branded grocery items, consumers would go for private label instead, where Kroger’s private label brands have helped them increase in revenues and gross margins overall.
Such accusations also lead to the question if other food and beverage retailers are taking practice in price gouging. However, Albertson’s fiscal year gross margin rate has seen a decrease since 2020 from 28% to 26% (Figure 8) in 2024 due their higher costs of goods sold which increased at $12,682.
Figure 8 – Source: FactSet
Consumer Impact and Behavioral Shifts
In response to these pricing practices, consumers have increasingly turned to discount retailers and private-label brands to stretch their grocery budgets. According to a survey by McKinsey & Company, 43% of consumers reported buying more store-brand products in 2023 than they did in 2020, as a way to cope with rising prices. Additionally, discount chains like Aldi have seen an increase in market share as consumers seek lower-cost alternatives to traditional grocery stores.
In conclusion, while there are numerous reports claiming price gouging in the grocery retail industry, these claims are unfounded. Data from FRED, the U.S. Bureau of Labor Statistics, and the U.S. Census Bureau indicate that the rise in prices is due to inflation, increased input costs, and supply shortages resulting post COVID-19. Therefore, it is important for readers to understand that when the term “price gouging” is used, it often reflects these factors rather than the practice of one retailer increasing a price vastly different than others in the market. Hence, there is no evidence to support the notion that retailers are engaging in price gouging.
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