The Tellingingly Absurd Attack on American Grocery Stores
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pDear Capitolisters, /p
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pAs you’ve probably seen, the Biden administration and various Democratic politicians have pivoted from pretending that inflation is NBD to blaming it on greedy corporations raking in record profits at COVID‐stricken consumers’ expense. However, the claims of bad behavior about one industry in particular—U.S. supermarkets—say anbsp;emlot/emnbsp;more about the accusers than the accused, and undermine their broader case for expanding U.S. antitrust laws to attack corporate “bigness.”/p
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pThe pandemic undoubtedly changed the U.S. grocery picture since 2019, but not necessarily in Big Grocery’s favor. /p
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pstrongGrocery Gouging?/strong/p
pProbably the most prominent example of recent political attacks on U.S. grocery store chains comes from Massachusetts Sen. Elizabeth Warren, who not only tweeted about the situation but also sent anbsp;a href=https://thehill.com/homenews/senate/586710-warren-accuses-supermarket-chains-executives-of-profiting-from-inflation target=_blanksternly worded letter/anbsp;to the heads of Kroger, Albertsons, and Publix about how they reaped “massive profits” and “push[ed] grocery costs increases onto consumers” in 2021:/p
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blockquote class=twitter-tweetp lang=en dir=ltrBig grocery chains reaped record profits in 2020. Then they had anbsp;choice: Use those profits to keep prices lower while properly protecting amp;nbsp;compensating their workers, or reward top execs amp;nbsp;investors. They picked Door #2—and it‘s driving up prices.a href=https://t.co/orW8VRJ7x3https://t.co/orW8VRJ7x3/a/p— Elizabeth Warren (@ewarren) a href=https://twitter.com/ewarren/status/1474105308905680909?ref_src=twsrc%5EtfwDecember 23, 2021/a/blockquote
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pWarren may be the head cheerleader of the Democrats’ grocery gambit, but she’s certainly not alone. Indeed, the Federal Trade Commission—fresh offnbsp;a href=https://capitolism.thedispatch.com/p/antitrust-is-so-hot-right-now-three target=_blankexpanding/anbsp;its regulatory powers last June—has alsonbsp;a href=https://www.nbcnews.com/business/consumer/food-suppliers-blame-inflation-price-hikes-lawmakers-say-padding-bill-rcna9200 target=_blankgotten in on the act/a:/p
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pIn late November, the Federal Trade Commission announced anbsp;wide probe into the grocery industry, asking nine key players to provide “detailed information to help the FTC shed light on the causes behind ongoing supply chain disruptions and how these disruptions are causing serious and ongoing hardships for consumers and harming competition in the U.S. economy.” The agency sent the orders to Walmart, Amazon, Kroger, Camp;S Wholesale Grocers, Associated Wholesale Grocers, McLane Co., Procter amp;nbsp;Gamble, Tyson Foods and Kraft Heinz./p
pAlleged anti‐competitive behavior by larger supermarkets has also driven up the cost of gas and extended travel times for especially rural and lower‐income customers who must search further to get essential and at‐times hard‐to‐find items like paper products and meat that “power buyers” have muscled away from smaller stores, local and regional grocers described in comments submitted to the FTC in late September./p
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pYet there is little evidence that the U.S. grocery store market suffers from anbsp;troubling bout of anti‐consumer concentration lining the pockets of profiteering corporations and their fat‐cat CEOs. For starters, thenbsp;a href=https://www.ers.usda.gov/topics/food-markets-prices/retailing-wholesaling/retail-trends/ target=_blanklatest data from the USDA show/anbsp;that there were anbsp;whoppingnbsp;em115,526 retail stores/emnbsp;selling food in 2019 (the last year of data available). That’s about one store for every 1,000 U.S. households, the vast majority of which are traditional grocery stores:nbsp;/p
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pThe USDA adds that anbsp;handful of big grocery companies account for anbsp;significant portion of stores and sales,nbsp;embut/emnbsp;the industry is hardly “concentrated” in any serious sense, with the top eight companies winning only about half of all U.S. grocery sales in 2019 (and only increasing about 10 percentage points over the last two decades):/p
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pAs the above chart shows, moreover, the marketnbsp;emreally/emnbsp;diversifies after that: The next 12 grocery companies had only another 10 percent of the market, and the remainder was occupied by all sorts of other grocery options./p
pAnd speaking of those options…nbsp;/p
pThe pandemic undoubtedly changed the U.S. grocery picture since 2019, but not necessarily in Big Grocery’s favor. Most notably, many Americans werenbsp;a href=https://www.supermarketnews.com/online-retail/e-commerce-account-20-us-grocery-market-2026 target=_blankpushed into to shopping online/anbsp;for their groceries—at their preferred brick‐and‐mortar supermarkets, superstores like Target and Walmart (the largest grocer by sales),nbsp;emand/emnbsp;at online only options—including not only established players like Amazon but anbsp;bunch ofnbsp;a href=https://en.wikipedia.org/wiki/List_of_online_grocers#USA[17] target=_blanknewcomers/anbsp;like Thrive Market, Fresh Direct, Shipt, and Boxed./p
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pIndeed, anbsp;brand new national survey finds that Amazon ranked first and fifth in terms of overall grocery customer satisfaction (including price, digital options, quality, convenience, speed, operations, discounts, and rewards):/p
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blockquote class=twitter-tweetp lang=en dir=ltr“Amazon was the No. 1nbsp;grocery retailer in the United States, according to anbsp;nationwide study focused on customer satisfaction in the grocery market.” a href=https://t.co/oU1b18aznIhttps://t.co/oU1b18aznI/a a href=https://t.co/W3f2Y2wYBXpic.twitter.com/W3f2Y2wYBX/a/p— Scott Lincicome (@scottlincicome) a href=https://twitter.com/scottlincicome/status/1483805295222706176?ref_src=twsrc%5EtfwJanuary 19, 2022/a/blockquote
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pThe survey results also show the variety of U.S. grocery options—with several “big box” retailers also making the list. (I love me some Costco produce and meat.) Back to e‑commerce, the linked article notes that “digital’s share of grocery sales more than doubled” in recent years, and that Amazon received its top‐ranking (for the second year) in anbsp;row because of its low prices./p
pConsumers win again!/p
pOft‐maligned “dollar stores” have alsonbsp;a href=https://twitter.com/scottlincicome/status/1428777056821817345?s=20 target=_blankgotten/anbsp;into the grocery game during the pandemic, adding to the list of “non‐traditional” food retailers like drug stores and gas stations (both of which also are offering more “grocery‐style” food options these days). And then, of course, there are the “mom and pop” specialty stores and farmers markets that provide even more choice and competition in many markets—the kinds of local alternatives that, along with the big national chains, have been shown tonbsp;a href=https://www.cato.org/economic-policy-brief/does-rising-industry-concentration-signify-monopoly-power#falling-local-concentration target=_blankrebut/anbsp;broader “market concentration” allegations that look at only national‐level data./p
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pIndeed, it was just this type of thick, multifaceted competition that pushed many supermarkets intonbsp;emsuppressing/emnbsp;price increases over the last year—exactly the opposite of what Warren and the FTC appear to be claiming:/p
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blockquote class=twitter-tweetp lang=en dir=ltr“So far consumers have yet to see the same price increases confronting supermarket operators, as grocers said they hold down some prices to better compete against discount or low‐price chains…brbr‘If Walmart raises prices, so will we’nbsp;” a href=https://t.co/EHPhXVMludhttps://t.co/EHPhXVMlud/a/p— Scott Lincicome (@scottlincicome) a href=https://twitter.com/scottlincicome/status/1412779871684673542?ref_src=twsrc%5EtfwJuly 7, 2021/a/blockquote
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pThe grocery industry’s financials also provide little reason for concern—even during the pandemic. For example, supermarkets historically have some of the lowest net profit margins (sales revenue minus costs, expenses, and taxes, divided by total sales) of any industry in the United States, averaging about 2.2 percent per year going back anbsp;decade or more. This is because, as helpfullynbsp;a href=https://thegrocerystoreguy.com/what-is-the-profit-margin-for-grocery-stores/#:~:text=Conventional%20grocery%20stores%20have%20a,closer%20to%205%2D10%25. target=_blankexplained/anbsp;by former grocery store manager Jeff Campbell, grocery chains make their money by maximizing total sales (revenue) across multiple outlets, and taking anbsp;tiny sliver of profit per sale. The industry model is one literally designednbsp;emnot/emnbsp;to “gouge” consumers./p
pPandemic‐related restaurant closures increased grocery store sales (and thus total—“gross”—profits) since 2020, but these companiesnbsp;emalso/emnbsp;had higher costs—including brand new ones like extra cleaning or PPE (e.g., “free” masks at the entrances). In other words, big grocery corporations took in more moneynbsp;embut also spent more money/em, so just looking at their total sales or even gross profits tells us very little about whether the industry suddenly decided to turn on the Greed Machine. The demagogues ignore all of this.nbsp;/p
pAccounting for these costs and increased sales reveals the emptiness of the recent attacks on Big Grocery. Per the latest industry‐wide data fromnbsp;a href=https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/margin.html target=_blankNYU’s Stern School of Business/a, for example, the “Retail (Grocery and Food)” industry’s latest net profit margins were actually lower (1.1 percent) than they were in the pre‐pandemic surveys:/p
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pThe NYU data also show that the grocery store industry actually has some of the lowest profit margins of any industry in the country—ranking 86th of the 96 industries surveyed. (As an aside, let’s also note that the 15 “food wholesaler” companies surveyed had an even lower net profit margin at only 0.69 percent, while “food processing” companies had higher net profits (8 percent), but that was actuallynbsp;emdown/emnbsp;from aboutnbsp;a href=http://web.archive.org/web/20190129181015/https:/pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/margin.html target=_blank12 percent/anbsp;in 2019.)/p
pKroger, the largest U.S. grocery store chain and target of Sen. Warren’s Twitter ire,nbsp;a href=https://ycharts.com/companies/KR/profit_margin target=_blankenjoyed/anbsp;similar profit margins over the last several years, with its latest (third quarter 2021) hitting 1.67 percent and coming in just anbsp;smidge below its average since 2009 (1.67 percent) and above its median (1.45 percent) over the same period. Kroger’s largest public competitor, Albertsons,nbsp;a href=https://ycharts.com/companies/ACI/profit_margin target=_blankhit all of 2.5 percent/a—above its average net profit but still hovering right around the industry’s historical standard.nbsp;/p
pThese consistently low profit margins are anbsp;good indication that, far from being hyper‐concentrated and ruled by greedy, price‐gouging fat cats, the grocery business is one of the more competitive and consumer‐friendly industries in the country. (Just ask literally any foreigner who visits here.) If it weren’t so competitive, we’d probably expect to see higher profit margins—compared to pre‐pandemic trends and the margins of other industries. Indeed, profit margins were the primary evidence cited by the White House in itsnbsp;a href=https://www.whitehouse.gov/briefing-room/blog/2021/12/10/recent-data-show-dominant-meat-processing-companies-are-taking-advantage-of-market-power-to-raise-prices-and-grow-profit-margins/ target=_blankrecent broadside/anbsp;against the meatpacking industry’s market concentration. (Those allegations are more complicated and raisenbsp;a href=https://twitter.com/jmhorp/status/1481624218521513984?s=20 target=_blankplenty/anbsp;of theirnbsp;a href=https://twitter.com/CompetitiveAg/status/1481004134480240642 target=_blankown concerns/a, but still …)/p
pIndeed, the industry’s business model and competitiveness help to explain why, as discussed innbsp;a href=https://capitolism.thedispatch.com/p/the-joy-and-luxury-of-growing-food target=_blankprevious/anbsp;a href=https://capitolism.thedispatch.com/p/giving-thanks target=_blanknewsletters/anbsp;on our increasing material abundance, grocery inflation and food prices in the United States have beennbsp;a href=https://fred.stlouisfed.org/series/CUSR0000SAF11#0 target=_blanktame/anbsp;for decades now—with growth even going negative anbsp;few years ago:/p
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pLook at all that monopolism and stuff!/p
pstrongBroader Lessons Abound/strong/p
pWhile the claim that Big Grocery has suddenly turned on its anti‐consumer Greed Machine during the pandemic is pretty ridiculous, itnbsp;emdoes/emnbsp;offer some broader lessons about inflation and the new “hipster antitrust movement.”/p
pFirst, there is just some terrible economic thinking going on here. As Inbsp;told yournbsp;stronga href=https://morning.thedispatch.com/p/the-morning-dispatch-senate-democrats target=_blankMorning Dispatch/a/strongnbsp;crew, the grocery store demagoguery—along with the broader claims that inflation is primarily due to greedy corporations exerting their market power in certain industries—reflects anbsp;pretty basic misunderstanding of inflation as anbsp;microeconomic (developments in individual markets) phenomenon as opposed to what itnbsp;emactually is/em—a primarily macroeconomic (determined in the aggregate) one. In this regard, Inbsp;redirect your attention to thisnbsp;a href=https://twitter.com/jasonfurman/status/1458886062890270720 target=_blankilluminating Twitter thread/anbsp;from Harvard’s Jason Furman, in which he explains how—absent some increase in aggregate demand like fiscal stimulus or expansionary monetary policy—rising prices in one sector (say, groceries) would simply lead to lower prices in another sector (say, automobiles) and thus keep overall inflation steady because consumers would have fewer dollars to spend on the latter after paying for the former. That’s decidedlynbsp;emnot/emnbsp;what’s been happening over the last year or so: Prices are increasing across anbsp;variety of goods and services, with early spikes in some industries often replaced by others in subsequent months. There’s just no way “greed” in any one sector can explain it, as economist John Cochranenbsp;a href=https://johnhcochrane.blogspot.com/2022/01/fiscal-inflation.html#more target=_blankjust explained/anbsp;in anbsp;new paper:/p
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pMuch analysis misses the difference between relative prices and inflation, in which all prices and wages rise together. Anbsp;supply shock makes one good more expensive than others. Only demand makes all goods rise together. There wouldn’t be “supply chain” problems if people were not trying to buy things like mad! Anbsp;shift in demand from services to durables can make durable prices go up. But it would make services prices go down. And let us not even go down the ridiculous path of blaming inflation on anbsp;sudden contagious outbreak of “greed” and “collusion” by businesses from oil companies to turkey farmers, needing the administration to send the FTC out to investigate./p
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pYet even if we accept that higher prices since early 2019 are primarily supply‐side problem (as opposed to anbsp;demand‐side one driven by stimulus), the “concentration” theory suffers from two other flaws: timing (why did these long‐dominant firms just start hiking prices now?) and composition (why are all sorts of other things—like used cars and furniture—also increasing at anbsp;similar rate?). Indeed, anbsp;quick look at the latestnbsp;a href=https://www.bls.gov/charts/consumer-price-index/consumer-price-index-relative-importance.htm target=_blankCPI figures/anbsp;show quite plainly that food prices are in no way outliers and, in fact, are slightlynbsp;emunder/emnbsp;trend over the last year:/p
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pThe sizes of the bubbles above also show quite plainly that groceries (“food at home”) are of only modest importance to the overall CPI number (about 7.7 percent of the total)./p
pIt’s these basic economic principles and accompanying data that explain why, in anbsp;recentnbsp;a href=https://twitter.com/crampell/status/1481280359966904328/photo/1 target=_blankIGM Chicago survey/anbsp;of leading economists, the vast majority of respondents disagreed with the claims that “dominant corporations” were a “significant factor behind today’s higher US inflation” or that antitrust interventions could reduce inflation:/p
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pAs several of the respondents note in the comments, rising industry concentrationnbsp;emmight/emnbsp;cause high food price levels, but it can’t possibly explainnbsp;emincreasing food prices right now/em—especially in the face of years of pre‐pandemic price moderation. It just makes no sense./p
pSecond, the grocery store stuff reveals just how much of anbsp;problematic mess “hipster antitrust” really is. For example, the article up topnbsp;a href=https://www.nbcnews.com/business/consumer/food-suppliers-blame-inflation-price-hikes-lawmakers-say-padding-bill-rcna9200 target=_blanknotes/anbsp;that one goal of the FTC’s action to reduce corporate concentration in the U.S. grocery market MAY be to help smaller “local and regional” players (and presumably boost their U.S. market share). Yet doing that would probably harm American consumers bynbsp;emraising prices/em—precisely the opposite of what Warren and others worried about “food inflation” presumably want! As Campbell and others have explained, big grocery chains have kept U.S. food prices so low by being big and lean: With hundreds of stores, they can get quantity‐based discounts from major suppliers and spread out corporate administrative costs across the entire company. They also feature more packaged items to avoid spoilage and keep labor costs lower, and typically lack the bells and whistles that upscale grocers (e.g., Whole Foods) and specialty shops feature. Sure, that means anbsp;less exciting customer experience, but it also means much lower prices and higher consumer satisfaction overall—as the survey above shows. It also surely doesn’t stop us from frequenting both the big guys and the smaller ones, as the market is segmented into two distinct, but complementary ones: cheap bulk stuff and pricier specialty items (as my own local/Whole Foods, Food Lion, and Costco receipts can attest)./p
pThat Warren, the FTC, and others would target, contra all the evidence, grocery stores for antitrust scrutiny also reveals just how susceptible the law is to politicization now that it’s untethered from the simple and objective “consumer welfare” standard that guided antitrust for decades. Indeed, just as these newfound “inflation hawks” bash Big Grocery, theynbsp;a href=https://www.cato.org/commentary/antitrust-so-hot-right-now-three-reasons-it-should-cool target=_blankignore/anbsp;all of the other U.S. policies—steel andnbsp;a href=https://www.seattletimes.com/opinion/tariffs-on-canadian-lumber-are-driving-up-home-prices/ target=_blanklumber/anbsp;tariffs,nbsp;a href=https://capitolism.thedispatch.com/p/kelloggs-christmas-cookies-and-americas target=_blanksugar quotas/a,nbsp;a href=https://reason.com/2022/01/13/grocery-shelves-empty-immigration-waitlists-full/?utm_content=bufferde9f4amp;utm_medium=socialamp;utm_source=twitter.comamp;utm_campaign=buffer target=_blankimmigration restrictions/a, etc.—that actuallynbsp;emdo/emnbsp;raise prices, hurt consumers, and likelynbsp;a href=https://www.cato.org/blog/senator-hawley-hates-monopolies-loves-freedom-except-when-he-doesnt target=_blankincrease market concentration/a. (a href=https://capitolism.thedispatch.com/p/us-steel-and-the-ubiquitous-market target=_blankTariff‐protected stee/al actually sawnbsp;emmuchnbsp;/ema href=https://twitter.com/scottlincicome/status/1481997309982425102?s=20 target=_blankhigher prices/anbsp;andnbsp;a href=https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/margin.html target=_blankprofits/anbsp;last year, yet nobody seems to care about domestic producers’nbsp;a href=https://twitter.com/scottlincicome/status/1465691954977644546?s=20 target=_blanklongstanding anti‐consumer stranglehold/anbsp;on the U.S. market!) Removing these microeconomic impediments probably wouldn’t dampen overall inflation much, but itnbsp;emwould/emnbsp;lead to lower prices in the deregulated industries. Yet none of the grocery demagogues seem to care./p
pIf the feds can brush these policies/industries aside and instead go after the American grocery market—a low‐margin, dynamic, diverse world of low prices and global abundance!—when political necessity demands it, whatnbsp;emcan’t/emnbsp;they go after?!nbsp;/p
p(Spoiler: Nothing.)/p
pstrongChart(s) of the Week/strong/p
pa href=https://qz.com/2113627/chinas-strong-gdp-in-2021-comes-with-a-record-low-birth-rate/ target=_blankChina’s demographic challenges continue/a/p
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pstrongBonus Chart of the Week/strong/p
pa href=https://t.co/uzj91VIrWh target=_blankGood and easy to win:/a/p
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pstrongThe Links/strong/p
pa href=https://twitter.com/Neil_Irwin/status/1481983584252665856 target=_blankMore on consumers (not government) saving Christmas/anbsp;(a href=https://twitter.com/DanielBZhao/status/1481983305046233092?s=20 target=_blankchart/a)/p
pa href=https://bloomberg.com/news/articles/2022-01-16/record-ships-sailed-suez-canal-in-2021-despite-ever-given-saga target=_blank“Record Ships Sailed Suez Canal in 2021 Despite Ever Given Saga”/a/p
pa href=https://twitter.com/ModeledBehavior/status/1481633451224797185 target=_blankUpwork’s Adam Ozimek on offshoring and remote work/a/p
pa href=https://t.co/nAgUgBrybY target=_blankTrump’s Phase One deal is officially anbsp;flop/a/p
pa href=https://www.piie.com/blogs/realtime-economic-issues-watch/chinas-looming-property-crisis-threatens-economic-stability target=_blankMeanwhile, ““China’s looming property crisis threatens economic stability”/a/p
pa href=https://nationalreview.com/corner/americas-most-automated-port-had-its-most-productive-year-in-2021/ target=_blank“America’s Most Automated Port Had Its ‘Most Productive Year’ in 2021”/a/p
pa href=https://www.brookings.edu/blog/the-avenue/2022/01/12/why-the-pandemics-record-breaking-quit-rates-are-a-boon-to-workers/ target=_blankWorkers are quitting to go to better jobs/a/p
pa href=https://t.co/7tE9cRT25Z target=_blankUS Steel chooses anbsp;right to work state/anbsp;(a href=https://t.co/nAAAwd4UdS target=_blankNucor too/a)/p
pa href=https://t.co/7JetsqywcI target=_blankChamber calls for doubling legal immigration in the USA/a/p
pa href=https://t.co/isMiwtghqn target=_blankThere’s anbsp;boom in capital spending on legacy (old tech) semiconductors/a/p
pa href=https://twitter.com/JHaltiwanger_UM/status/1481314145639309321 target=_blankNew business applications hit highest annual total on record (thread)/a/p
pa href=https://www.cato.org/regulation/winter-2021/2022/markets-dematerialization target=_blank“A fundamental decoupling of resource consumption from economic growth”/anbsp;(a href=https://twitter.com/HumanProgress/status/1482082414478471169 target=_blankmore/a)/p
pa href=https://bloomberg.com/opinion/articles/2022-01-10/there-was-no-housing-bubble-in-2008-and-there-isn-t-one-now target=_blank“There Was No Housing Bubble in 2008 and There Isn’t One Now”/a/p
pa href=https://twitter.com/nytimesbusiness/status/1481747963588317185 target=_blankThe FDA will finally stop regulating French dressing (no, seriously)/a/p
pa href=https://spectator.org/the-nationalist-project-two-cheers-tops/ target=_blank“[T]he problem with national conservatism will be that, eventually, you run out of other people’s money”/a/p
pa href=https://voxeu.org/article/working-home-and-corporate-real-estate#.YeaqvDB2SvQ.twitter target=_blankStudy: Remote work hits corporate real estate/a/p
pa href=https://bloomberg.com/opinion/articles/2022-01-18/larry-fink-is-wrong-business-doesn-t-need-a-social-purpose?utm_content=businessamp;utm_source=twitteramp;utm_campaign=socialflow-organicamp;cmpid=socialflow-twitter-businessamp;utm_medium=social target=_blank“Business Doesn’t Need a ‘Social Purpose’ Revolution”/a/p
pa href=https://reason.com/volokh/2022/01/17/claim-that-certificate-of-need-law-lacks-a-rational-basis-can-go-forward/ target=_blankLegal challenge to “certificate of need” law advances/a/p
pa href=https://t.co/LWtJIJ1GxP target=_blankIf there are no tests, people won’t test/a/p
pa href=https://foreignpolicy.com/2022/01/16/climate-change-air-conditioning-heat-waves/ target=_blankAir conditioning is anbsp;global lifesaver/a/p
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