Friday, 23 February 2024

Business News

Everybody hates inflation–even grocers | Fortune

Everybody hates inflation–even grocers | Fortune

“There are still too many corporations in America ripping people off,” President Biden said at a campaign event in South Carolina recently. “Well, it’s going to stop. Americans, we’re tired of being played for suckers.

It’s a growing concern among consumers that companies are taking advantage of them by keeping prices high for no good reason. But is that really happening in the grocery industry?

The full picture of the current state of grocery is more complex. Today, most American grocers are stuck between a rock and a hard place, unable to do what Biden is asking even if they wanted to.

Painting a fuller picture

To better understand grocers’ challenges, consider changing consumer behavior. American households are shopping around more, making regular purchases from multiple stores to get the best prices. In fact, 77% of grocery shoppers say they compare prices across stores, more than any other retail category.

Additionally, industry competition is stronger than ever. Mergers and acquisitions, like the pending deal between conglomerates Kroger and Albertsons, threaten to consolidate market share and push smaller regional grocers out of the picture.

Grocers face challenges from dollar stores, too: In late January, Dollar General announced it would begin selling produce at its 5,000 locations. And so grocers are clearly under pressure to compete on price.

In June 2023, The Feedback Group’s nationwide poll of 1,200 consumers revealed that shoppers thought their primary grocery store generated a 35% net profit margin on average–up from 33% the year prior.

However, consumers’ estimations are far off base. Supermarkets’ actual net profit has averaged closer to 1% historically. At its pandemic high, when grocery sales exploded amidst restaurant closings and quarantines, the margin rose to about 3%. That’s a far cry from the mid-30s assumptions shoppers are making. With such low profit margins across the board, reducing prices any further would force many businesses to close.

That’s because a significant chunk of gross profits–about 70%–goes towards paying off assets (mortgages, interest, rent) and store operations (staffing, accounting, utilities). Over the past few years, grocery store costs have increased faster than the prices they charge. Since January 2020, grocery prices are up by about 25%, while costs have increased more than 28%, according to the Bureau of Labor Statistics. Increasing rent,…

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