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Comment by superkuh | Hacker News Reader

See also, grocery corporation CEOs bragging about price gouging under the cover of "inflation" during investor calls, https://pluralistic.net/2022/10/17/united-states-vs-vons/#pr...

>As Kroger CEO told his shareholders: "a little bit of inflation is always good in our business" because it lets him raise prices and "customers don’t overly react."

etc, etc.

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To put this in context: Grocery starts famously have razor-thin margins because the business is so competitive.

Kroger's most recent reported net profit margin was 1.7% with gross margins (e.g. before company expenses) in the 22% range.

Compare that to the SaaS companies, where many of us collect our paychecks, that can have gross margins in the 60-90% range.

If you want to call companies out for price gouging and excessive profit margins, taking Kroger to task for a 1.7% net margin seems kind of silly. Especially when most of us engineers are collecting paychecks from companies with far, far higher margins than that.

There's nothing wrong with a healthy profit margin, per se. The potential problem here is that we have a de facto monopoly in many regions which controls access to FOOD.

If it gets too bad, that's how you end up with riots, local politicians dead, buildings torched, etc. Food riots are not something you fuck with.... If history has anything to say about that.

I don't think we've seen that scope here in the US... Yet. But given the number of guns, "it's a when, not an if" if the politicians allow extreme food scarcity to happen in a wide area.

Politicians allow? Not the business? The calls for government regulation by the same gun toteing people who constantly complain about big government is so confusing.

My senical take on food stamps has been one of politicians feeding the poor to prevent reality. In the US you are talking about 40+MM people who cannot afford to feed themselves. If half of them missed a few meals all of our other problems would disappear under the ensuing sea of shit.

Correct. It matters less how healthy/nutritious the food actually is, full bellies tend to keep revolutions at bay.

Yep. The Romans figured it out over 2000 years ago.

panem et circusensus (bread and circuses)

Is there a way in which the monopoly is causing food to be denied to individuals?

The way I see it is that any food desert either exists because it is not profitable or because nobody has taken the initiative to offer a profitable service. Obviously I could be wrong, but I have a hard time seeing how a megacorp is denying access to food.

The socioeconomic impact of a grocery store is far more important than anything happening in the SaaS world. Towns live and die by grocery stores-- food deserts as they're known in areas that go without. It's fair to be critical of a sector with tighter margins because food is rather low on Maslow's hierarchy of needs. SaaS is expendable, food isn't.

> Towns live and die by grocery stores

Do they? Or are things like food deserts transitive symptoms of deeper problems? E.g. that the surrounding area is poor and getting poorer. If so, no amount of legislation will change that

> no amount of legislation will change that

Programs like SNAP, the earned income tax credit, subsidized child-care, and refundable tax credits for children have an immediate impact. Legislation could also provide a universal basic income.

If that's too pink a set of approaches to reduce the impact of poverty for you, governments can also subsidize development of new housing and invest in infrastructure upgrades that draw folks with higher incomes into a community. This works best if you are in a metropolitan area. In rural communities, it's not uncommon to pour great sums of money into courting large employers, giving them land or tax free status for extended periods.

Hell, if your goal is just to get a grocery store, pour on enough subsidies and someone will show up to collect that money.

To clarify: "no amount of legislation of grocery stores / the grocery industry"

The point of TFA is that this is one of the many mergers that should be rejected by regulators.

Place where I used to live shut down the main bus line in the poorest part of town. The result was people couldn't easily go to the local (small) market which then closed. The result was going from a 10 minute bus ride to almost an hour one way. The old line had quite a few stops along the way, so residents with a few bags of groceries didn't have far to walk. The new route had one stop which was placed far from the residence area.

It's incoherent to use the example of low service density as a justification to criticize a grocer for taking higher profits. You can't pursue both sides of a tradeoff simultaneously.

The more money there is to be made in the grocery sector, the more grocers there will be to compete for it, located in the places where the money flows. Likewise the leaner they have to operate, the more they'll shut down in marginal territory that can't support their business, and the more areas will go without convenient access.

If selling groceries in low-access areas for low profits is indicated by the necessity of food, then nobody is stopping you from doing it; but as the grandparent comment hinted, if you find your niche in high-margin software instead then you're following the money, just like grocers do.

Except Maslow was wrong.

Source?

Low margins on food is a positive thing though.

The margins on food aren't actually low; they've just been captured by Smithfield, Chiquita, Tyson, JBS, Cargill, Archer Daniels Midland, etc. Farmers certainly aren't seeing any margins!

You can rescue your profit margin by paying high salaries to executives and have a ton of administrative overhead. That’s how health insurance works. The profit margin says nothing about how efficient the company is.

Why should a company that provides no differentiated value have much of net margin (after paying for the cost of capital, in the form of debt payments which are included in company expenses)?

Kroger et. al provide no unique value - they don't have any intellectual property, they have almost zero human capital because they treat their workers terribly and have low retention. They do some stuff with their private labels but that's really it. What grocery stores doing that commands more than a 1 or 2% margin on a huge segment of the economy? If they're earning more than that it is probably and indication that they are ripping off the consumer, ripping off the worker, or both.

> What grocery stores doing that commands more than a 1 or 2% margin on a huge segment of the economy? If they're earning more than that it is probably and indication that they are ripping off the consumer, ripping off the worker, or both.

They are not earning more than that. Kroger's net margins were 1.7%. That was the entire point of my post.

> Especially when most of us engineers are collecting paychecks from companies with far, far higher margins than that.

Ah yes, it's important to remember we should only care about ourselves.

A little bit of stable inflation is good for almost every business. Massive inflation shocks are bad for lots of people and businesses.

And the CEO isn't wrong - customers are used to gas prices flailing all over the place, but they notice food price changes, and so things "build up" over time and when the dam finally breaks, it breaks hard.

Arizona Iced Tea started at 99 cents in 1997 - today that should be $1.83 but it's still 99 cents. Same with Costco's hot dog and chicken (though they've done some noticeable changes on the hot dog).

When the dam breaks, it's not going to go up 10%, it's going to skyrocket to try to make up for lost time.

Those are not good examples. One is sugar water with extremely high profit margins, and the other is likely sold as a loss leader or at most, at cost.

Food prices have been changing for a long time, but only if you pay attention to quantity and ingredients. With gas prices, the unit quantity or ingredient cannot change, so the change is obvious. Same with things like milk and eggs and vegetables though, which do change often.

With processed food, the seller has much more ability to maneuver around having to increase price.

Yeah - my point was that once prices start going up noticeably, all the other processed food manufacturers will increase their prices, also (often with a "return to what the original size was" along with it).

[*edit] I probably shouldn't have weighed in on this.

Is this at the retail level? At the producer level, profit margins seem quite decent:

https://www.investopedia.com/ask/answers/071015/what-profit-...

Logically, if the same quantity of Arizona Ice Tea retails for the same price as it did 25 years ago, then someone in the supply chain is or was making huge profit margins, considering the increase in materials and transport costs.

Adding onto this a little: I was shocked at how volatile some food prices are, and how much some have gone up recently

https://www.fao.org/worldfoodsituation/foodpricesindex/en/

Depending on how you set your endpoints, you can basically come up with any number for inflation you want, from 1.7% to 20+%

I guess this is all well-understood and taken care of under the hood by processed food companies, though, since the Big Mac Index has pretty steadily held to an inflation level near the CPI

The big mac index tracks labor costs as much if not more-so than wholesale food prices.

Price of anything can be reduced to labor, energy, and scarcity as, you move up the supply chain.

It's because the consumer literally has to buy hundreds of things. Tinkering with a penny turns into a dollar real quick.

That's not how it works. It's percentage changes that are significant.

Every thing in my cart increases by a penny. It (the cart, my food) now costs $2 more. Easy math. Change that to percentages and amount increases, of course.

They do play with pennies. I worked in a huge national restaurant chain as a teenager and went through numerous menu updates. They were always flipping nickels and pennies all over the place on the menu. As a kid I thought changing the menu prices by five cents was ridiculous. Apparently, that's how it works in this business with razor thin margins.

There's a reason why corporate profits are at all time highs. they're just pushing any inflation related costs and more directly to consumers and scraping even more profit off the top.

This is actually just not even controversial, completely supported by data.

https://fred.stlouisfed.org/series/CP

I can't believe you're being downvoted

That may be the case, but that should allow a new competitor to come in and offer lower priced goods.

Yeah, starting a new local grocer or even national grocery chain is pretty easy, right? Why don't you lead the charge.

Because I have no incentive to do so? I could, certainly, but until this deal proves rotten there is no impetus for action.

If they were at all time highs the stock market would not be done so much.

The stock market hasn't been connected to reality for years. Companies which produce nothing and are deep in debt have high stock value purely on basis of speculation. Most companies that report layoffs, tough times etc also report record levels of profit because it's not enough to be profitable, you have to go well above and beyond profit. You have to squeeze out everything even at the cost of short term stability.

Which companies that produce nothing and are deep in debt have shown growth in market cap?

From what I can tell, the biggest gains have been at companies that have very strong profits and prospects due to high barriers of entry to their business, and the companies with steady but small profits do okay, and the companies not earning any profits have shown losses.

Why would you not expect nominal profits to be at all time highs if the purchasing power of the currency goes down?

Nominal profits would have to increase for profit margins (which are already low single digits for grocery stores) to be maintained.

You’re being downvoted and all you’ve done is state fact!

Are _margins_ increasing (I don’t know) - because that would be the required condition to conclude nefariousness.

Hilarious what gets downvoted on HN.

Inflation since Jan 2020 is 15% according to BLS.

If corp profits go up 15% the real profit increase is 0%

People are upset that wages aren't keeping up with inflation, but profits are. The rest is bad expression of that idea.

Some businesses’ profits are keeping up with inflation, and some are not. Grocery stores sell relatively inelastic goods at already low profit margins, so there is not much room to not keep up with inflation. The other option for them would be going out of business.

> Why would you not expect nominal profits to be at all time highs if the purchasing power of the currency goes down?

Purchasing power doesn't magically decrease, it's a function of increasing prices.

Think about for a little. If a companies input costs have increased by 10% their profit will decrease right, maybe not by 10% but it will decrease. So if they increase their prices they can get back to their previous profit level. Instead they have increased prices even more such that their profit is HIGHER than it was before inflation.

QED

There is a term for that, called profit margin. And profit margins have not materially increased.

https://www.macrotrends.net/stocks/charts/KR/kroger/profit-m...

https://www.macrotrends.net/stocks/charts/ACI/albertsons/pro...

Obviously, a 3% profit margin after a year of inflation is going to be nominally higher than a 3% profit margin before the year of inflation.

Hence any whining about nominal increases in profit is innumeracy, or clickbait, especially for businesses that play in the sub 5% profit margin ranges.

How low do people think grocery store profit margins should go? Have they tried successfully operating a business at 3% profit margin?

This would be a cute reply if the data supported your idea. But it doesn't.

https://www.bloomberg.com/news/articles/2022-08-25/us-corpor...

Highest margins since 1950.

Turns out there are businesses that aren't Grocers.

absolutely how "price gouging" has gone from meaning "charging $100 for a case of water during a hurricane" to "adding a 15% markup to some groceries".

Both are examples of price gouging... ?

No, price gouging is actually a thing which means a thing - it's not a term you can just apply to whatever you want.

Most states define it as charging inflated prices during a crisis or emergency, not simply raising prices beyond what geraldyo thinks is reasonable.

If some term has different meanings in different legal contexts, and you believe that having a meaning in a legal context precludes having a distinct colloquial meaning, how can you tell GP they're using the wrong meaning before you've asked where they're posting from?

Wikipedia: "Price gouging occurs when a seller increases the prices of goods, services, or commodities to a level much higher than is considered reasonable or fair."

it never had that meaning. it's a concerted effort by democrat politicians and media: they say "price gouging" because that's something most people agree is wrong when it's actually normal economic behavior in response to both parties' really stupid economic policies. they're doing this because they want more control of pricing and that's how they're going to lie their way into it and spread disinformation about what's happening.

edit: updating with proof, Texas state definition is "selling or leasing fuel, food, medicine, or another necessity at an exorbitant or excess price, or demanding an exorbitant or excessive price in connection with the sale or lease of fuel, food, medicine or another necessity."

Food is in that definition twice, and if half that price increase goes directly to profit, that seems like excess to me.

In 3 years, food is up 20%, after several years of extra low inflation, but raw produce is up much less. That's frustrating, and faster then some people's wages, but not extreme. People who can't afford that should unionize and get paid more for their work, not get weird price subsidized from vendors. There is cause for concern that prices will continue to increase

https://www.in2013dollars.com/Food/price-inflation/2108-to-2...

have you ever started a local? half the time you can't get a national to commit legal resources so you're screwed if the employer doesn't agree to card check, which they won't

then there's the question of does the union have any real leverage, which varies a lot by industry and trade. ufcw for example has failed both in securing real wins for grocery workers AND in pushing against price gouging by grocers

after being failed by nationals (for me it was usually cwa), tried going more wildcat but iww are just as ineffectual for different reasons, then got involved in the co-op space but groups like usfwc are just as ineffectual for still different reasons

no they're not. price gouging is extreme price hikes or exorbitant pricing not your groceries being 15% more expensive. it's literally a word with a meaning and people are 1. intentionally misusing it to push an agenda of increased state intervention in pricing or 2. accidentally misusing it because they can't be bothered to understand what their words mean. "price gouging" is a false narrative politicians are using to shirk responsibility for insanely irresponsible fiscal and monetary policy, because now they want to "solve" it by grabbing even more government power because what could possibly go wrong with that.

edit: for proof here's how Texas defines it per https://www.galvestoncountytx.gov/our-county/district-attorn...:

"selling or leasing fuel, food, medicine, or another necessity at an exorbitant or excess price, or demanding an exorbitant or excessive price in connection with the sale or lease of fuel, food, medicine or another necessity."

It is not 15% mark up. It is 50%.

Over 50% of the rise in prices for groceries during the pandemic are from corporate profits. Raises in input costs (38%) and labor (7%) made up most of the rest. When the price raise is 50% increased profit during a time where a large fraction cannot afford enough to eat this is price gouging. It is extremely clear.

ref: https://www.salon.com/2022/10/19/katie-porter-pulls-out-char... , https://porter.house.gov/news/documentsingle.aspx?DocumentID...

Kroger gross profit is up 10% last year, but was up 0% the year before. Overall, the nominal growth over 10years is 60% ($18B to $30B), mostly due to a bull run around 2015, and overall rather modest compared to inflation.

https://www.macrotrends.net/stocks/charts/KR/kroger/gross-pr...

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