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Comment by simonh | Hacker News Reader

If wholesale food costs have gone up and they're simply passing that on then they may not be making any more money.

Here's wholesale food prices in the US: https://fred.stlouisfed.org/series/WPU578101

In fact you'd expect reduced sales from the higher prices to put pressure on profits. That is what seems to be happening in the UK:

https://www.grocerygazette.co.uk/2023/01/31/food-companies-p...

But not in the US, where it does look like there may be some gouging going on, but we'd need to see their profit reporting to be sure:

https://accountable.us/wp-content/uploads/2023/02/2023-02-10...

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It's both increased wholesale food costs and price gouging. Profits have never been higher all along the board. Everyone in the chain is "passing the cost on" and also taking a little extra cut.

I updated my post, it does look like that's happening in the US market.

gouging is an incredibly unhelpful context in a macroeconomic sense. In cases of shorter term scarcity (e.g. toilet paper during early covid), you can have instances of gouging. But over a longer-term period where prices are calibrating to demand/supply dynamics, price increases simply reflect the shifting balance between supply and demand.

Should we be concerned about why there are shifts in demand/supply? Sure.(In the case of food, part of this is driven by the UA war and likely other trends in food productive)?

But it is eminently unhelpful to simply attribute increases to 'gouging' and expect that to be the final say.

In the US, M2 increased 70% in 2 years. Of course prices are going up. Anything less than a 70% increase means companies have a ways to go to catch up.

I'm not sure about 70%, I can only see 33% in open sources, but either figure is huge and now everyone is with Pikachu face and blames everything but helicopter money.

This chart https://tradingeconomics.com/united-kingdom/money-supply-m2 has UK M2 declining from its peak in September 2022 (the two month Liz Truss government). It doesn't match the inflation chart.

> It doesn’t match the inflation chart.

and i don’t think you’d expect it to. the increased supply needs to hit the market first. depending on how that money is distributed, that could take a long time. also remember that QE has been central fiscal policy in the UK and US since basically 2007. and it’s safe to say that concentration of this wealth is.. very high.

> has UK M2 declining [..]

it becomes a bit more sobering when you look at the full scale on that graph (when the y-axis starts from 0). it’s a metaphorical deck-chair-thrown-off-of-the-titanic amount of decrease.

The contention was that the rich always want high inflation to stiff the poor. I’m just pointing out that’s not berm the case for, I said 20 years, but it’s actually been 30.

Yes we have high inflation now, but that’s just been a plain old cockup. The massive inflation reduction act stimulus for example.

Those are nominal profits, everyone is trying to take "an extra cut" to stay ahead of inflation. Grocery has razor thin margins to begin with and the usual direction of prices is downward. Inflation will absolutely put a grocer out of business if they can't stay ahead of rising prices.

Wholesale margins are razor thin, but retail ones are relatively fat. (I work in Wholesale/Retail software).

Unit margins, or operating margins?

After tax profit margins for grocery retailers in the US range from 1-3%, some places like Whole Foods approach 5%. Gross margins are higher, but net margins are what determine whether or not you go out of business.

I've seen a convincing argument that this is energy price inflation being passed on down the pipe. Certainly for out-of-season foods grown in greenhouses, leading to the UK tomato shortage of last month. (Anyone else see "max 3 per customer" on various fresh fruit and veg?)

The profits are inarguable. They really have never been higher. https://tradingeconomics.com/united-kingdom/corporate-profit...

(note the table underneath pointing out that industrial production has declined at the same time as record profits)

Energy is a large part of that: https://www.bbc.co.uk/news/uk-64489147

Profit, or profit _margin_?

right out of the oil industry playbook.

>Profits have never been higher all along the board. Everyone in the chain is "passing the cost on" and also taking a little extra cut.

This feels correct, but if that were the case, if companies are generating record profits, why aren't we seeing that reflected in stock prices? At the very least, why isn't price / earning ratios cratering?

Profits have never been higher means nothing if dollars have never been lower.

What are profits like adjusted for inflation?

the dollars are lower as a result of their actions increasing profits

they only need to increase prices to deal with the increase in costs, and profits represent an increase above and beyond that necessary amount, which in economic terms is "not cool, dude"

Fertilizer prices have been historically high, which impacts the underlying costs of most things you buy at the supermarket: https://fredblog.stlouisfed.org/2022/10/fertilizer-prices-so...

The root cause is economic decoupling between Russia, China, and the U.S.

All well and good except for the fact that these companies have gone on the record in their earning calls to say this is just them squeezing the end consumer as much as they can. But go ahead and makeup some false justification to defend them against the truth of their own words.

If you believe that, are you investing in food company stocks?

Not everyone is trying to be an unethical jerkwad.

Dude, did you even read my post? Yes that is happening in the US, I said as much. In the UK, profits are down. For the most part in both cases, I'm sure there are exceptions.

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