Large Grocers Took Advantage of Pandemic Supply Chain Disruptions, FTC Finds
nytimes.com
nytimes.com
Well, if you pull up the report, it says "This study did not test whether the specific companies that received 6(b) Orders increased their prices by more or less than their input cost increases". So .. they don't actually have any data that says this, from the grocers they studied.
What they're instead going on, from the report, is looking at grocer's profit numbers (which they never provide a source for): "Specifically, food and beverage retailer revenues increased to more than 6 percent over total costs in 2021, higher than their most recent peak, in 2015, of 5.6 percent".
So .. before the pandemic they had peaks of up to 5.6% over cost, and the year after the pandemic they were at ~6% over cost (also, what does "more than" mean? Why not just write the number? They had no problem writing 5.6%, why not write 6.1% or 6.7% or whatever the number is?).
Ok? So basically the same with some minor, less than half a percent variation? Where less than half a percent of difference could be explained by a multitude of factors? Seems like the year of covid and year after covid had virtually no impact. The (slightly) more interesting figure is that in 2023 (why was no 2022 data point included, did it not fit the narrative?) the rate was ~7% over cost. But multiple years on from covid I'm not sure what the connection to covid is at that point.
Also .. isn't it extremely basics economics that when supply drops but demand stays the same or rises, this should result in higher prices? That's exactly the scenario we had in covid. If prices only rose less than half a percent more than pre-covid profit peaks, doesn't that say something extremely positive about the grocers? If they really wanted to "take advantage" of the consumer they could have raised prices to make demand drop to match the supply, for example instead of selling out of toilet paper, selling them at $100 a roll, $200 a roll. That's not remotely what happened.
But as they say, where there’s a spark there’s usually a fire. Cutting through the cruft - the main issue seems to be that some grocers may have cashed in on their monopoly, by forcing suppliers to give them preferential treatment or face some penalty.
I think that’s a pretty standard business practice. While I like my groceries to be cheaper, I think that any retrospective government interference in free economics is unwarranted.
I get it - it’s a hard balance to strike between supporting individuals wanting to be treated fair and businesses trying to make money under uncertainty.
I also don’t like that CEOs earn 100-200x an average employees salary. But objectively, simply flexing your business muscles and getting a better deal is not illegal.
Pretty sure it's objectively illegal [1].
Having a more efficient operation -> lower prices is fine. Using your size (market power) -> lower prices is not fine.
But it’s not - because universally, we accept the difference in fighting for survival and intentionally starving your competition.
This was one of those times. Each business was out for its survival. When supply is low, we cannot expect companies to support egalitarian values. The concept of fairness is a human creation (or, more widely, of sentient intelligent beings). In times of survival, there is no fairness in nature or civilization.
So, the suppliers were thinking about their survival (choosing to keep their relationship with the big guys), just as the businesses were thinking about theirs.
However, like I pointed out, there is a more profound argument to be made - in the pursuit for higher bonuses/payout, the company executives (possibly with the full cooperation of the board) were overzealous in increasing profitability in the name of survival. This included doing mass layoffs, hogging inventory, hiking rates sharply by 20% (over a 3 year period, the inflation was between 4% and 8% - which is equivalent to ~13% when combined, so there’s an unexplained difference of maybe 6-7% or so).
It doesn’t make sense to hinge the entire argument on how unfair this was to the little guy.
half a percent in profits can mean millions of dollars, I wouldn't easily discount that, especially if my job is precisely to look into bad price control.
> The (slightly) more interesting figure is that in 2023 (why was no 2022 data point included, did it not fit the narrative?) the rate was ~7% over cost.
probably because it did fall and did in fact raise higher in 2023, which is adding more smoke to a potential fire. I remember a lot of grocers price hikes starting in early 2023.
>But multiple years on from covid I'm not sure what the connection to covid is at that point.
that, " Large Grocers Took Advantage of Pandemic Supply Chain Disruptions"? You say yourself how falling supply works. Well, if supply came back by 2023 and prices kept rising, there's the reason FTC initiated this investigation. Anecdotally, prices did not in fact fall back down in the past 15 months.
>If they really wanted to "take advantage" of the consumer they could have raised prices to make demand drop to match the supply, for example instead of selling out of toilet paper, selling them at $100 a roll, $200 a roll. That's not remotely what happened.
That'd be both a PR and legal disasters. They are looser than other countries. but the US still does have regulations on price fluctuations, if only so companies can be somewhat evil instead of mustache twirling evil. Individuals can scalp on eBay, but WalMart/Vonz/etc. cannot.
I took a statistics class over 30 years ago and can recall very little of it but even I remember that this could easily fall within the margin of error.
One could also reasonably correlate the higher profits with people eating in more (since restaurants were mostly closed) but that doesn't set off the dog whistles.
And, you know, inflation...prices will never fall back down to pre-pandemic levels.
it could. It could not. I imagine the data is out there to determine it, but not enough of it is in the article nor any of its links to form an analysis.
But this admitedly isn't a statistics 101 problem , between taking into account inflation, local and record fluctuations, expected pandemic impacts, the PPP/interest rates and more affecting the result, etc.
>One could also reasonably correlate the higher profits with people eating in more (since restaurants were mostly closed) but that doesn't set off the dog whistles.
It'd be pretty easy to support/weaken that evidence if we just look at food delivery services. less people eating in doesn't mean less people ordered out.
I don't know why you're being so cynical about the government doing its job for once and investigating potential greed. Worse case, nothing happens and life moves on, best case we get better grocery prices in the future. I don't see the downside as a consumer.
You took the right framing and inverted it into the wrong framing. It may be millions of dollars, but it's only half a percent relative to total profits. Variance is relative (see, e.g., the normal distribution).
You even say it yourself, variance it relative. We don't know the normal distribution. I'm just explaining the POV that can prompt an investigation. A difference of millions of dollars is a lot to pocket for a business selling a necessary good. It's worth looking into.
We are to believe that corporations suddenly became more greedy than they were before? I’m sorry that printing money leads to inflation.
I believe it. Companies get record profits but still initiate stuff like Return to Office and mass layoffs across multiple industries. At some point it's not about profits so much as control.
RTO is a whole separate thing.
groceries are pretty inelastic, they shouldn't be subject to "risk" unless people stop eating. That would be a much bigger issue (or miracle) than anything in economics if it happened.
>RTO is a whole separate thing.
it is indeed tangential. It was more just a small quip to note that company greed can get worse. Now just wait until the AI revolution next decade.
Also, you say "pretty inelastic" - you seem to be accepting that food demand is elastic, just less so than other goods. Unsurprisingly, it turns out it depends what type of food article: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2804646/
>Also, you say "pretty inelastic" - you seem to be accepting that food demand is elastic, just less so than other goods.
Sure, it's not as inelastic as gas for Americans. America has enough free/cheap ways to eat if it really really came down to it so they can't pull an insulin. Still, I'd put it pretty high.
>Unsurprisingly, it turns out it depends what type of food articl
I figured, but that would imply that premium or convinent food caused the price spikes. Maybe it did, but I'm not so confident given how and what the government subsidizes (another reason you can't just price hike goods willy nilly. Subsidies are so you can pass on low prices to customers, not so you can pocket more money).
For financial sustainability, we should all be pushing for the current moderate interest rates to be the new normal for the next several decades - enough time for 30 year mortgages and T-bills to mature, so asset prices correct. Since the Federal Reserve hasn't demonstrated any ability of self restraint, we should be supporting purposeful government spending on real investments which will prevent the Fed from dropping rates again. Furthermore it is much nicer for the economy at large when monetary creation (and thus price inflation) happens in deliberate areas needing strategic investment, instead of bubbles of whatever arbitrary asset class the bankers choose to run up each month.
That's only 1 explanation, but it's a plausible one.
If you want my blind guess, the focus on satisfying shareholders simply intensified for the past 15 years or so, accelerated by tech and the need to incorporate it in all industries. That + low interest rates lead to a gold mine for corporate and a shift away from worrying about keeping a war chest as opposed to showing YoY growth. A shift way from retraining talent as opposed to figuring out how to save every penny on labor (the most expensive aspect in the US), regardless of employee satisfaction. There's more supply than ever so why fight for the best? You don't need the best if you lean on tech.
But that's just my L theory loosely based on experience and a variety of reading I did over the years.