Monopolies across the grocery supply chain squeeze consumers, small businesses
prospect.org
prospect.org
After I left the store, I did check their ad, and found a 12 pack of a lower tier soda for $3.50
Someone is making 60 points of margin on the $10 12 pack. That seems extreme for what is effectively corn syrup and water in an aluminum can.
People are willing to pay the price so you may as well charge as much until sale revenue goes down.
There could be a lot of other factors involved.
Governments and unions can add a tremendous amount of artificial cost/overhead to goods and services, too.
A minimum wage increase or new collective bargaining agreements, for example, can increase costs throughout a supply chain, from manufacturing, to transportation, to retail.
A new or increased vehicle fuel tax, or a more general "carbon" tax, are examples of government policies that can also repeatedly distort pricing throughout a supply chain.
Also, keep in mind that the pricing of the lower-tier grocery products might not reflect the actual cost to the retailer. Such products are often sold as loss leaders. The actual cost may be much closer to the cost of the higher-tier products, but this isn't apparent to the customer thanks to the retailer subsidizing the product.
Cheaper grocery products can sometimes use inferior ingredients or lower-cost alternative ingredients, too. Comparisons with more expensive products may not be realistic because they're fundamentally different products, even if they may seem similar to the consumer.
The total cost of materials for a can of soda is negligible.
I tried repeatedly to quit that particular product. I've tried grocery store generics. I bought a home soda maker and tried various craft soda syrups online. Nothing tastes the same, or even "close enough" for my palette.
I have managed to drink less of the stuff. I only buy the mini cans now (unless I'm treating myself to a bottle at a convenience store), and try not to have one at all on some days. But the sad fact is, as much as competition is supposed to solve this problem, there is really no alternative for people that are tuned into the taste of that particular brand, so they continue to pay out the ass for it when the vendor jacks up the price year after year.
And yeah, we do the stock-ups when it goes on sale because I flat refuse to pay $10+ for fuckin soda.
If you're trying to save money, that's counterproductive. At least in my experience the mini cans are actually more expensive than the regular cans, even on a per can basis. This seems to be corroborated by others[1].
[1] "People seem to be happy to pay extra for the convenience of the mini can." https://www.npr.org/transcripts/1197959284
But, like, really often and for a different deal each time. One week they may be at the full price, then the next it's "3 for $10.99 (Must buy multiples of 3)", then it'll be "$3.00 off when you buy two", then back to the crazy price.
It's annoying as hell, and all I can guess is that they're segmenting the market across time. The bargain hunters will wait for the sale and stock up (me), the normies will just put it in their cart each week without looking at the price.
But it's been this way for many years. Only in the last couple have I seen the craziness that is $10 for a 12-pack. It used to be ungodly expensive when I saw a 12-pack for $6.99.
So they've been doing this game for a while, and upped the limit when inflation provided cover.
“ A handful of powerful companies control the majority market share of almost 80% of dozens of grocery items bought regularly by ordinary Americans, new analysis reveals.”
https://www.theguardian.com/environment/ng-interactive/2021/...
https://ourworldindata.org/grapher/food-expenditure-share-gd...
So I would argue that other countries, if they want to tame inflation, should allow their smaller inefficient producers to get squeezed.
If total consumer spending in the US is 50k and in Italy 20k, then it seems rather obvious to me that Americans are gonna spend a smaller fraction of that on food...
If you run the numbers, those two countries spend, in fact, almost the same dollar amount on food (3.2k vs 3.5k).
Still, I do agree with you that there are some areas where a single company controls the vast majority of the market, and furthermore it got there by buying up a lot of brands, and this looks like there would be some pretty straightforward antitrust cases here. E.g. Grupo Bimbo alone controls nearly 2/3 of the bagel market, Danone controls nearly 80% of the refrigerated soy milk market, PepsiCo controls 87.5% of the dip market. Furthermore, I think the article does a great job exposing "the illusion of choice", i.e. in dips PepsiCo owns Tostitos, Lays, Fritos, and Doritos brands.
E.g. in Canada, Costco toilet paper was produced/supplied by a different company between east and west coast.
Consider the percentage people in smaller countries without large efficient firms spend on food.
Consider the far high prices of Canadian milk, cheese, eggs, and chicken as the law caps production and provides no way to eliminate smaller inefficient producers by outcompeting them.
Nowhere in the world spends a lower percentage of income on food than the USA.
https://ourworldindata.org/grapher/food-expenditure-share-gd...
The system works for consumers. Tremendously well.
Saying it worked before is a bit like saying "I can't have diabetes, I played football in highschool!".
I find it fascinating how MAGA republicans think Trump is there for the small guy, yet his appointment and policies really benefit the big corporate donors.
Not that the democrats are much better but it's fascinating how the republicans are able to unite super rich capitalists and blue collar works into one movement although their interests are directly opposed. I think it's because they don't talk down on people like democrats like to do lately.
I live in Florida currently, and my brother visited from Oregon. He mentioned that Publix was significantly more expensive for groceries than in Oregon.
Florida has a lot of retirees and vacationers, so I assume that Publix executives might say: "hey, if we bump the prices 10% in these tourist areas around Orlando, those midwestern snowbirds won't bother to shop around and will pay it without complaint. And, the German family on vacation won't know any better."
If true, this would be risky, because someone could figure out what prices are radically different in different areas at the same store. Pricing is so dynamic, and these production chains are so complex, it feels like an impossible task.
And, it would be fun to explore. Anyone know?
That being said when I visited Seattle area, Fred Meyers was more expensive than publix for groceries, and Safeway was selling $50 Orchids.
Odd Lots had him on, which is where I first heard about his work. https://podcasts.apple.com/us/podcast/the-mega-corporations-...
And an Iowa Public Radio interview https://www.iowapublicradio.org/podcast/river-to-river/2024-...
Is Aldi's a good way to avoid these monopolies?
From the article, does Aldi's avoid?:
- Late delivery fees from vendors (or is it better than Walmart?)
- Slotting Fees
- Sundry wholesaler and retailer fees
- Price dependence on Tyson and other abusive suppliers
HEB (the major player in the Texas market) is a notable exception that has true vertical integration, with in-house manufacturing and packaging facilities producing house brands, and its own direct relationship with raw goods/farm suppliers.
This is all anecdotal, but when egg prices went crazy it was several months before TJ's prices crept up (and even still they are reliably lower than major competitors). Same with meat products - for several months they're house-branded stuff was quite a bit cheaper than Vons/Albertons/Ralphs but they've slowly crept up and are now basically on-par.
If I am correct, U.S. Aldi's is owned by Aldi North; Trader Joe's is owned by Aldi South.
"The business was split into two separate groups in 1960, that later became Aldi Nord, headquartered in Essen, and Aldi Süd, headquartered in Mülheim...
"Internationally, Aldi Nord operates in Belgium, Netherlands, France, Luxembourg, Poland, Portugal and Spain, while Aldi Süd operates in Australia, Austria, China, Hungary, Ireland, Italy, Slovenia, Switzerland, United Kingdom and United States...
"Aldi Nord also owns the Trader Joe's grocery chain in the United States which operates separately from the group."
https://en.wikipedia.org/wiki/Aldi
EDIT: In the U.S., Aldi Nord owns Trader Joe's, and Aldi Sud owns the eponymous grocery chain.
At this point it's basically proven to be the end state of any "free" market in the real world.
Technological innovation is the only thing that truly disrupts monopolies and cartels.
Would love to hear what Canadians think about this + if they see any innovation on the horizon.
That would mean Congress serving the people and not corporations who lobby them.
Now again, do you see a difference between a monopoly on food, and a monopoly on a particular form of labor?
If anything, government intervention such as breaking up monopolies creates dead weight loss. Sometimes this price is worth it (such as for food production), sometimes it's not (for example luxury goods).
Even if one were to assume all monopolies are bad, that would not necessarily mean all are equally bad, or that the optimal strategy for reducing their harm would be the same.
Finally, unions are not monopolies on labor. Some unions are sufficiently large that they can be modelled as monopolies, but in general only a small fraction of the labor force is unionized and most unions are limited in scope. You could just as easily say employers have a monopoly on employment at their companies, which would be a true but not particularly useful way of looking at them.
Of course all monopolies are bad. They are current or future points of deadweight loss and should be monitored and dealt with through regulation ( a very small subset of monopolies/oligopolies) or elimination. A monopoly is the forbidden fruit that everyone wants but noone should get for any length of time. That desire is a big driver of the innovation that is the secret sauce of a free market that makes it superior to every other economic organization method we have tried but once someone gets it it eliminates most of the need for any innovation and leaves that industry stagnating. How bad monopolies are (technically market power) is grossly understate in modern society in my opinion.
We are talking about government here. How bad something is isn't an argument for not doing something, it is an argument for priority. If your position is labor unions aren't as bad as X so we should sort X and then break up labor unions that's fine, but that's not what I'm hearing in this thread.
Of course they are monopolies on labor. most countries labor labor laws make them an explicit monopoly on labor for any workplace unlucky enough to be unionized. It's not relevant that they are non union companies employing non union labor. If your company is unionized it faces a monopoly on labor and can only hire union for the areas that are unionized unless the union allows non union. It is the textbook definition of a monopoly. (also, how do I sign up for this alternative non union government in my province/country? I would really enjoy the much lower taxes that would have from both lower labor prices but also much faster removal of incompetence via firing.. oh wait I can't sign up for that because there is no option because the public labour unions have a textbook monopoly). You can have natural monopolies at the employee level, however that is pretty rare because it means that employee is almost impossible to replace (this is why key man insurance exists basically). It's quite a lot different than saying all of X must be hired from the union where X is a whole class of worker that is fairly interchangeable with a reasonable labor supply but as a class is impossible or near impossible to do your business.
That's not what a natural monopoly is. Again, go look it up. It is also not a small edge case.
> Of course all monopolies are bad.
Again, this is just incorrect. Monopolies can be the most economically efficient option, and even when they are not there are things to consider besides economic efficiency. Monopoly is not the death of innovation - in an actual free market a monopoly can never rest on its laurels or it will have new market entrants coming to eat its lunch (and we see this in the real world, eg Myspace or Kodak). Certain anti-competitive measures that can be used to create monopolies are very dangerous to competition, but that is a different matter.
> We are talking about government here. How bad something is isn't an argument for not doing something, it is an argument for priority. If your position is labor unions aren't as bad as X so we should sort X and then break up labor unions that's fine, but that's not what I'm hearing in this thread.
Both murder and shoplifting are crimes. Crimes are bad, both murder and shoplifting cause problems for society. Everyone will agree that murder is worse than shoplifting, but that doesn't mean murder is simply a higher priority than shoplifting, and that when the resources necessary to go after murderers are freed up that they should be applied in the same manner towards shoplifters. Shoplifting and murder, while both subcategories of the same thing, are fundamentally different and the optimal responses to both fundamentally ought to be different.
You have not established that treating corporate monopolies and labor unions the same at any point in time is a good idea, nonetheless that it is the optimal course of action.
> If your company is unionized it faces a monopoly on labor and can only hire union for the areas that are unionized unless the union allows non union.
That's not how unions work.
> how do I sign up for this alternative non union government in my province/country?
Move to a country with laws more to your liking.
> You can have natural monopolies at the employee level, however that is pretty rare because it means that employee is almost impossible to replace
Again, not what a natural monopoly is.
> the union where X is a whole class of worker that is fairly interchangeable with a reasonable labor supply but as a class is impossible or near impossible to do your business.
Again, not how unions work.
This is an interesting theory, but the state, via right to work laws alone, has weakened labor unions to the point where you obviously can't make this claim with a straight face.
In general I’m pro-union as I think they largely protect poor workers from getting fired and make everything more expensive. But you also have to recognize that sometimes society needs counter balance, even if inefficient.
your 2 wrongs make a right argument is something I am sympathetic to but don't agree the solution is a union. The solution is identifying the monopsony being abused to push their wages down and fixing that or recognizing there is no monopsony abuse and their labor is actually that low value and looking for ways to shift some of that low value labor into higher value positions via a number of policy tools (retraining, relocation, etc).
That’s what a lot of this concern is really about. Legal bailouts for mediocre boomers who run inefficient, unambitious businesses with high prices.
Small businesses try to guilt you for your business as they rarely offer something worth buying on the merits unless they occupy a niche.
> Walmart and scattered Dollar Generals fill the void left by shuttered independent grocers. Frerick worries about the mid-level grocers “collaps[ing] like the rest of America.”
“Independent” in this case meaning high priced grocers people didn’t want to shop at. They got wiped out for being unable to control their costs.
Efficiency lowers costs (especially in the short term), but increases risks in the long term (less resiliency/options when things go wrong). Things going wrong can also mean a business with pricing power deciding to increase profit margins (and/or reduce quality/quantity of services).
1. Walmart opens location
2. Prices things to get a small margin
3. Competition is driven out because consumers don't want to go to multiple stores to get everything they need
4. Suppliers raise costs, inflation happens, market conditions change, etc. (it would even make sense for the supplier to raise prices if they have less independent customers, to account for the risk of only having 1 big customer)
5. Someone writes an article about how X is more expensive now at Walmart than it was at random shop, years ago.
The free market only works when both consumers and producers are atomised and unable to exert market influence. Both billionaires, unions, conglomerates, vertical integration and every other trick labor or capital uses to increase their bargaining power are market failures.
In short: if you like capitalism you need trust busting along with union busting.
Not necessarily high-priced. Expense to the consumer (me) is also measured in time.
Maybe the little stores didn't have a large selection, so a shopper who went there would have to go to the big store anyway. Why waste time? Just go to the big one. I'm guilty of that behavior.
Flip that story a bit and I've also bought more expensive individual items at a small store close to me when it was "an emergency." Higher prices were outweighed by my time saved.
> occupy a niche
The indies that seem to exist in most of the country seem to be ethnic specialty markets or local produce/meat/etc. Near me in my little Iowa town are Korean, Mexican, and Egyptian grocers, fruit/veggie produce, and butcher shops. There's also the pretentious Co-op. I should add that the farmer's market is always bustling and also isn't being put out of business by the Walmart.
And this is flyover country. It's not like when I was in Manhattan and within a block of me had 2 bodegas, 2 bakeries, a seafood store, a cheese shop, and a butcher.
I'm sure I've left things off both of those lists.
> Legal bailouts for mediocre boomers who run inefficient, unambitious businesses with high prices
No, they're for things deemed to be for the public good despite the ravages of the "free market," by which today we mean acceptable monopolies.
Supermarkets aren't especially profitable these days, and downward pressure on suppliers ultimately serves consumers anyway. The grocery business is very competitive, with incredible price transparency and low margins.
There might be room for one sort of upscale grocer on the richer side of town, but I doubt there is space for more.
So why doesn't anyone fill that niche? Perhaps in part because the market is so consolidated. There's little incentive for the small handful of major players to cannibalize their own products.
So we end up largely with two options: the cheapest version of the thing that is possible to manufacture, and an extremely high-quality artisan product costing multiple times as much.
Then you also have lower priced stores operated by immigrants that attract more price sensitive immigrant diasporas.
But broadly speaking, it would reflect the disposable wealth gap between buyers. With a widening income/wealth gap, I would expect there to only be a few viable markets to cater to, maybe even only 2. The source of the “problem”, however, would be the wealth gap, not the stores. The stores are a reflection.
Another issue is also technology and instant communication making it more convenient and cheaper to use fewer vendors. Shopping and checking prices is work.
If someone can drive to one big box store and get almost everything that need, they will choose to do that.
Local butchers haven’t been displayed by Walmart unless they thought their business was pork chops over Wagyu and goat.
But in general, customers don’t want variety and quality over price.
Rewind to 2024, prices are even higher, their profits are still stellar. I have hard time feeling any sympathy towards them.
Its almost as if they somehow, big boys behind closed doors, made together some shady deals about overall prices (with which smaller guys can't still compete ie due to economies of scale or massive negotiating power). No, that can't happen in 2024, almost pretty sure about that.
https://www.tescoplc.com/investors/reports-results-and-prese...
If you think you can run a better business on sub 4% profit margin, you are welcome to throw your hat in the ring. But it really is an achievement of modern technology, logistics, and management to enable to get the amount of food, from all over the world, in consumer’s hands, all year round, at such low profit margin.
You're just describing the most extreme and dysfunctional aspect of a phenomenon that comes in shades of gray.
> plus high barriers to entry.
That's not exactly a requirement. A sufficiently powerful monopoly can generate its own barriers to entry (e.g. it can use its war chest to lower prices to an uneconomical level to drive a potential competitor out of business, and the threat of that can keep a competitors from even trying).
> Now it just means a big business,
It means big business that abuses its market share to make even more money due to a lack of real competition.
> or the only option in my neighborhood.
And those an be a legitimate monopoly, even by your above definition. It's all about how you describe the market.
IIRC, in the Grapes of Wrath, there's a company store that's a monopoly, and the proprietor says as much: his prices are unfair, but the transportation cost to shop at another store forces his customers to shop with him.