Grocers are upping consumer costs to make up for inflation and supply shortages
Grocery stores are taking advantage of the current inflation and rising supplier costs by adding extra to the price for consumers.
According to economists like Burt Flickinger, managing director of retail consultancy Strategic Resource Group, it is a common practice for grocery chains to raise prices higher than necessary to cover their own costs.
“(Inflation is the) greatest gift the supermarket sector could get,” Flickinger told CNN. “They have not had these inflation benefits in years.”
With prices for milk and meat products currently on the rise, grocery stores are passing the bill off to consumers, so to speak.
“(Stores will) mark up the full rate of inflation plus a little bit more,” Flickinger told CNN.
The belief is that consumers won’t mind (or notice) the price increases, because they need groceries, and buying food from a store is still a cheaper alternative than eating out.
According to data from the Labor Department, the cost of food at a restaurant is rising at a rate even higher than at a store.
The price increase to shoppers also likely won’t be felt the same way as for the store. Selling a gallon of milk for 10 cents more won’t be noticeable to a single consumer, for example, but over time can add up for the store.
Inflation has been on the rise because of a number of issues mostly related to the pandemic, including supply chain issues, product shortages and soaring consumer demand.
Grocery chains such as Albertsons and Kroger have said in recent days that they expect to benefit from the rise in costs, although not at the same rate as at the beginning of the pandemic when no one was able to eat out.
“Our business operates the best when inflation is about 3% to 4%,” Kroger CEO Rodney McMullen said on an earnings call with analysts Thursday and reported by CNN. “A little bit of inflation is always good in our business.”
The cost of food for consumers increased by 2.2% in May, compared to the same time in 2020. The price of pork, milk, seafood, fruits, and vegetables all rose between 1.9% and 9%.
Albertsons CEO Vivek Sankaran said at an investor conference Tuesday that he expects the inflation to be good for business, as long as inflation doesn’t rise beyond what consumers are willing to pay.
“We’ve never had an environment like this with such a strong consumer where inflation goes higher,” Sankaran said. “And inflation will have to go really high for it to start mattering where the consumer starts clamping down on purchases.”