A lot of the inflation on food is increasingly feeling like businesses cashing in. For instance my old go to brand of breed increased by over 50% months ago.
I'm having trouble understanding how much of food shrinkflation is down to actual costs going up versus exploiting the current market dynamics to squeeze more profit.
I understand it's probably a mix of both, but it's hard to tell the relative proportion as a consumer.
They didn't have the pricing power/their customers didn't have the tolerance for rising prices/coordinated action and corporate consolidation means prices are going up and it doesn't matter what your choices are.
Circumstances materially changed over the last few years, and inflation is a great time for profit taking as we're seeing, which reinforces the inflation. In a competitive environment the excess profit-taking should start pulling back eventually, but in the meantime the prices are going to the moon.
I don't think there was a magical point in consolidation that let them increase the price of eggs ad hoc. Or a magic 'greed' button that they refused to hit before now. Why not just make it $30 an egg?
> They didn't have the pricing power/their customers didn't have the tolerance for rising prices/
Just for everyone's sanity, it's WAY easier to believe that there are underlying market conditions that should be addressed and not worry too much about retailers. They are just doing marginal pricing. If there is a shortage on eggs, it's better for everyone that they price eggs so they stay on the shelves than to price them as if nothing is happening and then people panic because they can never find them anymore.
The profits may be up, but the revenue is still down overall.
The linked study didn't really make that claim. All it really showed was that only a small portion of inflation was returned in the form of wages. It didn't really attempt to figure out the reasons for the profits.
I don't know why people get so hung up on this though: If you have less stuff to sell, and fewer employees to sell it, your profit margins are going to be higher! That doesn't mean though that you are maximizing your revenue potential. Which is probably why despite all of these reports of "record profits" you are not seeing exploding stock evaluations.
Also, it doesn't hurt that inflation is always going to be favorable to retailers. You buy inventory at the pre-inflation price and sell it at the post-inflation price. Even if you just price to keep up with inflation, you are going to report "record profits" every quarter just by nature of inflation.
>I don't think there was a magical point in consolidation that let them increase the price of eggs ad hoc. Or a magic 'greed' button that they refused to hit before now. Why not just make it $30 an egg?
I'm not sure this can be approached from a rational examination of economic premises alone. You raise good questions. However political economy also should be considered.
Let us imagine for a moment that this narrative is being advanced to deflect from government largess in the economy. Under this scenario court economists have an interest in protecting the regime, while the regime and academic institutions generally have a symbiotic relationship. If these incentives make sense, the narrative can be better understood in this political context.
Unfortunately this hypothesis suggests that there is very little we can say here without this discussion devolving into the regular flames we see on this topic.
This is exactly it. Companies will actually go quite into the red on particular products to avoid a price increase "before everyone else" if they can survive else wise.
There cannot be anyway Arizona Ice Tea is making the same profit today on their .99 cans that they were in 1992.
And at some point that has to break unless they become a charity subsidizing aluminum-clad tea.
When "the break" happens they almost always overshoot; it's easier to offer a 'discount' later if necessary.
Long story short: they reduce costs (thinner cans, no need for heavy marketing because fixed price is the marketing) and aren't greedy, playing the long game.
Free market economics means that if absurd profits are being had, then new people coming to the game will offer slightly cheaper prices.
A price were willing occur until surviving companies are making minimal amount of profits.
Related is if someone figures out how to produce the same amount for less effort/cost.
If someone is making absurd profits for long periods, then usually some major factor such as government regulations is preventing new players from entering the market.
> Free market economics means that if absurd profits are being had, then new people coming to the game will offer slightly cheaper prices.
Supermarkets are expensive but still not expensive enough for someone to bootstrap an operation to elbow themselves into the market as a new player and expect to still make profit.
> A price were willing occur until surviving companies are making minimal amount of profits.
> Related is if someone figures out how to produce the same amount for less effort/cost.
Existing supermarket chains have massive delivery networks and associated efficiency, already have
- the real estate and
- all the internals of a retail store and
- the associated warehousing set up,
- all the personnel who know their way around the store and where everything goes (which is a huge part of the efficiency of distributing the wares in the store),
- "brand" recognition of the store (Aldi, Tesco, Walmart, ...)
which means the new competitors would very likely have to massively loss-lead at a time when the already-established market participants are making more profit than before.
> If someone is making absurd profits for long periods, then usually some major factor such as government regulations is preventing new players from entering the market.
Selling foodstuffs especially is an area of business where a huge chunk of regulations are absolutely justified and it's not like all of the food singled out because of expired shelf life ("MHD"/"Mindesthaltbarkeitsdatum") is getting thrown into the garbage (at least here in Germany).
I currently work in a supermarket and have done so in a different chain before this one and from what I know most damaged or "expired" food is getting written off and then either set aside in the appropriate temperature store-room for the "Tafel" (food bank) OR if it's really unfit/unsafe for consumption (moldy, completely interrupted cold chain [1] or obvious signs of spoilage like bloated food packaging) it gets thrown into the garbage.
Raving about "free markets" from ones ivory tower is all well and good but the reality is that because of corporate consolidations and necessity-for-living many economic sectors are effectively locked down by (implicit) cartels, either because it's cost-prohibitive to even enter - let alone succeed in - that market or because the actual necessary infrastructure has been divied up between the current market participants (think USA and their local mono-/duopolies of ISPs).
[1]: For example when we find items which should be kept cool or frozen in other areas of the market having been taken and left there by customers who obviously don't care (like that one time I found fresh fish with its plastic bag bloated to bursting in a warm section of the market during summer time, thankfully the packaging wasn't damaged or it wouldn't have been pretty).
Mass inflation is a convenient excuse for profiteering. Similar shit happened in Germany with the DM => EUR switchover, yielding the nickname "Teuro" ("expensive euro").
The core problem is that Western countries have collectively decided to dial back anti-trust enforcement that could have stepped in.
One hypothesis I have is that as food and labor costs have increased, people eat out less and generate more store traffic. Those shoppers are stuck with the decision to cook and their demand on a per store basis is more inelastic.
At least where I am this is the case. Milk and milk products are at record highs, with some products nearly double what they were at the beginning of last year. Yet the milk companies actually cut how much they pay producers. Prices for energy and fuel are around the same as the end of 2021.
Energy price in EU is at pre-war levels, as far as I know, for some months now. It definitely must be something else. I live in a country where everybody eats bread every day, and the price increase has been around ~80% over the span of a year. The price of flour has risen by around ~15-20% with all the "Ukraine is a major grain exporter" uncertainty since the beginning of the war. Corporate profits are unprecedented, so it cannot be anything else but pure greed.
I've switched to buying the bargain bin discounter stuff. It's such a transparent pretense to raise prices while raking in profits that I don't want to give it to them.
I understand it's probably a mix of both, but it's hard to tell the relative proportion as a consumer.