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A Kroger chief executive admitted during an antitrust lawsuit that the company raised prices on select items above inflation levels.
While testifying Tuesday before an attorney at the Federal Trade Commission, Kroger’s Senior Director of Pricing, Andy Groff, said the grocery giant had raised prices for eggs and milk beyond the levels of inflation
“This is not surprising,” Drew Powers, the founder of Illinois-based Powers Financial Group, said. Newsweek. “Companies in many industries have posted record profits since the COVID-19 crisis, while consumers have faced the highest inflation in recent history. The math can only point to companies raising prices above the general level of inflation. Never let a good crisis go to waste.
The questioning came during a court hearing for Kroger’s FTC suit after the retail giant announced it would acquire top grocery competitor Albertsons.
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Groff said Kroger intends to “pass our inflation on to consumers,” after an internal email from the executive showed that the price of eggs and milk regularly exceeded what inflation required for the chain to make profits too.
“In milk and eggs, sales inflation has been significantly higher than cost inflation,” Groff said in the internal email to other Kroger executives.
Newsweek contacted Kroger for comment via email.
A Kroger spokesperson previously told Bloomberg that Groff’s comment was “cherry-picked” and “does not reflect Kroger’s decades-long business model of lowering prices for customers by reducing its margins.”
Not everyone believes the email comment reflects Kroger’s price-setting policies or the grocery industry as a whole.
Economists have long pointed out that the grocery sector, which is made up of just a few chains like Kroger and Walmart, benefited from supply chain disruptions during the pandemic, allowing companies to raise prices. beyond what was necessary to maintain profits.
“Comments like this, despite their honesty, call into question the explanations that Americans have given for the past three years about inflation,” said Alex Beene, a financial literacy instructor for the University of Tennessee to Martin. Newsweek.
“Supply chain issues, rising shipping costs, and rising wages have certainly played their part in the higher prices we’re currently seeing. However, the admission of some prices have been raised only because the companies knew that they could not help the case for those who discuss the price. Peeling is not a problem.”
The FTC’s antitrust case says that if Kroger were to successfully acquire Albertsons, consumers would see even higher price increases due to reduced competition from the two merged chains.
Biggest trend?
During the pandemic, food and energy prices have driven the overall level of inflation, and many of those same sectors have seen companies make record profits, Powers said.
“There’s not just one bad apple in this bunch,” Powers said, adding that most companies that engage in price gouging receive limited consequences.
“Historically, corporations guilty of price fixing have faced relatively light repercussions compared to the profits made from the offense. It will be interesting to see if Kroger is hit harder this time, as these allegations have come to light during the FTC hearing on its bid to acquire Albertson’s,” Powers said.
Kevin Thompson, a financial expert and founder and CEO of 9i Capital Group, said Groff’s comments highlight a larger trend in the current economic system.
“We’ve moved away from true capitalism toward an oligarchic structure with less competition and larger players dominating the market,” Thompson said. Newsweek.
“This shift, driven by a focus on shareholder interest, has diminished consumer choice and competitive dynamics.”
Managers tend to be incentivized to maximize shareholder wealth by increasing revenue and reducing costs, Thompson said.
“This pricing strategy was probably implemented to maximize profits,” Thompson said. “Other grocers may have taken similar actions, as executive compensation is often linked to the performance of the stock price. Many executives push the boundaries of what is legally permissible to enhance returns.”
Because customers generally still have choices to shop at other grocers like Walmart, Thompson said Kroger is unlikely to experience serious consequences from the FTC.
But Michael Ryan, a financial expert and founder of michaelryanmoney.com, said Kroger may have bitten off more than it can chew with its price admission.
“It’s like catching a kid with their hand in the cookie jar, and instead of denying it, they proudly announce, ‘Yes, I caught them all,'” Ryan said. Newsweek. “Kroger is not alone in this game. I would bet my last dollar that other big players like Walmart and Publix are pulling similar stunts.”
Despite the fact that this is probably a bigger problem in the grocery sector, Ryan said that consumers will be able to react quickly with their wallets.
“Customers aren’t stupid,” Ryan said. “I’ve seen loyal shoppers jump ship as soon as they feel ripped off. Once that trust is gone, it’s hard to get it back.
