Monopolies across the grocery supply chain squeeze consumers, small businesses

https://prospect.org/economy/2024-06-12-war-in-the-aisles/

by cainxinth • 2 years ago

103 99 2 years ago

to help keep small businesses alive.

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.

Nifty39292• 2 years ago

Indeed, do we shop for groceries in order to provide businesses with revenue, or does a business exist to serve customers? If the latter, and some business don't serve our needs as well (e.g. higher prices, poor selection or bad service), then should we not be able to patronize businesses that do?

lotsofpulp4• 2 years ago

Nature presents the efficiency vs security dilemma almost everywhere you look. One is always traded off for the other, especially between the short term and long term.

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).

hammock• 2 years ago

Walmart and drug store retail “control their costs” by using their market power to shift them up-chain. Their suppliers are required to stock and rotate inventory (as opposed to the retail employees). Unsold and expired product is required to be bought back by suppliers. If a retail buyer finds out a supplier has extra funds they will call and require that the supplier buy advertising on their homegrown retail media network (a shakedown). It’s a racket

lotu2• 2 years ago

Walmart is notorious for coming into an area and running at a loss until it has eliminated all the competition then jacking up prices.

chung81232• 2 years ago

Is that true? Or does it just seem that way because it takes time for places to go out of business competing with Walmart and during that time we have inflation. Is it proven that Walmart operates at a loss for some of their stores for a while?

kaibee• 2 years ago

Is this true? It definitely sounds truthy and would confirm my biases. But I could just as well see:

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.

llm_trw3• 2 years ago

That’s what a lot of this concern is really about. Legal bailouts for mediocre boomers who run inefficient, unambitious businesses with high prices.

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.

aaomidi• 2 years ago

Certainly a take.

drewcoo2• 2 years ago

“Independent” in this case meaning high priced grocers people didn’t want to shop at.

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.

azinman23• 2 years ago

I really wish we could return to an era of congress that had appropriate mistrust in business and a strong desire for anti-trust busting. I think it’s one of the most important things we could do to prevent capitalism from going off the rails.

djfobbz• 2 years ago

You make an important point. Not all capitalism is equal. When big businesses like Monsanto lobby politicians to have it their way, it’s not capitalism but rather corruption and coercion. This undermines the free market principles we value. In contrast, capitalism at the small business level is often more innovative and agile, quickly adapting to market changes and consumer needs. Supporting small businesses and ensuring a fair playing field can help prevent capitalism from going off the rails and foster a more dynamic and equitable economy.

nayuki• 2 years ago

https://en.wikipedia.org/wiki/Crony_capitalism , https://en.wikipedia.org/wiki/Regulatory_capture , https://en.wikipedia.org/wiki/Rent-seeking

soco• 2 years ago

I don't think for the small customer the wording has any significance. Is it capitalism or cronyism or you-name-it, they get shafted because that's the only criterion for a big business "success": grabbing all the money from the table for the goal of maximizing profits. All fine and nice and free in theory, but in the practice it works like this (look around). So I'm sorry I don't buy this "no true scotsman" argument, be it for capitalism or for communism or anything else. It only matters how it works in reality, and I don't like much how it works.

dfxm122• 2 years ago

This is all capitalism. Monsanto is the logical conclusion of capitalism. Everyone else is just playing catch up. Unfortunately, any politician who does try to do something about it gets vilified as anti-American, based on decades of cold war propaganda against other economic systems.

drewcoo2• 2 years ago

an era of congress that had appropriate mistrust in business and a strong desire for anti-trust busting

That would mean Congress serving the people and not corporations who lobby them.

snapplebobapple5• 2 years ago

Out of curiosity, do you feel the same about unions, because it is the same exact problem and should be dealt with the exact same way.

jjk1667• 2 years ago

You don't see a difference between a monopoly on food and a union?

azinman23• 2 years ago

I’m not sure exactly what you’re asking here as they’re so completely different and the effects on society are different as well. Are you suggesting there should be many unions and each one not allowed to get big?

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.

Nifty39292• 2 years ago

It's unfortunate that the word monopoly is losing it's meaning. Formerly, it meant a business that had an overwhelming or total share of the entire market, plus high barriers to entry. Now it just means a big business, or the only option in my neighborhood.

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.

1oooqooq• 2 years ago

you really cannot see the connection?

rqtwteye3• 2 years ago

This comes at the expense of quality and variety though. A market economy will not flourish if there are only a few big players. We need small businesses to be able to innovate.

lotsofpulp4• 2 years ago

The buyers in the market almost always choose the lowest prices. Hence the success of Walmart/Kroger/Albertsons/Costco/Target/Aldi/Dollar General/etc.

There might be room for one sort of upscale grocer on the richer side of town, but I doubt there is space for more.

throwawaysleep5• 2 years ago

You can buy speciality meat or cheese or produce at niche speciality shops.

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.

jajko• 2 years ago

During covid, while every corporation whined how tough times were (and often they really were), retail sellers in Europe like Tesco had record profits. Elevated prices, excuses about supply chain, less workers on the fields etc. Their profits went through the roof, year after year.

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.

lotsofpulp4• 2 years ago

Nominal profits have no place in this discussion. Only profit margin, and grocery businesses have profit margins of 2% or maybe 4%. Tesco has a less than 4% profit margin (they only list operating margin, I didn’t bother to calculate profit margin, but it must be lower), and the margins have not been increasing. Which means Tesco’s costs are increasing, necessitating Tesco’s price increases. Otherwise Tesco loses money.

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.

tivert• 2 years ago

It's unfortunate that the word monopoly is losing it's meaning. Formerly, it meant a business that had an overwhelming or total share of the entire market,

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.

dotnet00• 2 years ago

While monopoly originally referred to a single company having an overwhelming share of the market, its colloquial use refers to any company that has enough market share to abuse its position to harm customers. This is just because it's easier to convey the point by saying monopoly than deal with all the dumb questions that get brought up by using oligopoly.

AlexandrB• 2 years ago

This seems pretty monopolistic to me: https://en.wikipedia.org/wiki/Bread_price-fixing_in_Canada

rqtwteye3• 2 years ago

Seems we have reached 1910 again and need somebody like Teddy Roosevelt for some trust busting.

throwawaysleep5• 2 years ago

Consider how much people spent on food back then vs now.

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.

llm_trw3• 2 years ago

In 2022, before the bulk of the current inflation materialized.

Saying it worked before is a bit like saying "I can't have diabetes, I played football in highschool!".

lotu2• 2 years ago

I'm not sure that data is super telling, all it means is the food is a lower percentage and giving the costs of education, housing, and insurance perhaps not that surprising.

HumblyTossed• 2 years ago

You know, you're right. We should be perfectly okay with things just the way they are. In fact, let's just keep going until there's only one big player in every market!

justinlloyd• 2 years ago

This reads like whataboutism. Very disingenuous.

bryanlarsen• 2 years ago

Exactly! We need a president who would appoint a radical trust-buster like Lina Khan to the FTC.

SubiculumCode• 2 years ago

lol nice. Lina Khan was a brilliant appointment by Biden, I just hope that her work continues and accelerates over another Biden term. In my opinion, America will only stay on top of we ensure robust multilevel competition in the marketplace.

Scoundreller2• 2 years ago

2021 article from the Guardian:

“ 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/...

throwawaysleep5• 2 years ago

Nowhere in the world spends a lower percentage of income on food than the USA.

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.

seventyone• 2 years ago

This is true but people will react negatively to this data regardless. The US does have this advantage, but you can also argue that the tradeoff is our food quality is much worse than other western countries.

myrmidon• 2 years ago

That graph is misleading at best, especially for the US.

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).

jjk1667• 2 years ago

Or the wealthier a nation is, the less political will exists to go after monopolies.

Clent• 2 years ago

This doesn't mean our food is cheaper. It could mean that we have other budget items that are larger than in other countries, such as healthcare costs. We almost spent more on childcare costs than countries further to the right in that graph.

nox101• 2 years ago

Makes me wonder why the governments only seem to care about tech power ... is there movement to break up these companies?

hn_throwaway_99• 2 years ago

If you look at that linked guardian article (which I think is a great article BTW), it would seem that what is considered "highly consolidated" in the grocery world is still generally less consolidated than the tech world. E.g. if you look at the soft drink data, it's ~ 42% Coca-Cola, 27% PepsiCo, and 23% Keurig Dr Pepper, so then about 7% "other". That actually seems like a well-functioning market with competition to me (though I'm sure there could be regional areas where this is widely skewed).

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.

theGnuMe2• 2 years ago

Correct, the white label off brands are all the same products regardless of store.

Scoundreller2• 2 years ago

Sometimes the same white label off product is different across the same chain.

E.g. in Canada, Costco toilet paper was produced/supplied by a different company between east and west coast.

chasil2• 2 years ago

Has this penetrated Aldi's, which uses in-house brands for the majority of their products?

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

throwawaysleep5• 2 years ago

Given that people in this thread are angry at vertical integration, I would bet that Aldi would be the first hit by many laws.

sithadmin• 2 years ago

Would depend on what exactly 'vertical integration' is defined as. Most grocers' house brand items are produced by 'white label'/contract manufacturers that supply many different grocers. It's cutting one or at best two steps from the supply chain instead of true vertical integration.

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.

bilsbie• 2 years ago

I recently discovered this store. Literally seems to be half the price of my local grocery store and even more important I’m not overwhelmed with choices.

njovin• 2 years ago

I don't know about Aldi's but Trader Joe's (which also uses a lot of in-house brands) seems to suffer from this but to a lesser extent and with some lag compared to the competition.

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.

ska2• 2 years ago

Doesn’t one of the Aldis own trader joes?

jmpman2• 2 years ago

I went to the lake last week. Before heading out, I went to the grocery store to buy some soda, an infrequent purchase in my household, and was stunned to find a 12 pack for $9.99. That was at least double the price I expected. Trying to understand where this pricing anomaly came from, I started checking out historical commodity prices. A bushel of corn for today versus 2011 - almost unchanged. Aluminum for today versus 2011 - almost unchanged. Transportation costs? West Texas Intermediate crude for today versus 2011 - almost unchanged. It’s either the caramel coloring or the water… Or the lack of competition.

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.

practicemaths• 2 years ago

Price of branding I imagine.

People are willing to pay the price so you may as well charge as much until sale revenue goes down.

jmpman2• 2 years ago

I agree. The demand curve has shifted as people have the cash and aren’t willing to substitute other products.

cosmotic• 2 years ago

Brand-name soda at my local store is similarly priced but often on sale, 3 12-packs for $12 or similar (must buy 3).

rolph• 2 years ago

im accustomed to seeing this when its overstocked, it always seems to be interpreted as normal practice, rather than regular price should drop a bit.

VancouverMan• 2 years ago

It’s either the caramel coloring or the water… Or the lack of competition.

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.

gamepsys2• 2 years ago

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.

gamepsys2• 2 years ago

After you've sold to the entire addressable market then you should begin maximizing your revenue per customer.

AdmiralAsshat2• 2 years ago

If it's a certain formerly-cocaine-infused soft drink, the simple answer is that the vendor continually tests how much the market is willing to pay, and found that it will pay more.

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.

ToucanLoucan• 2 years ago

I absolutely can't quit soda, so what I've done instead is go entirely on the sugar-free variants of all my favorites. I know it's still not good for me of course and I moderate my intake, but I legit cannot handle the mainline variants anymore, any time I have to get a full sugared Coke, holy fuck I feel like I'm just eating a bowl of raw sugar, I can't even taste the damn soda.

And yeah, we do the stock-ups when it goes on sale because I flat refuse to pay $10+ for fuckin soda.

gruez• 2 years ago

I have managed to drink less of the stuff. I only buy the mini cans now

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

djkivi• 2 years ago

It is the real thing after all...

function_seven• 2 years ago

There has been a weird thing going on with soda. Like cosmotic says in the sibling comment, they're often on sale.

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.

tempoponet• 2 years ago

This seems to effectively muddy the waters such that they can steadily raise the price without a ground truth for comparison. We learn to ignore the MSRP but each promotion becomes apples to oranges, and over time they're nudging things up.

htek• 2 years ago

For several years, beverage companies have been complaining about CO2 supply being low. During the pandemic, I switched to a SodaStream, converted it to use a 10 pound CO2 tank and started buying the syrup for my preferred soft drink. It allowed me to increase the CO2 level of my drink while, over time, cutting the amount of syrup used by 80% (and greatly decreasing my sugar intake per day). It's pretty much lightly flavored sparkling water now.

chung81232• 2 years ago

Honestly I am always surprised how cheap food can be by mass producing it. How can pork chops cost 0.99/lbs or a whole chicken roasted but $5? I know these are sale items but I can feed myself so inexpensively and in general most of the food is pretty healthy (vegetables, some fruits, etc). These supply chains maybe squeezing profit but the likelihood a small business could even come close to the prices they have is small.

cl42• 2 years ago

I think this is particularly bad in Canada, where most of the brands are owned by two or three companies, and there has been clear evidence (and penalties) for price fixing.

Would love to hear what Canadians think about this + if they see any innovation on the horizon.

AtlasBarfed• 2 years ago

Monopolies and cartels are basically the entire US economy.

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.

swagasaurus-rex• 2 years ago

There’s a legal mechanism to merge companies through aquisition. There is no legal mechanism to split a company up. Even bankruptcy is case by case and doesn’t always result in a split.

tocs3• 2 years ago

I don't know but I have heard about companies spinning off smaller companies.

xrd• 2 years ago

Does anyone have any sources for differences by region?

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?

nojvek2• 2 years ago

Publix is expensive indeed. Aldi is usually a lot cheaper than Publix and Walmart.

That being said when I visited Seattle area, Fred Meyers was more expensive than publix for groceries, and Safeway was selling $50 Orchids.

DavidPeiffer• 2 years ago

Austin Frerick has had a number of really great interviews since launching his book. Among others:

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-...

Monopolies across the grocery supply chain squeeze consumers, small businesses

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