Democratic presidential candidate Vice President Kamala Harris and her husband Doug Emhoff cheer at Sheetz's in Coraopolis, Pennsylvania, on August 18, 2024 Stop.
Angela Weiss | AFP | Getty Images
Democratic presidential candidate Kamala Harris this week unveiled her most detailed economic plan yet as she pledged to crack down on price gouging to rein in grocery costs for voters.
The vice president first teased the federal ban in mid-August, prompting former President Donald Trump to attack the program as “Soviet-style” price controls. Although Harris released more details Wednesday as part of her 82-page economic planit’s unclear what price increases her administration considers illegal “price gouging.”
“This bill will set the rules for the road, making it clear that large companies cannot unfairly exploit consumers to reap exorbitant corporate profits on food and groceries during this time of crisis,” the Harris-Walz campaign wrote in a policy pitch. “Six weeks before Election Day.
Rising prices — and who or what is to blame — have become a central theme in the presidential campaign as high grocery bills frustrate Americans and retailers anticipate a busy holiday season. As Americans continue to pay more for groceries, energy, housing and other daily expenses, Harris and Trump have each proposed their own solutions to combat inflation.
Domestic food prices rose just 1% last year, according to the Bureau of Labor Statistics. But groceries are still 25% more expensive than they were in August 2019 before supply chain disruptions and inflation caused prices to spike.
Voters will ultimately weigh what role government leaders should play in corporate pricing. Generally speaking, Republicans support reducing regulations on the economy, although Trump has suggested limiting food imports as a way to lower grocery prices. economists warn This strategy can backfire.
Stopping price increases is a common idea among voters. According to an Economist/YouGov poll conducted from August 25 to 27, 60% of adult U.S. citizens support limiting increases in food and grocery prices.
Still, Harris would face a tough road getting any price-gouging legislation through Congress, and it's unclear how effective the crackdown on rising prices will actually be.
What is price gouging?
One of the challenges with accusing companies of price gouging and promising to fix the problem is that the word means different things to different people. It's often defined in two main ways, said Rakeen Mabud, chief economist at the progressive think tank Groundwork Collaborative.
economists and lawyers She said, using the technical definition, it refers to companies raising prices during emergencies, such as doubling the price of bottled water during a hurricane. Thirty-seven states in the United States have enacted laws prohibiting price gouging during emergencies.
But Maboud said some consumers and politicians embraced a looser definition: the practice of companies charging unfair prices simply because those brands or retailers have market power.
People shop near prices displayed in a supermarket in Los Angeles, California on February 13, 2023.
Mario Tama | Getty Images
As the prices of groceries and other goods soared in 2021 and 2022, one popular explanation emerged: “greed inflation,” in which businesses raise product prices without offering more to customers (such as increasing quantities or launching new flavors) , thus exacerbating inflation. The once fringe theory has gained mainstream support, including from Federal Reserve Bank of Kansas Citythe study found that fare increases “significantly” increased inflation.
But many economists—and Fed Chairman Powell ——Don’t think that corporate profits are the main culprit of inflation. Instead, they attribute the sharp price increases to a variety of other factors, such as tight labor markets and supply chain issues.
Whatever the term means, the companies involved argue that they are not to blame for rising grocery prices.
“It is critical that we get the economic facts right and avoid political rhetoric,” Sarah Gallo, senior vice president of product policy and federal affairs at the Consumer Brands Association, said in an August statement. The reality is that there are complex economic factors at play…The industry supports the Federal Trade Commission’s consumer protection mission and the laws already enacted by the Department of Justice prohibiting price gouging and unfair trade practices.”
Some retail leaders, including Target Chief Executive Brian Cornell also dismissed accusations of price gouging against the industry. In an interview with CNBC's “Squawk Box” in August, he said that if retailers raise prices too high, their customers will be taken away by competitors.
However, Jharonne Martis, head of consumer research at London Stock Exchange Group (LSEG), said there were some “red flags” that caught the attention of politicians. She analyzed gross margins for companies across a variety of industries, including grocery stores, consumer goods companies and restaurants, before, during and after the coronavirus pandemic. This metric measures a company's net sales as a percentage of its costs.
Some of these companies include hook up, Procter & Gamble and Domino's Pizzagross margins are higher than before the pandemic. She said this could reflect specific company moves, such as Domino's selling more pizza or Kroger customers being attracted to higher-margin products Private label.
On July 15, 2022, a customer shopped at a Kroger grocery store in Houston, Texas.
Brandon Bell | Getty Images
Antitrust challenges to Kroger's $24.6 billion acquisition of supermarket chain Albertsons have also increased scrutiny of the company's pricing practices. The FTC is trying to block the merger in court, and during the trial, Kroger executives Pricing executive testifies Retailers are raising the prices of milk and eggs beyond what is needed to increase costs.
In a company statement, Kroger described accusations of price gouging as “misleading” and said nearly all operating costs for grocery stores, including labor and transportation costs, have increased significantly since 2020.
“We work tirelessly to keep prices as low as possible for our customers in a highly competitive industry,” the statement read.
On the other hand, Arun Sundaram, an equity research analyst at CFRA Research who covers grocery and consumer goods companies, said he sees no evidence of price gouging in the grocery industry. He said the price increase was because the company passed on some of its higher production costs to customers.
He said higher profit margins could come from a variety of factors and were not necessarily a sign of corporate greed or price gouging. They may rise because companies operate more efficiently or because the mix of goods they sell changes.
Margins can also reflect the strength of the brand and consumers' tolerance for steep markups on trendy or trendy items, such as a unique pair of sneakers or a designer dress.
But Sundaram said there may be some merit to the arguments in the meatpacking industry, which faces some price-fixing lawsuits. For example, JBS's Pilgrim's Pride Corporation is one of the largest chicken producers in the country. Plea guilty in 2021 Conspired to fix chicken prices and pass costs on to consumers.
The sign reads “Low Price!” Such an advertisement hangs on the shelves of a Target department store in Miami, Florida, on May 20, 2024.
Joe Reddell | Getty Images
How shoppers influence prices
Even if Harris never passes price-gouging legislation, the backlash against high costs has begun to affect prices. So far, the pushback from shoppers and grocers has changed the landscape in a big way.
Consumer staples companies, e.g. Pepsi and Campbell's Soup Their sales shrank as consumers opted for cheaper alternatives or snacked less. As inflation slows, price increases in most countries are becoming smaller and less frequent.
“You have shoppers who have gone through seven or eight (price increases) in a year, and you know they're frustrated by it,” said Steve Zurek, vice president of thought leadership at market research firm NielsenIQ.
WalmartThe country's largest retailer and grocer by annual revenue said it was cracking down on price increases by its vendors. In an earnings call last month, Chief Executive Doug McMillon said inflation was more severe in lanes that transport dry goods and processed foods. He said the large retailer was calling on its suppliers to hold prices steady or cut them.
“We have less upward pressure, but some people are still talking about cost increases and we are pushing back aggressively because we think prices need to come down,” he said on the call.
Zurek said many food companies are reinstating discounts to address consumer dissatisfaction and slowing sales.
During the pandemic, many manufacturers stopped offering deals as they struggled to keep shelves stocked. They don't need to stimulate demand because customers are already stocking pantries with hand sanitizer and toilet paper. Supply chain issues exacerbated the problem, and inflation boosted sales, but they didn't require people to buy more items.
For many companies, this dynamic has now shifted. It's not just food companies offering deals.
Target Prices reduced on thousands of items. Walmart Increased short-term deals on certain products, especially in the grocery sector. This week, as shoppers prepare for Halloween, Party City announced price cuts on more than 2,000 items, including balloons and candy.
Even so, consumers are unlikely to see significant price cuts across the board at grocery stores, Zurek said.
“From an economic perspective, you never want to talk about deflation — that's almost as bad as inflation,” he told CNBC.
But there are also examples of companies reversing price increases. Robert Crane, JM Smucker's vice president of sales and sales commercialization, said the food company has provided “commodity relief” to consumers where possible, such as its coffee brands, which include Folgers and Cafe Bustelo. In fiscal 2024, Smucker's coffee division's profit margin was 28.1%, down from 31.9% in fiscal 2019.
But in early October, Smucker planned to raise coffee prices for the second time this year in response to rising commodity prices.
To justify these decisions to top retailers, the company hired professionals who could explain the green coffee commodity market, Crane said.
“We'll review the charts, we'll talk about the outlook, we'll talk about what's driving it — is it weather? Is it speculation-driven?” Crane said.
But that doesn't mean stopping or slowing price increases is simple, CFRA's Sundaram said.
He said there were many factors contributing to inflation, including soaring supply chain costs, rising wages due to labor shortages and bad weather in regions of the world that produce food such as corn, soybeans and cocoa. He is skeptical that any administration can solve the problem quickly.
“Because it's a complex set of factors that lead to this, there's also a complex set of factors that could eliminate it,” he said.