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Two Democratic Senators are investigating Grocery store chain Kroger criticizes the use of digital price tags, so-called Electronic Shelving Labels (ESLs), and expresses concern that these could lead to “dynamic price gouging.”
Senators Bob Casey (D-Penn.) and Elizabeth Warren (D-Mass.) wrote a letter to Kroger CEO Rodney McMullen requesting “more information to better understand the legitimacy and risks of electronic shelving.” They warned: “Dynamic pricing allows companies to charge extortionate prices and increase the cost of goods suddenly and without warning.”
“Major grocery chains such as Walmart and Kroger have claimed that dynamic pricing through ESLs benefits consumers by giving employees more time to serve customers. However, these devices also pose the risk that grocery giants will abuse their power and rising food pricesto raise prices suddenly and at times when certain products are in greatest demand,” Casey and Warren wrote.
“The increasing use of dynamic pricing will drive up corporate profits – and the consumer will foot the bill,” they wrote. “It is outrageous that grocery giants like Kroger continue to implement price spikes and other profit-making schemes while families continue to struggle to put food on the table.”
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Senators Casey and Warren wrote to Kroger to express their concerns about the potential use of digital price tags for “dynamic price gouging.” (Photographer: Patrick T. Fallon/Bloomberg via Getty Images / Getty Images)
Casey and Warren noted that Kroger and Walmart, as well as other companies, are expanding their use of ESLs because they “seem to enable large grocery stores to squeeze consumers to increase their profits.” The letter did not provide specific examples of ESLs being used in this way, but pointed to a 2021 UCLA study that suggested they could be used for “time-based pricing” that “creates value for stores (through higher prices) (but) provides no benefit to consumers.”
Kroger denied allegations that its electronic shelf labels were being misused for dynamic pricing.
“Kroger’s business model is to lower prices over time so that more customers shop with us, which leads to increased revenue, which we then invest in lower prices, higher wages and an even better shopping experience. Everything we do is designed to support that strategy, and customers shop at Kroger more today than ever before because we fight inflation and offer value for money. Any test of electronic shelf labels is designed to further lower prices for customers where it matters most. To say otherwise is untrue,” a Kroger spokesperson told FOX Business.
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Compared to the U.S. economy as a whole, grocery stores have relatively low profit margins. (Photo by Liu Guanguan/China News Service/VCG via Getty Images / Getty Images)
Burt Flickinger III, founder of Strategic Resource Group, who has worked with companies like Kroger in the grocery industry, said the stores are not participating dynamic pricing with the use of ESLs and that the investigation by Democratic Senators appears to be speculative in nature.
“Prices don’t go up before floods, hurricanes, blizzards, heat waves, power outages, and not between Friday and Sunday when grocers make 60 to 70 percent of their weekly sales. Stores are crowded, (prices) don’t go up, they stay the same,” Flickinger said. “So this speculation or conjecture is simply a projection into the future that has no basis in fact.”
He also explained that ESLs can have a significant impact on grocery stores’ labor costs by allowing them to use the time and labor of warehouse workers who would otherwise have to manually change labels for other activities: “If labor costs in a particular store are around 20 cents per dollar of sales, ESLs can save half a cent to two cents in labor costs, depending on the state and its respective rules and regulations.”
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Without digital price tags, employees must manually change price tags on items in the store. (Photo via Smith Collection/Gado/Getty Images / Getty Images)
According to Flickinger, average supermarkets have an assortment of 25,000 to 35,000 items, while a larger store like Target or Walmart Supercenter would have over 100,000 items. Some of these items would be offered daily, while others would be seasonal. He noted that the brands that supply these items to grocery stores are primarily responsible for price changes.
“Almost 100% of the changes are driven by the brands – Kraft, Kellogg, Coke, ConAgra, etc. Retailers use electronic shelf labels as an analytical method to clearly communicate to the shopper the price per ounce and price per pound of a product,” he explained.
Flickinger added, “Kroger is not taking on the price increases, and neither is Walmart, Costco or WinCo.” He said if there is any price gouging, it is the food manufacturers. Participation in “shrinkflation” and that ESLs would make it easier for consumers to track these changes on their way to the store.
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Companies in the food industry have relatively low profit margins. The latest survey of US companies from various industries by the Stern School of Business at New York University found that from January 2024 Food and grocery retail Net profit margins were 1.18% for food wholesalers, 1.21% for food processors, and 7.12% for agricultural companies.
For comparison, the entire US market had a profit margin of 8.54%, a figure that dropped to 7.59% when Financial services Companies, according to the survey.
