Dear Editor,
You’ve probably heard about price gouging in the news lately. The target seems to be grocers. They respond by claiming they’re operating on a razor-thin 1-2% margin. Prices have actually gone up a lot. Is it your local grocer’s fault? Are grocers really operating on a 1-2% margin?
This hits me hard because I worked in the grocery store during the years of double-digit inflation in the late 1970s and early 1980s. Customers repeatedly accused me of price gouging. My employer responded with the “paper-thin” story.
I decided to take a look at it.
I looked at five years of income statements for the second, fourth, and sixth largest grocery stores in the country. They are Kroger, Albertsons, and Publix. I chose these three because they are publicly traded, their financial statements are available online, and they are “pure” grocery stores. I believe I have a representative sample.
I calculated gross margin (total revenue minus cost of goods sold). This does not include things like salaries, rent, utilities, overhead, bribes to politicians, etc. Using a bottle of ketchup as an example, if you pay $1.10 for a bottle of ketchup that costs $1.00 at Kroger, they made a gross margin of 10 cents or 9.1% (0.10/1.10). Any price gouging would be reflected in the grocers’ gross margin. I compared the gross margin percentage for each grocer over the five-year period from 2019 to 2023. Below are the numbers:
Kroger: 22.1, 23.3, 22.0, 21.4, 22.2
Albertsons: 28.2, 29.3, 28.8, 28.0, 27.8
Publix: 27.2, 27.9, 27.4, 26.8, 26.3
Conclusions:
First, the news media is pathetic. I collected and calculated the above facts while traveling using a Chromebook and a lame online version of Excel. It took me about an hour. Our media can only reprint press releases from the Ministry of Propaganda.
Second, grocers are not engaging in excessive pricing. The numbers speak for themselves. I am certainly not saying that prices have not increased. It seems that grocers have simply passed on the price increases for their products to their customers.
Third, Kroger’s gross margins are significantly lower than Albertsons and Publix. Perhaps this means that Kroger is trying harder than the others to compete with Walmart. This tells me that the Kroger-Albertsons merger should not be approved. I suspect that post-merger gross margins will be more similar to Albertsons than Kroger’s.
Fourth, I was curious where the “wafer-thin” margin nonsense came from. One of the media companies, to their credit, called it “net margin.” I calculated net margins based on sales (net profit divided by sales) and in fact they were in the 1-2% range, with the exception of Publix where they were between 5.4% and 9.2%.
However, this is a pretty meaningless measure. Anyone analyzing profits would first look at return on equity or return on assets. Net sales margin is one way to lie with statistics.
Hopefully this will clear up the nonsense spread by the Ministry of Propaganda.
Brynn C. Johns
Boulder City, Nevada
