What’s Behind Grocery Prices

September 5, 2023


  • Grocery prices have risen far faster than inflation
  • Corporate consolidation across the food industry has diminished market competition
  • Grocery mergers have produced just a small handful of outlets

Contributor: Miles Kirkpatrick

Behind grocery store shelves and up and down our supply chains, large corporations increasingly dominate the markets in charge of growing, producing, and selling the food we eat. Food already makes up a significant portion of household spending (an average of about 11.3%, according to the USDA) and these “grocery cartels” increasingly exacerbate the real-world impact of inflation for consumers. Even though the rate of inflation in the United States has now returned to a historically normal level, actual prices remain high, prompting many people to wonder where all the money is going.

A large part of the answer: corporate consolidation in the food industry.

Food and beverage consolidation isn't always obvious. In-store, it can be hard to tell which brands are part of a conglomerate or not. But consider the market share of several large food corporations. For example, just four companies dominate the coffee market: The J.M. Smuckers Company, which owns Folgers and Dunkin; JAB Holding Company, which owns Caribou Coffee, Peet's Coffee, and Gloria Jean's Coffees; and Kraft Heinz, owners of Maxwell House; and of course, the Starbucks Corporation, owners of both Starbucks and Seattle's Best Coffee. Together, these four firms control more than two-thirds of all the coffee sold in U.S. stores.

When companies dominate a market, as seen in the charts above, it is called a tight oligopoly. 

Grocery prices, even against the backdrop of massive inflation, have risen dramatically recently. Price spikes for individual items won significant media attention like the baby formula crisis last year or when egg prices skyrocketed, though prices in both categories later came down; but overall, prices increased and aren't coming down as quickly as we would hope - or at all.

The cost of eating food at home rose 20% for southern shoppers from January 2020 to January 2023, while all prices rose around 15% for the same period. Of course, a variety of causes have been attributed to this rise globally, including the COVID-19 pandemic supply chain disruptions, climate change (which will continue to raise food prices), and the war in Ukraine. All of these factors contribute to a rise in grocery prices - but consolidation is what allows these prices to stay high.

How consolidation keeps prices high is simple. When there are a lot of sellers in a market, each one has a competitive incentive to keep their prices low, and quality high, so people will buy from them. This competition is vital in any healthy market economy, and a cornerstone of basic economics.

Yet in an environment with widespread market consolidation, competition suffers. With less competition, companies find it easier to set higher prices and to keep them that way. That is much more difficult with more competitors: someone will lower their prices to win more business. And when just a handful of companies produces nearly everything shoppers see in the grocery store, those companies feel much less competitive downward pricing pressure.

Another way consolidation drives up prices is by making markets dependent on a few successful companies. In a market with 100 sellers, if one struggles to produce, there are 99 alternatives to fall back on. Less so in markets dominated by just a few sellers.

The most obvious example of consolidation raising prices is in the meat industry. The "big four" meat-packing plants, Cargill, JBS, Tyson, and National Beef (a subsidiary of Marfrig), purchase and process 85% of beef in the United States and have had a vice grip on the market for years. Even in 2021, a large (and very bipartisan) coalition of members of Congress signed a letter calling for a DOJ investigation of potential price-fixing behavior.

While the big meat processors have been consistently accused of anti-competitive behavior before, in other industries, anti-competitive behavior is easier to see during acute crises. Remember the egg crisis from earlier? It certainly wasn't a crisis for egg producers - they saw record profits.

Lastly, being at the end of the supply chain, grocery store consolidation has affected nearly all prices. The big five - Walmart, Kroger, Albertsons, Ahold Delhaize (owner of Food Lion, Giant, Fresh Direct and Stop & Shop) and Publix, control nearly half of the national grocery market. Here in North Carolina, there are 214 Walmart retail units alone. Kroger has 159 food stores, primarily of their subsidiary Harris Teeter, of which there are 150. Costco has a minimal footprint with ten stores, but the Albertsons footprint will increase if their proposed merger with Kroger goes through.

Economics is never simple. For any phenomenon, high prices, low prices, inflation, recessions, there are almost always multiple contributing factors. However, that doesn't mean some factors aren't more important than others. When it comes to high grocery prices, corporate greed and consolation are important factors.

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