Dear editor:
You have probably heard price gouging mentioned in the news lately. Grocers seem to be the target. They respond with claims that they operate on a razor-thin margin of 1% to 2%. Certainly prices have gone up a lot. Is it the fault of your local grocer? Do grocers really operate on a 1-2% margin?
This strikes a nerve with me, because in the double-digit inflation years of the late '70's and early '80's I worked in the grocery business. I was accused of price gouging by customers numerous times. My employer responded with the "razor-thin" story.
I decided to take a look.
I looked at five years' worth of Income Statements from US grocery stores ranked second, fourth and sixth biggest in the country. They are Kroger, Albertsons and Publix. I chose these three because they are publicly traded, their financial statements are online, and they are "pure" grocery stores. I believe I have a representative sample.
I calculated gross margin (total sales less cost of goods sold). It doesn't include things like salaries, rent, utilities, corporate overhead, bribes to politicians and so forth. Using a bottle of ketchup as an example, if you pay $1.10 for a bottle of ketchup that cost Kroger $1.00, they made a gross margin of 10 cents, or 9.1% (0.10/1.10). Any price gouging would show up in grocers' gross margin. I compared the gross margin percent for each grocer over the five-year period of 2019 through 2023. Following 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:
One: The news media is pathetic. The facts above were acquired and calculated by me while traveling, using a Chromebook and a lame online version of Excel. It took me about an hour. All our media can do is reprint press releases from the Propaganda Ministry.
Two: Grocers are not price-gouging. The numbers speak for themselves. I am certainly not suggesting that prices have not gone up. It appears that grocery retailers have merely passed on increases in what they pay for products to their customers.
Three: Kroger's gross margins are significantly lower than Albertsons and Publix. Perhaps it means that Kroger is trying harder than the others to compete with Walmart. It tells me that the Kroger - Albertsons merger should not be approved. I suspect that gross margins post-merger will look more like Albertsons than Kroger.
Four: I was curious where the "razor-thin" margin nonsense came from. One of the media outlets, to their credit, identified it as "net margin." I calculated net margins on sales (net profit divided by sales), and sure enough, they were in the 1-2% range, except for Publix, which ranged from 5.4% to 9.2%.
This is a rather meaningless measure though. Anyone analyzing profits would look first to return on equity or return on assets. Net margin on sales is a way to lie with statistics.
Hopefully this clarifies the trash put out by the Propaganda Ministry.
Brynn C Johns
Boulder City, Nevada
