The Other Reason Groceries Are Still Expensive

The frustratingly high inflation rate might be coming down a bit, but grocery prices are still much higher than many shoppers can stomach. And while it would be easy to blame things entirely on inflation, major chains like Walmart and Albertsons could actually be causing more of our sticker shock than we realize.

A recent opinion essay published in the New York Times points out the lack of competition among grocery chains that has led to price increases. It's a guest essay from Stacy Mitchell, director of the Institute for Local Self-Reliance, a nonprofit advocacy group focused on sustainable community development, so it naturally reflects a less than stellar view of big-box grocery stores. However, it also highlights the ways in which the biggest companies have the power to make things harder on all of us.

Setting aside inflation, which has caused various food categories to spike in terms of pricing, larger retailers have influence over suppliers that smaller stores simply do not. With a larger footprint and overall stronger buying power, major chains are in a better position to negotiate deals with food suppliers than the locally owned grocery store down the block.

Suppliers like Kraft Heinz, General Mills, and Clorox each rely on Walmart for more than 20% of their total sales, according to Mitchell. Therefore, Walmart is able to buy larger quantities of inventory at lower prices and thus drive its own prices down for consumers. A local grocer doesn't operate at the scale where such savings can be passed on to the customer. Even the midsize grocery chains don't have the same sway Walmart does.

Then, to make up for the money lost on Walmart's demand for discounts, the suppliers often charge smaller stores more for their products. That's why it is often more expensive to commit to supporting a local business, or why a more regional chain doesn't have the same deals on, say, baking supplies that Walmart does. If there aren't enough people willing to make that tradeoff, then smaller grocers are forced to close up shop, unable to compete with the largest chains. This is often what leads to the emergence of a food desert in a given community: residents do not live within a mile of the nearest grocery store, because the only grocery store is the Walmart out by the highway. The preferential pricing large chains receive is also one of the reasons why nonprofit grocery stores struggle to survive in the areas where they are most needed.

If the pending merger between Kroger and Albertsons is allowed to happen, the situation could grow more dire. Kroger has around 2,700 locations nationwide, and if it's allowed to combine with Albertsons' 2,300 locations, that would give a single company control over approximately 5,000 grocery stores across the U.S., in essence creating a tidy monopoly—one that's even better positioned to bully suppliers into providing the lowest prices.

Technically all of this preferential pricing is not allowed under the Robinson-Patman Act, which requires suppliers to offer the same terms to all retailers. This means suppliers can offer major chains discounts so long as they offer the same discounts to smaller retailers as well. However, the Act has not been strongly enforced since the 1970s; Mitchell associates this with the Reagan administration's reluctance to continue enforcing antitrust laws to protect the little guy.

Although Kroger and Albertsons' leadership teams are attempting to make the possible merger appear less monopoly-like, the current grocery landscape in the United States does the two companies no favors in shedding that image.