Food for thought


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Are food retailers feeding the recession?

Since Labor Day, the supermarket where I regularly shop has added a nickel, a dime, or a quarter to just about every item I buy: whole chickens, skim milk, mozzarella, lettuce…

Have you noticed? Side items, too, cost more: salad dressing, dried pasta, canned goods–the can of black olives that cost 85-cents all summer is suddenly $1.22.

For a can of olives? 

I asked the checker if the price increases  meant she just got a raise.

She got a good laugh out at that.

The Labor Department this week confirmed my observations. The Consumer Price Index rose 0.3 percent in September. However, take food and gasoline out of the equation, the so-called core prices increased 0.1 percent. That’s the smallest rise since March.

So why are food prices rising?

Considering so many people are having a tough time making ends meet, is it good business, is it right that food retailers are moving the ends? 

Bad Timing

When NPR reported the price spike at food retailers, it pointed out the bad timing. “…Americans are facing higher food and gas prices at a difficult time. Unemployment has been roughly 9 percent for more than two years. Hiring is slow and few people are seeing much in the way of raises. Steeper prices for basic necessities have forced many to cut back on more discretionary purchases. That has slowed overall growth.”

AHA! An opportunity to offer my Fudge Pop Philosophy:

Let’s say you make and sell fudge pops.  It cost you 50 cents to make each fudge pop (labor and packaging included). You sell them for a dollar. You sell 100 a day. Grand total profits–$50. Along comes hard times and ten people just laid off  decide they can’t have their daily fudge pop.

So what do you do?

  • A) Raise the price a nickel to maintain your current profit margin at the risk of losing additional customers?
  • B) Lower the price a nickel to retrieve your lost customers and, who knows, maybe attract new customers (who just saw the price of your competitor’s orange pops go up a dime).

The Grocery chains appear to have chosen to go with A.

SuperValu, which owns Albertson’s, reported $60 million profit in the second quarter (it had a dismal 2010). Kroger, the nation’s largest grocer, earned $432 million in the first quarter of 2011, up 16 percent from a year ago. The company credits “cost controls and a rise in sales.”

I don’t expect food retailers to lose money (I probably own shares of one or more of the chains in my mutual fund). But in a recession, during hard times, come on.  Be satisfied with smaller profits, any profits.

Alas, there may not be a lot you and I can do. Unlike banks imposing new fees, we can’t boycott grocery stores. They know we’ve got to eat sometime. But we can pass on the most outrageously priced items. I saw one brand of tub margarine at nearly $5– I’ll eat my toast dry before I pay that much for something that’s probably not good for me anyway.

The upside to all this is that  Social Security benefits are tied to the CPI Index, so 55 million Americans get a cost-of-living adjustment on their monthly checks.

Just don’t spend it all in one place. But chances are you will, if you have to eat.

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3 Comments

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3 responses to “Food for thought

  1. Judy Arndt

    Good article, Kevin. As far as Social Security benefits go, there has not been a cost of living increase for two years (Obama, in his wisdom, decreed that there has been no increase in cost of living). There might be a small increase in 2012. But it doesn’t help much as Uncle Sam then (usually) takes it back by increasing Medicare premiums. And every year auto, supplemental health insurance and homeowner insurance also increase. Having said all that, I still avoid Winco – but not for long. Even at Walmart (where I usually shop because it is so close), I have to hang onto the checkout counter for support and brace myself for the shock.

  2. Kathy

    Can you explain to the newbies here (um, me) the difference between various calculations of inflation and how that changes the increase on various government safety nets like Social Security and VA benefits and the rest of them? I’ve heard there are various ways of calculating it but haven’t found a succinct explanation that makes sense. Or if there’s an obvious website I’m missing, if someone could please share? Thanks!

  3. I shopped yesterday and was shocked that a pizza that used to be $5, or less, on sale, was now $7.19. Other items we buy are more. It’s a powerless feeling. That’s why I love my summer garden, which is now defunct, of course, but during the summer I get tomatoes and carrots and peas and cabbage and other lovely stuff for the cost of seeds (and hard work). Oh, yeah, seeds have gone up, too. A package that used to cost .99, is now $3.
    And although SS benefits are going up, it will cover the Medicare plan B premium increase, not the increase in food prices.

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