Are the big grocers guilty of price gouging?

This narrative has been fuelled by politicians and other interested parties in most western markets since inflation became a consumer crisis in recent years. Now that inflation is easing in most markets, we thought it would be interesting to look back, with a cool head, to ask how true this claim was.

In so doing, we should first acknowledge that this is a complex issue, presenting an obscure mix of half known facts, rhetoric by many observers and participants with a generous dose of emotion.

Let’s start with what we know:

• Realistically, the Institute’s view is that the big retailers have significant market power, allowing them to dictate market prices.
• For the most part, increased inflation was driven globally by escalating costs across most aspects of business since supply was disrupted during covid.
• In FMCG, manufacturers and retailers have faced significant input cost increases, most of which they have tried to recover via price increases to customers.
• Many, if not most players have not been able to fully recover these cost increases.
• Many manufacturers have experienced a profit decline as a result. Retailers have typically fared better.

Retailers had, for the period during covid and until late 2023, willingly accepted well-justified PIs from manufacturers and passed them on. In so doing, retailers have (often?) added a little when implementing PIs, thereby enhancing their margins and making shoppers pay more.

They have also structured supplier-funded promo activity in ways that protect their (dollar) margins, such that shoppers get less discount benefit.

So, who are the villains:

• It’s primarily input costs that are driving inflation, accumulating along supply chains from the very origins of raw materials, power, labour etc.
• Manufacturers are behaving responsibly, acting as a dampener on inflation and often taking a hit as a result.
• Retailers have added to inflation and profited from it. No one can quantify how much that is, but one suspects it’s only a very small part of total inflation.
• However, even if small, that’s not a pretty sight in these conditions so they can’t claim to be looking after their customers.

But is this ‘price gouging’? The Oxford dictionary defines it as “the practice of significantly increasing the prices of goods or services to an unreasonable or unfair level.”

It is not the intent here to justify retailer bad behaviour, but nor do we see that they have ‘gouged’ according to the usual understanding of this term.

In difficult times, it’s typical human nature to search for the guilty. Retailers a certainly not innocent. But, in the writer’s view, it’s drawing a very long bow to say that their “greed deliberately fuelled the cost-of-living crisis” as one leading newspaper claimed recently.