Don’t blame supermarkets for your expensive groceries

Saying greedy shops have caused rising food prices is populist slop

FOR MANY characters in fiction, the central drama of their story concerns their grocery bills. Jean Valjean is imprisoned for stealing a loaf of bread; Mrs Lovett strikes an unholy alliance with Sweeney Todd for access to a source of free meat for her pie business. According to a recent survey of Americans, such drama has come for them too: almost two-thirds cite paying for groceries as a major source of financial stress, twice the share that mention other large or recently volatile expenses, including housing and fuel prices.

At first glance the panic is understandable. Grocery prices in America have climbed by around a quarter since 2020, exceeding nominal wage growth (see chart). Shoppers might even feel some sympathy for Mrs Lovett: ground beef is nearly twice as expensive as it was in 2019, thanks in part to drought-related cattle shortages.

Other countries have also been afflicted by rising grocery bills. Since 2020 food prices in Australia, Britain, Canada and France are up by between a fifth and a third. Discontent is inviting all kinds of intervention. Zohran Mamdani, the mayor of New York City, cruised to victory by promising to do something about the rising cost of living. He plans to bring down food prices by opening a series of government-run supermarkets. In Canada the push for state grocery stores went mainstream when Avi Lewis, a champion of the concept, was elected leader of the country’s leftist New Democratic Party in March.

Others are trying to meddle with prices directly—by suasion or by force. When Walmart, America’s biggest retailer, announced on July 6th that it was lowering prices on staple products including ground beef, President Donald Trump quickly claimed credit, saying it had done so at his behest. On July 1st a new law came into effect in Australia banning large chains from charging prices that the government deems “excessive”.

Yet these interventions—which focus on the very end of the food chain—are looking in the wrong place. In most developed countries there is scant evidence that grocers earn excessive profit margins. Nor have they raised prices for consumers more quickly than the wholesale prices they must pay have increased. Moreover, evidence of concentration—which would give grocers the market power to gouge consumers—is lacking in most developed countries.

First, consider margins. These are often wafer-thin. American supermarkets like Kroger and Albertsons collected just 1% of their sales in operating profits last year. Even Walmart, with its 4% margin, hardly looks like it is milking customers. It is a similar story in Britain and France, with margins only a little fatter in Australia and Canada. The real cream has traditionally been elsewhere in the supply chain, such as with the big food manufacturers. Over the past decade the average operating margin across General Mills, Kraft Heinz, Mondelez and PepsiCo has been 13%.

Second, look at how wholesale prices have changed over the past six years. Grocers are often criticised for raising prices rapidly after the pandemic. But evidence of opportunism is hard to find. Consumer food prices rose no more quickly than producer food prices between 2020 and 2025 in America (and likewise in Australia, Canada and France).

Finally, consider concentration. According to the Herfindahl-Hirschman index, a measure of industry concentration, the grocery market in most countries is competitive at the national level (a little more so in America and Britain, a little less so in Australia and Canada). That does not guarantee adequate competition in practice: what matters is whether there are enough rival outlets within a distance that consumers could reasonably be expected to travel to buy their groceries. Analysis published by America’s Department of Agriculture in 2023 noted that the grocery market is far more concentrated when examined at the county level. Even then, however, it is mostly a concern in rural areas and small towns, where less than 10% of the population lives.

Grocery prices have shot up across the developed world largely because the cost of inputs like fertiliser and fuel have surged, owing first to the war in Ukraine and, more recently, to conflict with Iran. The wages that farmers need to pay to attract enough workers have also risen as governments cut back on immigration. There is little evidence to suggest that supermarkets are the ones to blame. Even the packaged-food giants, which increased prices to protect their profits in the post-pandemic wave of inflation, have seen their margins slump over the past three years as shoppers have switched to retailers’ cheaper own-label brands.

The idea that governments should step in to sell food to their citizens is an old one, with a poor record. Supermarkets in the Soviet Union, which were almost exclusively state-run, are remembered for their long bread lines, not their low bread prices. Subsidised stores might well be able to offer lower prices, and may have a useful role to play in underserved rural areas. But placing them in an already competitive market runs the risk of driving existing grocers out of business. Politicians need to cook up some better ideas.■