The Real Reason Food Costs Have Skyrocketed
Big food and restaurant companies blame inflation for their price increases—meanwhile, they’re making record profits and giving shareholders huge payouts. Smoke screen, anyone?
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The below article was written by Veronica Riccobene and first published by The Lever, a reader-supported investigative news organization. If you like this story, sign up for The Lever’s free newsletter.
Americans are worried about the increasing cost of groceries – one recent survey found that a whopping 90 percent of adults expressed concern about that, and food costs topped consumers’ list of economic worries.
There is good reason for this: In March 2024, consumers spent 95 percent more for a carton of eggs, 33 percent more for a pound of ground beef, and 22 percent more for a gallon of milk than they did before the pandemic. According to an analysis by Food and Water Watch, a corporate watchdog group, food costs for an average family of four living on a “thrifty” budget increased 50 percent from January 2020 to January 2024, from $654 to $976 a month.
The results of these cost rises are dire. Since pandemic-era expansions to the social safety net expired at the end of 2021, hunger has been on the rise. The number of households facing food insecurity grew by 3.5 million between 2020 and 2022. Households with children are particularly vulnerable to food insecurity, growing by 24 percent between 2021 and 2022 alone. The Department of Agriculture estimates some 28 million adults in America lack constant access to enough food to lead an active and healthy life, forcing them to lead unbalanced diets, cut portion sizes, and skip meals.
As the nation’s biggest food processors and retailers hide behind ‘difficult' times,’ they’re making record profits.
When pressed, the nation’s biggest food processors and retailers, including General Mills, PepsiCo, and Tyson, say they’re doing their best to keep prices down, and blame inflation for unavoidable price rises. But as these companies hide behind ‘difficult times,’ they’re making record profits, issuing generous dividends to their shareholders, and spending billions of dollars buying back their own shares on the open market to inflate stock value, a move that serves to enrich executives and investors at consumers’ cost.
“A license to loot”
PepsiCo’s Chief Financial Officer Hugh Johnston told Bloomberg last year that consecutive double-digit price hikes on their products in recent years were “just there to cover inflation,” and that consumers see PepsiCo products as “worth paying a little more for, while they may not be able to afford the big luxuries in life.”
Those luxuries in life are apparently reserved for top investors, including Johnston himself — he took home $4.6 million in shares as part of his generous compensation package in 2021.
In 2023, PepsiCo raked in $91 billion in net revenue, a 35 percent increase over pre-pandemic income. Of their profits, they poured $7.7 billion into repurchasing stock and issuing dividends, with buybacks increasing 843 percent from 2021. In-house analysts expect total cash returns to shareholders will grow to $8.2 billion this year.
Similarly, Tyson Foods more than doubled profit margins in between 2021 and 2022 after hiking prices for beef, pork, and chicken by upwards of 30 percent. The company — which is currently being investigated by the federal government for child labor violations and paid $10.5 million to settle allegations of price fixing in Washington state — claims it raised prices because it needed to offset increased costs in labor, transportation, and grain for animal feed.
Consumers covered Tyson’s inflation costs plus $500 million more.
But data from earnings reports, reported first by More Perfect Union, paints a different picture: While increased operation costs set the company back $1.5 billion dollars in 2022, price increases expanded profits by $2 billion, meaning consumers covered Tyson’s inflation costs plus $500 million more. That year, Tyson repurchased $702 million of its own shares and raised dividends by 4 percent.
The manipulation is up and down the supply chain — “Everyone’s taking a little bit of margin here,” said Lindsay Owens, executive director of the Groundwork Collaborative, a progressive think tank and advocacy group. The Federal Trade Commission found back in March that Walmart, Kroger, and Amazon “used rising costs as an opportunity to further hike prices to increase their profits.” According to the agency, food and beverage revenues increased 7 percent over costs in the first three-quarters of 2023, “cast[ing] doubt on assertions that rising prices at the grocery store are simply moving in lockstep with retailers’ own rising costs.”
In 2021, Kroger returned profits to investors in the form of $589 million in dividends and $1.6 billion in stock buybacks.
On a 2021 call, Kroger chief finance officer Gary Millerchip reportedly told analysts “we’ve been very comfortable with our ability to pass on the increases that we’ve seen at this point, and we would expect that to continue to be the case.” That year, the company pulled in revenues of $137 billion, a 12 percent increase over pre-pandemic sales; they returned profits to investors in the form of $589 million in dividends and $1.6 billion in stock buybacks.
Walmart’s price hikes went viral last year when customers compared a 2020 trip receipt to one from 2023 and found the cost of some of the retailer’s Great Value generic brand products had increased by more than 50 percent. Walmart raised the price of staples like milk and frozen meals in 2022, helping expand grocery sales by double digits over the previous two years.
The retailer’s total revenues reached $611 billion in 2023, and executives authorized $9.9 billion dollars in share repurchases, a 277 percent increase over 2021.
Smaller portions, higher prices
It’s not just that prices are going up — food products are getting smaller, in a phenomenon that pundits have named “shrinkflation.” Another report from the Groundwork Collaborative finds that changes to package size account for 10 percent of all price increases on key household expenses, including snack foods.
After the snack brand Utz reportedly shrank the sizes of its pretzel jars and potato chip bags, the company’s CEO admitted that changes to “price pack architecture” accounted for a striking 20 percent of the company’s price inflation. Even more damning, a 2022 company earnings report plainly states that “pricing actions,” or price hikes, helped boost the company’s gross profit margins by 25 percent. Between 2021 and 2024, Utz increased its cash dividend payouts by 18 percent.
General Mills hiked cereal costs by 12 percent between 2022 and 2023, while also reportedly reducing the family-sized box from 19.3 ounces to 18.1 ounces. When pressed on the shrinkage, a spokesperson for the company told NPR that it allowed for more efficient truck loading, reducing the company’s fuel costs, and covering for input inflation. However, behind the scenes, company executive Jon Nudi confided in investors that the company was “getting smart about how we look at pricing” while carrying out “list price increases.”
A study of the country’s biggest fast food brands by Finance Buzz found that at all of them, menu prices have outpaced general inflation rates.
Americans who elect to save money by heading to the drive-thru are facing a new reality too; a study of the country’s biggest fast food brands by Finance Buzz found that at all of them, menu prices have outpaced general inflation rates.
The CEO of Yum! Brands, which owns Taco Bell, KFC, and Pizza Hut, said in 2023 that the company’s price hikes were “a last resort”; that same year, the company brought in $7 billion in total revenue, a 21 percent increase over its pre-pandemic earnings. Executives have since authorized a $2 billion share repurchase program and returned $678 million to shareholders in dividends.
Since 2014, McDonald’s has doubled its menu prices, helping increase profits by 59 percent in 2021 alone. Just last week McDonald’s U.S. president Joe Erlinger miffed at accusations of price-gouging and shut down viral reports of the $18 Big Mac, calling that price “an exception,” and maintaining the company’s franchisees are “work[ing] hard to minimize the impact of price increases.”
After a brief pause in 2020, the fast food giant resumed its $15 billion buyback program in 2021 and returned a total of $7.6 billion to shareholders via buybacks and dividends in 2023.
Monopoly power allows price fixing
For nearly a third of shopping items, top firms controlled 75 percent of the market share.
According to Owens, monopoly power and consolidation across all levels of the supply chain are emboldening megacorporations to fix prices. A 2021 investigation by The Guardian and Food and Water Watch of the top food items sold in U.S. grocery stores found four companies or fewer controlled at least 50 percent of the market for 79 percent of the groceries sold. For nearly a third of shopping items, top firms controlled 75 percent of the market share.
The consolidation is particularly stark amongst retailers; Walmart alone takes in 25 percent of grocery sales nationwide. Just this year the Federal Trade Commission sued to block a $24.6 billion merger between Kroger and Albertsons, alleging it violates antitrust law.
“Everything you see as you stroll down the grocery aisle — lettuce in aisle one, beer in aisle five, pretzels and potato chips in aisle nine, ice cream in the frozen food aisle,” said Sen.Elizabeth Warren (D-Mass.) during a recent hearing, “is dominated by a handful of Big Food producers.”
This spring, Warren and a group of Democratic senators called on the Biden administration to use executive action to address rising food prices and investigate major grocery retailers for price-fixing. In a letter, the coalition recommends, among other actions, that the Commission work to prevent mergers and acquisitions in the industry and outlaw the kind of exclusionary contracting big firms use to box out smaller suppliers.
These recommendations are similarly outlined in legislation currently stalled in committee: Warren’s Price Gouging Prevention Act and Senator Bob Casey’s (D-PA) Shrinkflation Reduction Act. Casey’s legislation would direct the watchdog agency to establish regulations against shrinkflation as a deceptive and unfair trade practice, and to authorize civil prosecution of companies who engage in it; Warren’s would make price-gouging a federal offense.
Americans are largely supportive of efforts to regulate how much companies charge for food; in a new Data for Progress poll, 69 percent of respondents said the government “should do more to regulate grocery stores that raise prices to maximize profits.”
Consumers have made their displeasure at high prices known: grocery and fast food retailers are feeling the sting of consumer backlash over high prices.
Meanwhile, consumers have made their displeasure at high prices known: grocery and fast food retailers are feeling the sting of consumer backlash over high prices. Grocers like Walmart and Target, and fast food brands like Wendy’s and McDonald’s have brought down prices in an attempt to woo customers stretched thin by inflation. But unless they are regulated, there is nothing to prevent them from price gouging again in the future.