What the Next Administration Needs to Know to Lower Grocery Prices

Americans hate inflation. And they really hate food inflation. With grocery prices up 20 percent compared to four years ago, the topic has attracted attention from both presidential campaigns. The 2024 Donald Trump / Republican party platform lists "end inflation and make America affordable again" as its third priority, behind "seal the border" and "carry out the largest deportation operation in American history." As for the details, first on the agenda to "end inflation" is "lifting restrictions on American Energy Production and terminating the Socialist Green New Deal."

For their part, Vice President Harris and the Democratic party also emphasize "lowering costs" as a top priority (chapter 3 among 9 in their platform), and first on the list in their anti-inflation agenda is lowering healthcare and prescription drug costs.

Inflation is complicated, and experts disagree over the extent to which public policy can affect overall prices. Less ambiguous are the signs that monopoly power is distorting the food system to the detriment of consumers, workers, farmers and ranchers, rural communities, and the environment.

Food retail has emerged as one of the most rapidly consolidating sectors of the industry. Market share for the top four food retailers more than doubled between 1990 and 2019, according to USDA. And the pandemic only accelerated the trends. According to the latest industry estimates, Walmart, Kroger, Costco, and Albertsons controlled 49.3% of the market in 2023.

How has this concentration affected prices? That is hard to say, particularly against a backdrop of pandemic supply chain disruptions, rising transportation costs and wages, and the ongoing fallout from Russia's invasion of Ukraine on food commodity and fertilizer prices, among other complicating factors. But basic economic theory predicts that companies with monopoly power will underproduce and charge higher prices. Indeed, as food retailers have become more monopolistic over the last 25 years, the number of grocery stores has declined by a third.

These and other troubling trends, including the impacts of mergers on grocery workers, led the Federal Trade Commission to oppose a planned merger between the number two food retailer Kroger and the number four food retailer Albertsons. According to the FTC's complaint submitted in federal court earlier this year, the deal would "result in higher grocery prices for millions of Americans and lower wages and benefits for hundreds of thousands of grocery workers."

Kroger has vigorously disputed the FTC's allegations, and recently announced that it will lower prices by $1 billion as soon as it completes its proposed merger with Albertsons. According to Kroger, getting bigger is the only way the chain can compete with the likes of Walmart and Amazon. But even taking Kroger at its word, is this the kind of competition consumers need?

Prices aside, the proposed merger would inevitably reduce consumer choice. As concerns grow about the links between ultra-processed foods and health, these choices assume an added importance. Most consumers will not be surprised to learn that different retailers offer consumers significantly different selections of processed foods. For example, some of the largest retailers do not stock common foods like crackers, mayonnaise, tortillas, ice cream, yogurt, and even bread, that do not contain sketchy additives like emulsifiers and "natural" flavors, additives that researchers use to define which foods are "ultra-processed." Unsurprisingly, given the evidence that links ultra-processed foods to a range of diet-related diseases, consumers want to eat less of them.

These shifting consumer preferences point to the need for a revitalized food system, with more local and regional producers and distribution networks. The Biden Administration has taken some important steps towards that objective, with new merger guidelines, and support for smaller producers, both directly through programs like grants for small meat processors, and indirectly through reforms like rules on "Product of USA" labeling and protections under the Packers and Stockyards Act for chicken farmers subject to abusive "tournament" pricing systems.

The next Administration should expand on these efforts to restore competition in the food system. Efficiencies of scale can lead to lower prices, in the short term anyway, but they also lower resilience. For too many food system stakeholders, including the 42% of U.S. adults living with obesity, the status quo is unacceptable. Public policy can chart a better course.

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