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But it's silly: if grocery stores raise salaries to beat an inflation index, they then need to raise prices by the same percentage...raising in turn the inflati

by xwolfi 4y ago

But it's silly: if grocery stores raise salaries to beat an inflation index, they then need to raise prices by the same percentage...raising in turn the inflation index. Why do people think inflation is magic ?

Miner49er 4y ago
Not necessarily, they could potentially reduce profit margin instead. Edit: Or reduce employee count. Give more money to less people.
- jbrun 4y ago
  lol
- robertlagrant 4y ago
  All those billionaire grocery store owners just raking it in.
  - zingplex 4y ago
    I'm not sure if you're being sarcastic or not, but in case you are, here's a story from Canada https://www.theglobeandmail.com/business/article-loblaw-profit-jumps-nearly-40-even-as-inflation-drives-up-costs-for/ https://www.theglobeandmail.com/business/article-loblaw-prof...
- sigstoat 4y ago
  https://www.aei.org/carpe-diem/the-public-thinks-the-average-company-makes-a-36-profit-margin-which-is-about-5x-too-high-part-ii/ https://www.aei.org/carpe-diem/the-public-thinks-the-average... "For the general retail sector, the average profit margin is only 2.3% and for the grocery and food retail industry, it’s even lower at only 1.6%."
  - bayesian_horse 4y ago
    Which means it's a shitty career / sector to be in. There also is a cost to capital, in the form of return on investment (another way to say profit). So in those cases, to pay higher wages, the retail sector would have to raise consumer prices. If they were to decrease ROI, the capital would run away and rather invest in something else. They will only raise wages and prices if that is the only way to have enough labor to handle their business. Even then, higher prices means lower demand. No free lunch.
    - carapace 4y ago
      https://rainbow.coop/ https://rainbow.coop/ https://en.wikipedia.org/wiki/Rainbow_Grocery_Cooperative https://en.wikipedia.org/wiki/Rainbow_Grocery_Cooperative Rainbow Grocery Cooperative is a worker-owned and run food cooperative located in San Francisco, California. Founded in 1975
      - bayesian_horse 4y ago
        Worker-owned just means workers are both labor and capital. Those projects often have higher prices overall.
        carapace 4y ago
        Rainbow's prices are competitive, at least they've been in business for about a century and don't seem in any danger of closing. The point is that without investors expecting a return there's no ROI. Grocery stores can pay a living wage without gouging customers and without investors. It seemed to me that you might have been implying that without investors there couldn't be grocery stores. Another factor to consider is that wages and profit returned to the workers will tend to stay in the local economy longer, contrasted with ROI which typically would be stored in other investments?
        bayesian_horse 4y ago
        I'm sure if you look closer you'll find that those workers do have some capital bound in the business and that is earning at best a modest return because you have to sum up wage and rent. Once somebody earns somewhat more than their subsistence wage, they want to invest it into something that brings a return. That won't be these worker-owned businesses. And the market capacity for such companies seems to be quite small.
- claytongulick 4y ago
  You realize that grocery stores have some of the smallest margins, on average, of any business at around 2.2%? [1] What do you expect them to reduce that to? With margins that low, don't you think they are already very focused on operating with the absolute minimum number of employees they need? A friend of mine managed a very busy grocery store for years. It's an extraordinarily difficult business. Many grocery store chains treat their employees very well, they provide good salaries and training programs. It's one of the few businesses left where you can start out as a bagger and work your way up to senior manager, with all costs paid by the store. Other than inventory cost, this is their highest cost. Would you have them change it? [1] https://thegrocerystoreguy.com/what-is-the-profit-margin-for-grocery-stores/ https://thegrocerystoreguy.com/what-is-the-profit-margin-for...
  - adrianN 4y ago
    Without knowing what fraction of their costs are wages you can't give a meaningful answer. If 100% if their costs are wages they obviously can't raise wages more than 2.2% without going bankrupt. If 1% of their costs are wages they can double them without meaningfully affecting their profit margins.
    - claytongulick 4y ago
      LMGTFY: it's between 9-14% [1] https://www.ncr.com/blogs/retail/supermarkets-turn-to-technology-to-manage-grocery-costs https://www.ncr.com/blogs/retail/supermarkets-turn-to-techno...
      - AstralStorm 4y ago
        Which means they're exposed to any material costs a lot. So, when a company like BP or Shell raises fuel price by 33%, they're forced to match it or maybe try to get more things sourced locally, cut out middlemen - rather hard. Usually they'll raise the price a bit more further.
criddell 4y ago
I don't think it works like that. If it did, we could end inflation by legislating away pay raises and price hikes.
- bombcar 4y ago
  That has been tried, and every time it's tried it ends in absolute disaster, because the only way to do it is force people to work and produce goods for less than the COGS.
jdsleppy 4y ago
I know it's not magic, but right now it's not mundane either. I want it to be mundane. Everyone gets raises with inflation. Prices go up, wages go up, and we don't have to worry about falling backwards by sitting still. Then what's the point of inflation? So people deploy their spare cash in productive ways. That's it. Mundane, no drama, money moves around.
hibernator149 4y ago
That would only be true if salaries made up 100% of their costs. There is a finite fix point for the price that is less than infinity.
- deleted 4y ago
  [deleted]
- makomk 4y ago
  Ultimately most of a grocery store's costs are going to be salaries and energy, either directly or at their suppliers, and the energy market is not good right now in terms of availability or cost. Also, if people hope to buy extra stuff with their extra income, guess what that extra stuff will almost certainly require a bunch of energy which will push the price of that higher as well...
hatware 4y ago
Economics is magic. Inflation is just one of the tricks.

by xwolfi 4y ago

Miner49er 4y ago

Not necessarily, they could potentially reduce profit margin instead. Edit: Or reduce employee count. Give more money to less people.

jbrun 4y ago
lol
robertlagrant 4y ago
All those billionaire grocery store owners just raking it in.
- zingplex 4y ago
  I'm not sure if you're being sarcastic or not, but in case you are, here's a story from Canada https://www.theglobeandmail.com/business/article-loblaw-profit-jumps-nearly-40-even-as-inflation-drives-up-costs-for/ https://www.theglobeandmail.com/business/article-loblaw-prof...
sigstoat 4y ago
https://www.aei.org/carpe-diem/the-public-thinks-the-average-company-makes-a-36-profit-margin-which-is-about-5x-too-high-part-ii/ https://www.aei.org/carpe-diem/the-public-thinks-the-average... "For the general retail sector, the average profit margin is only 2.3% and for the grocery and food retail industry, it’s even lower at only 1.6%."
- bayesian_horse 4y ago
  Which means it's a shitty career / sector to be in. There also is a cost to capital, in the form of return on investment (another way to say profit). So in those cases, to pay higher wages, the retail sector would have to raise consumer prices. If they were to decrease ROI, the capital would run away and rather invest in something else. They will only raise wages and prices if that is the only way to have enough labor to handle their business. Even then, higher prices means lower demand. No free lunch.
  - carapace 4y ago
    https://rainbow.coop/ https://rainbow.coop/ https://en.wikipedia.org/wiki/Rainbow_Grocery_Cooperative https://en.wikipedia.org/wiki/Rainbow_Grocery_Cooperative Rainbow Grocery Cooperative is a worker-owned and run food cooperative located in San Francisco, California. Founded in 1975
    - bayesian_horse 4y ago
      Worker-owned just means workers are both labor and capital. Those projects often have higher prices overall.
      - carapace 4y ago
        Rainbow's prices are competitive, at least they've been in business for about a century and don't seem in any danger of closing. The point is that without investors expecting a return there's no ROI. Grocery stores can pay a living wage without gouging customers and without investors. It seemed to me that you might have been implying that without investors there couldn't be grocery stores. Another factor to consider is that wages and profit returned to the workers will tend to stay in the local economy longer, contrasted with ROI which typically would be stored in other investments?
        bayesian_horse 4y ago
        I'm sure if you look closer you'll find that those workers do have some capital bound in the business and that is earning at best a modest return because you have to sum up wage and rent. Once somebody earns somewhat more than their subsistence wage, they want to invest it into something that brings a return. That won't be these worker-owned businesses. And the market capacity for such companies seems to be quite small.
claytongulick 4y ago
You realize that grocery stores have some of the smallest margins, on average, of any business at around 2.2%? [1] What do you expect them to reduce that to? With margins that low, don't you think they are already very focused on operating with the absolute minimum number of employees they need? A friend of mine managed a very busy grocery store for years. It's an extraordinarily difficult business. Many grocery store chains treat their employees very well, they provide good salaries and training programs. It's one of the few businesses left where you can start out as a bagger and work your way up to senior manager, with all costs paid by the store. Other than inventory cost, this is their highest cost. Would you have them change it? [1] https://thegrocerystoreguy.com/what-is-the-profit-margin-for-grocery-stores/ https://thegrocerystoreguy.com/what-is-the-profit-margin-for...
- adrianN 4y ago
  Without knowing what fraction of their costs are wages you can't give a meaningful answer. If 100% if their costs are wages they obviously can't raise wages more than 2.2% without going bankrupt. If 1% of their costs are wages they can double them without meaningfully affecting their profit margins.
  - claytongulick 4y ago
    LMGTFY: it's between 9-14% [1] https://www.ncr.com/blogs/retail/supermarkets-turn-to-technology-to-manage-grocery-costs https://www.ncr.com/blogs/retail/supermarkets-turn-to-techno...
    - AstralStorm 4y ago
      Which means they're exposed to any material costs a lot. So, when a company like BP or Shell raises fuel price by 33%, they're forced to match it or maybe try to get more things sourced locally, cut out middlemen - rather hard. Usually they'll raise the price a bit more further.

criddell 4y ago

I don't think it works like that. If it did, we could end inflation by legislating away pay raises and price hikes.

bombcar 4y ago
That has been tried, and every time it's tried it ends in absolute disaster, because the only way to do it is force people to work and produce goods for less than the COGS.

jdsleppy 4y ago

I know it's not magic, but right now it's not mundane either. I want it to be mundane. Everyone gets raises with inflation. Prices go up, wages go up, and we don't have to worry about falling backwards by sitting still. Then what's the point of inflation? So people deploy their spare cash in productive ways. That's it. Mundane, no drama, money moves around.

hibernator149 4y ago

That would only be true if salaries made up 100% of their costs. There is a finite fix point for the price that is less than infinity.

deleted 4y ago
[deleted]
makomk 4y ago
Ultimately most of a grocery store's costs are going to be salaries and energy, either directly or at their suppliers, and the energy market is not good right now in terms of availability or cost. Also, if people hope to buy extra stuff with their extra income, guess what that extra stuff will almost certainly require a bunch of energy which will push the price of that higher as well...

hatware 4y ago

Economics is magic. Inflation is just one of the tricks.