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If wholesale food costs have gone up and they're simply passing that on then they may not be making any more money. Here's wholesale food prices in the US: htt

by simonh 4y ago

If wholesale food costs have gone up and they're simply passing that on then they may not be making any more money. Here's wholesale food prices in the US: https://fred.stlouisfed.org/series/WPU578101 https://fred.stlouisfed.org/series/WPU578101 In fact you'd expect reduced sales from the higher prices to put pressure on profits. That is what seems to be happening in the UK: https://www.grocerygazette.co.uk/2023/01/31/food-companies-profit-warnings/ https://www.grocerygazette.co.uk/2023/01/31/food-companies-p... But not in the US, where it does look like there may be some gouging going on, but we'd need to see their profit reporting to be sure: https://accountable.us/wp-content/uploads/2023/02/2023-02-10-Updated-Research-on-Food-Industry-Profits-FINAL-1.pdf https://accountable.us/wp-content/uploads/2023/02/2023-02-10...

titzer 4y ago
It's both increased wholesale food costs and price gouging. Profits have never been higher all along the board. Everyone in the chain is "passing the cost on" and also taking a little extra cut.
- simonh 4y ago
  I updated my post, it does look like that's happening in the US market.
- Tyrek 4y ago
  gouging is an incredibly unhelpful context in a macroeconomic sense. In cases of shorter term scarcity (e.g. toilet paper during early covid), you can have instances of gouging. But over a longer-term period where prices are calibrating to demand/supply dynamics, price increases simply reflect the shifting balance between supply and demand. Should we be concerned about why there are shifts in demand/supply? Sure.(In the case of food, part of this is driven by the UA war and likely other trends in food productive)? But it is eminently unhelpful to simply attribute increases to 'gouging' and expect that to be the final say.
  - magicalist 4y ago
    [flagged]
    - simonh 4y ago
      Increased prices and price gouging are not the same thing. If production costs are up, and they are up, then prices can go up without anyone making any more money. You have to actually look at why prices are going up. The other factor is that rising prices often mean an increased need for investment by producers. That investment capital has to come from somewhere, so what look like increased profits based on current cost structures can actually be entirely justified if the company then needs to invest that money in order to get production volumes up and cope with increased capital costs. I don't know enough about the food industry to be able to say which of these is happening, in which sector or country, but these are much more complex issues that the knee jerk reactions here imply. What I can say is, it seems to me that if the reduced supply from Ukraine and Russia is going to be made up, somebody somewhere is gong to have to ramp up food production an awful lot, and I can't imagine that's going to be cheap.
      - magicalist 4y ago
        > Increased prices and price gouging are not the same thing Considering that's the explicit context of this comment thread, obviously, the difference is exactly what we're talking about here. > I don't know enough about the food industry to be able to say which of these is happening, in which sector or country, but these are much more complex issues that the knee jerk reactions here imply. That's what I mean about sparing a company's feelings. You have no material objections, but it's important we not use the word "gouging" for companies whose profits are rising considerably faster than inflation and it's consumers being hurt. Tone policing is the least important (and least interesting) part of this conversation.
        epups 4y ago
        I think the point is a little finer than you think. Yes, profits are up, but can you necessarily conclude from that single fact that the issue is price gouging? In a scenario where every company is trying to maximize profit, "price gouging" cannot explain why prices are increasing now in particular. Other things can, such as the elements pointed above. In an industry with a lot of competition, I find it much more productive to discuss what are the macroeconomic elements that cause inflation than whether the selfishness of corporations has increased recently.
- ch4s3 4y ago
  Those are nominal profits, everyone is trying to take "an extra cut" to stay ahead of inflation. Grocery has razor thin margins to begin with and the usual direction of prices is downward. Inflation will absolutely put a grocer out of business if they can't stay ahead of rising prices.
  - Wildgoose 4y ago
    Wholesale margins are razor thin, but retail ones are relatively fat. (I work in Wholesale/Retail software).
    - bpicolo 4y ago
      Unit margins, or operating margins?
    - ch4s3 4y ago
      After tax profit margins for grocery retailers in the US range from 1-3%, some places like Whole Foods approach 5%. Gross margins are higher, but net margins are what determine whether or not you go out of business.
- pjc50 4y ago
  I've seen a convincing argument that this is energy price inflation being passed on down the pipe. Certainly for out-of-season foods grown in greenhouses, leading to the UK tomato shortage of last month. (Anyone else see "max 3 per customer" on various fresh fruit and veg?) The profits are inarguable. They really have never been higher. https://tradingeconomics.com/united-kingdom/corporate-profits https://tradingeconomics.com/united-kingdom/corporate-profit... (note the table underneath pointing out that industrial production has declined at the same time as record profits) Energy is a large part of that: https://www.bbc.co.uk/news/uk-64489147 https://www.bbc.co.uk/news/uk-64489147
  - lr4444lr 4y ago
    Profit, or profit _margin_?
- dmtroyer 4y ago
  right out of the oil industry playbook.
- wing-_-nuts 4y ago
  >Profits have never been higher all along the board. Everyone in the chain is "passing the cost on" and also taking a little extra cut. This feels correct, but if that were the case, if companies are generating record profits, why aren't we seeing that reflected in stock prices? At the very least, why isn't price / earning ratios cratering?
- onlyrealcuzzo 4y ago
  Profits have never been higher means nothing if dollars have never been lower. What are profits like adjusted for inflation?
  - ImPostingOnHN 4y ago
    the dollars are lower as a result of their actions increasing profits they only need to increase prices to deal with the increase in costs, and profits represent an increase above and beyond that necessary amount, which in economic terms is "not cool, dude"
csharpminor 4y ago
Fertilizer prices have been historically high, which impacts the underlying costs of most things you buy at the supermarket: https://fredblog.stlouisfed.org/2022/10/fertilizer-prices-soar/ https://fredblog.stlouisfed.org/2022/10/fertilizer-prices-so... The root cause is economic decoupling between Russia, China, and the U.S.
ROTMetro 4y ago
All well and good except for the fact that these companies have gone on the record in their earning calls to say this is just them squeezing the end consumer as much as they can. But go ahead and makeup some false justification to defend them against the truth of their own words.
- simonh 4y ago
  Dude, did you even read my post? Yes that is happening in the US, I said as much. In the UK, profits are down. For the most part in both cases, I'm sure there are exceptions.
- WalterBright 4y ago
  If you believe that, are you investing in food company stocks?
  - p0pcult 4y ago
    Not everyone is trying to be an unethical jerkwad.

by simonh 4y ago

titzer 4y ago

It's both increased wholesale food costs and price gouging. Profits have never been higher all along the board. Everyone in the chain is "passing the cost on" and also taking a little extra cut.

simonh 4y ago
I updated my post, it does look like that's happening in the US market.
Tyrek 4y ago
gouging is an incredibly unhelpful context in a macroeconomic sense. In cases of shorter term scarcity (e.g. toilet paper during early covid), you can have instances of gouging. But over a longer-term period where prices are calibrating to demand/supply dynamics, price increases simply reflect the shifting balance between supply and demand. Should we be concerned about why there are shifts in demand/supply? Sure.(In the case of food, part of this is driven by the UA war and likely other trends in food productive)? But it is eminently unhelpful to simply attribute increases to 'gouging' and expect that to be the final say.
- magicalist 4y ago
  [flagged]
  - simonh 4y ago
    Increased prices and price gouging are not the same thing. If production costs are up, and they are up, then prices can go up without anyone making any more money. You have to actually look at why prices are going up. The other factor is that rising prices often mean an increased need for investment by producers. That investment capital has to come from somewhere, so what look like increased profits based on current cost structures can actually be entirely justified if the company then needs to invest that money in order to get production volumes up and cope with increased capital costs. I don't know enough about the food industry to be able to say which of these is happening, in which sector or country, but these are much more complex issues that the knee jerk reactions here imply. What I can say is, it seems to me that if the reduced supply from Ukraine and Russia is going to be made up, somebody somewhere is gong to have to ramp up food production an awful lot, and I can't imagine that's going to be cheap.
    - magicalist 4y ago
      > Increased prices and price gouging are not the same thing Considering that's the explicit context of this comment thread, obviously, the difference is exactly what we're talking about here. > I don't know enough about the food industry to be able to say which of these is happening, in which sector or country, but these are much more complex issues that the knee jerk reactions here imply. That's what I mean about sparing a company's feelings. You have no material objections, but it's important we not use the word "gouging" for companies whose profits are rising considerably faster than inflation and it's consumers being hurt. Tone policing is the least important (and least interesting) part of this conversation.
      - epups 4y ago
        I think the point is a little finer than you think. Yes, profits are up, but can you necessarily conclude from that single fact that the issue is price gouging? In a scenario where every company is trying to maximize profit, "price gouging" cannot explain why prices are increasing now in particular. Other things can, such as the elements pointed above. In an industry with a lot of competition, I find it much more productive to discuss what are the macroeconomic elements that cause inflation than whether the selfishness of corporations has increased recently.
ch4s3 4y ago
Those are nominal profits, everyone is trying to take "an extra cut" to stay ahead of inflation. Grocery has razor thin margins to begin with and the usual direction of prices is downward. Inflation will absolutely put a grocer out of business if they can't stay ahead of rising prices.
- Wildgoose 4y ago
  Wholesale margins are razor thin, but retail ones are relatively fat. (I work in Wholesale/Retail software).
  - bpicolo 4y ago
    Unit margins, or operating margins?
  - ch4s3 4y ago
    After tax profit margins for grocery retailers in the US range from 1-3%, some places like Whole Foods approach 5%. Gross margins are higher, but net margins are what determine whether or not you go out of business.
pjc50 4y ago
I've seen a convincing argument that this is energy price inflation being passed on down the pipe. Certainly for out-of-season foods grown in greenhouses, leading to the UK tomato shortage of last month. (Anyone else see "max 3 per customer" on various fresh fruit and veg?) The profits are inarguable. They really have never been higher. https://tradingeconomics.com/united-kingdom/corporate-profits https://tradingeconomics.com/united-kingdom/corporate-profit... (note the table underneath pointing out that industrial production has declined at the same time as record profits) Energy is a large part of that: https://www.bbc.co.uk/news/uk-64489147 https://www.bbc.co.uk/news/uk-64489147
- lr4444lr 4y ago
  Profit, or profit _margin_?
dmtroyer 4y ago
right out of the oil industry playbook.
wing-_-nuts 4y ago
>Profits have never been higher all along the board. Everyone in the chain is "passing the cost on" and also taking a little extra cut. This feels correct, but if that were the case, if companies are generating record profits, why aren't we seeing that reflected in stock prices? At the very least, why isn't price / earning ratios cratering?
onlyrealcuzzo 4y ago
Profits have never been higher means nothing if dollars have never been lower. What are profits like adjusted for inflation?
- ImPostingOnHN 4y ago
  the dollars are lower as a result of their actions increasing profits they only need to increase prices to deal with the increase in costs, and profits represent an increase above and beyond that necessary amount, which in economic terms is "not cool, dude"

csharpminor 4y ago

Fertilizer prices have been historically high, which impacts the underlying costs of most things you buy at the supermarket: https://fredblog.stlouisfed.org/2022/10/fertilizer-prices-soar/ https://fredblog.stlouisfed.org/2022/10/fertilizer-prices-so... The root cause is economic decoupling between Russia, China, and the U.S.

ROTMetro 4y ago

All well and good except for the fact that these companies have gone on the record in their earning calls to say this is just them squeezing the end consumer as much as they can. But go ahead and makeup some false justification to defend them against the truth of their own words.

simonh 4y ago
Dude, did you even read my post? Yes that is happening in the US, I said as much. In the UK, profits are down. For the most part in both cases, I'm sure there are exceptions.
WalterBright 4y ago
If you believe that, are you investing in food company stocks?
- p0pcult 4y ago
  Not everyone is trying to be an unethical jerkwad.