Kroger manager admits the company has piled up prices above the inflation rate

A top Kroger executive has admitted in an antitrust case that the company charged extortionate prices above the inflation rate for selected items.

In testimony before a Federal Trade Commission (FTC) attorney on Tuesday, Andy Groff, senior director of pricing at Kroger, said the grocery giant raised egg and milk prices above the rate of inflation.

“This is not surprising at all,” said Drew Powers, founder of Illinois-based Powers Financial Group, Newsweek. “Companies across a range of industries have posted record profits since the COVID-19 crisis, while consumers have faced the highest inflation in recent history. The numbers can only indicate that companies are raising their prices above the general level of inflation. As the old saying goes, 'Never let a good crisis go to waste.'”

The questioning came during a court hearing on Kroger's lawsuit against the FTC after the retail giant announced its acquisition of its biggest grocery competitor, Albertsons.

Groff said Kroger intended to “pass inflation on to consumers” after an internal email from the manager revealed that egg and milk prices regularly exceeded the inflation rate needed for the chain to still make a profit.

“For milk and eggs, retail inflation was significantly higher than cost inflation,” Groff said in the internal email to other Kroger executives.

Newsweek has emailed Kroger for comment.

A Kroger spokesperson had previously told Bloomberg that Groff's comment was “cherry-picking” and “does not reflect Kroger's decades-long business model of lowering prices for customers by reducing margins.”

Not everyone believes that the email comment reflects the pricing policies of Kroger or the grocery industry as a whole.

Economists have long pointed out that the grocery sector, which consists of only a few chains such as Kroger and Walmart, benefited from supply chain disruptions during the pandemic because companies were able to raise prices more than was necessary to protect their profits.

“Comments like these, while honest, call into question the explanations Americans have been given about inflation over the past three years,” said Alex Beene, a financial literacy professor at the University of Tennessee at Martin. News week.

“Supply chain problems, rising shipping costs and higher wages have certainly contributed to the higher prices we are currently seeing. However, admitting that some prices were raised simply because companies knew they could does not help those who argue that price gouging is not a problem.”

The FTC's antitrust case alleges that if Kroger successfully acquires Albertsons, consumers will have to expect even greater price increases because the merger of the two chains will reduce competition.

Bigger trend?

During the pandemic, food and energy prices drove up overall inflation, and companies in many of those sectors posted record profits, Powers said.

“There is not just one black sheep here,” Powers said, adding that most companies that engage in price gouging face limited consequences.

“In the past, companies guilty of price gouging have faced relatively light consequences compared to the profits generated by this offense. It will be interesting to see if Kroger is hit harder this time, as these allegations came to light during the FTC hearings as part of its attempt to take over Albertson's,” Powers said.

Kevin Thompson, financial expert and founder and CEO of 9i Capital Group, said Groff's comments underscore a larger trend in the current economic system.

“We have moved from true capitalism to an oligarchic structure with less competition and larger players dominating the market,” Thompson said News week.

“This shift, aligned with shareholder interests, has limited consumer choice and competitive dynamics.”

Executives tend to be motivated to maximize shareholder returns by increasing revenue and reducing costs, Thompson says.

“This pricing strategy was likely implemented to maximize profits,” Thompson said. “Other grocers may have taken similar actions, as executive compensation is often tied to stock price performance. Many executives exceed the limits of what is legally permitted to increase returns.”

Because customers generally still have the option to shop at other grocers like Walmart, Kroger is unlikely to face serious consequences from the FTC, Thompson said.

But Michael Ryan, financial expert and founder of michaelryanmoney.com, says Kroger may have gone too far by admitting to price gouging.

“It's like catching a child with his hand in the cookie jar, and instead of denying it, he proudly announces, 'Yes, I took them all,'” Ryan said Newsweek“Kroger is not alone in this game. I would bet my bottom dollar that other major players like Walmart and Publix are pulling similar tricks.”

Although this is likely more of a problem in the food sector, Ryan said consumers could respond quickly with their wallets.

“Customers aren't stupid,” Ryan said. “I've seen loyal customers abandon ship once they feel they've been cheated. Once that trust is lost, it's hard to win them back.”