Food prices have risen by 11% over the past year, which is sharply more than in other rich economies
Save time by listening to our audio articles as you multitaskToday Americans spend a smaller share of their income on food to be cooked at home—about 6%—than people in almost any other rich country. Low prices are reflected in low profit margins. At Kroger, America’s second-biggest supermarket chain, the net margin, after taxes, is about 1.2%; at Walmart, the biggest, it is 2.3%.
Why are American consumers not getting a better deal? A transatlantic comparison is revealing. Walmart, which accounts for about 26% of the American market, has a gross margin of about 25%. For Tesco, Britain’s largest chain, which has 27% of its home market, the equivalent figure is 8%. Since the two firms both have low net margins , this suggests that Walmart has higher fixed costs, and has to charge a big mark-up.
Another problem is that America’s supermarkets, despite often lacking competition locally, are less concentrated nationally. Regional firms may have the power to squeeze customers, but they do not have the size that European supermarkets have to resist price increases by suppliers. Their suppliers are raking it in. Last month Tyson Foods, America’s biggest meat supplier, announced its latest quarterly profits were 74% higher than in the same period last year.
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