Grocers are finally lowering prices as consumers pull back

Consumers have been grumbling about the soaring cost of groceries for nearly two years. Now, some of the biggest names in retail appear to be listening.

In recent weeks, Target and Aldi have broadcast price cuts on thousands of items, while Walmart unveiled a new private label lineup of quality “chef-inspired food” mostly in the $5-and-under range. The shift comes as U.S. consumers have been signaling their discontent with more subdued spending – threatening retailers’ bottom lines.

It also reflects the split screen that is the U.S. economy: technically strong, but a struggle for many consumers as inflation and interest rates remain elevated, and debt levels have soared. Grocery prices have spiked nearly 27% since 2020, outpacing overall inflation of rate of 22%. Combined with higher housing and energy costs, Americans have developed an increasingly dour outlook about their financial well-being in the run-up to the 2024 election.

Retailers have taken note, said Coresight Research analyst Bryan Gildenberg. They’re “trying to get back to growth.”

This week, Target announced it would lower prices on roughly 5,000 items, including staples such as milk, produce, bread and coffee, as well as diapers and pet food. The reductions will “collectively save consumers millions of dollars this summer,” the company said in a news release.

The White House – which has been pressing retailers to lower prices – took credit for the rollbacks, posting on X: “President Biden called on grocery chains making record profits to lower prices for consumers – and they’re answering the call.”

Since the pandemic, the major chains have been operating at the highest profit margins on groceries in two decades, according to a study by the White House Council of Economic Advisers. An array of federal regulators, Democratic lawmakers and think tanks contend that large retailers have kept prices artificially high, allegedly through coercive tactics like price fixing and price gouging, and industry consolidation.

Wyatt Williams of Iowa City, Iowa, said higher prices forced him to make changes starting in 2022, the year inflation reached a four-decade high of 9.1%. The 39-year-old writer and professor could no longer afford to make his weekly shopping trip to Whole Foods. Instead, he found a creative alternative: driving 30 minutes away to a Mennonite-owned bulk goods grocery store in rural Iowa.

“My finances were wrecked, and I was cutting into my savings,” he said. “Something that’s interesting that happens with food is when you have to regard it with scarcity, it changes the way you cook.”

Target’s rollback is partly a response to customers like Williams finding more economical alternatives for household staples. Target chief growth officer Christina Hennington told investors Wednesday during the company’s first-quarter earnings call that the company is passing savings back to customers in part to “accelerate traffic and unit growth over time.”

The Minneapolis-based retailer reported a 3.2% decline in sales, exceeding its counterparts, a sign it is losing market share, according to industry analysts. Target has been wounded the most in its discretionary categories as its usual shopper prioritizes affording groceries over impulse purchases in the home goods aisle.

“From our data, Target has lost some customers and share in grocery and particularly in household products,” said Neil Saunders, managing director of GlobalData. “There is a sense among consumers that they can shop more cheaply elsewhere. … This dynamic partly explains why Target is investing more in value by reducing prices on key items.”

Aldi, the fastest-growing grocery chain in the country, announced a similar move earlier this month. The privately held German company said it is cutting prices on 250 items. Aldi’s move will have a more noticeable impact for shoppers than at Target since it has far fewer items on its shelves, Gildenberg said.

Walmart, which has acquired new, higher-end customers looking to trade down on groceries, household essentials and general merchandise, is making moves to keep the customers coming back. The Bentonville, Arkansas-based retailer reported last week that net sales for Walmart U.S. rose 4.6% in the first quarter year-over-year.

The nation’s largest retailer announced earlier this month that it is rolling out more than 300 new products under its new private label Bettergoods. The products, spanning 15 categories, keep up with the latest food trends and are plant-based and gluten-free, as well as “cleaner” foods made without artificial flavors, colorings or added sugars. The items range from about $2 to $15, with more than 70% of them under $5.

Though retailers are eager to highlight cost-saving measures, critics view them as a significant source of rising costs. While prices rose during the pandemic due to a mixture of labor shortages, rising fuel costs, international conflicts, supply chain disruptions, droughts, disease and more, Lindsay Owens, the executive director of economic policy think tank Groundwork Collaborative, said price gouging and industry consolidation played major roles.

“It’s really clear when you start looking at industry and corporate firm-level data … that companies are really expanding their margins during a period when their own costs are rising,” Owens said. “What you see is that’s effectively made possible by companies who are passing along their rising costs in full but then going for more.”

Meanwhile, consumers have gone into debt to afford groceries. According to an analysis from Urban Institute, a Washington think tank that conducts economic and social policy research, many families tapped credit cards, payday loans, savings and Buy Now, Pay Later services to afford essentials. The Institute found that 7.1% of those who used a credit card did not have enough money to make the minimum payment.

Consolidation up and down the supply chain, and among the major chains, is another contributing factor. Grocery store numbers have fallen 30% in the past 25 years. And more than a third of the U.S. grocery sales come from four retailers. Walmart alone has nearly a quarter of the market, Owens said. The lack of competition gives these retailers more leeway to raise prices, Federal Trade Commissioner Alvaro Bedoya said.

“One effect of consolidation is to allow big players to make money not because they’re efficient but because they’re powerful,” he said in an interview with The Washington Post. “Another thing that’s happened is that these supply chains have become externally brittle.”

The FTC’s study on grocery supply chain during the pandemic found that major retailers leveraged their size and influence to dictate what they pay to suppliers.

This allowed large chains to grow profits, gains that didn’t trickle down to consumers.

Owens, who on Wednesday spoke before a panel of the Senate Banking, Housing, and Urban Affairs committee, also noted that technology and data collection are being used to raise prices.

“Technological innovations such as cloud computing, artificial intelligence, and surveillance targeting have enabled companies to collect reams of data on their competitors and their customers,” Owens said in her testimony.

“They can use this data to facilitate collusion and price fixing or simply to accelerate their ability to hike prices and maximize profits.”