Grocery prices are way up. Is Albertsons exploiting them for profit? What an expert says

That 64-ounce bottle of juice that sold for $1.99 six months ago now costs $2.29. The box of crackers that was once $1.48 is now $1.64. Inflation is rampant, and nowhere do many Idahoans experience it with more frustration than in the supermarket.

So you may wonder: Are the grocers turning inflation to their advantage by raising prices more than needed to pass on their own rising costs? And thereby boosting profits?

When Albertsons Companies Inc., the Boise grocery giant, reported its latest quarterly earnings Tuesday, we asked an economist skilled in interpreting earnings reports what he saw.

His answer: Yes, Albertsons’ sales are rising — but its earnings show no evidence of profiteering.

The grocer has passed price increases onto shoppers to sustain itself amid the 40-year high inflation of the last year or so. But Albertsons’ financial statements for its first quarter of fiscal year 2022 show that the company didn’t bring in substantially larger earnings as a result of the inflationary environment, said Steven Peterson, an associate clinical professor of economics at the University of Idaho.

Albertsons is raising prices simply because its costs are going up, Peterson said in a Zoom interview.

“They may get a little bit of a bump due to inflation, but they face market constraints as well,” Peterson said. “What’s driving this is the cost of the goods they’re buying.”

In a call with analysts Tuesday, Albertsons CEO Vivek Sankaran said identical-store sales increased 6.8% compared with the same quarter in 2021. Identical-store sales measure sales growth among existing stores, excluding recently opened or closed ones.

Because of inflation, he said, customers are trading down to cheaper brands when it comes to products like rice, beans and oil.

“The good news is they’re trading down into a lot of our own brands,” Sankaran said. “Our top-tier performance over the last several quarters, even with periods of high inflation, has demonstrated we’re a stronger company today than we were pre-pandemic.”

The company’s net sales and other revenue reached $23.3 billion for the 16 weeks ending June 18, up nearly 10% from $21.3 billion one year ago, according to the latest earnings report.

However, the company’s net income, or profit, came in at $484.2 million. While that’s about $44 million more than it was in June 2021, Peterson said he wouldn’t call it excessive.

“The ability of a supermarket chain like Albertsons to extract huge profits is just not supported by the evidence,” Peterson said. “It’s an extremely competitive market.”

In addition to inflation, Albertsons and other retailers are experiencing lingering disruptions in the global supply chain.

Walmart on Monday “cut its annual profit outlook for the second time this year, citing the need to lower prices to clear out bloated inventories,” Bloomberg reported. Consumers are shifting spending toward necessities and away from big-ticket general merchandise, Walmart said.

Peterson, who lived through the inflationary period in the 1970s, said sustained inflation ultimately hurts everybody. He noted that the Federal Reserve, the nation’s central bank, is racing to catch up with inflation by raising interest rates.

“High inflation, for the most part, damages all stakeholders in the long run,” Peterson said. “It’s in our collective interest to get inflation under control.”

Business and Local Government Editor David Staats contributed.

This story was originally published July 26, 2022 at 5:46 PM.