During a Senate Banking Committee hearing on Thursday, Sen. Elizabeth Warren (D-MA) questioned witnesses about the food industry and shrinkflation.
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NewsTranscript
00:00Senator, thank you, Senator Schill. Senator Warren of Massachusetts is recognized.
00:04Thank you very much, Mr. Chairman, and if we're going to talk about markets and
00:07how perfect markets are, maybe the one thing we should talk about is how
00:11concentrated markets have become, and when we have concentrated markets, we
00:14have a whole lot less competition. So just a handful of companies have taken
00:20over the food industry thanks to literally hundreds of mergers over the
00:25last 50 years. Just four grocery chains control an average of 72 percent of
00:32sales in American cities, and in most grocery categories like bread, pasta, beef,
00:39cereal, just four companies control more than 60 percent of the market. Now, less
00:46competition means food brands don't have to compete on either price or product
00:51quality. For families' pocketbooks, that means higher prices. Grocery prices have
00:57climbed faster than inflation over the past few years. Now families are paying
01:0225 percent more than they did before the pandemic. So I want to talk today about
01:08the tricks and traps that families face when they head to the grocery store. Mr.
01:14Bustamante, you have researched corporate pricing practices. I understand that when
01:20inflation increases, food producers and grocery stores may need to pass on some
01:26of those higher costs to customers. But the question is, have groceries gotten
01:32more expensive just because of inflation, that is, passing along higher prices, or
01:37is there more going on here? Thank you, Senator. What we actually see is that if
01:42you look at the long-term price, the actual marginal costs of production for
01:47many groceries have actually gone down. And part of the big reason for this is
01:51actually with just the nature of the supply chains that have actually been
01:58developed over time. That being said, those lower marginal costs were not
02:03passed on to consumers. Instead, what we see is that for the past 40 years, this
02:08just growing and fastening trajectory of markups, basically, again, firms pricing
02:14their products and services at a much higher rate than the actual increase in
02:18costs. And when we see them during the past few years, that's just been
02:22accelerated due to the pandemic. Right. And something they could do because
02:25there's a lot of concentration in the industry, so there's not much competition.
02:29In fact, corporate profits rose five times faster than inflation between 2020
02:35and 2022. Kraft Heinz, which sells everything from Oreos to pasta sauce to
02:42coffee, increased profits by 448 percent over 2022. Calmain, the largest egg
02:51producer in the U.S., increased profits by 718 percent. In fact, for most of
02:592023, corporate profits drove over half of inflation. Now, that hasn't stopped
03:08Big Food from pulling out another trick. Jacking up prices was not enough, so
03:13food companies have decided to quietly shrink the size of products, lobbing off
03:19a few inches here, a few chips there, a few cookies somewhere else. This
03:25shrinkflation is all about deceiving customers so that corporations can pad
03:31their profits. The CEO of the snack company Oots admitted calling
03:37shrinkflation the path to higher margins. So it seems like we've lost the basic
03:44principle of knowing how much something costs before we pay for it. Mr. Beydoun,
03:49you have been studying corporate behavior for years. Have you seen in your
03:54research, have you seen a shift in behavior here? I have, Senator. Companies
03:59deploy a vast array of tactics that really threaten to make the price tag as
04:04we know it totally obsolete. I'll just name a few. In addition to shrinkflation,
04:08there's also skimflation. This is the idea of degrading the quality of a
04:11product by using inferior ingredients while keeping the price the same or
04:15higher. There's also dynamic pricing. This involves changing the price of a
04:20product hundreds, thousands, even millions of times in a day or a week,
04:24making it difficult to predict costs. And finally, there's a practice known as
04:28drip pricing. This involves adding on mysterious, confusing fees as consumers
04:36are making a purchase as opposed to building all of those fees into the
04:39upfront cost. Okay, so you've got a lot of tricks and traps you identify. I
04:44understand it not only happens when you pull something off the shelf. It also
04:48happens when families get to the cash register, when they get ready to check
04:52out. Mr. Beydoun, let's say you've picked out all of your groceries, cashier
04:57rings them up, or you ring them up yourself, and you use your credit card to
05:01pay. Can you talk to us a little bit about the opportunities that big credit
05:06card companies have to squeeze consumers on their groceries? Absolutely, Senator. In
05:11many ways, customers get gouged once at the checkout line, and in many ways they
05:15get gouged again if they carry that balance on a credit card, not only
05:19through exorbitant APRs, but also through junk fees like late fees. You know, up
05:24until recently, credit card issuers could charge as high as $41 for missing
05:29a payment, but thankfully the Consumer Financial Protection Bureau actually
05:33capped those fees at $8, and that's something that'll save 45 million
05:37Americans an average of $220 a year $15 billion annually in total. And so those
05:43are the sort of sorts of interventions we need. And special thanks to the Biden
05:46administration that has really started attacking these junk fees. Congress also
05:51needs to step up. We need to pass Senator Casey's Shrinkflation Prevention Act to
05:56end shrinkflation, and my Price Gouging Prevention Act to give the FTC the tools
06:02it needs. Thank you, Mr. Chairman. Thanks so much, Senator Haggard.