How are grocery stores able to deliver such low prices to consumers and still make record
profits? Some stores are using tactics they'd prefer customers would just ignore. Here are
some shady practices grocery stores use to keep prices low.
Retailers often entice customers by discounting some common merchandise designed to bring
shoppers in the door. The business will actually lose money on these items, which is why they're
called "loss leaders." Popular loss leaders are milk, eggs, and razors. Once customers
are in the store, they might buy a larger quantity of the discounted item, as well as
other add-ons based on impulse purchasing. NPR even debated if grocers keep loss leaders
like milk and bread in opposite corners of the store, to it will force customers to walk
by more than just essentials, increasing their chances of picking up more items along the way.
U.S. law technically prohibits the widespread use of selling at a loss, this tactic is often
abused by chain stores with deep pockets. Smaller grocers can't absorb deep discounts
long-term, leading to the closure of competitors. Amazon and Walmart are infamous for exploiting
discounts on a massive scale. In the case of Walmart, the ambitious retailer battled
a lawsuit in the early '90s for so-called "predatory pricing," unfairly undercutting
the competition in local markets. The Arkansas Supreme Court, however, ruled in favor of
Walmart's low prices.
In hard-lined discount stores, customers are sometimes replacing paid employees at the
end of the checkout process in exchange for lower prices. For example, the popular German
import Aldi comes to mind for requiring customers to bag their own groceries once they've completed
checkout. Costco, Sam's Club, Natural Grocers, and Lidl, another German retailer,
use the same no-baggers policy. The move for customers to act as a bagger is attributed
to freeing up the cashier to keep the line moving faster.
"Whoever has the fastest ring rate will win it all!"
At Aldi, cashiers drop groceries right back into the cart. This reasoning ignores the
fact that by eliminating the traditional role of baggers, they're also eliminating an additional
employee who would otherwise be paid. This role is now filled by bargain shoppers, sorting
through carts and vying for the best boxes left out by the store.
Certain budget grocery stores only offer products with high turnover to eliminate the added
overhead. The popular discount grocer Aldi stocks around 1,400 unique items and Lidl
around 4,000 items at any given time. Other mid-sized stores such as Trader Joe's stock
around 4,000 different items and Dollar General carries from 10,000 to 12,000 per store. In
comparison, traditional supermarkets carry 40,000 or more different products and Walmart
carries around 100,000.
Limited items on shelves result in lower cost to the grocery store, which often means lower
prices for shoppers. Unfortunately, it also means fewer options for shoppers. If customers
are dedicated to a specific name brand, or even an item that isn't a frequent buy for
most customers, they may need to make additional trips to other stores. Shopping at multiple
locations can then cost more in gas money and time. When you look at it like that, the
only one saving money on this low-price strategy is the grocery chain.
When supermarkets and big-box grocers control a majority of the market, it creates an imbalance
between producers and retailers. Powerful chain stores such as Walmart turn their massive
buying power against suppliers, who are forced to match bargain-basement prices or be left
out of the equation entirely. Forcing suppliers to offer lower prices often results in lower
prices for customers, but it also results in layoffs at factories, changes in manufacturing,
and certain processes heading overseas where labor is cheaper.
Chain grocery stores that engage in race-to-the-bottom pricing might pay growers and producers below
the real cost to produce, raise, and process what's stocked on the shelves. It's gotten
to the point where many farmers in the U.S. and elsewhere make little profit. Despite
grueling and often dangerous conditions, workers also receive low wages, keeping families precariously
near or below the poverty line. The effect of grocery stores demanding unsustainable
prices trickles through the supply chain and results in shoppers being misled about the
actual cost of food, expecting low-priced groceries at the expense of suppliers.
Some major chains have sparked controversy over grocery store employees who say they
are overworked and underpaid, despite grocers making record profits. Workers claim to be
forced into part-time work without benefits, and struggle to access paid leave even when
sick. Minimum wage earners at grocery stores say they are living below the poverty line.
Employees at Northeast grocery chain Stop & Shop picketed in 2019 due to reduced benefits
such as elimination of holiday pay and higher health care costs. Eater reported that the
store claimed the move helped the brand to stay competitive, meaning they cut those employee
benefits to offer lower prices to customers. Still, Eater says Stop & Shop's parent company
made $2 billion in profits the previous year.
Discount retailer Amazon acquired Whole Foods in 2016. Whole Foods previously stood as an
example of high wages and generous benefits, and as a result, higher food prices. Mass
layoffs and cuts to health-care benefits for 1,900 workers arrived in the three years after
the purchase, not long after they lowered the prices of some grocery items. It seems
employees may have paid for those lower prices from their own pockets.
Wholesale pricing gained popularity across retail in recent years. In order to gain wholesale
pricing, shoppers need to pay for memberships to receive better discounts at certain grocery
stores. Essentially, customers are paying money, to save money.
Bulk grocers like Costco and the Walmart-owned Sam's Club have long used the membership model.
To gain the privilege of shopping at Costco, customers are charged $60 or more every year
to be a member. Sam's Club charges $100 for its top-tier access to exclusive savings,
and $45 for the basic membership.
Newer, online-only grocers such as Thrive Market are adopting the wholesale model for
healthy food shipped straight to customers, but again, those savings come at a cost. Access
to Thrive Market's affordable health food is $60 per year or $5 per month.
Amazon-owned Whole Foods provides additional sales to customers paying a yearly fee to
be Prime members. Shoppers are not required to be a member to shop at Whole Foods, but
they do need to pay that Prime fee to access some lower prices.
Do customers actually save money by paying membership fees? It all depends on how much
you spend and save at that store each year. But grocers who charge membership fees are
hoping that once you see their low prices, you'll forget all about that hefty fee you
paid, and there's a good chance you will.
Automation in the stock room allows for less waste and a more efficient workforce when
training. The desire for savings on the sales floor may help the store offer lower prices
to customers, but it doesn't mean a better customer experience. Reduced staff leaves
customers without employees to ask questions or assist with issues that arrive.
Self-checkout is one example of this and can present several problems. Shoppers approach
the kiosk ready to scan and bag their own groceries. What if the price isn't what is
marked, or the barcode doesn't work? One wrong swipe and an alert stops the process entirely.
Sometimes produce needs to be looked up, or identification is required, but there isn't
any staff around to ask. The shopper is stuck waiting for approval as one employee helps
six other nearby customers. The CBC's Marketplace even proved cashiers are faster and make less
mistakes than self-check out.
These frustrating trade-offs lead to more confusion and stalled transactions, compared
to the traditional one-on-one checkout experience. Lower prices often mean less personalized
customer service.
"I do believe that these entry-level jobs that are applied in retail and some of the
other jobs that are around will ultimately be automated out of existence."
Some grocery stores are reducing costs in a sly way. Some are open late at night, even
24 hours a day, while others don't cater to late night shoppers, though that may benefit
customers in the long run. Most Aldi locations, for example, are open only during peak hours
to save on wages and operational costs. An hour here and there might not seem like a
lot, but that means the discount stores will close at 7, 8, or 9 p.m. instead of staying
open for late shoppers. Reducing hours cuts down on staffing costs and utilities.
The inconvenient tactic might seem isolated, but budget grocery stores are shaping the
entire industry. Some estimates suggest Aldi's operational costs due to these and other budget-savvy
tactics are about half of other mainstream retailers.
In the race to lower prices, some grocery stores are adopting organic-adjacent options.
Demand for organic products shows regular double-digit growth, according to research
by the United States Department of Agriculture, with three out of four conventional grocery
stores carrying organic options. Using the "USDA certified organic" seal requires products
to meet multiple standards during their processing and production. One of those standards is
that at least 95 percent of that product's ingredients must be organic.
Those rigorous standards are one reason organic foods can be more expensive, and expensive
products are often a turn-off for customers. Grocers are now finding ways around the seal
to keep with a low-price model, like creating new organic certifications that actually need
smaller amounts of organic ingredients.
Cheaper products could confuse customers and create a demand for less expensive options
that still have organic elements, said Will Fantle, co-director for the Cornucopia Institute.
This could jeopardize the continued growth of truly organic products. Training customers
to expect to pay less for "organic" can also be a hard pattern to break, as demonstrated
with other methods of price reduction such as loss leaders.
Credit cards have come to be the gold standard of payment these days. Shoppers don't need
to make a trip to the bank or hope they have enough cash to cover additional items. This
convenience comes at a large cost to stores. Most retailers are charged fees of 1 to 5
percent by banks and credit card companies for every card purchase. Kroger banned the
use of Visa cards in seven states to reduce fees in its Smith's Food & Drug stores.
Some small retailers make up for these costs by requiring a minimum purchase for shoppers
to use credit cards, and of course, any cost to grocery chains is passed on to shoppers
in the form of higher prices. From time to time, grocers will fight back against these
swipe fees by banning the use of certain credit cards, sometimes permanently, but often just
until a better fee is negotiated.
Certain grocers have rejected the use of cards altogether, in order to keep prices low. Salvage
grocery stores offer extreme savings on damaged goods, food near or past the expiration date
and overstock items. Many take cash or debit cards only.
Retailers use technology in a much more nefarious way to offer discounts. While Amazon is the
leader of dynamic discounts, retailers including Target and Walmart are now joining the practice
of changing prices for customers. Amazon price changes happen millions of times per day.
Algorithms analyze spending behaviors and adjust pricing based on the time of day, demand,
location, competition, and buying patterns. Shopping in-store can show wildly different
prices versus heading online to make a purchase.
"One pack of pens on Staples.com. The price on her computer?"
"15.19"
"And the price on his?"
"$13.79."
Some online storefronts offer a real-time savings feature that drops prices as customers
buy more goods. E-commerce has largely driven this process but brick-and-mortar retailers
are in on the game. Target is one retailer that gives customers a price-match guarantee,
but shoppers are the ones who need to discover the price difference.
If not done correctly, this tactic could backfire. Safeway lost a class-action lawsuit in 2017
for misleading customers saying prices would stay the same online as in the store.
Can shoppers be sure that's Chilean sea bass they're about to purchase? A study by Oceana,
a nonprofit ocean conservation group, found fish is frequently misidentified on menus
and grocery store counters in several states. The testing discovered 33 percent of the samples
had been mislabeled at small grocery stores, and 30 percent at larger, national chains.
Several seafood samples collected from grocery stores, restaurants, and sushi stores in New
York City, Seattle, Miami, San Francisco and other major cities all turned out to be wrong.
It's not certain that grocery stores should bear the full blame for this confusion. Stores
might purchase a fish thinking it's one species when really it's another. The labeling itself
can also become confusing depending on the state. The Food and Drug Administration acknowledges
1,700 marketable fish and produces a guide for retailers, but state and federal laws
can disagree on the names of individual species.
Shoppers are right to be skeptical. If fish prices sound too good to be true, that actually
might be the case.
Bringing your own bag when grocery shopping isn't just good for the environment, it's
good for the grocery store. This is one reason many stores are making plastic and paper bags
available only for a fee. Providing single-use bags might not seem like much, but costs for
grocers add up quickly. According to NJ.com, stores pay $1,000 to $6,000 per month for
plastic bags, and you can bet those costs are passed on to customers.
The practice of charging for bags or not providing them at all is common at discount stores such
as Aldi and Lidl. Other grocery stores are catching on: Natural Grocers and even some
Trader Joe's provide only more expensive reusable or single-use bags for an additional fee.
Warehouse clubs such as Costco and Sam's Club don't provide bags at all, but let shoppers
rummage for empty boxes leftover from shipments.
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