5

I first visited the United States around 30 years ago and then a few times over the following couple of years. The last time was around 2005. One thing I remember is the low prices of food compared to my native country Germany and Western Europe in general.

Earlier this year, my wife and daughter took a trip to California and were shocked by the high food costs - not only specific items, but really everything (e.g. I'm aware of the bird flu effect on eggs) - which are well above the prices in our current resident country, the United Kingdom - which is suffering deeply due to the Brexit catastrophe.

I know that inflation has been much higher in recent months, but that's the same in Europe. Covid and Putin's War against Ukraine have had their impact here as well. So when and what went differently between the US and Western Europe in this regard?

3

2 Answers 2

-3

TLDR: US supermarkets seem to suck at being efficient and pass on the costs to the customers (especially on healthier foods).

Well, I am not sure they are as much in excess as you claim, but a June 2022 Economist article could almost be cited verbatim here, as much of it seems to apply.

Why Americans are poorly served by their grocery stores

A study in 2017 by the un’s Food and Agriculture Organisation found that the cost of eating healthily in America was 65% more than in Britain, and among the highest in the rich world

...

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 (its profit before fixed costs like rent and labour are taken into account) 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 (overall profitability), this suggests that Walmart has higher fixed costs, and has to charge a big mark-up.

They went to give the following specifics:

  • US supermarkets overstock on too many goods, on too much area: 10x square area, 40k product (Walmart) vs 14k (Tesco). (Yes, I wish they had used compared purely food stores), but the idea still stands. End of The Hurt Locker the protagonist is staring overwhelmed at a huge aisle of just cereal products. Margins are poor.

  • US supermarkets use too much staff. Someone is expected to bag your groceries, for example.

  • US food chains are not as overall dominant nationally, meaning they have less pricing power to dominant suppliers.

  • Less cheap own brand products.

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.

Canada is much the same. At a anecdotal local level (Vancouver), I have observed the following very unexpected pricing structure, leaving aside convenience stores like 7-11 or unapologetic organic gougers like Whole Foods:

  • (expensive) regular supermarket chains like IGA or Save On.

  • (marginally less expensive) discount sub-brands of the above, like No Frills.

  • (cheapest) much smaller, sometimes down to family-run groceries run by Asian immigrants. Specifically: Koreans, Chinese and Iranians.

They sell you good produce at easily 30-40% discount of the biggies. $1.50/pound apples vs $2.50/pound at the chains (non-organic). The price difference on Western processed/packaged foods is still there, but less pronounced.

Honestly, not sure why, aside from the Economist claims above. Maybe too much overhead in managing and advertising at the chains? But, at least locally, it is so very consistent that it bears pointing out. And it's odd because smaller companies should have so much less pricing power wrt suppliers (before any claims are made: it doesn't seem to be ill-paid staff). One more thing: this comparison also sidesteps any potential currency exchange rate considerations. They do typically have extremely limited parking spaces: a not-insignificant consideration in high-priced real estate areas.

This also dovetails with The Economist stating that the difference is highest on healthy foodstuffs: US stores seem to treat base ingredients to cook with as luxuries, while hawking pop and chips for cheap. Those immigrant-run and immigrant-facing stores may be facing a customer base that is used to cooking and would not put up with being gouged on basic ingredients.

I don't necessarily think it's the chains gouging customers overall: back about 10-15 years ago I found Krogers with 2k stores had the same market cap as then-independent Whole Foods with 200 stores.

The article concludes:

Cutting product lines is often unpopular; big cars and big fridges still support a model of big grocery stores with surprisingly high prices.

US supermarkets seem to suck at being efficient and pass on the costs to the customers.

p.s. with a tight labor market, staffing has gone down quite a lot at most big stores here.

p.p.s. re. a possible historical aspect, private label brands, are a relatively new phenomenon and positively impact overall cost-of-goods structure for supermarkets. As per article, they have simply progressed less in the US than they have in Europe. I easily concede that I am not all that interested writing up a historical analysis, with all the difficulty in information-gathering that that entails: let those who really insist on seeing an answer on those lines write their own.

4
  • 3
    I can't remember the last time anyone bagged my groceries in a US store, but I think it was about 40 years ago. Also this doesn't explain why groceries were so much less expensive compared to Germany 15 years ago.
    – phoog
    May 30, 2023 at 17:10
  • 1
    @phoog Dedicated baggers has receded a bit, but at many stores the cashier is still involved with putting food in your bag, unless you specifically tell them you'll do it. (granted now many swing in opposite direction and want you to self-scan) So I have no idea where you shop, but "last time 40 years ago" sounds extremely unconvincing as an experience. Re. 15 years ago: the article said that US stores have seen more inflation than Euro ones, but I did not set out to do a historical analysis, only some observations about current state. May 30, 2023 at 17:16
  • 2
    This doesn't seem to answer the question or even acknowledge the facts in the question of why the historical trend shifted from better prices in the US to worse prices.
    – uberhaxed
    May 30, 2023 at 18:46
  • @phoog It must be the area as I can't remember the last time I had to bag my own groceries outside of a self checkout lane. And honestly I think in most cases they have people bag to ensure the line moves smoothly and they are not waiting on a customer to bag their groceries before they check out the next perosn.
    – Joe W
    May 30, 2023 at 22:46
-5

Suppose an apple costs 1GBP in England and 1USD in America at a point in time when 1GBP = 1USD. It only cost 1GBP to by that apple in America.

Three months later, the cost of that apple is the same in both England and America. However, exchange rate changes from 1GBP to 3GBP required for 1USD. It now costs 3x as much for you to by that apple in America.

Currencies become stronger and weaker over time due to both central bank manipulation and governmental policies.

2
  • 6
    Would that meet this specific case? The dollar:euro rate is roughly where it was 24 years ago.
    – o.m.
    May 30, 2023 at 15:43
  • 1
    What you are talking about has nothing to do with the price of food and it is just how exchange rates work. As for your example generally the exchange rate is such that the British Pound will exchange for more USD making things look cheaper.
    – Joe W
    May 30, 2023 at 15:50

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .