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  • Writer's pictureThe San Juan Daily Star

Food prices soar, and so do companies’ profits

Diners at a sidewalk cafe in the Little Italy section of lower Manhattan on Thursday, Oct. 27, 2022. Investors and analysts are wondering when rising prices will start to keep more people away from restaurants.

By Isabella Simonetti and Julie Creswell

A year ago, a bag of potato chips at the grocery store cost an average of $5.05. These days, that bag costs $6.05. A dozen eggs that could have been picked up for $1.83 now average $2.90. A 2-liter bottle of soda that cost $1.78 will now set you back $2.17.

Something else is also much higher: corporate profits.

In mid-October, PepsiCo, whose prices for its drinks and chips were up 17% in the latest quarter from year-earlier levels, reported that its third-quarter profit grew more than 20%. Likewise, Coca-Cola reported profit up 14% from a year earlier, thanks in large part to price increases.

Restaurants keep getting more expensive, too. Chipotle Mexican Grill, which said prices by the end of the year would be nearly 15% higher than a year earlier, reported $257.1 million in profit in the latest quarter, up nearly 26% from a year earlier.

For years, food companies and restaurants generally raised prices in small, incremental steps, worried that big increases would frighten consumers and send them looking for cheaper options. But over the past year, as wages increased and the cost of the raw ingredients used to make treats like cookies, chips, sodas and the materials to package them soared, food companies and restaurants started passing along those expenses to customers.

But amid growing concerns that the economy could be headed for a recession, some food companies and restaurants are continuing to raise prices even if their own inflation-driven costs have been covered. Critics say the moves are all about increasing profits, not covering expenses. Coca-Cola, PepsiCo and Chipotle did not respond to requests for comment.

“The recent earnings calls have only reinforced the familiar and unwelcome theme that corporations did not need to raise their prices so high on struggling families,” said Kyle Herrig, the president of Accountable.Us, an advocacy organization. “The calls tell us corporations have used inflation, the pandemic and supply chain challenges as an excuse to exaggerate their own costs and then nickel and dime consumers.”

Food companies and restaurants have been able to raise prices because the majority of consumers, while annoyed that the trip to the grocery store or drive-thru for takeout costs more than it did a year ago, have been willing to pay. But there are plenty of shoppers, including those with lower incomes or retirees on fixed budgets, who say the higher prices have led to changes in their routines.

Diane English, 80, a partly retired artist who lives with her partner in Asheville, North Carolina, said she now shops at lower-price grocery stores such as Aldi so she can afford her groceries. She also has stopped buying certain foods because they’re simply too expensive.

“I can’t remember the last time we had steak,” English said. A couple weeks ago, she said, she looked at the meat department at The Fresh Market, a grocery store chain, and was dispirited at the high prices she found.

“We’re not going to do that,” she said. “We can’t.”

Over the past year, the price of food eaten at home has soared 13%, according to the Bureau of Labor Statistics, with some items spiking even higher. Cereals and bakery goods are up 16.2% from a year ago, closely followed by dairy, which has risen 15.9%.

The cost of eating at restaurants has risen 8.5% over the same period.

Even food executives have been surprised by how well the higher food prices have been accepted.

On a call with investors, Coca-Cola CEO James Quincey said customers continued to buy the company’s products despite economic challenges.

“In the face of these pressures, consumers stayed resilient, and we continue to invest behind our loved brands to drive value in the marketplace and growth in our business,” Quincey said.

This summer, on a call with other Wall Street analysts, Jason English, an analyst at Goldman Sachs, noted that the food giant Conagra Brands had been able to price its products above inflation rates and recovered its profit margins.

Sean Connolly, the president and CEO of Conagra, said manufacturers saw their profits hit early by inflation and that maintaining robust profits was crucial to developing new products.

“We have to have healthy margins to be able to build out that innovation and get it to our customers in the market,” Connolly said on the call. Conagra did not respond to a request for comment for this article.

Likewise, investors and analysts are closely watching the continued price hikes at Chipotle, wondering when it will become too much for its customers. In late October, the company said its profit margin widened in the third quarter, since it was able to increase the prices it charges faster than its own costs rose. The company said its prices in the final three months of the year would be nearly 15% higher than they were a year earlier.

“The average entree was around $8 nationally two years ago, and they’ve maybe taken $1.50 in price in the past two years,” said Sharon Zackfia, group head of consumer research at William Blair & Co.

She added: “I am intrigued by what happens when commodities fall again, and how do restaurants offer more value to the consumer without lowering prices? In the long arc of history, most restaurants do not lower prices.”

Still, some cracks are emerging. Not all companies have increased profits. Profit at McDonald’s, for example, fell because of how the strong U.S. dollar has weakened other global currencies. High prices for deli meat, fresh fish and frozen dinners have led some shoppers to stop buying those products, according to data from Information Resources Inc., a research firm.

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