Is raising price wrong?
The Business of Food
by Jennifer Barney
Is raising price wrong?
2-min read
I heard from a bunch of you about my post last week on raising price. Most of you appreciated the support to pass along higher costs to consumers but a couple of you really had a cow.
There are some people in this industry that feel it is wrong to raise prices. Many of these folks are no longer running their businesses but are former founders or former executives of food businesses.
These people are preaching from the perch. Here’s why their arguments are incorrect, confounding, and down-right hypocritical.
First argument: labor problems are not a significant factor on costs
Incorrect. When manufacturers have fewer workers because workers have to stay home, businesses produce less (and less per worker). Low volume with less efficiency = higher costs. PPP covering payroll kept workers fed, but did nothing to solve for COGS. See the facts here, here and here.
Second argument: higher grocery prices just make the rich richer
Confounding. This argument postures that Big Food brands and leading retailers are using the excuse of a weakened supply chain to garner more than their fair share of profits. This claim is under investigation by the FTC right now. But whether there is corruption or not doesn’t matter in the context of a price raise argument. The reality is businesses are experiencing higher input costs and therefore lower margins. It is not wrong for businesses to raise price to maintain their margins.
Third argument: if we solved for anti-competitive forces, profit margins should be next to zero.
Hypocritical. These people built a career on bringing premium, natural foods to prominence through value and profits. Strong profit margins allow brands and retailers to invest in better and more products that consumers want (natural foods in the U.S. has been growing at a 13% CAGR since 2017 and now accounts for $189 billion in retail sales).
Price Controls
If you are hearing price controls as the solution to what has been deemed a food crisis, here’s what that means. Imagine trusting a public entity to understand your industry, business, and products enough to tell you where to set price and for how long.
I don’t think you, reader, are working upwards of 60-70 hours a week to simply eek out a living while someone else controls what you can charge. You are taking great risk to make better food, in a better way, that benefits your consumers, employees, community and the environment. If you manage to succeed at it, markets should reward you for your success and sacrifice.
Inflation and healthy food access
Instead of price controls, public policy makers should support increased access to fresh and healthy food through more co-ops and nonprofit food centers. They should also make it easier and quicker for new products to be accepted under SNAP.
This is not meant to be a political post, but one that simply supports the common-sense principle that businesses need to make money in order to do good for society. Not the other way around.
All my best,
Jennifer
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I'd love to hear from you - get in touch at jennifer@3rdandbroadway.com