Shoppers Perceive Food Retailers’ Profitability to Be Much Higher Than Reality

As grocery prices climb higher, some shoppers believe that food retailers aren’t doing enough to keep prices down. This is according to feedback solutions provider The Feedback Group’s national research conducted with more than 1,200 grocery shoppers about their perception of supermarket profitability.

Grocery shoppers were asked, from the money spent at their primary store, how much they think is left for profit, after the store pays all expenses and taxes. On average, shoppers indicated the store has a net profit of 33%. However, as indicated by FMI – The Food Industry Association, the average net profit for a supermarket has been close to 1% historically (and as high as 3% in 2020).

“Clearly, grocery shoppers believe that the stores they shop are far more profitable than they actually are,” said Doug Madenberg, chief listening officer with The Feedback Group. “This inflated view of profits certainly leads some shoppers to think that food stores simply aren’t doing enough to keep prices down. I think most grocers had a hunch about this misperception, but the actual 33% net profit figure is extremely telling.”

The Feedback Group's new research also revealed how consumers are coping with food price inflation. The research found they are trying various tactics to hold onto their wallets, the foremost being shopping at stores with lower prices (46% have used this strategy). Forty-six percent are eating more often at home instead of restaurants. Other common strategies include buying more store brands instead of national brands (38%), purchasing more bulk-pack items to lower the price per serving/unit (25%), buying fewer last-minute or impulse items (25%), and using a store’s weekly sales flyer to plan their shopping list (23%).

Additionally, inflation might be creating unhealthy habits. The Feedback Group found that some shoppers purchase food for home that is less healthful but also less expensive (15%) and buy fewer organic items to cut costs (12%).

“Our study shows that food inflation is having a tremendous impact on supermarket shopping behavior," said Madenberg. "More than 90% of shoppers have employed at least one money-saving strategy to deal with the impact. It’s critical that grocers merchandise and communicate in ways that show their customers they are part of the solution.”

Indeed, some retailers have already incorporated new pricing strategies to provide their shoppers some monetary relief. For example, Lidl US is rolling out its price-cutting campaign this summer on more than 100 items ranging from meat and frozen prepared foods to household products. Giant Eagle is giving myPerks loyalty members savings of up to 20% on more than 1,000 products. Big Lots is also offering inflation-busting discounts this summer.

When The Feedback Group asked shoppers what one item they would like supermarkets to lower the price on, meat had the most responses — more than double the number of responses of the next highest category, dairy items (with milk mentioned most). Produce had the third highest number of responses (about evenly split between fruit and vegetables).