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BIG FOOD, BIG PROFITS, BIG LIES  
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Veronica Riccobene
June 3, 2024
The Lever [[link removed]]

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_ While blaming inflation for rising prices, the country’s biggest
food and restaurant companies are raking in billions and showering
shareholders with payouts. _

, AP Photo/Tony Gutierrez

 

As food costs have skyrocketed for Americans, some of the country’s
biggest chains and grocery brands, including General Mills, PepsiCo,
and Tyson, have blamed the price hikes on supply chain issues and
economywide inflation. But behind the scenes, these companies have
expanded profits and quietly authorized billions of dollars in
lucrative stock buyback programs and dividend payouts to shareholders.

Americans paid [[link removed]] roughly
25 percent more on groceries and dining out this March than they paid
in January 2020, outpacing the rate of general inflation. Over that
same period, the companies behind the country’s 10 largest grocery
and restaurant brands have together returned or pledged to return more
than $77 billion to shareholders. 

The Department of Agriculture calculates that the average
American spent
[[link removed]] 11
percent of their disposable income on food in 2022, the highest amount
in nearly four decades. Grocery prices rose
[[link removed]] over 10 percent that
year alone, the largest annual increase since the 1970s. 

In March 2024, consumers spent
[[link removed]] 95 percent more for a
carton of eggs, 33 percent more for a pound of ground beef, and 22
percent more for a gallon of milk than they did before the pandemic.
One survey found that a whopping 90 percent of adults say
[[link removed]] they’re
concerned about the cost of groceries, and food costs topped
consumers’ list of economic concerns. According to an analysis
[[link removed]] by
Food and Water Watch, a corporate watchdog group, food costs for an
average family of four living on a “thrifty” budget increased 50
percent from January 2020 to January 2024, from $654 to $976 a month.

Since pandemic-era expansions to the social safety net expired at the
end of 2021, hunger has been on the rise. The number of households
facing food insecurity grew by 3.5 million between 2020 and 2022.
Households with children are particularly vulnerable to food
insecurity, growing
[[link removed]] by
24 percent between 2021 and 2022 alone. The Department of Agriculture
estimates some 28 million adults in America lack constant access to
enough food to lead an active and healthy life, forcing them to eat
unbalanced diets, cut portion sizes, and skip meals.

This spring, a group of Democratic senators called on
[[link removed]] the
Biden administration to use executive action to address rising food
prices.

“Big food companies want to keep these huge profits and they’re
hiring plenty of lobbyists to keep Congress from acting,” Sen.
Elizabeth Warren (D-Mass.) told
[[link removed]] _Time. _“Congress
has stalled out on doing work that it could do to help families lower
costs… and the President has the tools to fight back.”

When pressed, the nation’s biggest food processors and
retailers say
[[link removed]] they’re
doing their best to keep prices down and continue
[[link removed]] to blame
[[link removed]] inflation.
But as these companies hide behind “difficult times,” they’re
spending billions of their record profits buying back their own shares
on the open market to inflate stock value and issuing generous
dividends.

The main purpose of buybacks is to enrich senior corporate executives
and hedge-fund managers, said University of Massachusetts economics
professor Bill Lazonick. 

These people are “[making] money out of money,” Lazonick said.
“The rich are getting richer, that’s the point… And we as
consumers are paying for [it].”

“A License To Loot”

PepsiCo’s Chief Financial Officer Hugh Johnston told
[[link removed]] _Bloomberg _last
year that consecutive double-digit price hikes
[[link removed]] on
their products in recent years were “just there to cover
inflation,” and that consumers see PepsiCo products as “worth
paying a little more for, while they may not be able to afford the big
luxuries in life.” 

Those luxuries in life are apparently reserved for top investors,
including Johnston himself. In 2021, he took
[[link removed]] home
$4.6 million in shares as part of his generous compensation package.

In 2023, PepsiCo raked in
[[link removed]] $91
billion in net revenue, a 35 percent increase over pre-pandemic
[[link removed]] income.
Of its profits, the company poured
[[link removed]] $7.7
billion into repurchasing stock and issuing dividends, with buybacks
increasing 843 percent from
[[link removed]] 2021.
In-house analysts expect
[[link removed]] total
cash returns to shareholders will grow to $8.2 billion this year.

According to Lazonick, during much of the 20th century, large-scale
stock buybacks in the form of open-market repurchases were considered
legally risky and rarely, if ever, practiced. That changed when the
Reagan administration’s Securities and Exchange Commission opened
the floodgates on buybacks and the resulting stock price manipulation
by essentially legalizing the practice within broad limits.

“Today, the limitations on buybacks are negligible, Lazonick said.
“[This] gives corporations, what I like to call, a license to
loot,” he added. “It’s manipulation, it’s nothing else… the
SEC [is overlooking] manipulation.”

Matt Gardner, senior fellow at the Institute of Taxation and Economic
Policy, a tax policy advocacy group, said buybacks boomed right before
the pandemic when Trump-era tax cuts left corporations with extra cash
on hand. Advocates for the tax cuts claimed companies would reinvest
that profit back into the economy via manufacturing and jobs — but
many began pouring huge sums of money into buybacks instead. 

“[Buybacks] don’t have any socially productive function, per
se,” said Gardner. “The real beneficiaries are the companies
themselves and the owners of the stock.”

Tyson Foods more than doubled
[[link removed]] profit
margins between 2021 and 2022 after hiking prices for beef, pork, and
chicken by upwards of 30 percent. The company — which is currently
being investigated
[[link removed]] by
the federal government for child labor violations and paid
[[link removed]] $10.5
million to settle allegations of price fixing in Washington state
— claims [[link removed]] it raised prices because it
needed to offset increased costs in labor, transportation, and grain
for animal feed. 

But data from earnings reports, reported
[[link removed]] first by _More
Perfect Union_, paints a different picture: While increased operation
costs set the company back $1.5 billion dollars in 2022, price
increases expanded profits by $2 billion, meaning consumers covered
Tyson’s inflation costs plus shelled out $500 million more. That
year, Tyson repurchased
[[link removed]] $702
million of its own shares and raised dividends by 4 percent.

Corporations are “slow to pass on their savings to consumers,”
said Lindsay Owens, executive director of the Groundwork
Collaborative, a progressive think tank and advocacy group. A
recent report
[[link removed]] from
the organization finds that while climate and pandemic disruptions to
the supply chain continue to inflate input costs, retailers and
suppliers have “taken advantage” of global inflation to expand
profits.

The manipulation is occurring up and down the supply chain.
“Everyone’s taking a little bit of margin here,” Owens said. 

The Federal Trade Commission found
[[link removed]] back
in March that Walmart, Kroger, and Amazon “used rising costs as an
opportunity to further hike prices to increase their profits.”
According to the agency, food and beverage profits increased 7 percent
over costs in the first three-quarters of 2023, “cast[ing] doubt on
assertions that rising prices at the grocery store are simply moving
in lockstep with retailers’ own rising costs.”

On a 2021 call, Kroger chief finance officer Gary Millerchip
reportedly told [[link removed]] analysts, “We’ve been
very comfortable with our ability to pass on the increases that
we’ve seen at this point, and we would expect that to continue to be
the case.” That year, the company pulled in
[[link removed]] revenues
of $137 billion, a 12 percent increase over pre-pandemic sales
[[link removed]].
They returned profits to investors in the form of $589 million in
dividends and $1.6 billion in stock buybacks. 

Walmart’s price hikes went
[[link removed]] viral last
year when customers compared a 2020 trip receipt to one from 2023 and
found the cost of some of the retailer’s Great Value generic brand
products had increased by more than 50 percent. Walmart raised
[[link removed]] the
price of staples like milk and frozen meals in 2022, helping expand
[[link removed]] grocery
sales by double digits over the previous two years. 

The retailer’s total revenues reached
[[link removed]] $611
billion in 2023, and executives authorized $9.9 billion dollars in
share repurchases, a 277 percent increase over 2021.

Per Lazonick, “shareholder value ideology” legitimizes the
profiteering. Executives, whose own take-home compensation packages
are substantially padded by stock options and stock awards, can
justify increasing their own income in the name of maximizing
shareholder value — at the expense of consumers
[[link removed]] and workers
[[link removed]]. 

Buybacks and dividends do nothing to actually improve a company’s
competitive performance. “To be innovative, to be competitive,”
Lazonick said, “requires developing and utilizing productive
capabilities [and] is far more difficult.”

Smaller Portions, Higher Prices

It’s not just that prices are going up — food products are getting
smaller, in a phenomenon that pundits have named “shrinkflation
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Another report
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the Groundwork Collaborative finds that changes to package size
account for 10 percent of all price increases on key household
expenses, including snack foods.

President Biden even mentioned the matter during his State of the
Union this year: “Same size bag — [they] put fewer chips in it,”
he said. “No, I’m not joking. It’s called shrinkflation.”

After the snack brand Utz reportedly shrank the sizes of its pretzel
jars and potato chip bags, the company’s CEO admitted
[[link removed]] that
changes to “price pack architecture” accounted for a striking 20
percent of the company’s price inflation. Even more damning, a 2022
company earnings report plainly states that “pricing actions,”
or price hikes, helped boost the company’s gross profit margins by
25 percent. Between 2021 and 2024, Utz increased
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dividend payouts by 18 percent. 

General Mills hiked [[link removed]] cereal costs by 12
percent between 2022 and 2023, while also reportedly 
[[link removed]]reducing
the family-sized box from 19.3 ounces to 18.1 ounces. When pressed on
the shrinkage, a spokesperson for the company told
[[link removed]] NPR
that it allowed for more efficient truck loading, reducing the
company’s fuel costs and covering for input inflation. However,
behind the scenes, company executive Jon Nudi confided
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investors that the company was “getting smart about how we look at
pricing” while carrying out “list price increases.”

Since the pandemic, General Mills’ annual net sales have grown 19
percent, topping out at $20.1 billion in 2023. Last year, the
company bought back
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billion of its own stock from the open market, up from $877 million
the year before. 

Americans who elect to save money by heading to the drive-thru are
facing a new reality, too. A study of the country’s biggest fast
food brands by _Finance Buzz_ found that at _all _of them, menu
prices have outpaced
[[link removed]] general
inflation rates.

The CEO of Yum Brands, which owns Taco Bell, KFC, and Pizza Hut, said
[[link removed]] in
2023 that the company’s price hikes were “a last resort”; that
same year, the company brought in
[[link removed]] $7
billion in total revenue, a 21 percent increase over its pre-pandemic
earnings. Executives at the corporation have since authorized
[[link removed]] a
$2 billion share repurchase program and returned $678 million to
shareholders in dividends.

Since 2014, McDonald’s has doubled
[[link removed]] its menu
prices, helping increase profits by 59 percent in 2021 alone. Just
last week, McDonald’s U.S. president Joe Erlinger, miffed
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accusations of price-gouging and viral reports of the $18 price of a
Big Mac, called that price “an exception” and maintained the
company’s franchisees are “work[ing] hard to minimize the impact
of price increases.”

After a brief pause in 2020, the fast food giant resumed
[[link removed]] its
$15 billion buyback program in 2021 and returned
[[link removed]] a
total of $7.6 billion to shareholders via buybacks and dividends in
2023. 

Big Grocery’s Opposition

According to Owens, monopoly power and consolidation across all levels
of the supply chain are emboldening megacorporations to engage in
price fixing — using their market control to artificially inflate
prices. A 2021 investigation by _The Guardian _and Food and Water
Watch of the top food items sold in U.S. grocery stores found
[[link removed]] that
four companies or fewer controlled at least 50 percent of the market
for 79 percent of the groceries sold. For nearly a third of shopping
items, top firms controlled 75 percent of the market share.

The consolidation is particularly stark among retailers; Walmart
alone takes in
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percent of grocery sales nationwide. Just this year, the Federal Trade
Commission sued
[[link removed]] to
block a $24.6 billion merger between Kroger and Albertsons, alleging
it violates antitrust law.

“Everything you see as you stroll down the grocery aisle — lettuce
in aisle one, beer in aisle five, pretzels and potato chips in aisle
nine, ice cream in the frozen food aisle —” said Sen. Warren
during a recent hearing, “is dominated by a handful of Big Food
producers.”

Warren led the group of Democratic senators who called on
[[link removed]] Biden
to combat rising food prices, including by investigating major grocery
retailers for price fixing. In a letter, the coalition recommended,
among other actions, that regulators work to prevent mergers and
acquisitions in the industry and outlaw the kind of exclusionary
contracting big firms use to box out smaller suppliers.

These recommendations are similarly outlined in legislation currently
stalled in committee: Warren’s _Price Gouging Prevention Act_ and
Senator Bob Casey’s (D-Pa.) _Shrinkflation Reduction
Act. _Casey’s legislation would direct the Federal Trade Commission
to establish regulations limiting shrinkflation, and authorizing civil
prosecution of companies that engage in the practice. Warren’s bill
would make price gouging a federal offense.

Americans are largely supportive of efforts to regulate how much
companies charge for food. In a new Data for Progress poll, 69 percent
of respondents said
[[link removed]] the
government “should do more to regulate grocery stores that raise
prices to maximize profits.”

Meanwhile, consumers have made known their displeasure at high prices.
Grocery retailers are feeling
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sting of backlash as customers abandon brand-name items, shop at
discount stores, and forgo buying more expensive items.

Grocers
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Walmart and Target, and fast food brands
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Wendy’s and McDonald’s are only the latest brands to bring down
prices in an attempt to woo customers stretched thin by inflation. For
many Americans, however, the damage
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_Veronica Riccobene is a producer based in Washington, D.C. She has
experience in live television, long form and vertical video, as well
as reporting._

* Food Prices; Grocery Chains; Food Justice;
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* corporate profits
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