US Senators Warn Walmart And Kroger May Raise Grocery Prices Without Warning With Digital Price Tags

Two Democratic senators are investigating Kroger's use of digital price tags called electronic shelving labels (ESLs), concerned that this technology could allow for "dynamic price gouging."

Sens. Bob Casey, D-Pa., and Elizabeth Warren, D-Mass. sent a letter to Kroger's CEO, Rodney McMullen, requesting additional information to understand the rationale behind electronic shelving and its potential risks.

They expressed concern that "dynamic pricing" could allow corporations to suddenly increase product prices without warning, a practice they labelled price gouging.

Senators Target Kroger Over ESLs

Casey and Warren wrote: "Large grocery chains such as Walmart and Kroger have claimed that dynamic pricing through ESLs benefits consumers by freeing up time for employees to assist customers."

"However, these devices also introduce the potential for grocery giants to abuse their power and surge grocery prices, raising prices suddenly and at times when certain products are in the highest demand," they noted.

Casey and Warren claim that the widespread adoption of dynamic pricing will significantly boost corporate profits, ultimately burdening consumers. The senators find it unacceptable that, while families struggle to afford basic groceries, large grocery chains like Kroger continue implementing surge pricing and other profit-maximising strategies.

Casey and Warren observed that Kroger and Walmart, among other companies, are expanding their use of ESLs. They expressed concern that this technology could allow large grocery stores to exploit consumers to increase profits.

While the letter did not provide concrete instances of ESLs being used for price gouging, it referenced a 2021 UCLA study suggesting that ESLs could facilitate "time-based pricing."

According to the study, this pricing strategy benefits stores by increasing prices but does not provide any advantages to consumers. Kroger denied the allegations that its electronic shelving labels would be used for dynamic pricing.

Kroger Denies Using ESLs For Dynamic Pricing

A Kroger spokesperson told FOX Business that their business model focuses on gradually reducing prices to attract more customers. According to the spokesperson, this increased customer base leads to higher revenue, which is then reinvested into further price reductions, wage increases, and improved shopping experiences.

"Everything we do is designed to support this strategy, and customers are shopping more with Kroger now than ever because we are fighting inflation and providing great value," the spokesperson added.

The spokesperson clarified that any testing of electronic shelf tags aims to provide greater price reductions for customers on essential items. They strongly denied any suggestion to the contrary.

Burt Flickinger III, founder of the Strategic Resource Group and a consultant to companies like Kroger, dismissed the idea that stores use ESLs for dynamic pricing. He characterized the Democratic senators' inquiry as speculative.

"The prices do not go up before floods, hurricanes, blizzards, heat waves, power outages, and they don't go up between Friday and Sunday when the food retailers do 60 percent to 70 percent of their weekly volume. The stores get crowded, the [prices] don't go up, they stay the same," Flickinger said. "So this speculation or conjecture is simply projecting into the future something that's not a factual foundation."

"If labour in a given store costs about, in round numbers, 20 cents to every dollar of sales, the ESLs can save in terms of labour costs, half a cent to two cents depending on what state it is given its rules and regulations," he explained.

The food services industry operates on razor-thin profit margins. A January 2024 New York University (NYU) Stern School of Business survey revealed net profit margins of 1.18 percent for food and grocery retailers, 1.21 percent for food wholesalers, and 6 percent for food processors. In contrast, farming and agriculture firms boasted a 7.12 percent margin.

For perspective, the overall U.S. market averaged an 8.54 percent profit margin, which dropped to 7.59 percent when excluding financial service. With razor-thin profit margins, the food industry faces significant challenges. As the debate over dynamic pricing heats up, the sector's financial health will undoubtedly be a key factor.