As inflation shot to its peak around mid-2022, Chipotle’s prices also rose, pushing up what customers paid for burritos and bowls by as much as several dollars. Since then, the fast casual restaurant’s costs have broadly fallen. Prices have not.
Chipotle’s decision to maintain high prices helped boost profits 110% in recent years, while its executives boasted to investors that they raised prices higher than inflationary costs.
Chipotle’s sparkling financials are representative of much of the food industry, according to a Guardian analysis of financial documents and earning calls transcripts from 36 top US food corporations.
It reveals that while you may be feeling the pain from high prices at restaurants and supermarkets, many companies making and selling the products are doing remarkably well. Most have seen their profits jump as they continue raising prices on customers, the analysis found.
Some companies say they have no choice but to pass inflationary pain on to consumers. Others, however, acknowledge they are exploiting the inflationary atmosphere to raise prices, or to shrink product sizes, a strategy dubbed “shrinkflation”.
Meanwhile, companies spent billions rewarding investors with stock buybacks that drive up stock value.
Menu and grocery store prices may remain elevated. In earnings calls, executives detail plans to maintain high prices even as some costs are falling.
“Food prices are sticky – they either don’t come down, or they’ll come down just a little bit,” said Angela Huffman, president of the consumer advocacy non-profit Farm Action. “Companies are setting a new normal.”
The companies’ net profits are up by a median of 51% since just prior to the pandemic, and in one case as much as 950%.
In the last two years specifically, since inflation peaked and started slowing, restaurants have generally recorded the highest profit increases among food companies – a median of 72%.
The average American worker has not fared as well: wages are only up 5% since inflation’s peak. For the lowest earners, food price increases during the last two years are outpacing wage gains by over 340%.
This is fueling deep economic discontent that may help decide the nation’s political future in November.
Corporate executives often make no secret of their ambitions.
Kroger’s CEO told investors in June 2022, “a little bit of inflation is always good for our business”, while Hostess’s CEO said rising prices across the economy “helps” it profit because they can raise prices to levels that exceed their increased costs.
Anatomy of a permanent price hike
Chicken wing prices encapsulate how food industry giants have increased prices and profits at customers’ expense, even as their costs dropped.
In August 2021, producers like Tyson, citing inflation, pushed up the price of wholesale chicken wings sold to restaurants by 71% as US averages neared $3.40 a pound.
Tyson’s profits jumped during this period by 115%.
The price increase reverberated across the industry, hitting WingStop, which company executives said partly forced a 10% menu price jump, followed closely by another round of hikes.
But by early 2022, wing prices collapsed. WingStop’s CEO, Michael Skipworth, told investors the company was paying about $1 a pound less for wings as “meaningful deflation” left food costs “sitting at a really sweet spot”. WingStop’s costs continued decreasing throughout 2023, while wholesale wing costs remain relatively low today.
But WingStop never passed on its savings to customers. Instead, the company has continued increasing prices by up to 4% annually, and even more in California. Executives told investors the increases would continue.
That has translated into glowing financial reports: WingStop’s profits shot up by over 222% since inflation’s peak, “driven by price increases” and volume increases from opening new restaurants.
In a February earnings call, a WingStop investor said the typically unsaid part of the equation: “I know you don’t sort of give pricing … ” using an industry term for lowering prices.
In a statement, a Wingstop spokesperson highlighted its store openings and growth. Its profits were “largely driven by industry leading same store sales growth and new restaurant openings”, it said.
‘Brands are going to suffer’
Food prices have increased more than most other industries, federal data shows. While prices in the economy overall have risen by around 16% since mid-2022, families are now paying 19% more for food.
The Guardian’s analysis is the first to take a granular look at a cross-section of major food corporations’ profits and prices. It compared net profits from recent quarters with corresponding quarters in 2019 and at inflation’s peak, in mid-2022. Price increases were obtained from earnings calls and media reports.
The data is not intended to be definitive, but it and earnings calls show how a wide sample of food firms have profited as they keep prices high:
Brinker, the parent company of the Chili’s and Maggiano’s Little Italy restaurants, saw its profits jump 50%. Though traffic dropped and labor expenses increased, “higher prices helped more than offset labor costs”.
Profits at Coca-Cola jumped 19%, partly off “packaging actions” that increased the price per ounce Coke fetches by changing packaging size, and 13% in price increases this year.
Jack in the Box enacted multiple price increases in recent quarters and is planning more. Its profits spiked 213% even though its transactions were down. In the company’s May earnings call, an executive detailed how improved profit margins were “driven primarily by lower commodity costs along with price increases”.
Starbucks profits jumped 47%, success attributed largely to price increases. Another hike is planned for its California stores.
Most companies also put some of their profits into stock buyback programs that juiced the stocks’ value, enriching investors and executives, instead of using the profits to help keep consumer prices down. McDonald’s, for example, spent over $5bn on buybacks in recent years as it raised prices on some items by several dollars.
Overall, companies have “relied more and more on pricing tricks to satisfy investors”, said Bilal Baydoun, director of policy and research at Groundwork Collaborative, a progressive thinktank.
“When you abuse your outsized market power and the vulnerability of consumers after a once-in-a-century economic crisis to jack up prices – yes, that’s profiteering,” Baydoun said.
Records show many companies’ sales volumes are down but profits are still increasing. This suggests prices, not increased demand, are driving inflation, said a University of Massachusetts economist, Isabella Weber.
The data reveals “extraordinary” profits, she added.
“Companies were quick to pass on increases but are not doing the same for falling costs, which means for many firms that margins went up, even when inflation has been going down,” Weber said. Low income people suffer the most, and “you get a food insecurity crisis even in the richest countries”.
Not everyone is convinced this equates to profiteering, or that high prices will last. Companies were “opportunistic” in universally raising prices in recent years, but consumers, flush with savings and stimulus checks after covid, were able to absorb the hikes, said Jean-Pierre Dubé, a University of Chicago Booth School of Business economist.
There is evidence that companies have reached the limit of what consumers can bear, and some firms that are seeing sales volumes decrease – such as Pepsi and Jack in the Box – “screwed up”, he added.
“I don’t think companies can just print money and make profits opportunistically – eventually people will stop buying,” Dube said. “They were not profiteering, they were being very short sighted, and as people start cutting cookies and other superfluous things out of their budget, those companies’ brands are going to suffer.”
The ‘golden opportunity’ for commodity producers
The high prices you are paying today originate, largely, with the producers of basic commodities – such as meat, grain, eggs and oil. Some of these companies are household names, and others are not.
In 2021, supply chain snags caused prices for basics to shoot up, dramatically increasing costs for restaurants, grocers and packaged food producers.
Restaurants and processors could raise prices without fear of competitors undercutting them, presenting a “golden opportunity”, said Dube, of the University of Chicago.
But many economists and some federal agencies say commodity companies used supply chain problems as cover to raise prices much higher than needed – or price gouge.
As egg prices spiked in early 2022, Cal-Maine, the nation’s largest egg producer, blamed a 280% price increase on the “highly pathogenic avian influenza outbreak [in early 2022]” and higher input costs.
But Cal-Maine birds never caught the flu in 2022.
Thanks in part to its price hikes, Cal-Maine’s profits jumped around 950% around this time, the Guardian’s analysis found. The issue drew scrutiny and criticism from members of Congress, as well as the Biden administration.
Similarly, beef producers for several years justified high prices with a 2019 fire at a cattle slaughterhouse, even though the USDA found cattle production actually increased in the weeks following the fire.
“In all of these cases they’re using a convenient excuse to price gouge,” Huffman said. “The reason they are able to do that is because there are so few companies in each of these sectors.”
When few companies control the market, there is more opportunity to coordinate higher prices, some economists and the Biden administration say.
Cal-Maine controls about 20% of the egg market, and the US Department of Agriculture (USDA) alleged egg prices stayed high in 2022 when major producers intentionally delayed boosting production. Meanwhile, four meat packers control up to 85% of the markets, and were recently sued by the justice department over alleged price fixing.
Five large grain producers control up to 90% of the market, including Archer-Daniels – its profits have spiked by 170% since 2019, the Guardian found. Fears over grain shortages that never fully materialized at the Ukraine war’s outset provided the opportunity for grain companies to raise prices higher than costs.
Their market power “gave companies the cover they needed to start rolling out mercenary pricing strategies they’d previously only dreamed of implementing,” Groundwork executive director Lindsay Owens said in recent Congressional testimony.
Weber added that the commodity companies “made a killing, and the downstream food processors by and large did pretty well, if not as well as the commodity traders,” Weber said.
Shrinking servings
Price increases can take on several forms as pricing strategies grow more sophisticated. From Froot Loops to Domino’s, firms are reducing the amount of food customers receive without lowering prices, a strategy called “shrinkflation”. Similarly, substituting cheaper ingredients, like water for oil in Wish Bone salad dressing, is dubbed “skimpflation”.
Few companies appear as prolific in shrinkflation as snack giant Mondelez International. Among other changes, it reduced the size of Oreos and their packages before cutting two bars from Clif Bar multipacks, a change executives said was made to “help the price point we’re selling at”.
It reduced the size of Ritz by over an ounce, attributing it to the need to “keep [products] competitive, and not compromise on the great taste and quality that our fans enjoy”.
Mondelez’s announced price increases since 2021 total over 35%. Profits have surged 30%, during that approximate time, which executives attribute to pricing, packaging actions and volume growth.
“We are very happy with the level of pricing we have taken so far,” the CFO, Luca Zaramella, told investors in April, but more shrinkflation is promised “to make sure that we hit those right price points.”
Shrinkflation’s impact on bottom lines’ can be significant, accounting for about one-third of recent price increases detailed by a PepsiCo executive. For example, Doritos, which Pepsi owns, now puts five fewer chips in each of its 9.75oz bags, while Pepsi shifted from a 32oz to 28oz Gatorade bottle, but still increased the price.
Companies are gravitating toward the mechanism because consumers notice price increases, but “they are not net weight conscious”, said Edgar Dworsky, a former Massachusetts deputy attorney general who tracks shrinkflation.
“Many shoppers just grab the item and throw it in the cart,” he said. “They buy Oreos, they know the rough size of the container by sight and they throw it in.”
In a statement, Mondolez said the company “absorbs rising input costs as best we can amid economic pressures facing consumers”.
“When necessary, we make carefully considered product changes,” a spokesperson said. “We’re committed to providing consumers the best value, without compromising great taste and quality.”
Looking ahead
It is true that some major restaurants – like McDonald’s, Taco Bell, Starbucks – have begun introducing additional value meals, drawing suggestions that they are now cutting prices.
But these reductions may obscure a broader truth.
Even though McDonald’s is offering a $5 value meal, across the menu prices are still up 40% overall since 2019. Some estimates put it much higher. And in a recent earnings call, executives for Brinker’s, which owns Chili’s, highlighted how that restaurant’s $10.99 value menu served as marketing to attract customers.
The Guardian checked Securities and Exchange Commission filings to compare net profits from recent quarters to corresponding quarters around inflation’s peak and 2019. It looked at net profits because that is the measure with which the general public is most familiar, and it includes interest rates, which are taking a bite out of profits.
The same analysis was done for operating profits and broadly found an even stronger financial picture for the companies. An analysis of operating margins from the last two years showed a more mixed story. Margins are the share of sales converted into profits, and a common economic health indicator. While Jack in the Box’s profits are up 213%, for instance, its margins shrunk by about 10%.
Price increases were obtained by checking earnings calls and media reports because no government agency tracks all price increases.
“Even though we’re advertising $10.99, more than half of the actual transactions off the value menu are coming at significantly higher price points,” an executive said. Brinker’s profits jumped 50% in recent years.
Meanwhile the days of broad cost increases for Nestle “are clearly over”, executives said in April. Nestle has enacted limited cuts, forced by competition, executives said. It recorded about $12.5bn in profits in 2019 and 2023 each.
But price increases will continue “commensurate with what the consumer can take”.
