Chapter 1: Grocery Prices and Inflation

Have you recently felt the sting of higher grocery bills? It's a sentiment shared by many. Walking through the aisles, it often feels like you’re handing over an excessive amount of cash for an insufficient amount of food. Just the other day, I visited my local grocery store and was taken aback to find that a simple can of soup now exceeds $5. While premium brands have always been pricier, this new standard raises eyebrows.

When you compare that price to a Big Mac, it certainly makes you question who is still purchasing soup at that rate. The truth is, inflation is putting significant pressure on consumers, making them increasingly cautious about price hikes in supermarkets. Whether it’s outright shock at the price tags or the subtlety of shrinkflation, shoppers are growing weary of being charged more for less.

While it’s valid to be concerned about soaring grocery costs, it's essential to differentiate this from a blanket rise in food prices. The experience of shopping may feel more expensive, but the actual cost of feeding oneself hasn’t necessarily risen as sharply as the price of grocery items.

In this discussion, we will delve into the nuances between food and grocery items. The manufactured products sold in stores differ significantly from real food, and this distinction is reflected in the prices you see on the shelves.

Even if you can’t completely escape the effects of inflation, you do have the power to choose what you buy. By reclaiming that power, you can push back against companies that exploit inflation to unjustly raise their prices. The reality is that real food and processed items differ in value.

In recent decades, our eating habits have shifted dramatically. We’ve transitioned from preparing our meals to relying on frozen options, and now, it's commonplace to simply order takeout with the tap of a finger. Convenience foods dominate the American diet today, overshadowing what could be considered real food.

When you step into a grocery store, it becomes apparent that only a small section, usually around the perimeter, is dedicated to genuine food items like fruits, vegetables, fresh bread, and meats. In contrast, the bulk of the store is filled with packaged products. While there are a few genuine food items among them, such as rolled oats, they stand apart from processed foods like chips and instant dinners.

It’s crucial to remember that not everything edible qualifies as real food. For example, a banana and banana-flavored pudding are worlds apart in terms of nutritional value.

To illustrate the impact of inflation on grocery bills, consider dried beans. A pound of black beans remains at roughly the same price as it did last year, despite the overall inflationary trends. Some prices for real food, like eggs and milk, have risen, but this isn't solely due to inflation—there's more to the story.

The price increases for processed grocery items are especially noteworthy. If you observe where inflation is most pronounced in a grocery store, it’s primarily in the aisles filled with manufactured products rather than in the sections stocked with real food.

Chapter 2: Understanding the Cost of Manufactured Foods

The first video titled "Food is a Luxury Now: The REAL Reason Groceries Are So Expensive Today" explores the underlying factors contributing to skyrocketing grocery prices, emphasizing the role of inflation.

The second video, "Fast Food vs Supermarket Food- Which is More Affordable in 2024?" compares costs between fast food and grocery store items, shedding light on affordability in the current market.

Manufactured food items are inherently more costly to produce than basic agricultural products like corn or lettuce. The process of creating these items involves multiple steps that collectively drive up their prices. As labor costs rise, the expenses associated with manufacturing food also increase.

For instance, if you were to start your own food company, you’d first need to find a copacker to help produce your product at scale. Unless you're a large corporation, it’s likely you would outsource this manufacturing process. After production, the product needs to be packaged, which involves additional costs and complexities, particularly if multiple packaging components are needed.

After packaging, products must be assembled for distribution, which requires additional resources and labor. The grocery stores themselves also buy these products through distributors, adding layers of markup along the way before they reach consumers.

This means the retail price you pay at the grocery store doesn’t reflect what food manufacturers earn; rather, it encapsulates all the costs incurred throughout the production and distribution processes. Grocery businesses operate on slim margins, which necessitates that manufacturers find ways to cut costs—this often leads to the use of fillers or reduced wages for workers.

Ultimately, the reason why a can of soup may now cost $5 has less to do with the inherent value of the soup and more to do with the rising costs of labor across the entire food manufacturing spectrum.

Final Thoughts

It's unlikely that grocery prices will decrease significantly anytime soon. Moreover, products that have shrunk in size are not likely to revert to their previous dimensions. The key takeaway is to be mindful of the differences between real food and processed items during your next grocery run. Essential staples like lentils and black beans have not experienced drastic price changes.

So, what’s driving these increases? The answer is straightforward: labor costs. The entire food manufacturing chain relies heavily on human labor, from the machines in factories to the trucks delivering goods to stores, and every step incurs costs that ultimately affect the prices you see at checkout.

While some food prices have indeed risen sharply due to supply chain disruptions, such as the avian flu affecting egg production, many of the hikes are tied to labor and operational costs rather than inflation in the traditional sense.

As you navigate the grocery aisles, remember that the inflated prices you encounter are often more reflective of labor costs than the products themselves. If the high prices are disheartening, consider becoming a more empowered consumer by opting for less manufactured food and returning to home cooking. As Michael Pollan wisely stated, "Eat food. Not too much. Mostly plants." Taking this advice could benefit both your budget and your health.

Amanda is a writer and strategy consultant. When she isn't exploring economic trends, she helps entrepreneurs diversify their revenue streams and develop personal resilience. Follow her on LinkedIn and subscribe to her newsletter for more insights.