Inflated Problems

Dec. 2, 2021

It's OK for companies to raise prices, but they shouldn't push it.

Inflation has been a big story for a while now, and it’s engendering various forms of backlash. In some quarters, there is grumbling that companies are using inflation as “an excuse to raise prices.”

It’s not hard to see how people think that way. A lot of companies are doing pretty well in the pandemic, including some giants like Tyson Foods (last quarter’s sales up 12% YOY), Kellogg Co. (up 5.6% – despite a strike!) and Hostess Brands (up 10.4%). Tyson acknowledged in a recent conference call with reporters that its most recent success was largely because it raised prices.

I’ve always been skeptical of the “excuse to raise prices” trope, especially when applied to low-margin, high-volume, competitive businesses like food & beverage. Any company raising prices too fast is going to get smacked down by its competitors, especially when shoppers start watching their pocketbooks.

Assuming, of course, that those competitors exist.

The meat & poultry sector, along with others, has seen a great deal of concentration, with huge market share in few hands. Four companies process 85% of America’s beef and 65% of its chicken. Four others control 80% of the U.S. beer market. Meat & poultry, of course, has received a lot of attention from the government and others, with several civil suits and some criminal prosecutions.

My point is that, for companies that find themselves cash-rich during the inflation surge – especially if they’re one of the few big players in a concentrated market – now would probably be a good time to plow a good chunk of that cash back into the business. More automation, higher worker salaries, whatever. Massive c-suite bonuses and stock buybacks probably wouldn’t look too good right now.