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Bentonville, Arkansas
Americans have long been proud of their supermarkets. The first grocer with food in aisles, to be picked up by shoppers rather than kept behind a counter, opened in Memphis, Tennessee, in 1916. In Bentonville, the hometown of Walmart in north-west Arkansas, Americans flock to a bombastic museum celebrating the firm’s founder, Sam Walton, and his commitment to “bringing low prices to underserved rural communities”.
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Today Americans spend a smaller share of their income on food to be cooked at home—about 6%—than people in almost any other rich country. Low prices are reflected in low profit margins. At Kroger, America’s second-biggest supermarket chain, the net margin, after taxes, is about 1.2%; at Walmart, the biggest, it is 2.3%.
Yet Americans are finding themselves served less and less well by their supermarkets. Food prices have risen by 11% over the past year, which is sharply more than in other rich economies. As customers change their shopping habits in response, that in turn is shaking up the grocery business. A fall in the share prices of big supermarket firms last month, as several reported they had overestimated demand and stocked too much, hints at the effect.
Even before the current bout of inflation, food prices in America had been rising faster than most other prices for the previous 20 years. A study in 2017 by the un’s Food and Agriculture Organisation found that the cost of eating healthily in America was 65% more than in Britain, and among the highest in the rich world (see chart). The inflation figures suggest that this will, if anything, have worsened since. Though Americans still spend a smaller proportion of their income on supermarket food than Europeans, the gap has been narrowing. In absolute terms they spend more, even though they also eat out more, and eat less healthy, cheaper foodstuffs.
Why are American consumers not getting a better deal? A transatlantic comparison is revealing. Walmart, which accounts for about 26% of the American market, has a gross margin (its profit before fixed costs like rent and labour are taken into account) of about 25%. For Tesco, Britain’s largest chain, which has 27% of its home market, the equivalent figure
