Everybody knows that rising inflation has a negative impact on retail sales and is putting pressure on customers who are just trying to make ends meet. While some retailers and brands are trying to help shoppers face the rising cost of living situation, there are others that might want to profit during this period.
In this article, we are going to talk about greedflation. You will discover what it is and how it can negatively impact the retail sector.
What is greedflation?
Greedflation can be described as a phenomenon where corporations take advantage of an inflationary period to excessively increase the prices of their products or services for the purpose of maximizing their profits, despite the fact that the underlying cost of production has not increased proportionally. This behavior can result in a significant rise in the overall price level, leading to a decline in the purchasing power of the currency and contributing to inflation.
During an inflationary period, the general level of prices for goods and services tends to increase, which can be caused by various factors such as an increase in the money supply, changes in demand and supply for goods, and changes in government policies. In this situation, suppliers may be tempted to raise their prices in order to capture a larger profit margin. However, if the underlying costs of production have not increased significantly, then such a price increase can be seen as an opportunistic move, driven by a desire to exploit the situation and profit at the expense of consumers.
The impact of greedflation
Here are some of the negative effects of greedflation, when it comes to food and other essential products:
Reduced Access to Essential Products
When prices of essential products such as food increase rapidly due to greedflation, it can lead to reduced access to these products for those who are unable to afford them. This can result in food insecurity and hunger, particularly for low-income households who already struggle to make ends meet.
As the cost of essential goods continues to rise due to greedflation, it puts additional financial strain on households and individuals who are already struggling to manage their expenses. This can lead to economic hardship, which can manifest in various ways, such as debt, inability to pay bills, and financial insecurity.
Greedflation can create inflationary pressure in the economy, which can lead to an overall increase in the price level of goods and services, reducing the purchasing power of consumers. This can have a negative impact on the economy as a whole, leading to slower economic growth and higher unemployment.
Short-Term Profit, Long-Term Loss
While greedflation may result in short-term profits for businesses engaging in the practice, it can lead to long-term losses for the industry as a whole. Greedflation can damage consumer trust and loyalty, leading to a loss of customers and a decline in sales. It can also lead to the government taking regulatory action, which can create further financial losses for the industry.
How should retailers respond to this issue?
Is greedflation real? Are suppliers really increasing their prices more than they should? There are some retailers that have made statements hinting that brands are increasing prices unjustifiably.
One comment that stirred the waters came from John Allan, Tesco’s chairman. He mentioned that Tesco challenged “a number of suppliers" because they overly increased prices.
While his comment caused outrage among small suppliers, farmers, and other manufacturers. However, John Allan mentioned that he wasn’t referring to them. He said that big companies were the ones that were increasing prices. For example, a brand significantly increased its prices last summer. When Tesco declined to accept these new prices, the brand responded by halting their trucks. This resulted in empty shelves and lost sales for several weeks, ultimately leading to Tesco giving in to the higher prices.
Retailers should take a stand when it comes to greedflation. In one of Retail Wire’s discussions, retail experts debated whether or not grocers should demand price decreases from suppliers.
Michael La Kier, President of What Brands Want, mentioned:
“Grocers have always asked manufacturers for better pricing; now they have the consumer and the economy as additional reasons to push. Costs are rising, for certain, but there is a point where consumers won’t absorb those cost increases.”
Apart from taking advantage of their power, retailers should focus on transparency and a better partnership with suppliers and brands. This is what Zel Bianco, President, Founder and CEO of Interactive Edge stated:
“This should not be about retailers strong-arming or exploiting their clout, it should be about working in partnership with suppliers for the long term. Prices are too high in many categories, and both retailers and their suppliers need to work in true collaboration on pricing and try to balance those categories where they can absorb some of the cost increases with others where they cannot. Short-term and quarterly numbers are important, of course, but until inflation cools, prices stabilize and shoppers start to feel more confident, this will get worse unless retailers and suppliers start to work in partnership for the industry to remain somewhat healthy.”
Avoid greedflation to maintain customers satisfied
Greedflation can have a range of negative consequences. For instance, it can exacerbate the effects of inflation by further reducing the purchasing power of consumers. It can also lead to a decrease in demand for the products or services being offered, which could result in lower sales and ultimately lower profits for the corporation. Additionally, it can damage the reputation of the corporation and result in a loss of consumer trust and loyalty.
While brands need to increase prices to keep up with the rising inflation, it is important to take into account the actual cost of production. During a high-inflation period, brands and retailers should focus on meeting the needs of shoppers, not on increasing their profit margins.