Yahoo Finance This finance writer argues big-box stores trick us into thinking we want lower prices — here's what she means
With every trip to a grocery or department store, consumers continue to be hit hard by rising prices.
The U.S. Department of Agriculture said that the Consumer Price Index for food increased by 25% between 2019 and 2023.
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However, lowering prices may not actually be what consumers are technically asking for, according to personal finance writer Dana Miranda.
“Consumers don’t want cheap products,” Miranda wrote in her newsletter, Healthy Rich. “We want economic conditions that allow us to afford quality products.”
Miranda argued that major retail chains, such as Walmart, have been using low prices to lure in customers — but to our own economic detriment in the long-term.
Conditioned to buy cheaper items
Miranda believes that there’s a "reductive and condescending” narrative that says that consumers only buy things based on price. But this narrative didn’t originate from consumers.
“This doesn’t happen because consumers were begging for lower prices before Walmart showed up,” Miranda wrote. “It happens because Walmart showed up and told consumers they should want lower prices.”
Miranda explained how this works: chain stores assume that consumers only care about cheaper prices, so they cut costs to give them this. They mainly do this by steeply negotiating with wholesalers, who have to give in to their demands because of these stores’ massive markets.
This may not sound like an issue, but it creates quasi-monopolistic conditions. In fact, a 2021 Guardian investigation discovered that 65% of the U.S. retail market is controlled by four companies: Walmart, Costco, Kroger and Ahold Delhaize.
Smaller stores don’t have the power or market share to receive the same discounts, meaning they charge more than big box stores — or simply shut down because they can’t compete.
What is the Walmart Effect?
These conditions often go on to create the “Walmart Effect.” This is the theory that when Walmart comes to town, local economies get destroyed. Smaller businesses simply can’t compete with their prices and sometimes even have to shutter their businesses.
This may just sound like the free market acting freely. But it works against consumers in the long-term.
As the town’s smaller stores slowly close, the laid-off workers often seek out employment at one of the few stores left in town: for example, Walmart. This means that Walmart can cut costs even more by paying its workers less, because there’s no job market.
In the end, Walmart creates a monopoly over the town — and the community loses out. Miranda argued that a national chain like Walmart doesn't have much financial or emotional investment in the community. Smaller, local stores pay more in local tax revenue and have a stake in keeping the community alive.
“Our kids will have better parks, sidewalks and schools to grow up around,” she wrote, referring to the benefits of independent retailers. “They might even stay when they grow up because there will be something for them to do here.”
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Fairness is what consumers actually want
Miranda assured her readers that there’s no shame in shopping at Walmart, Kroeger or any other big box department store.
“This is a problem of regulation, not individual consumption,” she said.
Miranda believes that the real way to create a long-term, sustainable economy is through commercial fairness practices.
Members of Congress agree with her: 16 of them recently wrote a letter to the Chair of the Federal Trade Commission (FTC) about enforcing better practices around this exact issue.
The Congress members already have the law on their side. In 1936, Congress passed the Robinson-Patman Act (RPA), an antitrust law against wholesale price discrimination.
This means that major retailers, such as Walmart, can’t force a wholesaler to give them a better deal due to their large size and buying power. This should give every business — from mom-and-pop shops to big-box department stores — an equal chance to become a viable business.
However, while the RPA is still technically on the books, it’s rarely invoked. The recent letter from Congress is asking the Federal Trade Commission (FTC) to start enforcing it again.
Miranda knows that the reinforcement of the RPA will raise grocery prices again — and that it’s a difficult thing for consumers to hear. However, she reminds readers that if there is government-backed support for smaller retailers, everyone will see a great return from an increase of commerce and jobs in their communities. Then, the food price increases won’t be as challenging to bear.
“Groceries might cost more in a fairer future,” she wrote. “[But] we’ll have the money to buy them.”
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
