Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Grocery Wars

Kroger hurt by Income Inequality and attacked by Jesse Jackson

Kroger (NYSE: KR) is experiencing the best and worst of times. The company is feeling the heat for closing stores while planning to hire thousands of new workers.

The Reverend Jesse Jackson Sr. is leading protests outside Kroger offices and accusing the nation’s largest supermarket operator of creating “food deserts;” neighborhoods without grocery stores in some African American communities, Grub Street reported. Jackson claims Kroger is using savings from store closings in minority neighborhoods to finance the addition of amenities to locations in upper-class suburbs.

The sorry aspect of this story is that Jackson is right about Kroger, but directing his anger at the wrong target. Kroger is following the policy Jackson is describing but the company has no choice.

Hey Jesse Income Inequality Not Kroger is the Problem

The real problem is income inequality, people in many working-class neighborhoods; which are disproportionately minority, simply do not have the money to buy a lot of groceries.

Kroger would love to operate stores in those neighborhoods but it cannot afford to. Margins in the grocery business are now so low that sales no longer cover the costs of operating many of those stores.

The only way Kroger can make money is to operate markets in areas where it can sell expensive items like liquor and organic food. It is also ramping up delivery services which are more likely to serve affluent customers.

The reason for this is that middle and lower-class incomes are falling in the United States. When adjusted for inflation the average lower-class household income in the United States in 2000 was around $26,496 a year, by 2014 it had fallen to $24,074, Pew Research Center Data indicated. Lower-class families have $2,000 less to spend than they did less than 20 years ago.

African Americans were hit even harder, the average black household income was $41,393 in 2000 and $39,490 in 2014, an analysis of US Census Bureau data by The Los Angeles Times indicates. Kroger is closing stores in African American neighborhoods because it cannot afford to operate them. The racism and economics are not Kroger’s fault.

Kroger is not Racist, and Food Deserts are coming to Middle-Class Neighborhoods soon

Kroger management is not racist – it is simply following the money. Everybody should pay attention to what’s happening to Kroger because food deserts might be coming to their neighborhood soon.

Middle-class communities are likely to feel the food desert effect next. The average Middle-Class household income fell from $76,819 in 2000 to $73,392 in 2014. Kroger which just sold off its convenience store business is likely to start closing supermarkets in middle-class communities in the near future.

The Reverend Jackson would be well advised to stop picketing and boycotting Kroger and start promoting efforts to ease income inequality. Potential solutions to the problem include basic income, improved housing vouchers, increases to government programs like food stamps, a $15 minimum wage and Medicare for All.

Is Basic Income the Answer?

An intriguing idea is Facebook (NASDAQ: FB) founder Chris Hughes’ suggestion in his book Fair Shot: Rethinking Income Inequality and How we Earn.

Hughes suggests providing every household that makes less than $50,000 a year with a $500 a month basic income. That would benefit African-Americans the average income for a black household was $39,490 in 2016, according to The LA Times.

The Fair Shot scheme would raise the average African-American household income by $6,000 a year to $45,400. That income boost might make it profitable for companies like Kroger, Aldi, Walmart (NYSE: WMT), Lidil, and Amazon (NASDAQ: AMZN), to operate grocery stores or delivery services in lower class neighborhoods.

Kroger is doing its Part to Fight Income Inequality

The saddest part of this story is that Kroger is doing its part to try and solve income inequality.

One the same day Jackson was protesting, Kroger announced plans to hire 11,000 new employees nationwide in 2018, The Cincinnati Enquirer reported. The new jobs will partially be financed from last year’s Republican corporate income tax cut, the rate dropped to 21%.

It should be pointed out that Kroger added 10,000 employees in 2017 and 2017 in 12,000 so the tax cut had little effect on the supermarket operator’s hiring. Nor are the jobs that great Kroger’s base wage in some regions is around $8 an hour.

Most of those jobs are union positions with benefits, and some Kroger employees earn up to $17 an hour, exactly the sort of jobs a leftist like Jackson should welcome. Kroger hires lots of minorities, as anybody who has ever shopped in its stores knows. Nor are Kroger union contracts that great, a United Food and Commercial Workers (UCFW) deal got Kroger workers in Cincinnati and Louisville a paltry base wage of $10 an hour.

Jackson is going after the wrong target, blaming big business attracts media coverage but it does nothing to remedy income inequality. The real solution for income inequality will have to come from government.

Until we have a Congress dedicated to enacting policies to remedy income inequality it will get worse and more Americans will find themselves in food deserts. Jackson would be better advised to spend his time registering voters and campaigning for progressive candidates rather than picketing grocery stores.