Is Greedflation Real? | Inc.com

The latest inflation numbers hit record highs once again, driven by food and energy costs–and corporate greed? The ability of companies to raise prices above their rising costs has even given rise to the term “greedflation.”

For small businesses such as Remedy Organics, a plant-based wellness beverage company in Englewood Cliffs, New Jersey, it’s all about pricing power and who has it. “We are seeing price increases [on our products] around the country from some retailers,” says Henry Kasindorf, the CEO of Remedy Organics. Prices on Remedy’s suite of beverages have increased anywhere from 10 to more than 25 percent at some retailers, according to Kasindorf. wellness shakes sold on Remedy’s website goes for $64.99.)

Kasindorf, who joined the company a few years later after his wife, Cindy Kasindorf, founded it in 2017, says that they were surprised about price increases from some retailers that haven’t taken place in the last couple of months. Remedy is monitoring sales velocity at these retailers so it can understand how the price hikes will impact sales– early indications show that sales aren’t taking a hit, but Kasindorf admits that “it may be too early to tell.”

Despite its own reluctance to bump prices, Remedy says it is seeing substantial cost increases across its full production process, ranging from bottles and packaging items to key ingredients. Part of that is due to external factors–one key ingredient is derived from sunflowers from the Ukraine region. The company was able to find alternate suppliers, but at a higher cost.

Retailers themselves are dealing with higher costs. Kasindorf says they are seeing more price increases in California, which he attributes to the state minimum wage increasing to $15–other states have raised their minimum rates too. They are also experiencing higher distribution costs, since distributors are raising wages to deal with labor shortages and rising fuel costs.

The Consumer Price Index for June showed that inflation rose 9.1 percent, the largest gain seen in 1981. The day before the Bureau of Labor Statistics released that inflation reading, the White House downplayed the data by noting that it was already “out of date. ” Falling prices for gasoline and food commodities in the last few weeks seemingly point to a better July reading.

The concept of greedflation is centered on corporate profits–and whether they are excessive. A June study from the Roosevelt Institute, a New York-based think tank that focuses “on curbing corporate power,” shows that US firms’ margins and profits last year rose at the fastest yearly pace since 1955. Annual net profit margins sat in the 5.5 percent range between 1960 to 1980, and averaged six percent during the 2010’s, according to the study. But in 2021, margins jumped to 9.5 percent among the cohort of 3,698 firms examined.

But others dispute greedflation’s very existence, arguing that we are simply seeing supply and demand at work. Trillions of dollars of stimulus pumped into the economy have created a demand shock, while the Russian invasion of Ukraine and other supply chain crunches have constrained inventories–cars, for example. Greedflation is a misnomer in the eyes of Alan Wink, the managing director of capital markets at EisnerAmper LLP, a New York-based accounting firm. He says that everyone in the supply chain–from small to large businesses–is experiencing a period of rising costs.

“We have this crazy time right now where everyone can raise prices because other competitors are doing the same thing,” Wink says. “There’s no company that’s holding prices down, because they can’t–they’re fighting for their own survival.”

And isn’t optimizing your profit margin the whole point of capitalism? “I almost think that whether we mean to or not, we’re sort of casting aspersions on the morality of business if they’re going for enhanced margin,” says Craig Dubitsky, the founder of the Montclair, New Jersey-based Hello Products , an oral care brand. He also serves as Colgate’s chief innovation strategist.

“If you have the ability to make margin, does that mean there’s a moral imperative for you to decrease your profitability so that your price is more affordable?” Dubitsky asks. “It’s a choice.” In his perspective, he believes that adversity, fear and scarcity are some drivers of the conversation about greedflation and price gouging.

It could be that the economy is normalizing as it gets a distance from pandemic economic policy. “I think 2022 is going to be a better barometer because now we’re in the throes of it and now every company is operating on its own,” Wink adds. “The stimulus dollars are behind them.”

Greedflation or not, higher prices are weighing on the margins of small businesses. With production costs inching up, Remedy started moving inventory to more distribution centers around the country to curb shipping costs and lead times. Remedy’s product pipeline is packed with protein-filled drinks and other immune-friendly foods, such as the likes of elderberry, lion’s mane, maca and more. The company buys all of its ingredients in bulk, but has purchased larger quantities to help counter rising costs.

“We are maintaining a much larger inventory, just to see the benefits of buying in larger quantities, but also shoring up our sources of supply so we don’t run into shortages as well,” Kasindorf says.

Thanks to the company’s larger scale, Kasindorf says they’ve actually been able to lower prices on some products. But that has a cost, too: “due to some of these issues we’re seeing with price increases from our suppliers, we are working on a lower margin right now,” he admits.

That’s the tradeoff many businesses face in an inflationary environment. “At the end of the day, we were less concerned about squeezing out extra profit during this time and more concerned with just having a steady source of supply, and fewer disruptions on transportation,” Kasindorf continues. “That has been the key for us throughout this entire process.”

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