'Corporate Greed Is Out of Control': Warren Slams Kroger's AI Pricing Scheme
"Kroger is trying to pull a fast one on us by using digital price tags—a move that could let them use surge pricing for water or ice cream when it's hot out," said the senator.
Expressing doubt that a new artificial intelligence-powered "dynamic pricing" model used by the Kroger grocery chain is truly meant to "better the customer experience," Sens. Elizabeth Warren said Friday that the practice shows how "corporate greed is out of control."
Warren (D-Mass.) was joined by Sen. Bob Casey (D-Pa.) on Wednesday in writing a letter to the chairman and CEO of the Kroger Company, Rodney McMullen, raising concerns about how the company's collaboration with AI company IntelligenceNode could result in both privacy violations and worsened inequality as customers are forced to pay more based on personal data Kroger gathers about them "to determine how much price hiking [they] can tolerate."
As the senators wrote, the chain first introduced dynamic pricing in 2018 and expanded to 500 of its nearly 3,000 stores last year. The company has partnered with Microsoft to develop an Electronic Shelving Label (ESL) system known as Enhanced Display for Grocery Environment (EDGE), using a digital tag to display prices in stores so that employees can change prices throughout the day with the click of a button.
As Warren said on social media on Friday, digital price tags allow stores to "use surge pricing for water or ice cream when it's hot out," or raise the price of turkeys just before Thanksgiving.
Through its work with IntelligenceNode and Microsoft, Kroger has gone beyond just changing prices based on the time of day or other environmental factors, and is seeking to tailor the cost of goods to individual shoppers.
As the senators explained:
The EDGE Shelf helps Kroger gather and exploit sensitive consumer data. Through a partnership with Microsoft, Kroger plans to place cameras at its digital displays, which will use facial recognition tools to determine the gender and age of a customer captured on camera and present them with personalized offers and advertisements on the EDGE Shelf. EDGE will allow Kroger to use customer data to build personalized profiles of each customer... quickly updating and displaying the customer’s maximum willingness to pay on the digital price tag—a corporate profiteering capability that would be impossible using a mere paper price tag.
"I am concerned about whether Kroger and Microsoft are adequately protecting consumers' data, and that as Kroger expands the personalized customer experience, customers will ultimately be offered a worse deal," wrote Warren and Casey.
The lawmakers noted that the high cost of groceries is a key concern for workers and families in the U.S., as chains adopt numerous methods to price-gouge customers including "shrinkflation" and "greedflation"—filling packages with less product and keeping prices high even though supply chain issues have largely resolved since inflation was at high during the coronavirus pandemic.
Kroger, which could soon increase its number of stores by several thousand with a potential $24.6 billion acquisition of Albertsons, had an operating budget of $3.1 billion last year, with gross profit margins above 20% over the last five years.
Meanwhile, said Warren and Casey, U.S. households spent an average of 11.2% of their budgets on food in 2023.
"The increased use of dynamic pricing will drive company profits higher—leaving consumers with the bill," wrote the senators. "It is outrageous that, as families continue to struggle to pay to put food on the table, grocery giants like Kroger continue to roll out surge pricing and other corporate profiteering schemes."
Warren and Casey demanded the McMullen provide information about its use of ESL platforms including EDGE, asking how the company establishes prices using dynamic pricing and whether it has ever used EDGE to change the price of an item more than once in a day, among other questions.
The senators have previously introduced legislation to prevent shrinkflation, urged the Biden administration to use its executive authority to lower food prices, and proposed a bill to prohibit price gouging by empowering states and the Federal Trade Commission to enforce a federal ban.
