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dynamic pricing
'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.
Aug 09, 2024
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.
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NY AG Proposes New Rules to Stop Corporate Price Gouging
Democratic New York Attorney General Letitia James said her proposal "will bolster our efforts to crack down on price gouging and ensure that large corporations do not take advantage of New Yorkers during difficult times."
Mar 02, 2023
Citing the "soaring cost of essentials" that have "pushed hardworking New Yorkers to the brink," Democratic New York Attorney General Letitia James on Thursday proposed rules to strengthen enforcement of the state's anti-price gouging law.
James' office said the new rules would "make it more straightforward to investigate and combat price gouging by setting clear guardrails against price increases during emergencies."
The rules would "clarify that a price increase over 10% during an abnormal market disruption may constitute price gouging."
"When times get tough, New Yorkers can trust that my office will always have their back."
Furthermore, corporations with more than 30% market shares would be prohibited from increasing profit margins during abnormal market disruptions. Limits would be placed on dynamic pricing—when the cost of a good or service varies due to market conditions—and protections would be extended to "vital and necessary" products and services after market disruptions.
"The rules proposed by my office will bolster our efforts to crack down on price gouging and ensure that large corporations do not take advantage of New Yorkers during difficult times," explained James, who last year launched a probe into Big Oil price gouging.
"When times get tough, New Yorkers can trust that my office will always have their back," she added.
\u201cOur proposals include:\n\n- Setting a specific threshold for price increases of essential goods during an emergency.\n\n- Creating guardrails for companies that rely on dynamic pricing.\n\n- Making companies show their costs to justify price increases.\n\nMore:\n\nhttps://t.co/aod7AGtgHU\u201d— NY AG James (@NY AG James) 1677767550
According to the Albany Times Union:
At least 10 states, including New Jersey and California, use the 10% threshold that James' office is proposing as setting the legal threshold for what qualifies as price gouging in New York. Others use higher thresholds, like Pennsylvania at 20%. (New York City has a 10% standard already on the books.)
If adopted, the 10% threshold is intended to provide clarity both from a legal lens and to business owners. It would in effect define the current standard for price gouging, which is "unconscionably excessive." Laws against price gouging in New York began in 1979, which followed a drop in production of oil after the Iranian revolution that then contributed to a spike in oil prices.
Corporations have used the Covid-19 pandemic, Russia's invasion of Ukraine, and inflation as pretexts to price gouge consumers.
"Price increases of necessary items during emergencies are unacceptable and illegal," New York state Sen. Kevin Thomas (D-6) said in a statement. "The responses to certain supply chain and market disruptions during the Covid-19 pandemic by companies made it clear that stronger enforcement of New York's price gouging statute was needed."
\u201cHUGE NEWS from @NewYorkStateAG on new proposed rules to crack down on price gouging and hold accountable big corporations who take advantage of market disruptions & emergencies to jack up prices.\n\nNow onto other states to follow her lead!\u201d— Groundwork Collaborative (@Groundwork Collaborative) 1677770520
Rakeen Mabud, chief economist at the Groundwork Collaborative, applauded James "for protecting consumers and cracking down on the corporations that have been taking advantage of families and small businesses for far too long."
"The proposed rules will directly target big corporations that have been jacking up prices on essential goods to boost their bottom line," Mabud added. "States and policymakers across the country should take note of Attorney General James' proposal and work to protect consumers from exploitative corporate behavior."
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