Cheap Groceries Could Come at a High Price
Is forgoing profits enough to substantially lower grocery bills?
- By
- November 06, 2026
- CBR - Clark Center Panels
Voters, as they have made clear over the past few years, hate inflation. And it appears that to most of the general public, “inflation” does not just mean the pace of year-on-year price rises but something about the level of prices. People would generally, and understandably, like things to be cheaper—especially things they have little choice but to buy such as housing, energy, and food.
So what better way to make the public, and hence voters, happier than to offer them cheaper stuff? That is almost exactly what New York’s mayor Zohran Mamdani pledged in one eye-catching plank of his platform for office: city-owned grocery stores offering basic necessities at lower prices. And in July, he took a step toward delivering on that promise, declaring that five new municipal grocery stores would offer “a 30 percent discount on the most common and most critical groceries . . . including eggs, milk, chicken, and fresh fruits and vegetables.”
The mayor’s capital budget includes $70 million to help achieve this. But do the numbers add up? Not according to a panel of experts polled by Chicago Booth’s Kent A. Clark Center for Global Markets.
The panel was asked whether “the profits on groceries that the city-owned grocery stores would forgo are sufficiently small that the vast majority of the 30% discount would be provided by tax-funded subsidies.”
More than 85 percent of respondents, weighted by confidence, agreed or strongly agreed.
This is less a question of economics and more of straightforward accounting. Even if one accepts that a not-for-profit store can operate as efficiently as a for-profit one, in the retail grocery business, the “savings” available to consumers from eliminating profits come nowhere near 30 percent.
“People will feel more dignity buying groceries at low prices with their own money.”
— Aaron Edlin, University of California at Berkeley
As Darrell Duffie of Stanford argued, “My understanding is that net profit margins at chains like Aldi and Safeway are not close to 30%. There’s also the usual argument that for-profit firms are on average more efficient than government service providers.”
Many panelists joined Duffie in noting the notoriously slim margins for grocers. As The Economist reported in July, “American supermarkets like Kroger and Albertsons collected just 1% of their sales in operating profits last year. Even Walmart, with its 4% margin, hardly appears to be milking customers. It is a similar story in Britain and France, with margins only a little fatter in Australia and Canada.”
Perhaps the margins of municipally owned supermarkets can be supplemented by lower rents or favorable regulation, but that would likely be offset by, presumably, higher wage costs. It is extremely difficult to see how one arrives at a 30 percent cost reduction to consumers without a very high level of subsidy.
“If city owned stores are run like a zero profit grocery store, the subsidy is 30%,” wrote Chicago Booth’s Steve Kaplan in responding to the poll. “If the city owned stores lose money on top of that—as is much more likely—the taxpayer funded subsidy is greater than 30%.”
What, then, are the alternatives?
The panel was also asked whether “a food assistance program along the lines of SNAP, with a potentially higher income cutoff, would provide direct support to low- and moderate-income city residents more effectively and with lower administrative costs than the proposed city-owned grocery stores.”
Again, weighted by confidence, roughly 85 percent of respondents agreed or strongly agreed.
Among the widespread agreement, the panelists touched on a few caveats. As Aaron Edlin of the University of California at Berkeley noted, “One important qualification: people will feel more dignity buying groceries at low prices with their own money.” Yale’s Judith Chevalier argued, “While I likely agree on net, I think a SNAP-like policy possibly should be accompanied by zoning relaxations or other location policies to fulfill one of the municipal supermarket goals—lowering travel costs to full-line supermarkets.”
The panel’s advice to Mamdani is clear: Offering a steep discount on groceries will likely require substantial taxpayer funds—funds that might better serve households in need through other, more direct channels.
Duncan Weldon is an economist, journalist, and author who regularly writes for the Financial Times, New Statesman, and other publications. This is an edited version of a column that ran on Booth’s Clark Center website.
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