HMN 2025: How Fears of grocery store surge pricing with digital shelf labels debunked

Amid rising political issues that supermarkets are quietly gouging consumers by way of dynamic “surge pricing,” a brand new study from the University of California Rady School of Management gives a shocking conclusion: it is not taking place.

The working paper, co-authored by Rady economist Robert Sanders and University of Texas at Austin economist Ioannis Stamatopoulos, analyzes over 180 million product-level observations earlier than and after the introduction of digital shelf labels (ESLs)—the digital tags changing conventional paper worth stickers in lots of shops. The researchers discover no proof that ESLs have ushered in real-time pricing spikes, even in periods of excessive inflation.

“The worth of groceries has been entrance and middle of national politics for a while, so we wished to empirically check a declare that many outstanding lawmakers have made, that digital labels result in worth gouging,” stated Sanders, an affiliate professor of promoting and analytics on the Rady School. “We discover there’s primarily no change in pricing conduct after these digital labels are put in.”

The work is published on the SSRN preprint server.

A well timed evaluation amid political scrutiny

Among heightened public nervousness about meals costs, outstanding lawmakers, together with Senators Elizabeth Warren and Bernie Sanders in addition to NYC Democratic mayoral candidate Zohran Mamdani, have raised alarms about “surge pricing” in grocery shops, likening the know-how to cost hikes seen in ride-sharing apps like Uber or dynamic airline ticketing. There has additionally been laws launched to ban the labels in Arizona, Rhode Island and Main.

But in response to the UC San Diego study, which is the primary to analyze whether or not digital labels result in worth gouging, these issues are misplaced.

“Unlike Uber or accommodations, grocery shops do not become profitable on a single merchandise—they become profitable in your total basket and your long-term loyalty,” stated Stamatopoulos, an affiliate professor of knowledge, threat, and operations administration at UT Austin’s McCombs School of Business. “Using surge pricing might alienate consumers and drive them away completely, which is the very last thing grocers need.”

Inside the info: One in 20,000 merchandise affected

To check the surge pricing idea, Sanders and Stamatopoulos examined worth knowledge throughout 114 shops in 4 U.S. states. These shops regularly adopted ESLs between October 2022 and mid-2024. The researchers appeared particularly for short-lived, unexplained worth hikes—the hallmark of surge pricing.

Before ESL set up, they discovered only one in each 20,000 merchandise confirmed any {sign} of such conduct.

And after ESLs had been added?

The quantity rose from 0.0050% to 0.0006% of merchandise. That’s a change of simply 0.0006 share factors.

“If digital labels had been inflicting surge pricing, you’d anticipate a visual spike in worth adjustments—extra frequent and extra localized,” stated Sanders. “Instead, we noticed no significant distinction earlier than and after set up.”

What’s really driving worth adjustments?

The study additionally gives perception into what does drive worth fluctuations in grocery shops.

According to the authors, base costs are inclined to observe wholesale prices and competitor pricing, whereas most short-term worth adjustments are pushed by producer promotions—issues like “purchase one, get one free” offers or seasonal reductions. These reductions are normally deliberate effectively prematurely and unrelated to real-time native situations.

In reality, worth uniformity remained sturdy all through the research interval. The researchers discovered that when costs did change, they did so constantly throughout your complete chain—not domestically based mostly on store-specific demand or climate.

The study additionally gives a compelling idea for why grocery retailers do not spike their costs with the usage of ESLs, even when the know-how makes it simpler to take action: it is merely not good enterprise.

“Grocery shops make skinny margins on particular person gadgets and rely closely on buyer loyalty,” stated Stamatopoulos. “Raising costs unexpectedly—even on a single merchandise—dangers alienating consumers and sending them to opponents.”

Policy implications and a glance forward

The findings contradict claims from watchdogs and lawmakers like Sen. Warren in addition to Sen. Sherrod Brown, who cited ESLs as a doable device for “company profiteering” in letters to Kroger and Walmart.

“Protecting customers and ensuring costs are aggressive and clear is completely necessary,” stated Sanders. “But we discover concentrating on digital shelf labels as a supply of worth gouging has no foundation in actuality and is a distraction from the true drivers of meals prices.”

In reality, the researchers observe that ESLs might really profit low-income consumers and scale back meals waste despatched to landfills, a key contributor to local weather change. By making it simpler to use dynamic reductions to gadgets nearing expiration—corresponding to contemporary produce or dairy—shops may also help guarantee these items attain households in want as a substitute of ending up in landfills. Previous analysis from Sanders finds that the usage of ESLs may very well be more practical than natural meals waste bans, that are enacted in 11 states.

Dynamic pricing is already taking place in lots of elements of Europe, where ESL adoption is extra superior.

“The U.S. is behind Europe in relation to this know-how,” stated Stamatopoulos. “But the European expertise additionally reveals it is not getting used for surge pricing. It’s getting used to scale back waste and enhance entry to wholesome meals.”