Sen. Elizabeth Warren on Friday questioned whether grocery chain Kroger's new artificial intelligence-powered “dynamic pricing” model is truly intended to “improve the customer experience,” saying the practice shows “corporate greed running out of control.”
Sen. Warren (D-Mass.) along with Sen. Bob Casey (D-Pennsylvania) sent a letter to Kroger Chairman and CEO Rodney McMullen on Wednesday expressing concern that the company's partnership with AI company Intelligence Node could both violate privacy and exacerbate inequality by forcing customers to pay more based on the personal data Kroger collects to “determine how much price increases they are willing to accept.”
As the senators noted, the chain first rolled out dynamic pricing in 2018 and expanded it to 500 of its roughly 3,000 stores last year. The company is partnering with Microsoft to develop an electronic shelf label (ESL) system called Enhanced Display for Grocery Environment (EDGE), which uses digital tags to display prices in-store and allows employees to change them throughout the day with the click of a button.
As Warren said on social media on Friday, digital price tags would allow stores to “put special prices on water or ice cream when it's hot” or raise the price of turkey just before Thanksgiving.
Through Intelligence Node and its work with Microsoft, Kroger is looking to tailor product prices to individual shoppers, as well as change prices based on time of day and other environmental factors.
The senators explained:
EDGE Shelf helps Kroger collect and leverage sensitive consumer data. In partnership with Microsoft, Kroger will install cameras on its digital displays and use facial recognition tools to determine the gender and age of customers captured on camera to present personalized offers and ads on EDGE Shelf. EDGE will enable Kroger to use customer data to create a personalized profile of each customer and display a customer's maximum willingness to pay on digital price tags, a feature that the company sees as a profitable operation that simply isn't possible with paper price tags.
“We are concerned about whether Kroger and Microsoft are adequately protecting consumer data and that as Kroger expands its personalized customer experience, customers may ultimately be offered bad deals,” Warren and Casey wrote.
The lawmakers noted that high food prices are a major concern for American workers and families as grocery chains employ various tactics to pump prices from customers, including “shrinkflation” and “greedflation,” which involve packing less product into a package to keep prices high, even though supply chain issues have largely been resolved since inflation remained high during the COVID-19 pandemic.
Kroger, which could add thousands of stores if it buys Albertsons for $24.6 billion, had an operating budget of $3.1 billion last year and has had gross profit margins of more than 20% over the past five years.
Meanwhile, U.S. households spent an average of 11.2% of their budget on food in 2023, Warren and Casey said.
“The increased use of dynamic pricing increases corporate profits and passes the cost on to consumers,” the senators wrote. “It is outrageous that grocery giants like Kroger continue to engage in price gouging and other corporate profit-seeking tactics while families continue to struggle to pay for food.”
Messrs. Warren and Casey requested information from McMullen about his use of the ESL Platform, including EDGE, asking questions about how the company uses dynamic pricing to set prices and whether it has ever used EDGE to change the price of an item multiple times a day.
Senators have previously introduced legislation to prevent shrinkflation, urged the Biden administration to use executive power to lower food prices and proposed legislation to ban price gouging by giving state governments and the Federal Trade Commission the power to enforce federal bans.
