Online Grocery Retailers Have Hidden Price Markups, MIT Study Finds: How To Save Money On Your Food Budget

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Stocking your shelves with fresh produce shouldn’t be a financial burden. But with the rise of online grocery shopping, prices are becoming less and less predictable, according to an MIT study. (iStock)

Online grocery shopping has grown in popularity as Americans self-quarantine during the COVID-19 pandemic. But while it’s convenient to shop from the comfort of your home, new pricing technology has made it harder to manage costs, according to a study by economists at MIT.

The prices set by online grocery retailers like Amazon Fresh and Instacart are subject to change quickly, sometimes several times a week or even a single day. Almost half (48%) of the groceries listed on Amazon experienced at least one price change in a week, study find.

Grocery bills also vary by zip code, thanks to advancements in pricing algorithms. Economists attributed this to higher shipping costs because some areas are further away from warehouses or distribution centers than others. But they also found that there is a relatively small price difference based on the median value of homes and household income in an area.

However, the price differentiation in online grocery shopping offers consumers the ability to match prices between multiple competitors with little effort. But as online shopping continues to occupy a larger share of the grocery market, shoppers should be aware that prices can rise in unpredictable ways.

Read on for tips on managing your food budget, from tracking your spending to using reward credit cards. If you decide to open a grocery store rewards card, visit Credible to compare card offerings from multiple issuers without affecting your credit score.

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3 ways to stretch your grocery budget

Your food budget is a big chunk of your monthly spending, but shopping online makes overspending easy. Two in five Americans say online shopping makes it harder to stick to a monthly budget, according to American Institute of CPAs (AICPA) research. Fortunately, there are ways to cut down and save if you regularly spend too much food:

  1. Make a shopping list and stick to it
  2. Download a free budgeting app
  3. Use a cash back rewards credit card on groceries

By creating better spending habits, you may be able to compensate for unpredictable price changes when it comes to online grocery shopping.

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1. Make a shopping list and stick to it

Just like you would if you were shopping at the grocery store, take an inventory of what’s in your pantry and freezer, and make a list of the items you need. Write down all of the staples and ingredients you might need for recipes that are a regular part of your meal plan, as well as low-cost snacks.

When you buy fresh chicken, steak, salads and vegetables, be careful not to buy more than you can use before they expire. And be sure to freeze any leftovers.

You may also want to consider buying non-perishable items in bulk, such as rice, beans, and pasta, as well as shampoo, toiletries, and cleaning supplies. Look for coupons for the items in your virtual shopping cart and you may be able to save even more.

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2. Download a free budgeting app

There are many free budgeting apps that connect to your bank accounts to give you detailed information about your spending habits. You can divide expenses into categories, such as accommodation, entertainment, and groceries.

Most budgeting apps let you set up alerts when you’re about to hit your food budget or if you’ve already overspended. It’s also useful to look back on transactions from the past few months to estimate your past grocery bills and find areas where you can cut back on your spending.

You can use a grocery budget calculator like this one from Iowa State University to help you set your monthly food costs.

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3. Use a cash back rewards credit card on groceries

If you pay for your groceries with a debit card, you may be missing out on a lucrative opportunity to win. cash back on your grocery expenses. This is how it works:

  • Look for rewards cards that offer grocery perks
  • Research the minimum credit score requirements to see if you will qualify
  • Open a card and use it to finance your grocery shopping
  • Buy only what you can afford to pay off in full each month
  • Use your Cash Back Rewards for future grocery purchases.

You may be able to score up to 5% cashback, depending on the loyalty card. You can browse offers from multiple credit card companies all in one place at Credible’s online marketplace.

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Consider debt consolidation if you’re struggling with credit card spending

While rewards credit cards can come with some great benefits, they’re not for everyone, especially if you’re struggling to overspend. If you don’t pay off your statement balance in full each month, you may have to pay interest on top of your monthly grocery budget.

The average credit card interest rate estimated at 17.13%, according to the Federal Reserve. You don’t want to add unnecessary interest to the necessary cost of the food.

If you’re already struggling to control your credit card spending, consider paying off the balance at a lower interest rate with a personal debt consolidation loan. Personal loans are lump sum loans that you pay off in fixed monthly payments over a set period of time.

Compared to credit cards, personal loans tend to carry lower interest rates: 9.39% for a two-year personal loan, reports the Fed. According to Credible’s estimates, paying off credit card debt with a personal loan can lower your monthly payments and even save you over $ 2,000 in interest over time.

Personal loan interest rates vary from lender to lender, which is why it’s important to shop around with multiple financial institutions to find the best rate for your financial situation. Compare the interest rates for personal loans on Credible for free to see if the credit card consolidation is worth it.

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Have a finance-related question, but don’t know who to ask? Email the Credible Money Expert at [email protected] and your question could be answered by Credible in our Money Expert column.


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