Are food companies raising prices simply to offset the higher costs it takes for them to make and sell their products, or are they taking advantage of the broader inflation narrative to push prices — and bulk up profits?

Yes and yes.

A Star Tribune analysis of 20 publicly traded food and beverage companies found that a third have reported quarterly profit margins well above their 10-year average in the past year. The remainder have kept their margins relatively steady, and some are even seeing them shrink.

"It's not that profits are bad. But companies should be aware they're in a unique time and place for their customer relationships," said Mark Bergen, a pricing expert and marketing professor at the University of Minnesota's Carlson School of Management. "If customers found out you were doing this, would they be angry?"

Inflation is real, and the cost of doing business has risen in nearly every category over the last year. Labor, transportation, packaging and raw ingredients are all more expensive and in many cases will continue to rise for several months.

But the question, Bergen and others say, is one of proportionality.

"As a business, you could empower your customers to navigate inflation better, or you could take advantage of them," Bergen said. "It's one thing to get gouged on luxuries, it's another to get gouged on necessities."

Higher consumer food prices started hitting shelves in waves last year and were expected to increase in 2022. The average cost shoppers pay for food at home was 8.6% higher in February than it was the year before, according to the U.S. Bureau of Labor Statistics.

Meanwhile, the costs companies pay to make, package and ship food were up 13% in February. This mismatch suggests price increases have yet to peak.

"This is happening everywhere — every small firm, every local firm, they all need to be moving prices up to keep their business viable," Bergen said. "Inflation in the food industry is going to be substantial and sustained for a while."

In addition to outright price increases, consumers can expect fewer discounts and smaller package sizes, Bergen said.

A number of factors impact a company's bottom line. General Mills has been raising prices and saw profits rise in its most recent quarter, but the company attributed that boost to a lower tax rate.

Supply chain issues are also delaying products from reaching shelves, offsetting the benefits companies see from price increases. That was the case recently for Kraft Heinz, which did not have enough containers to meet demand for its Philadelphia Cream Cheese at the end of 2021.

Still, pricing and promotion is one area where businesses have the most control over how much money they make. And consumers are giving them a lot more room to raise prices now than in recent years.

"Firms have better pricing power because of higher household inflation expectations," said Michael Weber, a professor at the University of Chicago Booth School of Business. "When inflation expectations are high, businesses have an easier time passing through cost increases."

Shoppers can offset higher grocery bills by "trading down" from name brands, using coupons and paying attention to sales. But low-income shoppers were already doing that, Weber said, giving them little flexibility at the store and forcing less spending at restaurants and elsewhere.

"Low-income households can see higher rates of inflation because they can't knock it down any more," Weber said.

Consumer advocates say the cause and result of food price inflation is "the system working as it is designed."

"Corporate profits are at a record high — and, more critically, corporate profit margins are at their highest point since 1950," said Rakeen Mabud, chief economist and managing director of policy and research at the progressive Groundwork Collaborative. "What we're seeing across the board is companies are taking advantage of this moment and jacking up prices beyond what their input costs would justify."

Here is a look at how recent profit margins at nine companies compare to their 10-year average. For each company, profit margin was computed by dividing net income by total revenue.

Prices up, profits up: Several companies have seen recent profit margins exceed their averages over the past decade, indicating price increases may go beyond what is needed to recoup costs.

"The question right now is not, 'Could you raise prices?' but 'Will you, and how much?'" Bergen said.

Prices up, profits steady: A handful of companies have managed to raise prices while keeping profit margins relatively stable. Strong demand continues to drive higher sales for food and beverage companies, but pricing experts say companies need to increase prices to remain in business as costs go up and remain high.

Prices up, profits falling: Despite price increases meant to offset the increased costs of raw ingredients, shipping, labor and other inputs, some companies have seen profit margins fall in recent months. These companies are likely going to keep raising prices to catch up with inflation.

Graphics: Brooks Johnson and C.J. Sinner, Star Tribune