> The ads are cross-subsidizing the food.

I don't think you were unclear, that's what I understood you to be saying.

Surely, the grocer just pockets the extra ad money? Never in my life have I seen a for-profit corporation voluntarily charge a lower price than the market will bear because they increased their margin by other means.

The ads are also inherently shitty to the producers: they all have to spend money on the grocer's ads now, because if they don't, their competitors will. If you look at it that way, the ads are almost extortion.