Buy One Get One: bulk orders and changes in size

 

     I don't know how in the world the US government gets their inflation numbers, but our grocery bills have gone up about 35% since pre-pandemic period. No changes in menu, number of people eating, or any such thing. This is all anecdotal -- it is a reflection of MY experience and it doesn't necessarily apply to anyone else (but it probably does).

     It does seem that the increases have been erratic and different between items. Russet potatoes went from $0.99/pound to $1.29/pound and have recently come back down (hurrah) to $1.19/pound. The cost of most oils went up quite a bit. I don't restock cooking oils that often so my memory is more likely to be fuzzy but I believe they went up more than 50% and possibly as much as 75%. One might say -- who cares about oil -- but I think that the increase in the cost of cooking oils has influenced processed food prices quite a lot as processing foods often requires cooking oil.

     On to processed foods, including the ultraprocessed  ("junk") foods. We try to keep those limited but they certainly are still a part of our diet. In one way, the increased prices of those is "good" as it gives incentive to not eat them or, at least, reduce the amount they are in our diets. One famous brand of stackable potato chips went from $1.69 pre-pandemic to $2.65 post-pandemic (a 57% increase). A carton of 12 cans of soda went from $5.25 to $9.25 (a 75% increase). One of my sons, who goes grocery shopping with me, is currently attempting to wean himself off of canned sodas -- in part due to the prices.

     I do not have the background knowledge on the reasons for the various price increases. I can read media articles but I haven't read anything that goes back to source material. So, I can only go according to the reports of "supply chain" failures and lack of people for various manual needs in food production. Certainly, a small amount of it has been due to reducing the underpayment of various people doing those manual needs in order to entice them to come back to work (before it was safe to do such, in some cases). But the source of the majority of the increases is a mystery to me. But, let's say they were real and caused the "laws" of supply and demand to move those prices up.

     Besides that ten cents per pound decrease in the price of potatoes, I cannot think of many items that have gone back down. Can you? Whatever causes there were to increase prices are likely gone, correct? There is at least one case in Europe right now that is confronting a food producer to give justifications for their continued price increase. At least the prices seem to have stopped their rampant growth though I noticed, yesterday, an additional ten cents per pound for ground beef (about a 2% increase -- insignificant though still raising questions).

     One method that grocery stores and food producers use to avoid reductions in prices is SALES. Rotate the sale prices among the various items. Some sale prices are as much as 60% off. A local grocery store often has a 'buy two, get two "free"' sale on cartons of soda. Lately, it has been 'buy two, get three "free"'. Snack chips have 40% sales and 'buy one, get one "free"'. These heavy discounts do two major things. They give the illusion that prices have gone back down (without officially causing "deflation") and they keep the demand moving which would normally decrease with the increases of prices.

     Another thing that food producers can do to influence perception is to change amounts per item or general size. Prices I have a reasonable chance of remembering and comparing (recognizing that memory is one of the most precarious things). But, do you remember how many ounces of potato chips were in that bag three years ago? I sure don't. I am pretty sure the sizes of the sack containers have decreased but that does not necessarily mean the amount inside of the sacks has reduced.

     In our economic, and political, situation in the US there isn't much that can be done about increased prices. We live with them and hope that prices aren't raised again for several years -- when general inflation has moved up enough to justify current prices. In the meantime, bulk purchases and sales discounts and bundling are our best bets to stretch the food budget.

Back to basics: Supply and demand

 

     The economic theory of capitalism has, as one of its basic aspects, the idea of supply and demand. This blog may be "old news" to many -- but not to others.

     The amount of product (supply) at a given price tries to reach a balance of demand and willingness/ability to pay. Under many conditions, this works as a self-maintaining mechanism. There are quite a few cases -- sometimes called "edge conditions" -- in which it does not work well. These cases include newly introduced products, pandemics, shortages, monopolies/cartels, and other cases where the balance gets thrown off rapidly.

     No company wants to sell a product below the cost needed to manufacture and provide. However, there are cases where this may be to their advantage. One is when demand has gone down so much (temporarily or permanently) that they have the cost of storing a large amount of inventory from which they don't expect a profitable return on investment. Another is as a "loss leader" -- making the price attractive to attract potential buyers of other, higher profit, items (often done by grocery stores). The final one mentioned here is that of forcing the competition to quit. A company with "deep pockets" (money available in reserve) can force their competitors to stop making competitive products. Usually this is legal but will often leave widespread bad feelings.

     Newly introduced products will require development, marketing, and promotion. The creator of the products hopes that these costs will be covered by eventual sales. But, at the beginning, they will likely need to sell below cost while building a market. When Honda introduced the higher-end Acura line, they priced the cars very close to that of their Honda line -- increasing the price as the brand-name recognition developed.

     Pandemics are special cases where both shortages and surplus can exist -- even at the same time. When most people stopped driving and stayed at home, the need for gasoline plummeted and the price of gas went down (not to the same extent). But fewer trucks on the road, and ships and trains moving product, and fewer people to staff the fields and factories can (and did) lead to shortages.

    Shortages indicate less supply than potential demand. In addition to pandemics, it can be part of a situation where production is reduced on purpose (oil, for example), because of disease (bird diseases causing reduction in chicken numbers), because of environmental problems (droughts, floods, unexpected hot or cold temperatures, ...), and deliberate reduction in cases where there is little competition (arson of facilities and other methods). There is usually no inherent requirement to raise prices when supplies are not enough to meet the demand. But, with only some product available to a larger set of potential consumers, how is the final market determined? By lottery (this does happen for certain products -- like the PS5, for example)?

     More often, the company increases the price. The higher the price, the fewer people want/are able to buy the product. At some price, those willing and able equal the amount of product. Record profits can be made and the supply and demand balance. For optional products, this works well. For required items (such as food), lower income people are greatly penalized. Note that, for longterm production shortages,  it is expected that other companies will start manufacturing (not true if it is caused by limited resources) and the competition will force prices back down as the supply increases.

      Monopolies and cartels allow companies to control the supply and price directly while eliminating (through agreements, buyouts, or less legal methods) competitive pressures. In the US, many laws were enacted following the Great Depression hoping to bring such under control.  A desire to increase or decrease such laws and the proactivity of enforcement of such laws depends upon current political vision. Other than those laws, business practices and prices are (in the US) controlled solely by the companies.

     In theory, the number of products at a particular price will (eventually) balance against the number of people willing and able to purchase at that price. But there are many detours around theory.