Why Spices Are a Complete Rip-Off and What You Can Do About It: The Spice Series Part 1

One of the key cooking challenges everyone faces at one time or another is the shockingly high cost of spices.

Who hasn't had the experience of enthusiastically poring over a great new recipe, diligently writing down all the ingredients--only to have that enthusiasm utterly crushed when you find out it's going to cost you 20 bucks for four lousy little jars of spices?

You are not alone. Even the most experienced cooks get a little sick to their stomach in the spice aisle.

In order to help you understand and deal with the high cost of spices, I've written a two-part series on the subject. Today, in Part 1, I explain the market dynamics behind your local grocer's spice aisle, and show how those market dynamics conspire in various ways to keep spice prices artificially high. In Part 2, I'll give an extensive list of tips, advice and websites to help you save money on spices.

Let me start off by giving you a sneak preview of my conclusion--and it's a disturbing one: high spice prices have almost nothing to do with supply and demand. Instead, high spice prices come from an almost total lack of competition in your grocery store. And that lack of competition is a logical and deliberate result of two things: 1) the structure of the grocery and spice industries and 2) the willingness of the consumer to tolerate high prices.

Now don't let the above paragraph, as defeatist as it may sound, cause you to lose heart. Keep in mind: in order to defeat high spice prices, we need to understand what causes high spice prices. In just a few short minutes, you'll be well on your way towards understanding the rules of the spice industry's game. And once you know the rules of the game, it will be a lot easier to subvert those rules and escape the spice industry's stranglehold on your food budget.

Idiosyncrasies of the Grocery Industry
Globally, there are zillions of companies that sell spices, but there are very few companies that sell the branded spices that actually make it to your grocery store shelves. Why aren't there more companies in your local store competing in what surely must be a highly profitable niche market?

Well, it's unfortunate, but there are four idiosyncrasies about the grocery store industry that conspire to limit competition:

1) Grocery store chains have extremely thin margins--operating margins of only 2-3% are quite typical. Thus grocery chains will look for creative--even diabolical--ways to cut costs and squeeze incremental profits out of the business.
2) Grocery chains already deal with hundreds--if not thousands--of vendors and suppliers. Adding multiple suppliers for every product would increase costs beyond reasonable levels.
3) If you are a vendor who hopes to sell to a large grocery chain, you must have well-established and geographically extensive distribution capabilities.
4) Grocery stores will often charge slotting fees (extra fees paid to the retailer in exchange for prominent placement on your store shelves) in order to ration limited shelf space and help profitability.

These four factors significantly increase spice distribution costs and create artificially high barriers to competition for smaller spice makers. And those are the perfect conditions for the creation of a textbook oligopoly in the spice industry (a quick definition: an oligopoly is an industry with few players, a stable division of market share and little effective competition).

The Spice Cabal
Indeed, a spice oligopoly (or spice cabal, as I've started calling it lately) is exactly what we have. The spice aisle, as well as most other product areas in your grocery store, tends to be dominated by just a few key brands. When two or three companies control a market, even a market as small as your local grocery store's spice aisle, prices somehow magically seem to stay much higher than normal.

And of course your grocery chain doesn't want extra competition in the spice aisle either, since it also benefits from this industry structure because it can charge slotting fees, save money on vendor logistics and charge higher than normal markups. Regrettably, this industry structure serves the interests of everyone involved--except the consumer.

In our grocery store, we have an even more laughable situation: McCormick's is not only the dominant brand, but in a particularly sneaky example of faux competition, McCormick's also owns our store's #2 brand, Spice Classics! Not since Mr. Burns blotted out the sun in Springfield have I seen that kind of diabolical genius.

Inelastic Demand
Worse, because spices are critical ingredients for cooking, demand for them tends to be stable regardless of price (economists call this "inelastic demand"). If your recipe calls for cumin, you basically have no choice but to buy cumin. And even if you have the temerity to risk your recipe by substituting another spice, that other spice is still in the same spice aisle at a similarly preposterous price.

And that, my dear readers, is why your local grocery store sells cayenne pepper at unit prices approaching $45 a pound, and ground cumin at prices approaching $50 a pound. In short, if you limit your spice purchases to your local grocery store's spice aisle, the spice cabal simply has you over a barrel.

I'll say it again: don't lose heart--there's help on the way. In my next post I'll bring you several ideas to help you save money on spices. Together we will defeat the spice cabal once and for all!

Please see Part 2 of this series for a list of ten specific tips on how to save money on spices.

Related Posts:
Stacked Costs and Second-Order Foods: A New Way to Think About Rising Food Costs
How to Modify a Recipe: The Six Rules
A Rebuttal of "The Last Bite"
Two Useful Cooking Lessons From Another Cheap and Easy Side Dish
The Bhut Jolokia Pepper--The World's Hottest Chili

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