Nearly all consumers are struck from time to time by the seemingly unfair and irrational pricing of many items in our grocery stores.
For example, staple foods like couscous and quinoa, which are laughably cheap throughout most of the world, are sold at shockingly high per-unit prices in most grocery stores. Brown rice, oddly enough, can cost more than twice as much as white rice. Less-processed wheat flour costs more than heavily processed white flour. And so on.
Your grocery store sells these foods at prices that are totally divorced from their value. The question is, why? Isn't this totally unfair--even bordering on anti-consumer?
Yeah. Maybe it is a little bit.
Climbing into your grocery store's brain
In today's post, I'm going to explain the logic behind these unfair pricing idiosyncrasies by looking at the issue from the standpoint of the grocery store. Hey, after all, there's nothing better than climbing inside the brains of the opposition to help understand why it does what it does. And by the end of this post, you'll know some important fundamental concepts about the grocery store industry that you can use to get far more value for your money.
Let me start by sharing two preliminary truths about grocery stores that all consumers should know:
Truth #1: Grocery store profit margins suck. Operating profits at a typical grocery store tend to be in the 2-3% range, quite low compared to, say, the 5-7% margins at Whole Foods, and pathetically low compared to the rich 20%+ margins for second-order food companies like Pepsi and General Mills.
Truth #2: Your grocery store can charge whatever it wants for the products it sells. Please, don't bother getting angry about this--just accept it. It's a free country.
For some of you, these two statements may be obvious, but they combine to form a considerably less obvious third truth: If you run a low-margin business where you have wide discretion in how to price items, you must capture profits whenever and wherever you can. If you want to stay in business, that is.
Okay. Here's the next step in the discussion: Do you remember my post The Economics of Wasteful Foods, where I wrote about how food companies could easily re-make cheap healthy regular oats into an aspirational good by calling them "unprocessed oats" and charging triple the price? I was being partly facetious, but the truth is this is exactly what happens throughout the standard grocery store.
That couscous you see in the specialty foods aisle priced at $2.95 for a six ounce box? In the warped reality of your grocery store, that couscous isn't an inexpensive staple, it's an aspirational specialty food, sold at prices far in excess of cost.
That's how your grocery store captures much-needed incremental profits. These supposedly inexpensive foods lie in wait for you at above-market prices throughout the store--in the organic foods section, in the "ethnic foods" aisle, in the spice aisle, and so forth. After all, there's no better way to make money than by buying cheap things and re-selling them at expensive prices, right? (PS: If you're starting to get angry about this, please go back and reread Truth #2 above.)
Which brings us to the critical insight of this post: These foods, the ones that should be cheaper but aren't, simply cannot be bought cost-effectively in your standard grocery store.
Please keep in mind, I'm not saying you can't buy them there. If you put a high value on the convenience of getting all your food items at one superstore, fine, go for it. Just make sure you understand the not-so-hidden cost of that convenience.
Thus when you see couscous at six times a reasonable market price and passively take it to the checkout counter, don't whine and mentally shake your fist at the greedy food industry for setting prices you consider unfair.
Instead, be an empowered consumer and know the deal: These pricing arrangements are a reflection of the fundamental lack of profitability in the grocery store industry. An empowered consumer knows her options: either knuckle under and pay extra in exchange for the convenience of one-stop shopping, or buy these pseudo-specialty foods elsewhere, ideally at a place where they're not sold at specialty foods prices.
Here's where we return to a common theme here at Casual Kitchen: Seek alternatives to your standard grocery store. Consider local stores that cater to members of the various ethnic communities in your town, visit your local Aldi store, or check out a local bulk foods outlet where you can find these items at far better values.
The past decade or so has seen a flourishing of non-traditional food retailers across the country as the traditional grocery store slowly, but inexorably, loses its hammerlock on our food shopping dollars. There are other retailers out there doing a better job competing for your business. Seek them out and support them.
The bottom line? The standard grocery store can be a warped and weird place. Don't let it dictate prices to you when those prices don't reflect reality.
Readers: What products do you never buy at your local grocery store?
Note: I'll run a follow-up post in a couple of days to covers a few related thoughts that were beyond this article's scope. Stay tuned...
Finally, I owe a grateful thank you to reader Chacha1 for spurring me to think through some of these issues.
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Survivor Bias: Why "Big Food" Isn't Quite As Evil As You Think It Is
Review: The End of Overeating by David Kessler
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