Divorce Yourself from the False Reality of Your Grocery Store

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.


Related Posts:
How to Whine About "Big Food"
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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23 comments:

Julia said...

I'm conflicted about this post... restaurants have the same dilemma. Profit margins are razor thin. They strive for 25% food costs (and before you get upset thinking they have 75% profit, they also have: 30% payroll, 12% occupancy, 20% operational, etc...). But in order to make their money on a steak, they would either have to charge $50, or make it up on something like pasta. Pasta has a great food cost, steak not so much, but the goal is to average it out.

I'm sure the grocery stores face the same predicament -- get the profits where you can, because other items are loss-leaders.

As a consumer, I want the best prices possible, and am sometimes willing to shop around for that. As a business-person, I understand the pricing strategy.

I can game the system to my benefit. I will at Whole Foods because they will still make huge profits, but not at my local grocer.

Daniel said...

Julia, great insights, thank you for sharing. I'll be honest, I was conflicted writing this post too, hence the inherent conflict between this piece's overall pro-consumer tone and statements of basic business realities like "Truth #2."

I'm not criticizing low margin businesses for optimizing their prices, I'm just telling readers the way it is. The bottom line is people don't need to pay "aspirational goods" prices for common staples. Unless they want to, that is.

DK

Jen A. Miller said...

I buy oatmeal, nuts, and dried fruit at the health food store in town. So much cheaper.

Lana said...

I have finally convinced my husband of the financial gains of buying certain foods at various ethnic and bulk stores. Yes, we have to sacrifice the convenience, but the advantages are far more important.
I was raised in Serbia, where we shopped at several stores for a meal, and making rounds in order to find the best quality for the least amount of money is a part of fun.

Milehimama @ Mama Says said...

I think there's more to it than just "we can charge more so we do". The typical American diet doesn't include brown rice or steel cut oats, and those items are slow movers. I think grocery stores charge more to make up for it sitting on the shelf for so long. What percentage of the stores sales are couscous, vs. white rice and minute rice?

I go to the Asian/Chinese grocery. I can get 25# of short grain brown rice for $10- my grocery's generic long grain brown is $1/lb. Basmati for 50 cents/#, chickpeas 50 cents/# but the REAL deals are on spices. I can get a bag full of cardamom pods for a couple of dollars (vs. a tiny bottle for $5 or more). 2# of cumin for under $5, turmeric, chili oil, sesame oil, cinnamon - so cheap. I typically go about once a month or so and stock up.

The ethnic grocery stores also typically have cheaper produce prices - I always buy my onions and garlic at the Mexican grocery, because they are half the price of the regular store.

Anonymous said...

@ Milehimama - yes, good point. Economies of scale, too, affect things. Many, many more people are looking for white flour than wheat, etc., so it can be produced at a lower per-unit cost. Add to that, you can refine wheat into white flour, then process/package the bran & germ into other products. Do I like it? No, but that's reality. However, over the past few years as more people have turned to whole foods, I've seen prices come down.

Tino said...

I know I've been bitten in the butt numerous times because of this. A more recent adventure involved stopping in the "specialty" aisle at my local mega-supermarket for quinoa and when I saw that an 8 ounce box was $8, I opted to change the dish I had in mind to use a 1 pound box of medium-hulled barley for $2 instead. Twice the amount of product for a 1/4 the price.

I think as consumers, we need to be able to make these types of substitutions on the fly when the expense just isn't justified. That's why having a general knowledge of how to cook is so important.

Little Les said...

Its a pain in the ass, but we shop pretty much every week between three major grocers: Kroger, Albertsons, and Tom Thumb, then we shop at Sam's and SuperTarget, and then the specialty grocers: Fiesta, Whole Foods, and Central Market, and finally we hit the Farmer's Market once a week also. We buy products at these stores based on price and/or quality and availability. I guess we're lucky to have so many options, but it sure is a lot of running around!

Joanne said...

Ironically enough, my local supermarket is actually MORE expensive than whole foods. So I'm just constantly irritated as it were. I really like Whole Foods' bulk section and do a fair amount of my shopping at Trader Joe's, which is cheaper. Farmer's markets are also my best friends.

Marcia said...

Milehimama that's a great price on brown rice. Best price I can find around here is $1.10 a pound. I'm always on the lookout though.

I rarely buy rice, quinoa, oats, or nuts at a regular grocery store. Bulk stores or Trader Joe's. I buy beans in bulk elsewhere, except for things like chickpeas and split peas, that I can only find at the regular grocery.

Anonymous said...

What do I no longer buy at the grocery store? Spices. Typically can get them at 30% lower prices in my local farm and feed store, conveniently located near canning supplies, which you guessed it, I also can and preserve like a fiend, concentrating mostly on tomatoes and cucumbers since 1) I like 'em 2) they are relatively expensive and 3)they work well for my climate and available yard space.
My other new best friend? The chest freezer. When I find a great sale price on some food that can be frozen safely, I buy lots, break it up into reasonable meal-size portions, & bag-n-freeze.

beth said...

I have developed something of a pattern for my shopping that keeps me from going to the regular grocery store almost entirely. I try to shop around my 1st/15th paydays, and it has (not intentionally) turned in to one of two stops.

One pay cycle will usually be to the local Big Box store for toiletries, cat litter, and any pre-packaged groceries that we get (I need my Dr Pepper & one kid won't eat 'real' bread). The other pay cycle, I tend to end up at Sunflower or Trader Joe's (depending on my bulk food needs) buying the real food.

Produce from the CSA/co-op on the weekend, intersperse with the occasional bread/eggs/emergency trip in the middle, and we're good.

I would always rather the razor thin margins I'm providing to a retailer go to the little guy, and the smaller/regional grocery chains seem to carry higher quality stuff most of the time.

Daniel said...

Some great examples of what foods to buy outside of the grocery store and where to go to buy them. Thanks for the insights everyone!

I'm also happy to see a couple of readers citing spices. Long time CK readers know how that warms my heart.

A few further thoughts: Milehimama, you make a good point that prices will likely be higher for lower-turnover goods. But given the low margins of the grocery industry, I suspect that very few large-scale grocery stores can afford to make a practice of selling truly low-volume items. Even the obscure items on their shelves need to turn relatively quickly, or they will simply opt to carry something that will turn. I'm just speculating on this however, I'm far from an expert on this industry.

And Anonymous, scale and volume are yet additional variables in this discussion--good point. However, most of these foods actually are very high-volume commodities, both nationally and globally. I can't imagine that there's justification there for the kinds of price premiums charged in most grocery stores.

That being said, there will always be weird pricing idiosyncrasies from time to time in any store (see Joanne's comment). This can spell opportunity--or the lack thereof--for an alert consumer.

At the end of the day, if we as consumers view the price of any food as unreasonable, we have a duty to purchase that food elsewhere where the price is reasonable.

Great input everybody--keep the ideas coming!

DK

lisa said...

Strangely enough, the "ethnic aisle" at my local big box store (Real Canadian Superstore) is absolutely the cheapest place to buy spices, beans & pulses, white rice, and prepared ethnic food like canned baba ghanouj, halva, etc. Produce is best & cheapest at the small, independent stores, and for meat I've taken to teaming up with friends and buying direct from local farmers.

Jenna said...

I don't buy the majority of my gluten free items at the main grocery store. I just can't - WAY too spendy. I lucked out though, the local discount grocery/dollar type store has started carrying several of the big name brands of GF products. It's still more to have to buy GF oat, but somehow... $3.99 a bag is easier to swallow than the $6.89 a bag the grocery wants. And there is the added bonus of, the more I buy at the discount store - the bigger the variety grows. The manager even stopped me and asked what I wanted to find on the shelves and has tried to expand the offerings. Works well for both of us. I get what I need cheaper - his base keeps growing as I drag more friends in similar situations to his store to buy.

Like many others, I no longer buy spices at the "normal" grocery. I hunt out the "ethnic" shops, instead. I also haven't bought meat from the grocery in months - instead I've found it cheaper (and better) to go strictly to my local butchershop. Grassfed local meat turns out to be the CHEAPER option when I can buy it in bulk and separate it out myself.

Daniel said...

Jenna, thank you. What you did for the manager of your local store is exactly what I want my readers to do. Speak up. And you got what you wanted. We have much more power as consumers than we think, but we need to tell the food industry what we want. Thanks for setting an excellent example.

DK

Gretchen said...

I have been using a local buyer's club which works like something between a CSA and an online grocery store, but focuses on local produce, Santa Cruz Local Foods. There is a slight markup on goods that I can also get at the farmers market, but they also carry goods that I can't get there, like bulk locally grown olive oil, or that are less convenient for me to get there, like bulk local brown rice.

This food is not necessarily the cheapest (we are dedicated to supporting our local farmers, and land is very expensive out here, so there is a cost to that), but the profit margins are very good for the farmers and I think the people who run the site are doing a fabulous job: it is like they have a curated collection of high quality farmers market goods that I can get walk a block to pick up once a week. It is well worth the commission they take for gathering my order up for me. I can get hard-to-find items like kaffir lime leaves through them.

That doesn't mean I'm not above shopping around for a deal on anything we get in bulk; I really enjoyed the locally canned tomatoes I got through them, so I just ordered a crate at wholesale prices straight from their maker. I am planning on buying a whole lamb from a local lamb/sheep's cheese maker next spring. We bought flats of berries this summer and froze them for the winter. We're dithering about picking up a quarter of a steer next year. (We've been mightily enjoying individual cuts of beef from that rancher, and it would cut the cost per pound down significantly, but take up most of our chest freezer.) The chest freezer means that if I see meat go on sale I can pick up extra for later, and it lets us freeze our cooking for later.

At this point we do about 50% of our buying at the farmers market, supplement with this service (about 30%), and only go to the grocery stories for things that are not grown locally, like lentils, bulk yogurt, cottage cheese, bulk cheese, specialty meats we can't get at the farmers market, or if we didn't order enough milk this week. If I were more thrifty I'd be making our yogurt....

My husband today pointed out that while we pay a lot more for animal products, our fruits and vegetables are usually about as cheap as commercially grown and last longer so they are less prone to being wasted. We compensate for the extra cost in meat by eating a lot less meat: we now go fully vegetarian one week out of three, and eat vegetarian breakfasts. We also often use meat in combination with legumes. I haven't analyzed our budget closely but it isn't out of line with what we were paying before at more traditional grocery stores, and we are eating much, much, better.

chacha1 said...

Hi Dan, thanks for the shout-out! I'm delighted to think something I said provoked this excellent post. :-)

And I have nothing to add to it. It's all great information (also in the comments) and if I hadn't already found my happy medium re: food shopping I would be very inspired.

Crystal Silver said...

I've gotten to the point where I can get almost everything I need from Trader Joe's, except for specialty items like coconut milk, which I can only find at Whole Foods. I also enjoy using Whole Foods as an extremely affordable restaurant, since I love ordering custom-made veggie wraps, salads, and other staples of my diet.

But I have discovered that herbs, spices, nuts, and seeds are much less expensive at Fresh n Easy, which is, I believe, a UK chain that has its own brand label (practically the same thing as organic, sans official USDA designation). After having eaten a tasteless cantaloupe from there, I usually don't bother with the produce they have, though.

These days, I'm gravitating more towards a less anchored eating lifestyle, mostly because I like the convenience of grabbing what I feel like eating without having to spend so much time on the whole start-to-finish process.

I'm a philosophical/intellectual type at heart, and I prefer spending my time reading, writing, and roaming, both physically and mentally. I fail miserably every time I attempt to turn myself into any form of domestic goddess. I'm perfectly capable of it, but it isn't a passion for me and doesn't feed my soul the way it does for some.

The way I wish to live is more conducive to choosing my food on a meal-to-meal (or even day-to-day) basis, according to moods/cravings. I'd rather not buy things in bulk; I've tried it numerous times, and it always ends up backfiring on me.

I've tried doing the whole cook-at-home thing, and I end up getting fed up with myself rather quickly. The best way for me to stay neat and tidy is to NOT make a mess in the first place. Perhaps all those teenage years of employment doing laundry and dishes has influenced my current preferences. But on a positive note, my restaurant serving experience most certainly has contributed to my tendency to tip well. ;-)

I trust you are doing well, Daniel. So sorry I missed seeing you again this October. Surely we'll cross paths again one of these days. :)

Diane said...

I LOVE my local grocery store (Berkeley Bowl), which has great produce and great prices (2 kinds of bitter melon, Buddhas Hand, slippery vegetable, 15 kinds of apples, etc). I shop there loyally, and am proud to give them my business. I want them to make a decent profit. That said, I never buy the following there:

1. Spices: I get these at the Indian store, or I grow my own.
2. Feta: I get this at the local middle-eastern market
3. Tortillas: At the Mexican store ($2.50 for 5 dozen, 'nuff said).
4. Wine and Pasta: One of the few things I buy at TJ's.

Diane said...

Oh - and rice. I always get this in Chinatown or at the Indian store. I recently bought 10 lbs. of brown jasmine rice in Chinatown for $4. Typically I get basmati at the Indian store for around 0.60/lb.

Chris said...

I need to work on local for sure!

Anonymous said...

I absolutely adore finding excellent deals on groceries, even though it has been pointed out that it's probably not always an efficient use of my time. Given that I find it fun, I'd contest that.

Anyway, one of the grocery stores I always used to shop at had stupidly expensive rice. The varieties were labelled, sold in smallish bags, and were quite expensive. However, the pasta there was $1 a pound. Currently, my nearest grocery store has decided that pasta is a luxury good, and we've got all the fancy brands, mostly over $2 a pound.

Currently, one of the local chain groceries has the highest quality produce for reasonable prices (better quality and cheaper than Whole Foods. They do more local food and less organic). The Russian grocery store is amazing for dried fruit, caviar, pomegranates, fish, sour cream, and pickles. The Asian markets are best for certain types of produce, rice, anything asian, and odd cuts of meat (I like tongue, okay?). The Indian grocery store is amazing for legumes, yogurt, and spices. The kosher grocery store has some pretty unreal deals on baking ingredients. The spices not found at ethnic grocery stores are generally best at Whole Foods (from the bulk section), Penzey's, or online (for saffron and vanilla).

That said, I'm usually looking for what cannot be obtained elsewhere, or what is much higher quality at a specific store. I usually find Indian yogurt the best deal, rather than the cheapest. I can find cheaper yogurt, but it's not as good. Fortunately, the cheapest product is the best product, like the tofu one of the Asian markets makes in house. It's seriously great (as in, so good it's snackable...) and only like $1 for what would usually be 4 packages of not very good tofu...