There's Always Somebody On the Other Side of Every Trade

Let's say you're interacting with a food company or consumer products retailer, and you don't see eye to eye on a price, a purchase or a customer service issue. How easy is it to assume the company is stupid (or evil, or greedy, or run by jerks), shake your fist at it, and carry on, delusionally confident in the correctness of your position?

Pretty darn easy. For most consumers, this is a default behavior pattern.

Here's the thing though. When you consider interactions with the food industry purely from your standpoint as a consumer, you only see part of the picture. There may be things happening outside of your perception that you're totally unaware of.

There's even an old expression from Wall Street that relates to this: There's always somebody on the other side of every trade. (This expression is one of the few investment chestnuts that actually doesn't make me throw up in my mouth--unlike, say, markets are efficient, or past performance does not guarantee future returns.)

Uh, okay. What do I mean by saying there's somebody on the other side of every trade?

Well, think about it this way. When you buy a stock, you're probably highly confident that it's going to go up, right? Otherwise, you wouldn't buy it.

But here's the problem: for every buyer, there has to be a seller. If you're so confident buying this stock, and if it's so clear it's going to go up, then why is that guy selling to you? It bakes your noodle just to think about it.

What does this have to do with food and consumer products? Well, how many of us have entertained thoughts like these:

1) Couscous should not cost $2.95 for a six-ounce box! Those greedy bastards!

I only buy organic foods. They are obviously a good value, and they make me feel safer.

I'd bet most consumers would understand and sympathize with both of these statements. But after a just few minutes of considering these statements from a store's standpoint, a few rather important puzzle pieces fall into place.

For example, once you learn that organic foods are an important source of incremental profits for grocery stores, you might realize that they may not offer quite as much value as you thought. Likewise, that greedlicious couscous price might be an indirect function of the unprofitable economics of grocery store retailing. That price simply is what it is, and you can choose to buy or not, depending on your needs and wants.

I'm not at all telling you to take the store's side or the food industry's side. This is not about taking sides. I'm merely suggesting that if you dispassionately think through the business logic behind the various actions of the food and consumer products industry, you will become a savvier and far more empowered consumer. Furthermore, you'll be in a much better position to figure out your options and alternatives--without being sidetracked by pointless irritation or anger.

And then you can very calmly and rationally put down that overpriced box of couscous--and run screaming out of your grocery store.

Related Posts:
The Economics of Wasteful Foods
Death of a Soda Tax
The Pros and Cons of Restaurant Calorie Labeling Laws
Let That Other Guy Pay! Saving Money in Two-Sided Markets

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Julia said...

Your comment about the cous cous reminds me of the days when I used to work in restaurants. Pasta dishes always had the lowest food cost, but instead of just setting the price at 4x (target food cost is generally 25% - 33%), we might set the price even higher. For two reasons: 1) If everything was priced at a 25% food cost, the pricing structure would look too wacky (think $6 pasta and $50 steak). and 2) since you can't get 25% for the steak, the restaurant balances it out with things like pasta.

As a consumer if you only buy the items that are "good value" then in essence you're gaming the system. Yes, the grocery stores and restaurants want to make a profit, but they also recognize the balance between profit and pricing structures. If they set a disproportionately high price on organics, it's probably to make up for the fact that they aren't making money in other areas of the store.

(PS - I think I probably left a similar comment when you posted about the price of organics)

Daniel said...

Hi Julia: Yep, you said something similar but in both cases you shared an important insight. My hope is just that consumers understand that side of the game so they can judge value by more than just the prices they are given.

Thanks for the thoughts.


Barbara | VinoLuciStyle said...

Whether food or hard goods, I'm always amazed at how everyone wants everything for a steal but then laments when their favorite store goes out of business. It's as if retailers should just provide goods and services without expecting a profit!

Great insight and love the truth of the matter as you stated it...if it's not priced within our budget, well, then we have a choice to not buy it.

chacha1 said...

I fear I may be a non-representative reader. Frugality, when it comes to food, is such a non-issue to me that when I make a frugal choice it is apt to be something most people would bust a gut laughing at.

Like, buying normal white cauliflower for $1.59 instead of the purple one I really want that's $5, when I have $60 worth of high-quality meat and two bottles of wine in my cart.

I am so *happy* to have the means and opportunity to buy a $5 cauliflower. I don't care if it doesn't really cost five times as much to produce. Same with the $10/lb artisan cheese or the $5 loaf of fresh bread. I appreciate that there are people - companies, in truth - producing fine products like that.

I ate four-for-a-dollar pot pies and boxed mac & cheese when I was broke, but now I'm not. I appreciate the producers who have kept me fed, within my budget, for my entire life. They produce what I can't.

I'm not about to complain about what something costs at the store ... especially if I choose not to buy it.