Follow-Up Thoughts on The Realities of Your Grocery Store

Readers: Today's post covers a few follow-up thoughts and questions for readers from my Divorce Yourself From the False Reality of Your Grocery Store article from the other day. Be sure to read the original post before starting in on this one.
1) The other day's post talked about how grocery stores, because of their low profit margins, must capture profits when and where they can.

Guess what is one of the primary sources of incremental profits in grocery stores these days? Organic foods.

Roll this over in your mind for a moment or two: if organic foods generate considerably higher profits to your store, does the consumer get value in return?


2) You could consider grocery store pricing idiosyncrasies to be proof that my first-order and second-order foods framework for looking at food costs (that processed foods tend to cost more than simpler whole foods) is fatally flawed. [For an in-depth explanation of my thinking here and great ideas to save a ton of money on your food bill, see my article Stacked Costs and Second-Order Foods.]

A standard comment usually goes like this: "You claim that so-called first-order foods are cheaper and second order foods are more expensive, but what about wheat flour/couscous/quinoa (or any of several other foods that I think ought to be cheap but aren't)? How can things like this be allowed to happen?"

When I hear this, my first thought is to say nothing explains everything. No theory, no matter how awesome, will explain all the kooky one-off pricing decisions of your local store. You will always find certain food products in your grocery store that are expensive, when logic says they should be cheap. There are simply too many variables behind the scenes that affect the prices of consumer goods.


3) One of my readers, upset with how wheat flour costs more than heavily-processed white flour, had her own solution to the seemingly unfair pricing in her grocery store: she wanted to tax each step in the processing of all foods.

What's wrong with this idea?

It has a certain elegance. After all, wouldn't it be great if we could, by centralized government fiat, make an executive decision that would encourage consumers to buy healthy, unprocessed foods like wheat flour? Wouldn't that be for the good of society?

Long-time Casual Kitchen readers should be able to anticipate my answer. For one thing, I'd shudder to see the 3,000 page bill that comes plopping out of congress to impose that tax. And I don't even want to think about the nightmarish logistical problems of detailing and enforcing such a tax--not to mention the not inconsequential impact such a tax might have on our personal liberties.

The devil is always in the details.

Readers, share your thoughts and reactions!

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figleaf said...

I am *not* advocating taxing second-order foods (I'm not opposing it either, just thinking about it) but it seems to me that a very simple, non-3000-page bill way to do it would be to chuck in a standard value-added tax (a.k.a. VAT.) As I recall from dealing with the documentation translators for a financial software package I used to work with, VAT is basically just sales tax that gets added on at each step of a manufacturing process. The fewer the steps the lower the tax.

Again, not advocating, just pointing out that at least on paper it's implemented all the time in a way ordinary consumers can follow easily enough to track in their tax-preparation software.

More esoterically a carbon tax would have a somewhat similar effect, insuring that the more energy spent getting food to store or table, including energy spent pushing it up to second- or higher orders would be reflected in the price.

I'm relatively sanguine about VAT or carbon taxes. I agree getting a food-only version through the various agriculture committees in Congress would be a nightmare... and result in a bigger nightmare as well. (Someone somewhere in the supply chain would inevitably put a waiver on hydrogenated lard or something similar to current corn subsidies. That would tend to produce similarly, um, interesting distortions in the food supply.)


Daniel said...

These are excellent insights figleaf, thanks for taking the time to share them.

Anyone else care to share any thoughts, disagreements or reactions?


Anonymous said...

Another issue here is that there's less demand for the lower processed foods in the American culture, so the "turns" on these for the retailer are lower, and therefore each unit must command a higher margin in order to compensate for the costs (throughout the supply chain) of that SKU. If demand for these goods increases, that should improve over time.

Daniel said...

Excellent point Anonymous. I should also have added a few thoughts about shelf stability too. A bag of chips can sit on the shelf for months and still be sold. A head of lettuce that goes unsold will clearly rot away over far less time. Thus the store faces spoilage losses in their produce aisle that they don't face from selling processed foods.


Ronda said...

I am amazed that there wasn't more said here about shelf life. You did mention it in the last comment, but that is really the main issue! Processed foods keep forever, organic veggies don't keep at all. Processed white flour keeps indefinitely, while wheat flour loses nutrients very quickly, and will go rancid much quicker. Almost all 'healthy' foods will tend to cost more because they are not been treated to have a longer shelf life.

And THEN there is another issue. I firmly believe that anything marketed as "healthy" is price-jacked as a matter of course. It is trendy to eat healthy, and people tend to be willing to pay more for the privilege.

More taxes, as in most every instance, will only increase the price for EVERYTHING, and will not reverse this.

Daniel said...

Ronda, great point, and thank you for sharing it. The shelf-stability issue is clearly an enormous driver here. Although to be fair, there are some great contra-examples: lentils, dried beans, many canned items, and of course unadulterated frozen fruits and vegetables all have extremely long shelf lives too.

As with most things in the food industry, there are often good general rules of thumb, but each have exceptions.

And to your point about "healthy" products being price-jacked and made into just another aspirational good, I could not agree more. I've been trying to put together some more elaborate thoughts on this subject, but that post just hasn't written itself yet. :) Thanks for your thoughts.