Why? Because it's an insight into how the world works, especially the economic world, and why Nicola Willis and her crusade to convince us supermarkets are ripping us off might be wrong.
Willis sighted Costco the other day when she once again reminded us she is back to business on the supermarkets and looking to break them up, or twist their arms, or regulate them where it hurts, so we can all feel so much better about the price of a trolley full of goods.
What she knew, she said, was competition is good for prices.
As I tried to say, that is school cert economics and, although partially right, isn't the whole answer.
Butter at Costco is $10 per kilo. Elsewhere you can pay $10 and get half that.
In that very example is part of the story - it costs different amounts all over the place on any given day, depending on where you go, or when you go. It’s a bit like petrol.
Also a bit like petrol, the end price is driven by international pricing. We pay international prices because we make the stuff and sell it. Its how we make a living and we should be celebrating this.
If farmers weren't doing so well we would be truly stuffed.
Costco, because they are large, as in globally large, buy more of anything than anyone here locally. Because of that their price per unit drops and their margins are smaller. Scale counts
Also, as the consumers group pointed out, it’s a loss-leader for Costco.
In other words they are losing money on every pack they sell.
Why?
Because it gets you in the store to buy other stuff. Remember, at Costco you have already paid a membership fee to be there.
So their butter isn't really $10 per kilo. They are eating the difference, as Trump would say, in the hope you buy stuff in aisle eight.
Lots of supermarkets run loss leaders. They also put chocolate biscuits at eye line to tempt you. It’s a clever business.
But Costco and their butter is not a real economic equation.
And there is no magic in their pricing, the way Nicola seems to think there is.
Mike Hosking is a New Zealand television and radio broadcaster. He currently hosts The Mike Hosking Breakfast show on NewstalkZB on weekday mornings - where this article was sourced.
What she knew, she said, was competition is good for prices.
As I tried to say, that is school cert economics and, although partially right, isn't the whole answer.
Butter at Costco is $10 per kilo. Elsewhere you can pay $10 and get half that.
In that very example is part of the story - it costs different amounts all over the place on any given day, depending on where you go, or when you go. It’s a bit like petrol.
Also a bit like petrol, the end price is driven by international pricing. We pay international prices because we make the stuff and sell it. Its how we make a living and we should be celebrating this.
If farmers weren't doing so well we would be truly stuffed.
Costco, because they are large, as in globally large, buy more of anything than anyone here locally. Because of that their price per unit drops and their margins are smaller. Scale counts
Also, as the consumers group pointed out, it’s a loss-leader for Costco.
In other words they are losing money on every pack they sell.
Why?
Because it gets you in the store to buy other stuff. Remember, at Costco you have already paid a membership fee to be there.
So their butter isn't really $10 per kilo. They are eating the difference, as Trump would say, in the hope you buy stuff in aisle eight.
Lots of supermarkets run loss leaders. They also put chocolate biscuits at eye line to tempt you. It’s a clever business.
But Costco and their butter is not a real economic equation.
And there is no magic in their pricing, the way Nicola seems to think there is.
Mike Hosking is a New Zealand television and radio broadcaster. He currently hosts The Mike Hosking Breakfast show on NewstalkZB on weekday mornings - where this article was sourced.
1 comment:
i get a feeling most people don't understand how pricing & contracts works.
costco is likely to have signed a forward contract with westgate to buy at a low enough price (to allow selling at $10/kg with some profit or as a loss leader). once the contract is over, they would revert to the next price point - which may or may not be as favourable. it's a game of dice and someone is likely to get lucky now & then.
next step is to understand pricing in a market like NZ. if butter costs $5 & sending it to a local shop costs $1 and parties want $2 margin, you might expect retail price of $8... but it's not that simple :( if they can sent it to europe at a cost of $3 and parties want $3 margin, they can sell it at $11 overseas. of course, this makes sense if local prices are $12 or more. now the parties ask: if NZ customer wants to buy something else from abroad, what do they need to pay? that number is well more than $12 - perhaps closer to $15. which means they can charge $14 and get away with it as long as they can.
if you want to fix the mess, free the market recklessly. let farmers sell raw milk to people with a simple declaration & let people make butter in small batches at home and sell it to consumers with a simple declaration. excess regulation sounds nice, but i don't think we can afford it unless we are willing to start mining :(
Post a Comment