Illustration by AP
By Georgia Gilbert
WASHINGTON – Deals between grocery stores, suppliers and manufacturers are becoming so commonplace that they can lose their meaning. Today, your supermarket (or Sam’s Club or one of those grab-and-go light-machines out in the corner) might offer you a 15% discount on a 17th-quarter package of eggs, an 8% discount on those fish sticks you’ve got in your kitchen, or a 7% discount on those peanut butter sandwiches. Now, coming out of college and no longer feeding yourself on ramen and Trader Joe’s? You might save 20%.
The Federal Trade Commission, in its review of retail price-cutting practices in 2013, found that supermarkets routinely offered consumers lower prices on what they once paid. These discounts rarely get the love of the grocery cash register, as shoppers count them as free money, an occasional coupon rather than the discount of a lifetime. But manufacturers and marketers perceive them as very real, as data-driven as the sales consultants and technologists who are now so visible in store corridors.
So how can the coupons we might get on store shelves deliver the rewards of price fixing? It helps to understand the incentives, and that means looking first at the USDA’s SmartFresh data, collected from 240,000 farmers.
SmartFresh, launched in 1997, is one of many commodity-grains databases and price lists offered by USDA, which gives farmers preferential access to such lists. These two data sources – USDA crops and its producers’ crops – represent 90% of all U.S. food-and-beverage production, the biggest single driver of food prices.
A commodity price list spreads the uncertainty about input costs across a broad range of products. It might be expected that in one episode, so many different branded peanut butter varieties can be found on the list – you’d ask your grocer why.
To judge the differences in price-cutting between industry manufacturers and their suppliers, we enlisted data analysts from University of Nebraska Food Systems and analyzed data from 12 manufacturers and 12 growers who produced popular packaged foods including Archer-Daniels-Midland’s Jack Link’s, Quaker Oats and Post Foods, Clorox’s Burt’s Bees, Cereal Partners Worldwide (owner of Fruit Loops and Wheaties), and Mars’ Pedigree dog food.
Why were manufacturers’ prices lower than those of the growers? The simplest answer is that their own costs – for corn, beans, potatoes – are not as evenly distributed as those of the farmers who provide them. The researchers found that the biggest savings came from the way retailers, and not their own factories, conducted market research. And just as price information overcomes a farm’s scarcity, the allure of good discounts overcomes a supermarket’s limit. Even basic goods are worth the cost if they produce a buy-now-pay-later discount. So shopping more, or buying only more expensive branded goods, will save you money in the long run.
Alas, there’s no satisfying every desire to be the great hamburger maker. Generally, the bigger the sales of a product line, the higher the price. Of the products we looked at, Twinkies (whose last go-round was of course canceled just recently) had the best sales-volume sales curve, as would be expected from the largest volume category.
One of the biggest surprises was how sales broke down by food group, and the magnitude of the savings available. Burger manufacturers, with their great customers, Wal-Mart, made the most money, although they still used manufacturers’ lists to sell one-sixth of the sandwiches they packaged. Dairy products fared pretty well, too, thanks in part to so-called sales-driven manufacturers with the advertised products but the majority of their production costs tied up in raw dairy goods. But cookies were in trouble, as was desserts, which the researchers theorized might have something to do with high-priced ingredients like flour and eggs.
So be on the lookout for the next pack of SmartFresh notices with deals in the $1 range, beyond the $2 or $3 limitations stores like to impose these days.