Today I did some "boots on the ground" analysis with prices just to see who our friend is and who is trying to put one over on us. My hypothesis is that CEO's are raising their prices much more than their input costs are rising. Therefore, CEO’s are padding their P&L at the expense of their customers.
In economics, elasticity of demand is a measure of when a product's buyer will switch to a cheaper substitute if the price on one product rises too high. Butter and margarine are the classic example. At a certain point more buyers will begin to reduce their purchases of more expensive butter and replace it with cheaper margarine.
Call me a stickler, but this is how I vote my economic dollar to stay ahead of inflation. Today I priced eggs at Walmart. They were selling two cartons of 18 eggs or 36 eggs for $7.65. Costco was selling five dozen eggs or 60 eggs for $9.29. On an equivalent basis of 60 eggs Walmart's price would be $12.75 (price per egg times 60). This is a whopping 37.2% more! A gallon of 2% milk was $4.19 at Walmart and $3.65 at Costco. That is a 14.8% higher price!
As Winston Churchill said, "Never let a good crisis go to waste!" This must be Walmart's rallying cry.
Granted my analysis is only a small sample, but I would be willing to bet Walmart is doing this all over their stores. Walmart is known for being a stickler for their supplier’s prices and they are also known as one of the best sourcers in the retail business. What a great opportunity for Walmart.
Costco, on the other hand, is holding the line on these essentials. Meanwhile, they are building a loyal clientele. Or at least among those who keep their eye on prices.
You could say that Costco is treating essentials like eggs and milk as loss leaders to bring in more customers. You could also say that it’s a volume discount (but not much – 36 versus 60 eggs). In truth all retailers rely on buyers habits. Once the habit is established, people just buy and avoid the mental strain of comparing.
Generally, the substitute for eggs is no eggs. Knowing that many customers will buy these essentials, milk and eggs, even if the price rises, they think "Why not get more from their customers? The waters are so roiled everywhere with inflation that most wouldn’t even notice.".
The way to build wealth is to be vigilant on what is paid for goods and services. Many may say, "Who cares, we have (or had) the money." This general attitude is what allows inflation to continue to rise. My analysis is only a small microcosm of this issue, but it makes me think how pervasive this practice is. Gas anyone!
So vote your economic dollar and if you don't care, I'll give you my address and you can send me the money that you don't want!
Be smart, be well-read, be aware and be successful.
