Hacker News Reader

Comment by aeblyve | Hacker News Reader

I would love to learn more about the unit economics of groceries. How is it that a small grocery store can sometimes provide things (much) more cheaply than a megacorporation? [0]

If the latter was functioning well in a competitive market, I would expect their play to be on lower margins but higher volume.

[0] Mostly I'm referring to offal TBF, which I think most firms are happy to make any money on at all.

View on HN

The megacorp can provide cheap food, it just doesn't want to. In practice they adjust the margins in a data-driven way on individual goods.

UK supermarkets actually provide pretty cheap fresh produce, because the market is pretty competitive. I think the most ridiculous I've seen was a 1kg bag of carrots for 20p.

Many countries or locations do not have highly competitive supermarkets.

Oh, and there's both volume and self-discrimination effects at work. In my supermarket shopping in the Asian food section is often cheaper as they sell big bags of rice and spices, to more cost-conscious consumers. See also: Costco.

It’s just price gouging. There is an item I sometimes buy that is about $1.60 at supermarkets, but is consistently $.85 at nearly all rural Colmados. Same brand, same product , shelf stable , mass produced, large volume mover, imported product. Supermarkets have just collectively decided to sell it for 2x the “rational” market price because it went up with Covid and people kept buying it.

Colmados don’t do data driven pricing, and just do a flat markup on the stuff the suplicadoras bring them.

Data driven pricing is just selective price gouging under a different name.

Costco is an interesting one to me. They're widely touted as being cheaper, but most foods there have some sort of upscaling factor -- "organic", some sort of regional variation like "sockeye" salmon instead of farmed atlantic, a few extra steps of processing, etc. Rice, pasta, and fruit are all usually more expensive than other alternatives, even at bigco grocery competitors. You have to be a little careful if that's where you do all your shopping.

Costco used to be cheaper bc of the bulk factor, but nowadays I think of it as a good curator. The products are usually good quality. Even if more expensive

>curation . . . The products are usually good quality.

Costco has a strong record of getting me to buy food products that are appealing to me for a while, but that I now consider bad for my health.

About the only food products I will still eat that I can buy at Costco are boneless poultry white meat, Kerrygold butter, olive oil and fresh asparagus.

Costco stocks many fruits and vegetables, but most of them are much too high in sugar to be good for me, I now realize. (Berries are on the low side in sugar content, but Costco does not stock frozen raspberries or blackberries, and I avoid fresh berries because they're about 50 times as moldy as frozen ones.)

Examples of foods that I eat a lot of that I cannot get at Costco are cabbage, radish and (frozen) tart cherries.

In contrast, Whole Foods carries most of the 3 dozen or so foods that are good for me to eat according to my current understanding of nutrition (but not the tart cherries). I would probably be significantly healthier if many years ago I'd never become a Costco member and stuck to Whole Foods and Trader Joe's.

I also largely go there for Kerrygold butter, meats, oils, and other bulk household goods. But the occasional furniture purchase, automotive thing, car rental, etc. It's a good deal for the price of the annual membership

A good example of this is their meat department, specifically beef as an example. You will generally find that Costco is not any cheaper than your regular supermarket, but the product you’re getting is graded USDA Prime or better.

There was a great comment on Reddit from someone who worked in the meat department that highlighted this comparison with specific examples but alas I am unable to find it.

> The megacorp can provide cheap food, it just doesn't want to.

This fails to explain why Walmart, the world's largest retailer, runs a profit margin of less than 3%.

> How is it that a small grocery store can sometimes provide things (much) more cheaply than a megacorporation?

Megacorps have overheads for managing insane supply lines and lots more stringent enforcement with their product, and generally have much more oversight for things like labor.

The tiny grocery store uses the kid as free labor after school to keep costs down (I was one of those kids), and generally cares less about the quality of the product at the individual level.

> How is it that a small grocery store can sometimes provide things (much) more cheaply than a megacorporation?

I frequent Asian markets everywhere I’ve lived for certain ingredients, but not for my main grocery shopping.

For regular groceries I don’t think there’s any secret. The markets with extra cheap groceries are just carrying different products at different price points.

> How is it that a small grocery store can sometimes provide things (much) more cheaply than a megacorporation?

Mega corporations need to increase their returns to shareholders year after year. Mom and pops don't have anyone else to please but themselves - they're often ok with retaining same returns as last year

A lot of manual labor and optimization on the marginal things.

Ex: Raspberries start to get funky. Bad ones get picked out, good ones get regrouped into a new tray package. Ripe avocados with limited shelf life? Go into deep cold refrigerator overnight, back out the next day. Discount deal on volume, on everything ("2 for $X"). Cash only. etc.

It is likely partly due to cost optimization (the shelf are rarely that organized in these stores) and the fact that they don't sell fresh produce.

The thing I don't get is farmers markets being more expensive.

People shopping at farmers markets are presumably less price sensitive than the general grocery buying public.

Farmers markets are incredibly shitty inefficient ways of getting food from farm to consumer. Also the people who shop at them tend to be much much richer.

Farmers markets are often just diverting goods from the grocery store closer to you, for an upcharge (bc moving the goods one more time)

When you control most of the market it works out a little differently. People can only eat so much food, but you can price gouge them relatively easily.

Kroger, the largest grocery in America and one that routinely sets of anti-monopoly interdictions have a profit margin of 1.76%.

What profit margin line would you suggest counts as price gouging?

It's crazy how narrow big retail profit margins are in general. What a brutal business.

Doesn't that also count the investment losses they made last year, the cost of gobbling up other companies, the interest from the debt they acquired with previous expansionary practices, etc?

Sure, but you can run the numbers for basically every grocery in America. The industry considers 3% margins to be outstanding.

That reads more as an indictment against hyperscaled grocers than an argument that the current price gouging is unavoidable.

You can get the same numbers out of small scale grocers too. It’s a brutal retail business with low margins and easy replacement. It’s probably the last industry I’d look to for price gauging accusations.

The typical argument against monopoly grocer situations is that they are problematic for how they deal with _vendors_ not customers.

Just to clarify, that is their net margin.

Their gross margin was slightly above 30% last quarter.

Grocery stores have lots of operations costs. Real estate, employees (Kroger employs ~400k people), cold chains, logistics, etc.

Feel free to set the bar for price gouging via gross margin, but then you are just suggesting that you don’t want operational efficiency in grocery store price comparisons.

And they do $150B - $200B of gross per year. It's a massive business. I worked at Kroger Central Marketing decades ago when they rolled out the savings cards (which was a way for them to raise prices across the board AND track purchases in real time per shopper) and the strategizing over milk prices for a 1/2 a cent per gallon change was insane.

Reply on news.ycombinator.com