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Increases at the Grocery Store


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The cost of living has gone up everywhere from taxes to buying food at the grocery store. The drought out west, the increase of gas prices, and various diseases that are affecting cattle and crops are all contributing factors to the overall increase cost of meats, dairy and produce. The increase in price at the grocery store are also being passed on to the customer due to the small margin of profit. Chances are you have to eat, so you might as well know why the cost of your food is going up!

Food Manufacturersgrocery 4

If there is one industry that does not like to see prices go up, it is the food manufacturers. Food manufacturers hate when food prices rise because there is no safe way to bet on the cost of food production because no one knows how high or low that food price will go. The Bureau of Labor Statistics has announced that the price per pound of ground beef increased in May 2014 as opposed to May of last year by as much as 16.5 percent. A pound of American Cheese increased in price by 11.1 percent. Many of the food producers are unsure whether or not the spikes in price will be temporary or more permanent. If it is short term then the profit margins would only be inflated for a short time. If in fact the spikes in prices are more permanent then the food manufactures will react in due time.

In recent years with the uncertainty of the global economy, food producers have come up with a few strategies that can help keep their profit levels afloat in times of fluctuation. Unfortunately for the consumers, it is often they who are left holding the difference in between the supply and demand aspect of grocery retail.

Changes at the Grocery Store

One: Reduction of Volume

One of the most common changes that occurs when the cost of producing foods begins to rise is the reduction of packaged volume. What this means is the size of the package of food you buy in the store will get smaller while often the cost remains the same. Chances are you’ve already noticed this when buying ice cream as products with dairy tend to be cut or their prices raise. Years ago one might have paid a fraction of what they are paying now for a gallon of ice cream, yet gallons of ice cream are no longer the norms to be stock on the frozen shelving.

For example: Cookie producer X might have produced a 20 ounce package of cookies ten years ago and sold it for 3 dollars. Due to rising costs of producing that cookie, they pulled the 20 package from the shelving and downsized the standard to 11 ounce packages. The price point of 3 dollars may stay the same or even go up because of this rising cost. You as the consumer continue to pay for the brand name X but are receiving less product for you money.

Two: Raise Costgrocery

As the cost of producing rises so too will the prices. Everything you buy in a grocery store is marked up so that the chain can make a profit on the items they are selling you. This you already know but need to understand that while the cost of production increases so too does the cost at which the grocery company is buying those products. In short, as the cost of production increases so does the wholesale cost which is then passed onto the customer to make up the difference. One of two outcomes is to follow, either the consumer will buy the brand because they’ve always bought the brand and are comfortable paying the additional cost or they will buy a cheaper brand. This is one of the reasons that food producers aren’t happy about the cost of food increasing, because it hurts their profit margins.

Three: Repackaging

Repackaging is a great way to fool the customer into thinking that there is a new product hitting the shelves. Many times the packaging becomes old and outdated which can contribute to a lag in sales. Many products over the years have undergone a face lift, in which more bold letters, enticing pictures and eye catching brighter colors are printed on the labels to attract customers to their shelf space. Any way that the manufacturer can advertise their product over that of a competing brand, will be their first course of action.

The increases that you are seeing in the grocery stores are inevitable. While many of us may not agree or be able to justify paying more for ice cream than we do a gallon of gas, we as consumers must pay attention to the tricks in which manufacturers and retailers engage in, in order to earn our business. Cost will almost always go up, but if you are looking to spend smarter and save money, then knowing why the cost is going up is your first step.

 

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