So I was in my local Grocery Outlet, a local discount grocer that buys up overstocks and random stuff that couldn’t be sold in traditional grocery stores, and noticed not one, not two, but THREE different cornmeal-crust low-gluten frozen pizzas. Which I’ve *never* seen in a traditional grocery store. They come and go at this store, so I bought one of each while I could.
So, why are these friggin’ pizzas so hard to get? For that matter, why is it that I can find things at these discount outlets that I *never* see at mainstream stores, whether we’re talking Safeway or regional chains? Well, it turns out that it’s because these stores are no longer in the business of selling groceries. They’re in the business of selling shelf space to the highest bidder. They don’t make money selling groceries. They make money on shelf space rent. And any time that a new company comes up with a great new idea and manages to rent some shelf space at one of these grocery stores to sell it, one of the established vendors ups their shelf space rent bid and outbids them.
So no cornmeal crust pizzas at my local supermarket. The two established frozen pizza giants, Nestle (formerly Kraft) and Schwans, simply outbid the newcomers every time they manage to get some shelf space and then fill the new shelf space with new varieties of their various pizza “brands”. That leaves specialty stores that don’t do shelf rent as the last place left to sell their goods. Which apparently is enough to keep these people in business, but it is nowhere near as profitable as having your goods in every Kroger in America.
Now let’s look at two things: Food pricing, and investors.
On the investor front, it’s expensive to start up a food brand and establish national distribution, millions of dollars at least. Investors want a return on their investment. If you can’t provide it because you can’t get your food on the grocery store shelves, eventually the investors will lose patience and either close you down or sell you to one of the established food giants (same thing, since they’ll merely close you down). Discount outlets can keep you limping along for a while, but eventually the investors will get impatient, and then POOF.
On the food pricing front, what you buy in your local Safeway is priced by the manufacturers (big chains do their own distribution and don’t buy through distributors) as “base wholesale cost + shelf rent”. So you’re paying to monopolize the grocery store shelves — when oligopolists bid higher to get the shelf space, they raise the cost of their goods, and the grocery store shrugs and passes it on through since they make their money on shelf rent rather than food sales. The reason why the discount outlets can price their food so much lower is that their food is priced as “base wholesale cost + small profit”. Their prices aren’t constantly escalating as part of a bidding war to monopolize the grocery store shelves to keep small manufacturers out of their stores, their prices are pretty much set at what it costs to buy the food at wholesale plus a small profit margin. The downside is that the established national brands don’t like to sell in bargain chains because then they’d have to compete with new upstarts — and would not fare well by comparison — meaning that the bargain chains are largely filled with odds and ends and unknown brands. If you want a specific brand of pickled jalapeno peppers, for example, you’re likely out of luck — you’ll have to go to the mainstream supermarket for those. The bargain chain may not even *have* pickled jalapeno peppers, depending upon what’s available in the marketplace.
Which is how capitalism makes sure that the mainstream supermarkets stay on top and the discount markets stay as second fiddle. People often confuse “capitalism” and “free markets”. But the two are entirely different. Note how capitalism, above, limits your choices by basically buying the marketplace. A marketplace that is 100% owned by a few people is not a free market — it is a managed market, no different from if a Communist government were in charge deciding what was going to be stocked and sold in supermarkets. As with Communism, taking capitalism to its logical conclusion ends up with controlled markets and less consumer choice because of the power of oligopolists to drive innovation out of the marketplace before it stands a chance to threaten them. People who worship at the altar of capitalism are like people who worship at the altar of Communism — zealots who should be shunned as not fit for civilized company. Capitalism, like state ownership of some of the economy, is a tool. People who claim that all needs can be provided by capitalism without any state intervention or oversight — or by socialism for that matter — are idiots. Period.
– Badtux the Economics Penguin
I like pie
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Ah, so that’s how Grocery Outlet manages such prices. One just opened near me, at Lawrence and Homestead; I will definitely have to make visiting a priority.
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Somebody else besides Bronco Bill Kook likes pie now too? I wish I coulda seen that. Musta been a Glibbo, eh?
And congratulations for pointing out that “capitalism” and “free enterprise” (the latter term being the one I prefer) are not the same thing.
I have read about the “placement fees” before, but I had no idea that the practice had become so prevalent. That explains the crappy range of choices in supermarkets, and why I can’t find Pepsodent toothpaste. I have to go across the border to buy it (not sold in Canuckrainia) but even there, it’s harder to find it due to the domination of the Crest/Colgate duopoly.
As far as grocery stores and their rent-seeking, what is that except another grift? America is Griftopia (H/T Matt Taibbi.) Instead of doing a legitimate business, as the business has always been understood, the corpos have decided it’s more profitable to milk money (pun intended) with gamesmanship. That’s the economic model for so many enterprises now, like auto manufacturers which make more money from lending money than they do from selling cars, or banks which get their profit from writing loans that are destined to go bad, but not until after the originating bank can offload them in the form of bonds to Norwegian teachers’ pension funds or (now) the U.S. government and/or the Federal Reserve.
A system based on bullshit, instead of honest work, will eventually collapse when the lying hits the hard limits of physical reality. The eventual downfall will be spectacular to watch! Too bad it will kill 90% of us as it’s falling into pieces…
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