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Sunday November 24 2013

Indeed:

image

It is interesting how the prices of basic supermarket products now seems to fluctuate rather more than they used to.  My last stash of Gold Blend also cost £3 a go, for two.  Today, I bought three of these packets.  For the last few weeks it went up to £4.50, and I held off, waiting in hope of a price drop again.  Today, I was nearly out and would have to buy some, no matter what the price.  But, glory be, it was down to £3 again.

Could these fluctuations be a consequence of containers?  Is it that containers have made supplies of things like branded coffee less continuous, more prone to famine or feast?  And are we now enjoying a capitalist version of what happened under communism, in which suddenly a rumour would fly around Moscow saying that a consignment of meat had arrived, and immediately the queues would form.  With us, the news that Gold Blend is on offer at Sainsburys flies around on our mobile phones, or in this case is featured on my blog, at which point it’s first come first served.

Or is it merely that logistics geniuses, armed with super-computer-networks, are now able to do sums about the precise prices they need to charge at any particular moment for any particular thing, in order to make maximum use of scarce warehouse and store space?  If you get my meaning.

Or maybe it’s a bit of both?

Michael Jennings presumably knows the answer to these questions, because Michael Jennings (see the first two of these comments) knows everything .

I’ve worked in a few places in logistics (including for the supermarkets) so I’ll throw in my 2p worth.
Mass-produced foodstuffs (including that coffee) tend to be produced or at least packaged in close proximity to the UK, and shipped without the use of containers. Plastic or other non-perishable items (such as kitchen sponges) would arrive in a container on a ship from China.
Supermarkets generally run two levels or warehouse; National Distribution Centres (’NDCs’ in logistics jargon) and Regional Distribution Centres (RDCs).
NDCs are fewer in number and each cover a large area. Goods which sell in low volumes will be delivered by the manufacturers to NDCs, which the supermarket will then distribute in smaller quantity to the RDCs.
Goods which sell in large quantities will often be delivered by some arrangement direct to the RDCs, from which the daily deliveries to each supermarket branch are made. There is a trend for each branch to hold as little stock as possible, with continuous just-in-time deliveries moving down the chain.
Supermarkets and manufacturers negotiate delivery terms, usually resulting in each taking charge of a portion of the distribution process. Most of the time each will contract out to a Third Party Logistics (3PL in the jargon) provider who will run the warehouses and lorries etc. Sometimes that means that a particular product will be distributed in 3 or more stages by the same company, first on behalf of the manufacturer and then on behalf of the supermarket.
This process tends to run efficiently, with sales at the till almost immediately depleting the relevant stock figures, and generating orders for fresh deliveries down the chain. This is supplemented by sales and weather forecasts, such that when confident of a sunny bank holiday for example, extra barbeque goods will flow to the stores in time for anticipated demand.
To my knowledge, special offers as pictured are negotiated between the supermarket and manufacturer, at the request of either. Sometimes the supermarket will initiate one for competitive reasons, sometimes the manufacturer to move excess production (eg before a packaging change).
As a matter of opinion, I believe that offers such as this have became more common because there is ever increasing visibility of the prices in the various supermarkets, driven by the internet and the recent practice of the supermarkets price-matching each other and promising to give a voucher for any difference. The supermarkets like to have an eye-catching offer to break away (temporarily) from the price consensus and give people a specific reason to shop there, even as a loss leader if necessary.
It’s cheaper overall to distribute large quantities of a specific product for a short time than to maintain a constant low level of replenishment too, and if that creates a feeling of scarcity in the mind of the shopper then all the better to make their purchasing decisions slightly less rational.

Posted by Friday Night Smoke on 25 November 2013

FNS

A belated thankyou for that most enlightening comment.

Posted by Brian Micklethwait on 28 November 2013

Brian,

I’ve just found your blog, hence the belated response.

It would look like this is another American tradition, along with baby showers and, more recently, Black Friday, which has crossed the Atlantic.

Twenty years ago, when I lived in London, the prices at the local Sainsbury’s never varied much, so I went along whenever I felt like it.

Coming to the US in ‘94, I soon learned that prices did vary; also when supermarkets say an offer was for this week only, they mean it. As a result, it’s possible to save quite substantially on groceries, simply by going to the store at the right time and stocking up.

No doubt the bargain items are loss leaders intended to tempt people in, in the hope they will buy other things at full price. But, if you’re organised and live in a district with a lot of supermarkets, it’s possible to visit several and get all your groceries at bargain prices: cheap chicken here, cheap beef there. It’s a process made easier by local stores delivering flyers in the mail and, of course, the internet. As a result, for me the big shopping trip has become a thing of the past; rather, I spend a little at a lot of places.

For you happiness may be Gold Blend at £3.00; for me it’s large cans of tomatoes at 77¢, rather than $2.29.

Posted by Schrodinger's Dog on 30 November 2013

There are customers who aren’t price conscious and will pay full price and customers who are price conscious and will only buy at a discount. A business wants to make a sale to anyone who will buy at more than the marginal cost, but at the same time also wants those customers that are willing to pay full price to also do so. One way to make this more likely is to charge full price for most of the time and the discount price for short periods. Customers who are not price conscious will therefore pay full price most of the time, while customers who are price conscious will know that a sale is coming at some point, and will wait.

However, this is only one factor. Combine this with the fact that supply and demand can vary for all kinds of reasons (some of which supermarkets can predict - demand for ice cream will go up if the weather is hot - and some of which they can’t), and that in Britain we have an extremely competitive supermarket sector in which one supermarket will change prices very rapidly in response to the prices of its competitors, and price movements can become complicated.

I’m in agreement with SD in one particular respect - when I first came to the UK 20 years ago the supermarket sector here did not seem particularly competitive. These days it is absolutely ferociously so.

Posted by Michael Jennings on 01 December 2013

That increase in competition is largely due to two companies, I think: Tesco and Wal-Mart (who trade in the UK as Asda). The UK is a fairly rare market in which two of the world’s most ferociously competitive retailers compete ferociously with one another. Mostly, the best supermarket retailers tend to avoid one another, as there are large swathes of the world where they can instead stomp on local competition, which is much more fruitful.

Posted by Michael Jennings on 01 December 2013
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