Brandeis' Thought Against Low Prices

In Grocery Story, Jon Steinman reveals an interesting facet within the history and rise of grocery stores- avoiding low prices:

Jon Steinman wrote:Brandeis feared a future of disproportionately powerful retailers driving prices to rock bottom and leaving manufacturers little choice but to lower the quality of their products to remain viable. While some might call a “lowest cost” culture “fierce competition,” others like Brandeis saw it as the end of competition.

Essentially, what I think they were trying to prevent is the ability of large enough stores to out price their competitors whom cannot afford to sell at lower prices.

I agree. At my house we call it the "race to the bottom". It's getting harder to even buy quality stuff. For example, Rubbermaid totes used to be made in the States. Walmark wanted them to cheapen them down, and effectively put them out of business when they refused. The owners sold out, including the name. We've still got some old ones and I can clearly see that the plastic is thinner on the only ones available for sale now. They aren't strong enough for some of our old uses.

Grocery stores are no different. Too often, the price pressure puts more and more pressure on the primary producers (AKA farmers) which has accelerated the loss of small family farms and the rise of agro-agriculture. The publicity was all about "food for everyone", but the result is more calories but less nutrition.

I am not so sure.

I know in the dairy farming industry, it used to be that the retail stores used to make the most profit out of a gallon of milk, but now that has changed to the creamery. That is because they have learned that protein can be removed from the milk, and then placed in other salable units. If you read a label and it says "added protein", it most likely originally came from milk.

That is why we no longer get paid a premium for "butter fat content" like we used to, instead, we get paid a bonus if our protein content is higher. To get that, we have completely changed how we farm, and also changed the equipment we use to farm.

Really it is just technology. Creameries can now literally take apart milk, separate their components, and then put milk back into milk. That is why you see skim, 1%, 2% and whole milk...they can easily seperate it. What you do not know is, they actually add sugar to milk too, just to sweeten it so that more people drink it. That is kind of sad, but that is the truth.

So the retailers, they are just left selling the products, and at giovernment mandated prices, while the creameries are free to charge what the market will bear, on multiple markets!

My only real grip is, what other industry (other than blueberries) do they come to your farm, take your milk, disect it, put it intio multiple products, sell it, and then two weeks later send you a check for what THEY feel it was worth? I mean it is already consumed by consumers, we have no way to get the milk back if we dislike the price we are given. That seems so wrong to me.

Dave Burton wrote:

Essentially, what I think they were trying to prevent is the ability of large enough stores to out price their competitors whom cannot afford to sell at lower prices.

I've picked up on something peculiar in my area. Remember when those two "big box" home center, or hardware stores, came onto the scene some thirty years ago, and were putting small mom & pop hardware stores out of business? I've noticed that after the small competition was extinguished, prices slowly started to rise. I am fortunate to have a local hardware store in a small town about a twenty minute drive from home that survived. The blue colored big box hardware store is 35-40 minutes away, so I often call the local store to see if they carry what I'm looking for, and inquire about their price, all while looking at the website of the national chain competition. Here are a few recent examples of the big box store. A 100 foot roll of 4 inch corrugated drain pipe was $84.99 at the big box store, it was $49.99 at the local store. A 10 foot x 2 foot roll of 1/4 inch square metal hardware cloth was $11.97 at the big box store, the local store charged me $8.49. A 12 foot 2x6 of no.2 pine, $9.38 at big box, $8.05 at local store. These are just a few examples, and I'm sure not every item works out this way.

My perception is that once the national corporation undercut the competition, running most of them out of business, can now charge more, even price gouging, reaping massive profits. The orange colored big box store had a net profit in 2018 of 11.1 billion dollars, up 28% from the year before. Many shoppers in metropolitan areas don't have choices anymore, except from which big box store to go to, and often pay whatever the price is.

James Freyr wrote:

My perception is that once the national corporation undercut the competition, running most of them out of business, can now charge more, even price gouging, reaping massive profits.

And now on-line shopping is taking this one step further, and I expect the same thing will happen - once they've captured enough market share, the prices will go back up.

Our small local hardware is part of a chain and we're regularly amazed by what they can and will order in for us if they don't actually have space/demand to carry it. This won't help if one's in a rush, but if we've planned ahead on a project, it will do the job. Our store is really good about it, but when I tried that technique at the one by my sisters, it took a lot more work on my part because they were soooo... much more "citified" that the concept that I wanted two 50ft roles of 1/2 inch hardware cloth to keep the bunnies from eating their backyard beans and raspberries, the poor staff just couldn't cope - how sad!

Generally speaking; the big box stores stay low on prices for the high turn over items like roofing shingles, paint, electrical, etc. But the smaller stuff they do not sell a ton of, they are typically higher than local hardware stores.

That is why I seldom go to big box stores, unless I am doing a big job. Like doing major electrical work. At one I can get an outlet for .69, where as at my local hardware store, they are $1.69. When you buy 50 of them, that adds up, not to mention the high cost of 12-2 wire and whatnot.

My local building supply store fills in the gap. For building materials, I can just call them, and they will drop it off whatever I need within the hour. I could not even drive to the big box store in that amount of time.

It wasn't too long ago that no organic food was available in the bigger nationwide stores.  This allowed niche stores (whole foods, etc) to grab the market. Now it is everywhere,  to the point that Whole Foods may have lost relevancy.  

There is so much more going on now that a small mom and pop is at a big disadvantage. Online ordering and pickup,  where you don't have to leave your car, being one of them.

Heck, today there may be more onions sold in a pre chopped plastic container than as whole onions.. That kind of tells me selection is as important as price because whole onions would be cheaper.

James Freyr wrote: I've noticed that after the small competition was extinguished, prices slowly started to rise.

My perception is that once the national corporation undercut the competition, running most of them out of business, can now charge more, even price gouging, reaping massive profits.

Here's an excerpt from the book that describes grocery pricing in areas of different levels of market concentration. It demonstrates how when the number of grocery options decreases, prices do indeed rise.

Walmart has been charged with predatory pricing a number of times.  They sell key products at a loss until they drive local competitors out of business and then raise their prices when there is no longer any competition.  Here is one article about it:  Predatory pricing