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There’s a massive variation across sectors and a lot of it seems to be driven by the larger companies keeping profits high: if you buy a lot of processed food a

by acdha 3y ago

There’s a massive variation across sectors and a lot of it seems to be driven by the larger companies keeping profits high: if you buy a lot of processed food and beef, the supermarket prices are sky high. Costco seems to be largely insulated from that, presumably due to long-term contracts, and our farmers market pricing for things like eggs hasn’t changed much since the local producers weren’t buying huge amounts of feed or selling through the profit-taking middlemen.

ianai 3y ago
Costco limits its markup. Their profits are almost exclusively from membership dues.
- acdha 3y ago
  Yes, but I think it’s more than that - like during the egg shortage their prices didn’t budge, which I bet is because their contracts are both large and long-term. I suspect the large companies whose profit margins have skyrocketed are willing to let them have less inflated prices since they’re (probably correctly) assuming that most buyers are just going to go to the local supermarket.
  - ianai 3y ago
    Costco also has market power to force better prices from its suppliers as well as decades of relationships with them and industry writ large. I’ve heard they’re employing someone to build lettuce growing capacity near certain logistics points. It was someones pet project to grow lettuce locally that costco picked up. If the free market is let to function, they should eventually be able to eat the lunch of the competition. I bet they did something similar with eggs.
    - acdha 3y ago
      Oh, definitely. I just find it fascinating how much of a difference it makes - that upfront membership charge scares a lot of people away even though you can make it back with a single purchase on some individual items. The Econ 101 model wouldn’t have me thinking that big a gap would persist but it’s not exactly news that humans aren’t incredibly rational cost-minimizers.
      - ianai 3y ago
        Costco yesterday looked pretty similar to walmart. The news might be out.
- simonsarris 3y ago
  To be accurate for anyone wondering, Costco makes ~73% of its profit from membership dues

by acdha 3y ago

ianai 3y ago

Costco limits its markup. Their profits are almost exclusively from membership dues.

acdha 3y ago
Yes, but I think it’s more than that - like during the egg shortage their prices didn’t budge, which I bet is because their contracts are both large and long-term. I suspect the large companies whose profit margins have skyrocketed are willing to let them have less inflated prices since they’re (probably correctly) assuming that most buyers are just going to go to the local supermarket.
- ianai 3y ago
  Costco also has market power to force better prices from its suppliers as well as decades of relationships with them and industry writ large. I’ve heard they’re employing someone to build lettuce growing capacity near certain logistics points. It was someones pet project to grow lettuce locally that costco picked up. If the free market is let to function, they should eventually be able to eat the lunch of the competition. I bet they did something similar with eggs.
  - acdha 3y ago
    Oh, definitely. I just find it fascinating how much of a difference it makes - that upfront membership charge scares a lot of people away even though you can make it back with a single purchase on some individual items. The Econ 101 model wouldn’t have me thinking that big a gap would persist but it’s not exactly news that humans aren’t incredibly rational cost-minimizers.
    - ianai 3y ago
      Costco yesterday looked pretty similar to walmart. The news might be out.
simonsarris 3y ago
To be accurate for anyone wondering, Costco makes ~73% of its profit from membership dues