About 15 years ago, I left the City and started a business importing organic products from Latin America. One of the most successful products we dealt in was a wonderful organic oil aimed at the beauty sector.
Interest in both natural remedies and especially organic products was on the rise, so it was little surprise that a wonder-oil, with proven effects on rejuvenating the skin and ironing out wrinkles would be a goer. And the only existing competition at the time was an inorganic oil that looked like a hugely inferior product.
We were very excited. You could buy 20ml of the inferior product for about 15 quid. And even with my far superior oil, I’d only be paying something like 20p for that amount of raw material. I could have it bottled and labelled for another 10p. The profit margins were fantastic.
So I couldn’t wait to get cracking with the new business. The guy that was set to do my bottling was a really nice chap, in many ways he helped me get cracking in this business. As well as bottling similar products, he retailed them too. I figured I needed a reality check about pricing, so I went to him: “I’ve got a problem with these margins”, I told him… “these mark-ups look incredible. Is this really the norm? Can I justify that sort of margin?”
And I’ll never forget his wry smile and friendly hand on the shoulder… “Now, Bengt. Look, I don’t want to come across like I’m profiteering or anything like that, but you’ve got to charge premium prices. If you go in low, it’ll look like the product’s inferior. In fact, with that organic oil of yours, you want to go in higher!”
You are being ripped off
I learned that day that the price you and I pay for products has very little to do with supply and demand. In fact, you would be appalled at the difference between wholesale and retail prices for many goods. You may not know it, but you are being squeezed in all sorts of ways.
And that matters. Right now the official rate of inflation – as measured by the consumer price index (CPI) – was 2.6% in May. But as we’ve said before, there’s no way the reported inflation figures square with the inflation most of us witness in real life.
We’ve looked at the shortcomings of the reported CPI inflation figures before. But I think there’s another gremlin in the system – the issue of pricing.
Today, I’d like to explain just a few of the ways you are getting ripped off. And I’ll point to a few ways you can get around this problem. This won’t be your typical issue of The Right Side. I won’t talk about any investments… I just want to pass on a few useful experiences I’ve had over the last year.
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Profiteering in the real world
Do you ever feel like you’re being ripped off? Is the cost of your shopping continually going through the roof?
It certainly feels that way to me. Every time I come out of a supermarket these days I seem to be a couple of hundred quid lighter. Even if I just pop in for a couple of small things, 50 quid quickly disappears. The only place I’m ever pleasantly surprised is my favourite supermarket… the Turkish one.
You see, unlike the normal supermarkets, the Turkish guys genuinely do seem to operate on a supply and demand basis. Seasonal fruit and veg is stacked to one side, and sells in the original crates. Yesterday, I picked up a five kilo tray of luscious tomatoes for a couple of quid. A tray of nectarines, a bit more.
The point is the big supermarkets barely accommodate things like seasonality. There’s more of a ‘price-point’ thing going on – that is, price as high as you can, but not appear too expensive. This means that instead of varying prices too much, margins tend to vary. One month they can be making super-normal profits on tomatoes, but only turn a ‘normal’ profit on aubergines… and so on.
There are plenty of other tricks too. You’ll have noticed over recent years how chilled products have started to take up increasing shelf-space. That’s because these products afford much higher margins than their non-chilled equivalent. The general shift from ambient towards fresh foods isn’t properly reflected in the reported inflation figures. Yet, for most of us, it means the supermarket shop is getting more expensive.
This is important stuff. The real cost of living in Britain is climbing by the day. And very few people realise the degree to which they are being scalped on a daily basis.
So here are a few suggestions on how you can fight inflation…
A magical new experience
Now, there are still places that operate on a pure supply and demand basis. As well as independent supermarkets, you could also consider genuine markets (not necessarily fashionable farmers’ markets!) where you can buy cheap and in bulk. And when it comes to using the stuff, make the most of the vast wealth of information on the web for exciting new recipes and ideas.
New ways of shopping can be a whole lot more fun too… an experience in itself. If you ever get the opportunity to go to London’s Smithfield meat market, then definitely do so. Parking is £1.50 from 2.30am till 9am, yes, that is in the middle of the night, but at least you don’t have to pay the congestion charge if you’re out by 7am. There you’ll find the beautifully restored Victorian steel halls… full of character and full of history. You can vie with family butchers, caterers – and even celebrity chefs for the best cuts. Long gone are the days when these guys just traded huge hunks of meat. Today, most of them will butcher the stuff to your specific requirements.
What’s more, the prices can be a third (yes, that’s one third… not a third off!) of what you’d pay in the supermarkets.
How about trying out the poultry hall for your turkey at Christmas? If you want a new experience, and you’re looking to fill up the freezer on the cheap, then this is the way to go…
If you can’t live without the convenience of a supermarket, then consider going online for some of your necessities. If you find yourself spending a lot of money on certain things, then why not try buying in the wholesale market?
The internet has already opened up swathes of the wholesale market to consumers. Many wholesalers, and even manufacturers, now cater for semi-large retail orders. You can always try eBay and Amazon as many wholesalers use them to dump stock. But you can always hunt out specific suppliers online too… give them a call and see if they sell direct.
I can assure you, wholesale prices can be very, very different from the retail equivalent. OK, you may not get the fancy packaging, but do you really need it? Maybe even share a bulk order with friends and family.
To some extent, we’re all suckered into the whole convenience angle of the supermarkets. But don’t think for one moment that these guys operate a transparent pricing policy… they don’t. And anyway, it can be fun to try something different – and it may save a fair few quid too. If you have any other great ideas, why not tell us all about them by leaving a comment below.
• This article is taken from the free investment email The Right side. Sign up to The Right Side here.
Information in The Right Side is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. The Right Side is an unregulated product published by Fleet Street Publications Ltd. Fleet Street Publications Ltd is authorised and regulated by the Financial Conduct Authority. FCA No 115234. http://www.fsa.gov.uk/register/home.do
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