[gherkinnn]

I expect businesses to bump prices.

Bump em because of tariffs, bump em some more to pad the margins because what is an extra 5%, bump em even when they're not affected by tariffs because everyone else is doing so, and delay un-bumping them once tariffs fall again.

[ceejayoz]

Yup. My grocery store raised bananas from 49¢/pound to 55¢/pound this week, with a sign about 10% tariffs… but the tariff would be on their wholesale costs, not the shelf costs. They're probably paying 1-2¢/pound extra.

People have a hard enough time understanding who pays tariffs. Stores'll be able to muddy the waters this way pretty much at will.

[Aurornis]

Grocery stores have famously low margins. Everyone thinks they’re cash cows, but they have some of the thinnest profit margins of common consumer businesses.

Stores often sell common staples like bananas, generic milk, and other basics at close to cost. They’re the things that get people in the door. They make their profit on things like cereal, deli meats, packaged goods, and other non-staple items that people also buy once they’re inside.

It’s similar to how many gas stations compete on cost of gas to get people there, but hope that you’ll stop inside and get a $6 drink or some $5 packaged snacks.

Then you have to consider all of the other things that go into a store are also tariffed. The parts for the trucks that transport the bananas have tariffs. Many of their cleaning supplies. Parts for the checkout registers. The light bulbs they have to replace. Many of those tariffs could be well over 100%. They have to make up that price in the cost of bananas and everything else.

[Eisenstein]

I thought they made a lot of their money selling the desirable shelf space.

"Many grocers earn more profit from agreeing to carry a manufacturer's product than they do from actually selling the product to retail consumers."

* https://en.wikipedia.org/wiki/Slotting_fee

[OptionOfT]

I moved to the USA from Belgium, and in the USA I have also seen that the lessee of said space stocks the shelves.

Of course, I didn't know this, which was very weird when I saw someone those stocking shelves, only to be met with a 'sorry, I don't work here' response when asking them a question.

[therealpygon]

It depends. Some companies choose to stock shelves themselves in order to make sure their products are properly stocked. Coke/Pepsi and their subsidiaries are this way. It ensures that old out of date product isn’t getting shoved to the back of a shelf, allows them to keep a better track on refills (thus an estimate of sales), so on and so forth. In other cases, the store sometimes requires it to alleviate their own stocking burdens. The vendors are also generally the ones who set up the sale advertisement displays (end-cap or stand-alone). It tends to be a win-win because the vendor gets to advertise with a large display and the store may sell more product (and doesn’t have to set the crap up or take it down). Though, anything can be anything from store to store, so these aren’t “rules”.

[ceejayoz]

Low margins, high volume. The family owners of our regional privately held grocery store chain (Wegmans) are worth billions. They're making plenty.

[Aurornis]

Everything in the world makes more sense when you accept that it’s all supply and demand. The net worth of the family that owns the business is irrelevant.

[ceejayoz]

Supply and demand can both be impacted by perception, which can be tweaked by humans.

If tariffs increase the wholesale cost of an item by $1, but you can make consumers think $5 retail is what the increase should be, that’s an extra $4 in your pocket.

Economics education doesn’t stop at 101 for a good reason. “Supply and demand” is like “veins carry deoxygenated blood” - it’s largely true, but further learning reveals complexity.

[therealpygon]

Yes. If people are unwilling to pay $5 more, they will buy less or buy none. That decreases profits due to decreased demand. Now there is more supply than demand, which means you need to make the purchase more attractive, which generally means spend more on advertisements/rebates, lowering the price to an acceptable rate or improve the product value. Or strike a balance where you shrink both the cost (size), and price, and advertise the cheaper price to make people think they are getting a better deal when they are really just buying less for the same price (or more). Round and round it goes; supply, demand, and misleading.

People should remember that it isn’t just the corporations who raise the price that are at fault, it is the people who are unwilling to go without it when the price is overinflated. Yes, then we nit-pick into things like medical necessity and … thus back to the point that it is both supply and demand, and not.

[Aurornis]

> Supply and demand can both be impacted by perception, which can be tweaked by humans.

Supply and demand is impacted by many factors, but it’s still supply and demand.

You can put different labels on different components of the influences, but at the end of the day it’s still supply and demand.

[dylan604]

How much of that wealth is tied directly to the store chain vs investments they have made elsewhere?

[ceejayoz]

The chain, itself, did $11B in revenue in 2020 for its ~100 stores. It's privately held, largely by the family and their friends. I certainly don't doubt they've purchased other investments with the proceeds over time, but they're making plenty.

[gruez]

>The chain, itself, did $11B in revenue in 2020 for its ~100 stores.

Revenue =/= profit. OpenAI has similar amount of revenue, but is nowhere near profitable.

>I certainly don't doubt they've purchased other investments with the proceeds over time, but they're making plenty.

The point isn't what they did with the profits, it's whether the profits are commensurate with the capital they put in (ie. return on equity).

[mistrial9]

no - I guess that the massive net worth of that family is related to capital investments.. the value of the property that a store sits on, with no debt.. skillful use of traditional investment vehicles using a predictable cash flow. things like that. Many frugal and tireless small business in the large port city here in California fail.

[ceejayoz]

Wegmans has long been known for an extremely high revenue per square foot for grocery stores, and their stake in it is absolutely worth billions.

I’d happily take 2-3% margins of their $11B in revenue (2020 per Wiki).

[danesparza]

Pretty sure those bananas are grown elsewhere. Hopefully we'll still be able to get bananas in the near future. At some point, buyer demand will drop so much it may not make sense to ship them.

[ceejayoz]

> Pretty sure those bananas are grown elsewhere.

Yes. But the tariffs are on the import price, not the shelf price.

The shelf price went up as if it were on the shelf price, because consumers won't realize/understand the distinction. (Hell, a good proportion of the population still thinks someone else eats the costs entirely.) We saw the same thing during COVID - "it's because of COVID / supply chain issues" was the magic wand you could wave around to raise prices. Some of those increases were warranted, for sure. But all? Almost certainly not.

[StackRanker3000]

But what do you mean by “warranted”? Businesses are free to set their prices as they see fit (with some caveats), and you generally expect them to do so in a way that maximizes profits.

The prices before these tariffs were arrived at by some confluence of factors such as cost and competition, it wasn’t some universally agreed “fair pricing” scheme that determined them. So what does it mean for a price to be warranted?

Now businesses have to raise prices because of the aforementioned tariffs, and, you speculate, they will add some extra margin because they think the customer is primed to accept higher prices right now than they’d normally be.

First of all, is that the end of the world? If this is only made possible because the wool has been pulled over the customer’s eyes, then at some point there will be a correction in the other direction - unless you’re saying that there is actual and widespread price-fixing (which is illegal and enforced as such). This particular mechanism on its own won’t cause prices to spiral out of control or anything.

Secondly, even if you think it is bad and don’t want it to happen, how would you prevent it? I can’t come up with a single feasible approach that isn’t basically halfway to socialism (which is fine if that’s your preference, but then that’s a larger conversation).

[ceejayoz]

> But what do you mean by “warranted”?

In this case, I believe many companies raised pricing more than they needed to, because people misattributed the source of those increases. If, say, ice cream doubled in price in normal times, people would cry foul. COVID gave an ironclad excuse.

> unless you’re saying that there is actual and widespread price-fixing (which is illegal and enforced as such)

I see very little evidence of this. We're great at innovating new ways to price fix without attracting (or successfully fighting off) regulatory attention.

Like outsourcing the price decisions to a third party…

https://www.propublica.org/article/senators-introduce-legisl...

https://www.reuters.com/legal/government/data-company-agri-s...

[danesparza]

Import price + margin (and that covers a lot of ground) = shelf price.

So the one is necessarily influence by the other. I'm not sure where the breakdown in your understanding is. Trying to make a distinction doesn't really make sense. Somebody IN THE UNITED STATES is taking the brunt of this. More often than not, it will be the end-consumer.

"We saw the same thing during COVID" hints that you might understand the larger picture. You're on the right track: This comes down to supply chain costs.

[seanmcdirmid]

We haven't had 49 cent bananas in my market for a longtime, so I'm wondering if they were adjusting for tariffs as well as just general inflation at the same time (but the sign wouldn't be honest in that case).

[dylan604]

is truth in marketing still a thing?

[gruez]

It would hinge on the wording. "impacted by tarrifs" or "caused by tarrifs" probably won't be illegal, even if they're arguably misleading.

[fallinghawks]

Back when the price of crude oil was in the news a lot, if a rise was announced, gas stations would immediately hike prices, even though it takes like a month for the oil to be refined into gas and delivered to the station.

[Aurornis]

Inventory is priced and sold according to market conditions, not the cost of goods.

Everyone does this. If someone was trying to sell their old car and they saw news of upcoming tariffs on cars, they’d expect to sell their car at a higher price even though the tariffed cars haven’t arrived yet.

A second factor is that volatility and unpredictable policy raises risk, which increases prices. There will be a lot of price increases in excess of base tariff rates simply because everything is changing rapidly on the whims of this administration and businesses need more buffer for unexpected shocks.

If you’re a company who set up manufacturing in China, placed orders 4 months ago, and you’re watching the tariff rate change from 65% to 125% or more in the span of days with threats of more, you have to increase your prices a lot to have more buffer. Those parts you ordered now have an unpredictable price tags attached when they arrive at the port. It’s completely out of control.

[CobaltFire]

Interestingly I’ve seen the exact opposite happen and cause major problems.

In Japan the US Military buys fuel and sets the price at its on base stations according to what they purchase it for. On several occasions when I lived there this resulted in the Base CO having to address everyone and tell them if they don’t buy the fuel (that is now significantly cheaper outside the gate) then the Exchange cannot buy new fuel, and they may have to shut the station down permanently.

It never came to that; everyone just went and paid the higher price for a tank and the issue was resolved.

My point is that trying to price a commodity that moves prices like that by a lagging indicator is a great way to capture business on one side and a great way to go bankrupt on the other.

[ethbr1]

P/NE-X is a bit different, due to non-market drivers of how they operate. Aka if Walmart were instead run by Congress. ;)

[echoangle]

That's perfectly rational though. Stuff is priced taking into account the current value, and a raising crude oil price immediately increases the value of the already refined product. Just like falling prices would immediately lower the value of the already refined product.

[ytpete]

Do falling prices in crude oil reflect in gas prices as instantly as rising prices in crude oil do though? I think that asymmetry is what the poster was calling out. It lets resellers skim a bit of extra profit off of the volatility, by raising prices quickly but lagging on lowering them.

[tmottabr]

The rational is more or less like this..

And i know i simplifying things A LOT here.. but that is the mentality behind it..

When crude oil price go up then gas station raise their prices because they know next they they buy it will be more expansive and they will need more money to afford it, so they raise their prices prices immediately..

On the other hand, if crude oil prices drop, it means that next time they buy it will be cheaper, but the gas they currently have was expensive, so they need to keep the prices up to recover what they already paid for it..

[01HNNWZ0MV43FF]

That's expected

If I bought a gallon of water for a dollar and then there was a terrible water shortage I would not let it go for two dollars

[ttoinou]

Maybe you believe in the theory that "price of good = cost + profit" ? It's wrong

[amanaplanacanal]

They have to. When it comes time to refill their tanks they need the money, which they won't have if they keep charging the old price.

[lallysingh]

Gas stations generally break even on gas due to high local competition. They'll try to profit from a service center or a shop.

[kangda123]

Uncertainty costs money. It's normal to require extra pay for extra risk.

[Aurornis]

Prices are always set by supply and demand.

The price will rise until it gets high enough that the product of sales * price falls.

It has always been that way. Businesses haven’t been selling goods and services out of the goodness of their hearts at an arbitrary price. It’s always supply and demand.

Tariffs are expected to reduced demand because they increase prices. This is why the stock market is down and nearly every economist is calling the tariffs a big problem. Companies won’t have room to raise prices infinitely because they feel like it, because consumers are about to be able to afford fewer things because the things they need are getting more expensive.

[iterance]

Supply and demand is one driver of economic pricing, but not the only driver. Efficient pricing is a complex topic and not as black-and-white as it seems. As demand falls, the price may be expected to fall, but there is an inelastic limit set by material, labor, transport, and taxation cost. A company may elect to decrease their profit margin per sale to offset increased costs, but there is only so much margin to eat.

In the current circumstances, though, companies do not have a choice to lower prices. The basic cost of taking an item into inventory from these suppliers has risen significantly, in most cases well above 2024 margins.

The net effect is that, despite the market's best effort to correct prices to within an affordable range, costs may rise considerably and availability may still fall regardless. Under severe shock to the system, the usual maxims that account for nominal shifts in day to day trading no longer apply.

[Aurornis]

This is just semantics. If it becomes untenable to supply a good at a given price, the supply for that good decreases.

Then supply and demand reach equilibrium.

Supply and demand doesn’t mean that either or both supply and demand remain constant. Both supply and demand change depending on the price.

[ceejayoz]

> Both supply and demand change depending on the price.

But that's a massive oversimplification. It's like saying programming is "just typing". Technically, sure; accurate, no. There's latency in the real world. Bad actors. Information asymmetries. Regulations. Monopolies. Stuff you can't do without and can't even always decline (ambulance ride for an unconscious person). Fake news about a supply crunch changes demand without changing supply for a while.

[ethbr1]

Most relevant in modern global economies: lack of available alternatives.

One of the primary reasons for combination in low-margin markets is to gain pricing power. And even if there are 2-5 entities in a given market, informal price collusion is far from unheard of.

If OP wants an intro to the determinants of price elasticity, starting here would be a good idea: https://en.m.wikipedia.org/wiki/Price_elasticity_of_demand

[bryanlarsen]

It's a lot more complicated than that. Prices are sticky. When you raise prices, consumers notice and your sales go down. Therefore price changes are generally larger and less frequent than would be indicated by a pure supply & demand situation. And that's just one complication among many.

[ceejayoz]

The demand side in particular can be tweaked by human factors, though. We have advertising because the level of demand isn't some fundamental cosmic constant of the universe like the speed of light.

"The price went up 10%, that must be the 10% tariffs" is something consumers will inherently understand… but it's not the case. The 10% is not on the on-the-shelf price; it's on the wholesale price the importer's charging. The $20 shirt at Old Navy is probably $4 (with $0.40 in tariffs added) for tariff purposes… but they'll add $2 to it anyways, because consumers will go "oh ok". There's a massive information asymmetry here.

The unpredictable nature of these specific tariffs is fairly unique, too. The rates change randomly, with zero warning, and how they're set isn't sensical. With ships across the ocean taking weeks, that's gonna chill the supply side as well.

[bryanlarsen]

We recently had a good article about the tariffs and the price of shoes here which had a good explanation for why the retail price goes up at the same rate as the tariff. Sorry I can't find and link it.

1. The average apparel retail store margin is nominally 50%, but half of that margin is given back to the consumer for their ubiquitous sales. So that $20 shirt costs the store $10, but the average selling price is actually $15. So if they directly pass through the 10% tariff, it adds $1 to the average $15 sale on that $20 shirt.

2. Increased prices reduce sales. Non-product costs are fairly fixed, so just passing through the tariffs will have a significant impact on store profitability. Retail stores are going bankrupt left and right in this Amazon age. They don't have the capacity to absorb increased costs, if they don't pass them on they'll just go bankrupt more quickly. So that $1 in tariffs turns into a $1.50 price increase.

[danesparza]

You can increase demand as high as you'd like. If people don't have money to buy it, they're not going to buy it.

[ceejayoz]

People need to eat.

[s1artibartfast]

Calories are cheap. You can get 2,000 calories for a couple bucks.

Everything after that is preference substitution.

This doesn't invalidate consumer demand. People judge society and ultimately governments based on if they are able to obtain their preferences.

[dh2022]

Re: "You can get 2,000 calories for a couple bucks." Extraordinary claims require extraordinary evidence. Can you please let us know how can you get 2,000 calories for $2?

[danesparza]

From https://www.newsweek.com/walmart-loses-22b-consumer-confiden...

"You can see that the money runs out before the month is gone, you can see that people are buying smaller pack sizes at the end of the month," McMillon said.

They do need to eat, but they are eating less - and not by choice. They don't have the money to buy what they want to. No amount of advertising will fix that.

[ceejayoz]

Smaller pack sizes cost more per unit!

People think they're saving money that way. They often aren't.

[Yeul]

Apparently my country is technically capable of being self sufficient but people diet would have to change back to the 19th century if we were completely cut off (no coffee, tea, tomatoes, bananas, shiracha sauce).

[xnx]

> Prices are always set by supply and demand.

True, but human psychology is a huge confounding factor. One area where this is evident is gas prices that "go up like a rocket, and come down like a feather" in response to crude oil prices. Simple supply and demand does not explain this.

[dstroot]

There is inelasticity in gas prices. If the cost of gas goes up you still have to drive to work and the supermarket. Eventually you buy a more fuel efficient car or switch to an EV.

[4ndrewl]

The reason the stock market is down is because of the raging uncertainty of the environment in which businesses have to navigate. Multi-month, let alone multi-year planning has become impossible. Businesses can deal with tariffs, taxes and costs. What they can't deal with is uncertainty.

[enragedcacti]

> Prices are always set by supply and demand.

Normally I'd make a joke about econ 101 but I'm pretty sure you'd lose points for answering with this in an econ 101 class

[lvl155]

You ever heard of pricing power? Monopoly and monopsony?

[weakfish]

I am so tired of people echoing “supply and demand” like it’s Econ 101. The modern market is infinitely more complex with infinitely more ways to create inefficiencies that don’t respond to simple supply and demand.

[mindslight]

The problem is that focusing on supply and demand ignores all the ways markets are sticky and not efficient. Asserting that markets are efficient is equivalent to asserting that P == NP.

It's especially galling because if markets actually worked this way, then central planning would work as well.

[barbecue_sauce]

"Econ 101" people always seem to ignore that there are higher level economics courses that further expound upon the many complexities, nuances and vagaries of "supply and demand."

[throwaway83845]

In my experience, once they raise prices due to "external reasons", once they lower prices they are almost always higher than the original price. At least for goods that people buy anyway

[rlpb]

Of course businesses charge the maximum the market will tolerate. That’s how it’s supposed to work. No need to treat this as surprising, nefarious or unexpected.

[snarf21]

They did the same for inflation and oil prices and any other thing they can blame on someone else.