[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 It ensures that old out of date product isn’t getting shoved to the back of a shelf, allows them to keep a better track on refills (thus an estimate of sales), so on and so forth.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.

[ceejayoz]

> at the end of the day it’s still supply and demand

What a pity we accidentally gave Nobel prizes out for things like game theory, then.

[s1artibartfast]

It's not a pity. It's a valuable tool to understand behavior as it relates to supply and demand.

Supply and demand isn't the only thing that exists, but basically everything else feeds into and informs it. It isn't the only starting position, but you can reach basically any point from it.

[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).

[ceejayoz]

> Revenue =/= profit.

I’m well aware. The assertion that gets made is “oh they’re low margin!” They are. But they have massive volume. So they make lots of money still.

> 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).

Well, they certainly didn’t start as billionaires a hundred years ago. The profits seem fine.

I’d be very happy to be in the business of selling $1 bills for $1.02, if the customer base is big enough.

[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).