For shoppers today, less (cost) is more

August 11, 2009

For shoppers today, less (cost) is more

So much talk about shoppers saving money by buying private labels has failed to tell how much they actually help their wallets with each basket of staples. Cost figures have also been absent from many tales of people spending more on organic products. While new shopping behaviors are obvious, their impact on household budgets has been less clear.

Now comes a limited study that compares the dollars-and-cents everyday prices (no promotions) of 27 mainstream household staples comprising a basket of foods and nonfoods. The study, The Cost of America’s Groceries, by IBISWorld, compared prices of private label, name brand and organic products sold in conventional grocery and organic/natural foods stores in New York City, Los Angeles and Chicago. From the least (PL) to the most expensive (organics), they found a nearly 40% price spread, with national brands at the approximate midpoint of the range.

In the carts of researchers were: bread, chicken, beef, pork, milk, vegetables, butter, flour, frozen pizza and other common foods, along with paper towels, toilet paper, shampoo and laundry detergent. Basket descriptions were identical in each city, though brand availability was not.

The United States average (based on these three cities) was $102.40 for the private-label basket, $119.47 for name brands, and $140.95 for organics, with the latter figure representing both retail channels, the grocery and organic/natural foods stores, said IbisWorld.

“Large supermarkets have bypassed wholesaling activities as much as possible, and by taking greater control of the entire supply chain they have been able to minimize the cost structure for store brands versus competing products,” said George Van Horn, senior analyst with IBISWorld. “Organic markets still look to ‘own the supply chain,’ but they operate on a much smaller scale, resulting in markups.

The city-by-city comparisons showed some significant price differences. For instance:
•    The lowest grocery bills were Chicagoans buying private label ($92.04) vs. $104.54 for New Yorkers and $110.64 for L.A. residents buying the same.
•    The overall average by city (including PL, name brand and organic purchases) wound up within $9 of each other per basket - $115.73 in Chicago, $122.66 in New York City and $124.43 in L.A.
•    Because of L.A.’s proximity to Mexico and California’s own hefty output of produce, its organic basket cost less than in the other cities. The figures: $137.52 in L.A., $142.37 in New York City and $142.95 in Chicago.

The researchers told that this was an inaugural report on this topic. To benchmark these findings and perhaps expand the study to other important food channels and other cities could help map pricing trends and, if further refined, consumer elasticity by product types. In the wake of this recession, which has revised much thinking about pricing, explorations like these could be quite valuable.