Mike Hosking: Is the butter debate really supermarkets ripping us off?

I hope you are following the butter debate, specifically the Costco part of it.

Why? Because it's an insight into how the world works, especially the economic world, and why Nicola Willis and her crusade to convince us supermarkets are ripping us off might be wrong.

Willis sighted Costco the other day when she once again reminded us she is back to business on the supermarkets and looking to break them up, or twist their arms, or regulate them where it hurts, so we can all feel so much better about the price of a trolley full of goods.

What she knew, she said, was competition is good for prices.

As I tried to say, that is school cert economics and, although partially right, isn't the whole answer.

Butter at Costco is $10 per kilo. Elsewhere you can pay $10 and get half that.

In that very example is part of the story - it costs different amounts all over the place on any given day, depending on where you go, or when you go. It’s a bit like petrol.

Also a bit like petrol, the end price is driven by international pricing. We pay international prices because we make the stuff and sell it. Its how we make a living and we should be celebrating this.

If farmers weren't doing so well we would be truly stuffed.

Costco, because they are large, as in globally large, buy more of anything than anyone here locally. Because of that their price per unit drops and their margins are smaller. Scale counts

Also, as the consumers group pointed out, it’s a loss-leader for Costco.

In other words they are losing money on every pack they sell.

Why?

Because it gets you in the store to buy other stuff. Remember, at Costco you have already paid a membership fee to be there.

So their butter isn't really $10 per kilo. They are eating the difference, as Trump would say, in the hope you buy stuff in aisle eight.

Lots of supermarkets run loss leaders. They also put chocolate biscuits at eye line to tempt you. It’s a clever business.

But Costco and their butter is not a real economic equation.

And there is no magic in their pricing, the way Nicola seems to think there is.

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Episode Transcript

Speaker 1 (00:00):
Ride oh seven twenty four. I hope you're following the
butter debate, specifically the cost Co part of it. Why,
because it's an insight into how the world works, especially
the economic world, and why Nikola Willis and her crusade
to convince us supermarkets are ripping us off might be wrong.
Willis cited cost Co the other day when she once
again reminded us after today's budget she's back to the
business on the supermarkets and looking to break them up

(00:22):
or twist their arms or regulate them where it hurts
so we can all feel much better about the price
of a trolley full of goods. What she knew, she said,
Whilst competition is good for prices, as I tried to
say yesterday, that's school cerdy economics, And although partially right,
isn't the whole answer. Butter at cost Co is ten
bucks a kilo. Elsewhere you can pay ten bucks be
half that in that very example as part of the story.

(00:46):
It costs different amounts all over the place on any
given day, depending on where you go or when you go.
It's a bit like petrol. Also a bit like petrol,
the end price is driven not by oil but by
international pricing. We pay international prices because we make the
stuff and sell it. It's how we make a living.
We should be celebrating this. If farmers weren't doing so well,

(01:06):
we'd be truly stuffed. Costco because they're large, and I
mean huge, as in globally large, they buy more of
anything than anyone else does here locally. Because of that,
their price per unit drops. Their margins are smaller scale
counts also, and here's a major clue, as the consumers
people told us yesterday, it's a lost leader for them.

(01:27):
In other words, they're losing money on every pack they sell.
Why because it gets you in the store to buy
other stuff. Remember also, at Costco, you've already paid a
membership fee for goodness sake to be there in the
first place, So their butter isn't really ten dollars a kilo.
They're eating the difference. As Trump would say in the
Hope you Buy Stuff in Il eight, Lots of supermarkets
run lost leaders as well all the time. They also

(01:49):
put chocolate biscuits at eye line to tempt you. It's
a very clever business. But Costco and their butter is
not a real economic equation, and there is no magic
in their pricing, the way Nicola seems to think there
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