Inflation

[janner]

Why are your breakfast cereals not dropping in price.

Sugar has.. Corn.. Wheat.. Has.. Paper Has.. Energy has...

[Ace]

Why are your breakfast cereals not dropping in price.

Sugar has.. Corn.. Wheat.. Has.. Paper Has.. Energy has...

Janner...asking the important questions in life. Cereal didn't taste that good this morning knowing I didn't buy it on a discount.

[silverblizzard888]

Why are your breakfast cereals not dropping in price.

Sugar has.. Corn.. Wheat.. Has.. Paper Has.. Energy has...

Because the notables you have mentioned are raw ingredients that can fluctuate in prices and for the businesses they need to keep certainty with the business, thus keep with steady pricing and allow for one-off promotion deals when they know they are in a secure position. What you observe is merely just the ingredients, how about wage increases? What if machinery got more expensive? Factory rents? What if they put prices down and then all of a sudden all those ingredients rise up in price dramatically? Can they afford to create price competition with their competitors either?

Just as we can examine with Air New Zealand where they made extremely good profits, the business environment does not always last and the key principle for any business is to keep to certainty. Yes sometimes they earn super profits, but other times they maybe squeezed to the hilt on their margins. There is too many factors to consider than just to narrow it down to raw ingredients dropping in price so thus the final product should drop in price. Usually the raw ingredient cost is the lower part when it comes to cost for the final product and cost like labour, machinery, building, storage, distribution and marketing can be more costly to them. So when raw ingredients come down in price and they can give you maybe 20 cents off, it might not be as noticeable and could essentially impact their business more than the demand increased as the price comes down slightly for their product.

[janner]

Petrol diesel fluctuate

[skid]

Because the notables you have mentioned are raw ingredients that can fluctuate in prices and for the businesses they need to keep certainty with the business, thus keep with steady pricing and allow for one-off promotion deals when they know they are in a secure position. What you observe is merely just the ingredients, how about wage increases? What if machinery got more expensive? Factory rents? What if they put prices down and then all of a sudden all those ingredients rise up in price dramatically? Can they afford to create price competition with their competitors either?

Just as we can examine with Air New Zealand where they made extremely good profits, the business environment does not always last and the key principle for any business is to keep to certainty. Yes sometimes they earn super profits, but other times they maybe squeezed to the hilt on their margins. There is too many factors to consider than just to narrow it down to raw ingredients dropping in price so thus the final product should drop in price. Usually the raw ingredient cost is the lower part when it comes to cost for the final product and cost like labour, machinery, building, storage, distribution and marketing can be more costly to them. So when raw ingredients come down in price and they can give you maybe 20 cents off, it might not be as noticeable and could essentially impact their business more than the demand increased as the price comes down slightly for their product.


In other words--It is the value added nature of the product that is keeping the price up--Cereal is one of the most ''value added'' products on the market...along with soft drinks,laundry detergent,and bottled water. They have big advertising budgets (how else could you convince us chumps to go out and buy water)

But dont forget Rates and water.(watercare)--They just simply levy that--You dont even (in most cases)have the option to not buy them..Free market monopolies..(the ultimate irony)

[Stranger_Danger]

"The property-casualty insurance industry is not only
subnormally profitable, it is subnormally popular. (As Sam
Goldwyn philosophized: “In life, one must learn to take the
bitter with the sour.”) One of the ironies of business is that
many relatively-unprofitable industries that are plagued by
inadequate prices habitually find themselves beat upon by irate
customers even while other, hugely profitable industries are
spared complaints, no matter how high their prices.

Take the breakfast cereal industry, whose return on invested
capital is more than double that of the auto insurance industry
(which is why companies like Kellogg and General Mills sell at
five times book value and most large insurers sell close to
book). The cereal companies regularly impose price increases,
few of them related to a significant jump in their costs. Yet
not a peep is heard from consumers. But when auto insurers raise
prices by amounts that do not even match cost increases,
customers are outraged. If you want to be loved, it’s clearly
better to sell high-priced corn flakes than low-priced auto
insurance.

The antagonism that the public feels toward the industry can
have serious consequences: Proposition 103, a California
initiative passed last fall, threatens to push auto insurance
prices down sharply, even though costs have been soaring. The
price cut has been suspended while the courts review the
initiative, but the resentment that brought on the vote has not
been suspended: Even if the initiative is overturned, insurers
are likely to find it tough to operate profitably in California.
(Thank heavens the citizenry isn’t mad at bonbons: If Proposition
103 applied to candy as well as insurance, See’s would be forced
to sell its product for $5.76 per pound. rather than the $7.60 we
charge - and would be losing money by the bucketful.)"

- Warren Buffett, Berkshire Hathaway 1988 annual report

So, what you're describing is definitely nothing new! Consumers seem to relate some things back to cost inputs, but not others. In other cases, they relate price back to totally wrong assumptions about cost inputs!

Cereal pricing seems to have very little to do with cost inputs.

[Hoop]

Why are your breakfast cereals not dropping in price.

Sugar has.. Corn.. Wheat.. Has.. Paper Has.. Energy has...

Why?..because you are being ripped off by Monopoly or Duopoly bastards...

You probably buy your Cereal from either 2 major players Foodstuffs or Progressive..who forever moan about low profits / low margins...they have their shelves hijacked by all the major NZ household brand players (pay for the name not for the quality) so their problem is their own making..

and the milk for your cereal?
NZ the dairy capital of the World we have milk flowing everywhere ...yet...we NZers pay one of the highest prices in the world for our milk..go figure.....thanks Fonterra NZ:p..

[beetills]

While on the subject of things overpriced,why is it the buying anything from a demolition business,eg doors & windows,is so bloody expensive.Virtually cheaper to buy new.

[janner]

and the milk for your cereal?
NZ the dairy capital of the World we have milk flowing everywhere ...yet...we NZers pay one of the highest prices in the world for our milk..go figure.....thanks Fonterra NZ:p..


Milk in Ukraine is 10 hrivna a litre Supermarket in tetrapak 14 with 17/18 hrivna to the NZ Dollar..

Ripped off ?????..

[fungus pudding]

Milk in Ukraine is 10 hrivna a litre Supermarket in tetrapak 14 with 17/18 hrivna to the NZ Dollar..

Ripped off ?????..

Yeah but how much is the postage?

[Stranger_Danger]

While on the subject of things overpriced,why is it the buying anything from a demolition business,eg doors & windows,is so bloody expensive.Virtually cheaper to buy new.

Because of the labour component. With the demolition stuff, work that was done at NZ wage rates, under NZ health and safety laws, with NZ standards of productivity is included in the price.

A lot of things you would buy new have very little of those three items in the price.

That is the number one issue the Western world faces : We all want to supply our labour and efforts at rates and conditions we're generally unwilling to fund when we're consuming instead of producing. (which is most of the time lol)

Almost every trend - globalisation, immigration, sharing economy, piracy of intellectual property, - is about hiding from this "ïnconvenient truth".

[Poet]

Because of the labour component. With the demolition stuff, work that was done at NZ wage rates, under NZ health and safety laws, with NZ standards of productivity is included in the price.

A lot of things you would buy new have very little of those three items in the price.

That is the number one issue the Western world faces : We all want to supply our labour and efforts at rates and conditions we're generally unwilling to fund when we're consuming instead of producing. (which is most of the time lol)

Almost every trend - globalisation, immigration, sharing economy, piracy of intellectual property, - is about hiding from this "ïnconvenient truth".

Very well said Stranger-Danger, and absolutely the major problem to be faced by first world countries over the next 50 years. Personally, I don't see it ending well.

[Arbroath]

Milk in Ukraine is 10 hrivna a litre Supermarket in tetrapak 14 with 17/18 hrivna to the NZ Dollar..

Ripped off ?????..

Tell you what janner. You have the average wage and cost of milk in Ukraine and I'll take NZ wages and cost of milk.

These me sorts of comparisons with poor countries or countries with 100m people etc are just meaningless.

In NZ a big box of weetbix costs about $6-7 and 2 litres of milk say $3-4. That's about a dozen breakfasts = maybe $1 a breakfast if you're lucky. Pretty good value and not worth complaining about imho.

[fungus pudding]

While on the subject of things overpriced,why is it the buying anything from a demolition business,eg doors & windows,is so bloody expensive.Virtually cheaper to buy new.

Not everything is - they get what they can, but they have to chuck heaps out. Don't underestimate the labour, cartage and storage of demolition materials.

[percy]

Had a friend who was a Car Wrecker.
He used to get upset if he did not pay for the car, with just the proceeds of what he sold out of the car's boot.!
Driving along the road with one day he stopped to pick up a wheel trim some one had put beside a lamp-post.
"Some one will be looking to buy one of these on Monday."!!!!!!!!!!!!

[Hoop]

OK here's one for you

Mrs Hoop bought some scrap-booking stuff from Aliexpress. A few days later a parcel the size of a hand fist arrived in the mailbox it was reasonably heavy too...She reckoned the stuff she got was going to cost her about $35 in NZ ..she paid $1.67 postage included..
Her latest purchase was a bracelet with small gem stones (must admit it was very attractive)..$2. postage included....for that price who cares if it lasts a few months..
My son fixed his cracked screen on his S6 phone for under $20

How did these Aliexpress (http://www.aliexpress.com/country/nz-new-zealand.html) guys do it and make money!!!!!....How do the post couriers dropping it off at the mail box (door) make anything? .....hell ..it costs me about that just to post a letter....

[thedrunkfish]

Agree about aliexpress. But there is a hidden cost with the cheap and nasty stuff brought from China. It ends up in our landfills

[smpl]

When commodities fully recover, inflation will kick in, rates will go up and all other assets classes will collapse again.

You heard it here first.

[janner]

Had a friend who was a Car Wrecker.
He used to get upset if he did not pay for the car, with just the proceeds of what he sold out of the car's boot.!
Driving along the road with one day he stopped to pick up a wheel trim some one had put beside a lamp-post.
"Some one will be looking to buy one of these on Monday."!!!!!!!!!!!!

That is the market perc.. Capitalism in action... We are being screwed ... By Corporates..

In the case of Breakfast .. By one or another Tax free Religion..

[percy]

That is the market perc.. Capitalism in action... We are being screwed ... By Corporates..

In the case of Breakfast .. By one or another Tax free Religion..

The Tax Free Religions do not profit from my breakfast, as I only have toast and peanut butter with my cup of tea.

[kiora]

When commodities fully recover, inflation will kick in, rates will go up and all other assets classes will collapse again.

You heard it here first.

Totally agree smpl. Its time to buy commodities.You heard it here first.:)

[Rep]

Actually this exemplifies the difference between commodities and value added products.

When milk solids were the 'white gold' a few years ago, you didn't see the cost of standard milk rising at the same rate. The raw ingredients did increase and FMCG companies as well as Retailers had to endure compressed margins or look at their marketing, manufacturing, supply chain and logistics really hard to make a buck.

Now that WMP and SMP prices have taken a dive, the FMCG value added companies make more margin as you don't see consumer prices implode like commodities do. All that value add including building brand equity (yes it's real otherwise we rationally would buy Kia and Hyundais instead paying a premium for a poverty pack Germans, we'd buy house brand chocolate biscuits instead of Tim Tams and Coke would be out of business) - means that when commodities are over supplied then they make hay ready for the next boom.

Driving out to the airport on my last business trip I drove past a warehouse operated by Nestle - it had Maggi, Milo and Uncle Tobys... It's the largest multinational food company and it started off making condensed milk and infant formula (see even at the start they were doing value added)

[Lewylewylewy]

Breakfast cereal is a funny one, because there are monopolies at play (http://www.cheaphealthyrecipes.info/sanitarium-try-me-free-offer-a-scam/)

[janner]

Tell you what janner. You have the average wage and cost of milk in Ukraine and I'll take NZ wages and cost of milk.

These me sorts of comparisons with poor countries or countries with 100m people etc are just meaningless.

In NZ a big box of weetbix costs about $6-7 and 2 litres of milk say $3-4. That's about a dozen breakfasts = maybe $1 a breakfast if you're lucky. Pretty good value and not worth complaining about imho.

You don't get the eye candy with weetbix :-)))))

[smpl]

Now that WMP and SMP prices have taken a dive

These have recovered nicely. Like other commodities, significant upside.


Totally agree smpl. Its time to buy commodities.You heard it here first.:)

Cheers for the agreement. I bought silver, sugar, milk, oil and natural gas all at their lows. I read an article that forecasted US inflation with commodities not far off where they are now and it was around the 3% mark. This will be the ultimate catalyst.