Show Says Consumers Are Not Being Ripped Off A serious misconception exists in the minds of consumers when they say know consumers are being ripped off or the retail grocers are profiteering and taking unfair advantage by increasing the prices of products already on the grocers according to Lawrence W. West executive director of the Utah Retail Grocers THEY THEN usually something to the effect that If a grocer purchases a product for a given adds his normal markup and establishes his retail this established price should not change he This they should hold firm until the grocer purchases new product at a higher The new product logically can bear a higher price but not the existing product already on the grocer's Alder can appreciate the consuming public's frustration and too are frustrated and concerned over the very serious inflationary problems confronting all of grocers are justified and are not profiteering when they advance prices on goods already in stock for many but most importantly for their cash flow and the undercapitalization that would take place if they were not to advance their he Until the last several food prices had been relatively consequently retail grocers had been notoriously slow in reflecting price advances received from their sources of he THIS PRESENTED no real problem because of the relative stability of the market place and these increases were readily absorbed into the expenses of doing This picture changed drastically however as the inflationary forces began to take hold on our Here is an oversimplified example that may help explain the TODAY if a grocer buys one item of product X for to be resold in his store here is what he is up The average gross margin before expenses in a retail food store will range from 14 to 20 percent depending on the type of operation full For ease of explanation we'll use 20 percent markup for this The grocer must now mark product X for sale at one dollar to pay his source of supply for the product and to cover his operating expenses such as in addition to returning to the grocer a reasonable profit for his risk and LET'S NOW say one month later he sells product X for The time will vary from product to Some products will turn over more quickly and some much He now goes to buy another product X to resell and finds out he must pay his source of supply not but Unfortunately the grocer does not have to pay for the new order of product he has only has gone to pay other HE NOW has two he could go to his source of supply for capital and attempt to arrange for additional financing to cover the increased cost of It's obvious no prudent investor will continue to advance funds on an indefinite basis because there appears to be no immediate end to the inflationary course that we are THE only other option available to grocers is to advance the prices on product in stock as price advance notices are received from the various sources of If he doesn't do it he will be undercapitalized in a very short period of time and unable to buy new inventory for particularly when you enlarge the above example to a or order that a grocer will regularly place with his source of Alder above example does not take into effect the inflationary forces that are eating away at the 20 percent gross margin such increased One last point which helps to explain the plight of the grocer is that he is working on a smaller profit margin than any other segment of the national average for the year 1973 amounts to less than one percent compared with the percent average of the Fortune magazine's Industrial That's just a little over cent profit margin on each dollar of Preliminary figures report that the national percentage of profit averaged is even less for There is no further room for absorbing increased costs of product or The price advances reflected in retail food stores today are purely and simply a reflection of increased casts and expenses that the grocer is receiving from his various sources of REASONS for the rapidly increasing costs being experienced by other segments the chain of distribution are bonafide and real but better explained by those sectors in the chain Alder retail food stores are faced with these same Solutions may vary slightly from organization to But one way or another the problem must be dealt with or that organization will be In serious financial EXHAUSTIVE search into the retail margins of the various grocery stores in business today will show that they have had to come to grips with that very serious logical reasoning precludes any other he |