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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