Low Prices and…

I recently sent you some thoughts on low prices and the irreversible dynamics of capitalism and then came across some “case studies” of this fact-of-life in the news.

First, Amazon, an engorging presence in American life, recently bought a retail grocery chain of brick and mortar stores – Whole Foods. But there is great competition in selling groceries to American consumers, whose tastes are changing by the day. Whole Foods has a brand image of high cost. Amazon is working hard to change that image by lowering costs to attract more customers. To compete with the high-tech Amazon/low-tech Whole Foods amalgam, Walmart, for example, has been lowering its already low prices.

At Whole Foods internal meetings, it was reported that store managers predicted that lower prices could boost traffic to their stores but others voiced concern that lower prices will hurt their operating margins, pressuring them to find more ways to cut costs.

Another story reported that to save money, large American banks are cutting back on their local branch offices. But they are closing branches more in poor neighborhoods. These closings will make it harder for small businesses in poor neighborhoods to access credit to sustain and grow their operations. From 2014 to 2018, banks shut 1,915 more branches in lower-income neighborhoods than they opened.

Third, caviar prices are sinking thanks to an increase in production. China has become one of the largest producers of caviar through fish farming and is driving prices down. Farms have been able to produce large volumes of fish eggs for very low cost.

Prices for caviar have been cut in half since 2012. Sales rose. The U.S. imported $17.8 million of caviar in 2018, up from $7.6 million in 2014.

American farmers of such fish eggs can’t compete. Their labor costs are higher and American regulation limits the use of preservatives which extend the shelf life of caviar. American caviar farmers are trying to maintain sales and so their income, through differentiation of their products in price and taste, appealing more to high end consumers.

Fourth, the increasing selling of generic drugs is lowering profits for Walgreens Boots Alliance, Inc. and CVS Health Corporation. Walgreens has come off its worst quarter for earnings since 2014. Consumers – and health care providers – like lower prices. They are a boon for these stakeholders provided by volume purchasing on the part of insurers and government and by the lack of intellectual property protection for the drugs. But it will change the future for the stores and the makers of drugs.

It seems that prices really do matter to customers but low prices bring about winners and losers.