Saturday, January 8, 2011

We DROVE the prices and the quality down

In a recent discussion over the Harvey Norman issue I'd received an alternative point of view.

Gerry Harvey has done himself unspeakable damage with his push to even the scales by getting GST charged on online purchases. I was ask to "think of the small retailers" because we all need local support.

Whilst a bit of a tangent, it's worth pursuing.

Think of the small retailers trying to eke out a living, being hit by category killers like HN and in the US Wal-Mart. Economies of scale on staffing, buying power, direct purchasing are all on the side of the big guys. I agree - being a small retailer is hard way to earn a living and I can't see how it's going to get any easier. I agree, the GST imbalance is unfair and hits the small retailers particularly badly.

But I often think of this, and have done since I was selling plastic into the smallgoods industry. I'd often hear it, "you can't get Frankfurts and Saveloys like you once could - even the bacon is generally crap". Can I ask you - who drove the quality down? It was us, the consumer. We want to buy at the lowest price.

In study after study in consumer choice, price tends to trump all other product attributes with some exceptions in wine - where the elusive "positive price elasticity" sometimes occurs. We want to buy a 1kg pack of bacon for $7.99. In South Australia there's a processed meat called "Fritz", basically luncheon meat or Devon. The pre-packaged stuff that flew out the supermarket door got driven down in price until it was $1.99 a stick.

That's two bucks for what is meant to be a kg of meat. To cut it, it looked more like bread because it was filled out with all sorts of soy protein and cereal binder. But it's what we wanted. Fine, on a sandwich with margarine and plenty of sauce it was great, but it falls a long way from the $8.00/kg German Sausage that it was inspired by.

Let's get back to "think of the retailers". I could do that, in my shopping today I could have chosen to:

  • Buy my mince at $10/kg from the supermarket rather than drive to Austral Meat for $4.99
  • Buy the tissues at the chemist for $2.00 a box rather than three for $4.50 in the supermarket
  • Buy an Australian Hammer Drill (do they make them?) rather than the "Skil" for $59
But there's a reason I don't. I'm a co-manager of an economic unit, the Habel family. I have a responsibility to keep as much money in that unit as possible.

As a group WE are to blame for the plight of the small retailer. A friend of mine who buys OxFam fair trade chocolate can buy EXACTLY the same thing (same BRAND) in a supermarket for $3.00 but buys it in the Oxfam shop - occassionally - for $9.00. He often thinks "why don't you charge me $3.00 for the chocolate and a receipt for a tax deductible $6.00 donation".

I agree it's important to take care of those who have a tougher time than us but ffs we still need to get the best economic deal for ourselves and our families. We shouldn't get those two things mixed up. The driving down of the price of goods - often to our detriment - indicates we don't mistake economics for charity.

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