Arrivederci,?Ciao Bella.? For several years, our local grocery story carried a brand of coconut sorbet,?Ciao Bella, which we had for dessert several times a week.? It was $5 per pint-pretty expensive-but worth much more than every penny. In the last month, it hasn’t been on the store’s shelves.? The manager informs me that they will not be stocking it; although it sells well in his store, the chain purchases centrally, and it just won’t sell in their other stores.
My?preferences and income are not so different from my near neighbors’, but all of ours apparently differ from preferences and incomes in the chain’s selling area (all of Texas). (Austin is weird!) And that makes the chain unwilling to bear the cost of using its central purchasing facilities to buy this specialty item.? I, and I’d bet other purchasers, derive substantial?consumer surplus from this sorbet and would be happy to pay $7 for it.? What prevents the chain from ordering it on a small scale, just for this one outlet, and charging a price sufficient to offset the higher cost?
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If the chain ordered this particular sorbet just for your store, why do you assume that the sufficient price to charge is in line with your $7? Obviously, there is an economy of scale by ordering for all the stores; this scale is lost if the ordering is done solely for your store. What if the ‘sufficient price’ that you mention as an afterthought is, for example, $20? Would you pay that? If not, the store loses money (again) — are you repaying the store for that loss?
The original decision to pull this from the shelves was likely based on the opportunity cost of putting the coconut sorbet for sale instead of something else. Obviously the standard practice is to make chain-wide decisions that maximize profit.
Having worked for a retailer that moved to below-chain specialization one of the most striking issues was that from a systems perspective (technology to capture accurate data for making below-chain decisions that also tie to financial records) can be very costly.
In addition there is an issue of asymmetric information. Usually retailers don’t know the upper limit on how much people are willing to pay (typically grocery stores have adequate data on the impact of lowering prices/discounts).
There may be issues from the supplier perspective. Perhaps the supplier is unwilling to sell retailers a quantity below a specific minimum (ie they have to run a minimum batch-size of a product for that flavor to be profitable). I would have suggested that this product may have had a higher cost of shipping which would require quantities high enough to capitalize on economies of scale (particularly for a cold chain item like sorbet), but as the retailer is still stocking the other flavors of ciao bella which could (in theory) be shipped from the same facility/distribution center, this is probably not the issue.
All in all it is difficult for grocery stores to measure the real financial impact of making these types of decisions – for example if you find that another retailer is stocking the coconut sorbet and you decide to buy all your staples grocery items there instead of making a trip to two separate stores then they have missed out on profits.
The difficulty in quantifying that financial impact is that it is probably minimal enough that it goes unnoticed and it would have to be accompanied by anecdotal evidence (which rarely makes it’s way to HQ anyway and would require a lot of fan fare to get any attention at all).
All in all you might be better off finding another store and stocking up a 6-months supply, just in case they stop carrying it as well.
John #2 nails it. If people are willing to pay $7 for it then some other store can carry it. I think the chances are, unlike you, most of your neighbors wont be willing to pay $7.
What stops them? Policy. All their stores of a certain size carry the same merchandise. It’s the “economy of scale” fallacy – we know everyone in Texas (are you referring to HEB by any chance?) wants exactly the same things and that being the Conventional Wisdom, we use the economy of scale excuse to make sure every Central Market is stocked with exactly the same merchandise. Unfortunately all customers are not alike so you get to look for your favorite sorbet at a different outlet and you are disappointed whenever you shop at the old one. You tell your friends about your disappointment and the company’s decision to eliminate the sorbet from their shelves, one that makes sense in the short term, costs them customers in the long term. It is that type of short-term thinking that has destroyed confidence in just about every American institution. And good luck with the sorbet.
It could just be inertia of a bureaucracy. When I worked for a small (relatively), non-core division of a major hospitality chain, I used to purchase many products not on the approved list. When central purchasing questioned my purchases, I would show them how it saved money (they really couldn’t care less that the products were superior in quality).
I bet if the store manager were willing to expend a bit of energy ans show how it improved the bottom line, you’d have all the coconut sorbet you could consume.
Generally, Austinites don’t care so much for coconut sorbet as they do care for trendy items. Everyone else has moved on to the next sorbet. When coconut sorbet becomes retro, it will again be widely available. Just be patient.
It sounds like a smaller chain. Larger chains have systems that are flexible enough to have regional or store-specific items. Smaller chains probably have a one-size-fits-all system that’s difficult to bypass.
People would gripe about the $7 price as much as they’d gripe about the cost of plane tickets to and from small cities. It’s just not worth the headache and loss of good will to do something that looks like discrimination (even though it isn’t) to those who want to make an issue of it. Especially when there are other stores nearby that carry the product. You may not want to shop two stores — your familiar one, and one that carries the sorbet — and would be willing to pay the $7, but the gripe factor would escalate in the case where it is available at other stores in town. And the manufacturer may have a similar motive to discourage it by setting a maximum retail price. (Not sure — is that a legal contract?)