Banana Arbitrage

Photo: jetheriot

Bananas are a popular topic on this blog. In February, a reader wrote in with this odd banana stand pricing phenomenon. And in 2008, Dubner explored the potentially tenuous economics of the far-flung fruit.

I’ve recently run across something similar to the banana stand case: the Starbucks closest to my apartment now sells bananas at the counter for $1 each, while right outside the door, a fruit stand sells them for 25 cents each, or 5 for $1. And the fruit stand bananas are always better looking than the ones at the Starbucks register.

Now, I can’t say I’ve ever seen anyone buy one of the Starbucks bananas. I certainly try to watch when I’m in there, but for a store as carefully orchestrated as Starbucks, I can’t imagine that they would waste counter space on a product that doesn’t sell. Though maybe with the huge margin they presumably get on each banana, they have to sell just one or two to justify it.

So, ideas for banana arbitrage, anyone? Also, what other examples can you think of where huge price discrepancies for the same product exist in such close proximity?

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  1. Bart says:

    This is a different price discrepancy I have noticed and even to the point that I am watching for it and teaching my son and wife what happens.

    It goes to ‘value packs’ of things like batteries, etc. Most of us reach for the giant value pack – more is cheaper, correct? Less package and handling? Well, the cost of goods may be lower, but the sticker price? Not necessarily so.

    At Wal-Mart and other places I see where the cost of batteries per unit is higher in the larger packs. And the next week? The reverse. I think what happens is this – the software they use that tracks sales tells them when sales are falling off – so they switch prices on ‘economy’ vs. standard packs based on volume. If you don’t pay attention you pay more for more product – that cost them less.

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    • Denise says:

      Ha! I noticed this as well at a local supermarket… JELL-O pudding. The 3.4 oz were several cents cheaper when you compared it to the unit price of the package that held about twice as much.

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      • James says:

        Noticed a similar thing a few months ago: for several weeks, the large box of (my cereal) was less than the small box. Not just less per ounce, mind, but less as in $2.75 vs $2.95 for the small box.

        Another place in which you see pricing disparity is gasoline. On the northeast corner of the intersection, Brand Name station has regular for $2.85/gal; on the northwest corner, El Cheapo has it for $2.65/gal. Now I’ve never actually seen the same tanker truck deliver to both stations, but I bet if I sat there for a few days, I might.

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  2. Gianni says:

    My guess would be the same reason their coffee is $5 and you can get a $1 coffee anywhere else…

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  3. matthew wengerd says:

    I’m currently reading Onward, and am at the introduction of Vivanno drinks. Schulz said this product represented the company’s first time using fresh produce (and the logistical challenges of inventory control, transportation, and disposal) at the chain.

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  4. Hobbsy says:

    There’s always money in the banana stand…

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  5. Cort says:

    Perhaps having a few pieces of inexpensive fruit lying around is an investment in creating an aura of “health” in the store. Maybe the bananas put a healthier lens on the eyes of consumers choosing between the Giganto Muffin and Pumpkin-sized Pumpkin Bar.

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  6. JL says:

    Seeing bananas in Starbucks makes you feel their muffins and lattes are healthier than they really are. Bananas send off a health halo. They don’t put bananas there to sell them; it’s a small price for them to pay to make you feel like you ate something healthier than you actually did.

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  7. chris says:

    the starbucks manager should go purchase ALL the bananas from the fruit stand. As long has he sells 20% of them (or less if he gets a better price break than 5-for-$1), he broke even.

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  8. Mythosopher says:

    I’m under the impression that it’s also the bananas they use in smoothies. Starbucks orders the bananas for use in the smoothies, but if some sucker is going to buy just one banana for the crazy mark-up price of a dollar, bless their little hearts, let them. Starbucks makes a greater profit than it would have if it kept all the bananas behind the counter.

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  9. AJS says:

    I’d guess that the marketing value of having fresh fruit on the counter more than covers the cost of a few bananas. The bananas are a bright yellow sign that sends the message, “this is a place that sells healthy unprocessed foods.” It probably limits the cognitive dissonance for people trying to eat healthy and going to buy 32 oz. of liquid dessert.

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  10. Nick Coghlan says:

    While I think the “they have them for the smoothies anyway, may as well offer them for sale” explanation makes the most sense, there’s another more cynical option: the fruit stand vendor has done a deal with the manager of the Starbucks to exploit anchoring to make the bananas at the fruit stand seem like an even better deal.

    Anyone leaving the Starbucks and seeing the fruit stand prices is more likely to go “Wow, that’s a quarter of what the Starbucks was charging” or “Hey, I can get 5 bananas here for what Starbucks wanted to charge for only 1″.

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  11. Caitlin says:

    I agree with Mythosopher, they have the bananas in stock anyway for the Vivanno smoothies, and I’m sure they don’t pay $1/banana or anywhere near that when they stock up, so why not set some extras out for the couple suckers each day who will pay $1 for one? Especially those desperate to eat healthy who may have a higher willingness to pay.

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  12. Paul says:

    Here in Oregon, I have seen Blackberries sell for $4/pint at whole foods while they are growing wild 50′ away from the door! The wild berries also taste 10x better.

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  13. Mike says:

    Price discrepancies in close proximity?
    * Programs/peanuts at a baseball game. Usually about $2 outside the stadium and $5 inside. Presumably that’s because you can’t leave the stadium and come back.
    * Drugs (store brand vs. name brand)
    * Water (tap water vs. water bottled from a tap by a major brand)
    * Event tickets. I just registered for an event where there were “baller” tickets that were no different than regular tickets, other than that they were $10/ticket more expensive.
    * Movie theater candy. I’ve been to quite a few movie theaters literally located next to a Target/Wal-Mart/large grocery store. The same box candy costs about 3 times as much in the theater as it does in the store.

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  14. Mario says:

    As a former Starbucks Store Manager, I can comment: Starbucks managers are supposed to train their workers to pick the right bananas to use in their Vivannos. The ideal banana for the Vivanno is slightly overriped, so those yellow bananas you see are typically not ideal for their drinks. I would imagine that they charge that amount because they do not really want to sell them, but will for the profit margin. This is probably why some bananas you see don’t look great; they’re typically left there until they reach the right level of ripeness (yellow with a good amount of brown in it).

    A riper banana tastes much better in a Vivanno.

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  15. Ryan says:

    Bottled water. I can go to the local warehouse club and get a case of Poland Spring sport bottles for about $6 but if I go to a CVS/Rite Aid/Walgreens it would cost me $1.49 for just one of those same bottles.

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    • James says:

      And I can get it for… oh, say about 0.001 cent per gallon, the cost of the electricity needed to pump it out of the well. And mine’s better than the store-bought, too :-)

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      • Emily says:

        How deep is your well? The energy to raise 1 gallon (~4 liters = 4 kg) of water 300 feet is about 3920 joules = 0.0011 kilowatt hours which at 10 cents per kilowatt hour (about the US average) would be .011 cents. So you weren’t so far off. A 30 foot well would be closer to your estimate and that’s a pretty shallow well.

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      • James says:

        One of us is a good guesser: the well pump is down about 30 feet. I’m at the base of the Sierra Nevada (east side), and about 300 feet from a stream that starts at about 10,000 ft elevation.

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  16. Daniel Green says:

    Soda sales in grocery and convenience stores also follow a similar pattern. A 2L bottle might be on sale at an end cap for $.99, yet a 20oz of the same product in a refrigerated case will sell for $1.49.

    The sad part is consumers almost always go for the 20oz bottle.

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  17. MilesC says:

    I have wondered about this, too, with Walmart Fruit & Vegetable Dept
    The company removes fruit, such as bananas, before the fruit should be
    Even stranger, I wonder why the pulled bananas(or any fruit) are not put on sale before they are trashed (you cannot sell the items to “oversupply” companies, such as dollar stores, since there is not enough time)
    Actually, one section of say, bananas, would not even have to be put on sale, because for most of us, they are just right — Have one section “just right” fruit and another side “Not ripe” side

    Look forward to an answer to this

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    • James says:

      Maybe because most people who shop at WalMart (or any other grocery store, really) aren’t buying just one banana to eat right away, they are buying a bunch to take home and use over a week or so. So the “perfectly ripe” fruit in the store may well be going past ripe by the time you get it home, and certainly by the time you want to slice it for your cereal at breakfast the next day.

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  18. Scott from Ohio says:

    They need to keep bananas around for the smoothies. And since they have to take up space somewhere, they might as well be out front where they can earn a buck or two.

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  19. caleb b says:

    Jock itch products vs foot fungus products. They are the EXACT same, typically right next to each other, but Jock itch spray costs much more per unit.

    Walgreens website:
    Tinactin Antifungal Cream – “Cures Most Athlete’s Foot” – $12.99 – 1 oz.
    Tinactin Antifungal Cream – “Cures Most Jock Itch” – $9.99 – 0.5 oz = $19.98 per oz

    The back of each shows the exact same ingredients.

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  20. Tracy says:

    Happens every day at your local bar.

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  21. flaxen curls says:

    If you buy a small milk at the grocery store deli, it is often more expensive than the exact same milk if you take it from the dairy section!

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  22. Steve Bennett says:

    I’m so jealous that your readers consider $1 a “crazy inflated price” for a banana. Ever since cyclone Yassi last year, bananas here in Australia have been anything up to $16/kg (something like $2 each, depending on the size) – and that’s at supermarkets! 25c each would be a dream…

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  23. Phil says:

    The Starbucks banana includes the right to consume it inside the store.

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    • Chrisfs says:

      Who’s going to check to see if you bought it there? The Starbucks banana benefits from impulse buys where the stand banana does not.

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  24. Sbard says:

    The fruit stand guy probably doesn’t take credit cards while Starbucks does.

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  25. Troy says:

    When I was a kid, my dad was in the wholesale grocery business. He got a good deal on some off-brand canned tuna and figured he could unload it cheap and still make a killing. So he marks the tuna at 25 cents a can. The stuff sits…and it sits…and it sits. So he “marks it down” to 3 cans for a dollar…and can’t keep the stuff on the shelf. People respond to the PERCEPTION of a deal in really odd ways!

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  26. Chrisfs says:

    While it is amusing and a bit frustrating to see that, it’s not arbitrage until you can buy the bananas from the stand for 5 for a $1 and sell them to Starbucks for $0.50 each. That would be awesome.

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  27. artemis says:

    within any store there is usually a vending machine selling soda at a different price very close by.

    Eggs are more expensive in bulk everywhere I have ever shopped. The price per egg is more for 1.5 dozen than for 1 dozen, and god forbid you go in a “warehouse” store, where the price for six dozen is usually twice the price per egg for a dozen.

    Regarding all the “well they have them for smoothies anyways”, you will often see this banana affect at other types of convenience stops as well, not just starbucks.

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    • Rajat says:

      I’ve had the opposite issue with eggs at a grocery store near my last apartment. Due to difference in pricing on store brand eggs vs. brand name eggs, it was cheaper for me to buy a dozen eggs than half a dozen. Not cheaper by unit, but cheaper total; I could buy a dozen, throw out 6 eggs, and still have a better deal. They eventually repriced them to make sense.

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  28. Richard Gay says:

    In this case, it’s not about the price. Starbucks doesn’t care if that banana ever sell. In fact, it might be plastic. It’s all about projecting a healthy food image that helps the customer think he’s eating healthy while downing those 500 calories of sugar.

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  29. Lassie says:

    I see now a basket of bananas, apples, and pears, 89 cents each, at the checkout counter at the gas station, and little packets of nuts and trail mix. Otherwise, the store is full of soda, beer, chips, and junk food. I think there are some people who WANT a healthy choice, (or maybe the fruits and nuts are just put there for impulse buying) because this is a fairly recent development. Buy a bag of chips for $3 or a banana for 89 cents –

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  30. Owinok says:

    To my mind, the main reason that Starbucks stocks bananas is because they are an ingredient for smoothies. So the opportunity costs for a banana in the store is close to the dollar because that is probably its value in a smoothie. the store is making a decision between turning the banana into a smoothie or sell it away.

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  31. Adam says:

    My guess would be that it’s more about image than about actual banana sales. Bananas are colorful and healthy looking. stupid as it seems, I would feel better about buying a big, sugary coffee at a store with bananas on the counter than a shop with candy in the same place.

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  32. Gerald says:

    I’ve discovered an opportunity to arbitrage fruit at frozen yogurt shops. Many of the shops offer self serve yogurt and toppings for a fixed per ounce price. At the shop by my house, I can buy ten “yogurts” of just blueberries and save 35% from shopping at the grocery store down the street.

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  33. Shiprek says:


    The Margin is not as excessive as the fruit stand/starbucks, but the mark up of cigarettes out of the machine in a bar is comparable. There could be a gas station/convenient store right next door, but 9 times out of 10 the patron will purchase them right there.

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  34. John B. says:

    Pretty much anything sold at Balducci’s and at the Safeway down the street.

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  35. adora says:

    I frequently see people buying bananas at Starbucks. They usually look wealthy and can’t be bother to waste time making seperate purchases for coffee and fruits.
    Like a few weeks ago, I saw a middle-aged couple with a young child. Mom wears expensive Stella McCartney yoga outfit from head to toe. The toddler was dressed in Burberry. The father bought coffees, juice and pastry with 2 of those $1 bananas. His bill was closed to $40! I guess it’s the convenience.
    It was very strange because after the wealth family, there was another lady buying one shot of esspresso telling the barista to put it in a venti cup so she can top it off with a litre of milk for $2.

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  36. adora says:

    The groceries stores I frequent, have vending machines in the front next to coin star machines. A bottle of soda in the vending machine cost $1.75. A case of 6 cost $2.50-3.00 inside the supermarket.

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  37. Sam says:

    One price discrpency, while not as great as your example of the bananas, but maybe more surprising–when I was first traveling to colombia, there two different exchange rates..the international one and the local one. And the difference was considerable, 7% or so. It was actually possible for someone to send you $100 from western union, the person there asks you if you want pesos or ask for pesos(getting the international rate) then turn around and say, I changed my mind, actually I think I would like dollars(getting a slightly lower than local rate because its western union) and walk out of the branch with $105. I’m pretty sure it happened because of the massive outflow of drugs..and the inflow of dollars and that exchange rate was basically caused by money laundering at a massive level..I mean wheree else can you make 7% changing money at the retail level? Its interesting to note now that the FARC has been largely beaten and there is alot of tourism…we’re back to losing money exchanging dollars in colombia.

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