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. 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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  2. 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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  3. 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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  4. 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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  5. 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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  6. 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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  7. 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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  8. 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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