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?


Bart

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.

Denise

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.

James

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.

Gianni

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

matthew wengerd

http://www.starbucks.com/menu/catalog/product?drink=smoothies#view_control=product

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.

Hobbsy

There's always money in the banana stand...

KT

Haha nice, AD!

Cort

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.

JL

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.

chris

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.

Mythosopher

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.

AJS

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.

Nick Coghlan

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".

Caitlin

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.

Paul

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.

Mike

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.

Mario

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.

Ryan

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.

James

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 :-)

Emily

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.

James

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.

Daniel Green

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.

MilesC

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

James

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.

Scott from Ohio

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.

caleb b

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.

Tracy

Happens every day at your local bar.