Sorbet Selection

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?


Tumbolian

Just goes to show that it's the nature of central planning, not government per se, which leads to suboptimal economic outcomes.

JohnMcG

Or, what stops and enterprising person from starting a sorbet store, paying the premium for ordering it on a small scale, and passing that premium on to their customers?

Or would the inconvenience of an additional shopping stop erase the consumer surplus?

Ian Kemmish

In the words of a current UK TV comedy series, "Computer says no." If their logistical operation (which may be outsourced) cannot currently handle stuff which is delivered to only one shop, then modifying it so that it can would probably be quite expensive.

On the other hand though, what prevents you and your neighbours clubbing together, forming a company, and buying it wholesale?

164

It looks to be carried in more stores than just your local grocery store:

http://www.ciaobellagelato.com/#/store-locator

Makes me want to try it.

Eric M. Jones

Daniel,

There's plenty of it in Austin.

Go to
http://www.ciaobellagelato.com/#/store-locator

volatilitysmile

it has to be a mathematical break-even formula allocating head office overhead, logistics, rent, etc over units sold. Even then, why would I bother allocating all these for a contribution of a dollar per unit? Asked differently, if you were the owner of a very profitable store, would you go the extra mile for an extra Benjamin a week, especially if there are more than adequate substitutes that potentially sell better on a larger (i.e. chain) scale?

Tom

Walmart changed retailing by inventing and perfecting a centrally controlled inventory system. It is indeed a marvel, has saved consumers a lot of money, and has put the fear of God into every other retailer. Those other retailers have learned that they must learn and perfect their own version of the Walmart system or die. Single stores and small chains have no hope competing on mass market items.

Of course, you can avoid competing with the Walmarts of the world by being an upscale boutique. The problem is, your local store probably sells mostly mass market items, and relatively few boutique items. It takes a lot of focus and mangement to compete in the lean and mean mass market. To loosen that focus by adding a selection of boutique items is tricky. Will the boutique items, profitable in a narrow sense, prove costly as a distraction from mass market efficiency? What are the real total costs of adding an alternative supplier route? How do you advertise and market boutique items in a mass market outlet? So I sympathize with the loss of your sorbet (I love a good sorbet), but I can understand the perspective of the store manager.

I am fond of pure maple syrup, and no local store carries it in efficient large containers (it's very expensive at 4 oz per bottle). So I buy a gallon at a time on the internet from Vermont. Increasingly the internet is the boutique alternative to big box mass market stores. Check the internet to see if you can get your sorbet delivered by express mail in a box capable of keeping it cold.

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Scott Nelson

I don't think it's anything systemic. I think this is one of the many instances where the problem is based in the individual utility some purchasing manager gets from doing par or sub-par work--he or she simply doesn't or cannot manage purchases at that level of detail--regardless of the profit the company might derive from more tailored offerings at a higher cost and price. Never underestimate executives' ability to appreciate and cultivate mediocrity.

Ghost

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?

anita

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.

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Imad Qureshi

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.

Nosybear

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.

DonO

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.

MeToo

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.

mannyv

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.

John B. Chilton

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?)

Eileen Wyatt

What prevents the store manager from charging an ultra-premium price to special order the gelato is that plenty of other stores in the Austin area stock it routinely, and those stores presumably charge the regular price.

The number of people with such strong store loyalty that they'll frequently pay an extra 40% for a product just to avoid picking it up at Target or trying something else instead has to be vanishingly small.

common1sense@hotmail.com

You asked "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?"

The answer is the chain could give a rip about whether you shop there or not.

KevinM

Depends how you look at the market. From your point of view, they're selling ice cream to people (sufficient numbers of whom will probably buy whatever ice cream they sell). Thus, from their point of view, they're really in the business of selling scarce shelf space to wholesalers.

KevinM

"My comment is awaiting moderation." How true, but, like wisdom, it may never come.