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Shelf space

Posted By Russ Roberts On February 6, 2012 @ 1:43 pm In Competition,Dinner Table Economics | Comments Disabled

William Gadea wonders [1] (HT: Tyler [2]) why Arnold Bread offers so many different kinds of bread:

100% whole wheat, 12 Grain, 7 Grain, German Dark Wheat, Health Nut, Healthy Multi-grain, Honey Whole Wheat, Oatnut, Country Oat Bran, Country Wheat, Country White, Country Whole Grain White, Healthfull 10 Grain, Healthfull Flax and Fiber, Healthfull Hearty Wheat, Healthy Nutty Grain, Double Fiber, Double Protein, Grains & More Flax and fiber, Triple Health, Dutch Country 100% whole Wheat, Butter Split Top, Extra Fiber, Premium Potato, Premium White, Rye Everything, Rye and Pump, Pumpernickel, Rye Seedless, Melba Thin, Rye with Seeds, Soft Family 100% Whole Wheat, Soft Family Classic White, Soft Family Honey Wheat, Soft Family Whole Grain White, Brick Oven Whole Wheat, Brick Oven Premium White, Premium Italian, Stone Ground, Light 100% Whole Wheat

He rejects the idea that customers like that much variety and argues instead that it is a way to squeeze out competitors:

By my count, there are 40 kinds of bread, and that is just counting the sliced breads, not the thins or buns. Is there really anyone in this world who loves the Arnold 10-grain, but can’t stand the 7-grain or 12-grain? More importantly in business terms, is the advantage of addressing these additional slivers of taste (if indeed people can make distinctions between the varieties – I can’t) really outweigh the additional expense of producing 40 separate packages, 40 separate categories of inventory, and 40 separate (at least slightly different) production processes?

My guess is no. The motivator here isn’t making the customer happier, it’s the oft-neglected fourth ‘P’ of marketing: placement [3]. Even if the supermarket carries only half the varieties that Arnold offers, all of a sudden they are hogging a big part of the bread aisle. Arnold is the bread that is most likely to be close to your hand.

I think he needs to talk to someone in the grocery business [4]. Yes, placement is very valuable. But that is why it’s expensive. The amount of shelf space a product gets in a grocery is not determined by how many varieties they offer. If  no one buys those varieties or buys very little of them, it is neither the grocery’s interest or the manufacturer of the product to take up space with it. My understanding is that groceries charge fees for shelf space and when stuff doesn’t sell, the manufacturer eats the inventory, not the grocery. Anyone from the business who can correct or corroborate this view, please weigh in.

This is a good topic to talk to your kids about over the dinner table. Not because it’s about food but because it will help your kids see how competition protects us from the natural urge of Arnold Bread and others to monopolize shelf space.

 

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URLs in this post:

[1] William Gadea wonders: http://www.idearocketanimation.com/950-when-products-splinter/

[2] Tyler: http://marginalrevolution.com/marginalrevolution/2012/02/why-does-arnold-bread-have-forty-different-kinds-of-bread.html

[3] placement: http://en.wikipedia.org/wiki/Marketing_mix

[4] talk to someone in the grocery business: http://www.econtalk.org/archives/2011/08/odonohoe_on_pot.html

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