Friday, October 2, 2009

Buying ketchup in Cairo; or, economies of scale

In the US, when you go into the story to buy yogurt, you can buy an 8 oz. container for $1 or a 32 oz. container for $2.50. Or something like that. I am actually making this up in order to make the observation that when you buy a larger quantity of something in the US, the price per unit decreases. (Most yogurt is now in 6 oz. containers and the price varies wildly.) You save money by buying most things in large quantities. In many big US markets, the price tags on the shelves will often indicate the price per unit, so that consumers can easily understand that a 16 oz. jar of jelly is $0.19 per ounce, and an 8 oz. jar is $0.24 per ounce. There are exceptions. For example, when you buy fruits and vegetables by the weight, the price is fixed per pound. If you buy bananas for $0.60 per pound, it is $0.60 per pound whether you buy one-half of a pound or ten pounds.

Shift to Egypt. I have noticed at the local supermarkets that there are minimal benefits to buying products in larger quantities. An 8 oz. yogurt drink will cost 2.60LE and a 16 oz. will be 5LE. A 16 oz. bottle of ketchup costs 4.60LE and a 32 oz. bottle costs 9LE.

I am wondering what the reasons are for these different economies and think that it relates, in part, to lifestyle. With the growth of suburbs in the US, you have the development of Sam’s Club and the like. American consumers buy in quantities. Outside of large cities, they generally have cars and homes that can accommodate these sorts of purchases. Is this kind of consumption be driven by merchants or consumers? In an urban economy like Cairo’s, I imagine that it would not be an effective marketing strategy to push people to buy in bulk. Consumers are much more fixed and limited in what they can purchase and store. That may be changing here with the development of large suburban communities in the desert.

I have never been in a Sam’s Club, but I understand the idea is to buy a case of toilet paper which you can keep on hand and purchase at a discount. At our local supermarket, the largest pack of toilet paper has nine small rolls. Most people would not have the space to store all of these things.

Here, people shop for food much more frequently than in the US. You buy your fruits, vegetables, bread, meat, and fish fresh every day or every other day. You do not go shopping once per week, as we do in the US. People are used to purchasing fresh products on a regular basis so there is minimal incentive to buy larger quantities. A large bottle of ketchup, even though it does not spoil quickly, is really unnecessary because you go to the market frequently, it doesn’t save you money, home storage space is limited, and you probably have limited disposable income and could put that 4.40LE to good use in the time before you need more ketchup.

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