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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: GST who wrote (90467)1/15/2008 12:27:47 PM
From: The Ox  Read Replies (1) of 110194
 
In the food industry, when the underlying commodities rise, its very hard for wholesalers to hold margin percentages (let alone raise them).

The food costs more but wholesalers initially get the 'double squeeze' as commodity prices rise. Their customers complain about the higher prices and demand the wholesalers help by cutting margins. Yet there is little to no power for the wholesaler in going back to the manufacturer to get a similar break, as the manufacturer's price is the result of the rise in the underlying commodity.

This has been happening in the industry for the past couple of years. Initially, the "middle men" will cut their margin%, as they can 'justify' this by making the same $profit/unit, even as the unit prices rise. Unfortunately, the rises in associated business costs create an environment where wholesalers can no longer justify the same $profit/unit and they have to increase the margins which were initially reduced (on a percentage basis).

To some extent the above holds true for the next step up the ladder to the retailers and their customers, the consumers.

There is no question we have seen steady inflation at the grocery store, and to a somewhat lesser extent at restaurants.
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