by Datechguy | August 5th, 2014
Randolph Duke: Exactly why do you think the price of pork bellies is going to keep going down, William?
Billy Ray Valentine: Okay, pork belly prices have been dropping all morning, which means that everybody is waiting for it to hit rock bottom, so they can buy low. Which means that the people who own the pork belly contracts are saying, “Hey, we’re losing all our damn money, and Christmas is around the corner, and I ain’t gonna have no money to buy my son the G.I. Joe with the kung-fu grip! And my wife ain’t gonna f… my wife ain’t gonna make love to me if I got no money!” So they’re panicking right now, they’re screaming “SELL! SELL!” to get out before the price keeps dropping. They’re panicking out there right now, I can feel it.
Trading Places 1983
The 21st century has been the greatest time in living memory if you are a New England sports fan in general and a Red Sox Fan in particular.
The Bruins & Celtics both won titles and make it to their respective finals, the Patriots have won three super bowls and manged to make it to two more and the Boston Red Sox not only ended 80+ years of frustration with a World series win (and an even more memorable defeat of the Yankees) in 2004 but managed to win two more World Series in spectacular fashion.
Yes if you are a Boston Sports fan there is no better time to be alive and when things go back to normal you’ll talk about this period as your Golden Age!
Right now Hannaford’s board and stockholders much be feeling the same way.
Over the last three weeks their chief rival in the area has self destructed forcing tens of thousands of new customers into the market snatching up whole departments.
That windfall is pretty good but it doesn’t convey the real advantage, not only is the traffic up but they are in the position to improve their profit margins without touching their shelf price.
Let me explain this by first pointing out a simple fact. Most companies set up their supply chains months in advance, if they plan, for example, on selling say 100,000 gallons of Ice cream in July & 120,000 in August they already have the fruit, the sugar and the paper or plastic containers order and ready to be delivered months before the actual production date to be sure they will be on hand when they are needed.
That way when the day comes they are prepared to sell those gallons to the various chains and keep them supplied.
But what happens if suddenly one of those chains is suddenly not buying?
What happens when a Market Basket is not ordering or taking deliveries of your product. What happens when you have 10,000 gallons or more of Ice Cream that simply isn’t being ordered? You have to find a buyer and quick!
Now consider you are Hannafords, you have increased demand but you can’t order as if that’s going to be true forever because you don’t know from one day to the next if Arthur S. Demoulas or one of his shareholders will decide it’s more important to have a viable business than revenge,
So you might slightly increase orders but that’s not good enough because the seller needs to move those 10,000 extra ice cream packages or that huge volume or corn or that fruit that is just getting ripe. They are facing at best the erasure of their entire profit margin or at worst collapse.
They need to sell and sell badly and you don’t need to be William Shatner to know that the Hannaford buyer can pretty much name their own price on that extra product.
Suddenly your cost per unit is down and because your old customer base is used to your price patterns and your new customer base isn’t expecting better you have absolutely no incentive nor need to adjust your retail prices to reflect the better wholesale prices you are getting.
In other words you now have improved margins without having to change a single thing, and even better every single day the Market Basket turmoil is a day that your margins keep that increase.
You’re in the sweet spot, the moment that every business dreams of and as a Hannaford shareholder years from now when things are back to normal you’ll talk of that golden era when you could just sit back and watch increased profits roll in without worrying about doing any of the things Arthur T Demoulas did to make Market Basket a success
Then they’ll raise a cup to Arthur S. Demoulas who made it all possible saying: “Those were the days!”
Update: added the movie quote