The state of the economy at the street level

[farmerge]

Good afternoon
The best and cheapest beef is your neighbours … ha ha ha ha ha

Kind regards
rcw1

Hoggets also. Have one here at the moment that nobody is claiming. Calling it lamb chops.

 

[farmerge]

Are you comparing farm gate prices to the price for a retailer that has to rent a large store, pay 10-50 staff, have food trucked in every 1-3 days, energy costs for refrigerating 1/4 of the store etc and expecting them to be closer to your asking price?

The title of the thread isn't "the state of the economy at the farm level"

I just googled "how much margin does woolworths make on meat" and found this article from 2008, farmers think stores making >100% margin on mince, woolworths reckons they make a bit less than 2% gross margin before accounting for all the costs of running a store.

A beef with pricing

Finger pointed at Coles and Woolies for high Australian beef prices.

www.smh.com.au

As a cattle producer I am a price taker not price setter, though i would to be one.
The outgoing costs are not one sided.
In selling 10 yearlings we lose at least the value of 1 beast in the total sale price in associated fees at the selling point. Plus there are a myriad of other inputs.
The supermarkets poorest cuts prices are not anywhere near what we get as a whole and their top of the range cuts are right up there.
Of course we don't buy meat and have the luxury of having the very best on our table when we want it.

 

[farmerge]

my point is that the farmer is quoting his farm gate price, i.e. the price he gets after all his inputs.
It is the equivalent of the retail price.
if you want to compare apples with apples, then you need to compare the gross margins of both.


If you go back and read your own post, you were the one who said gross profit for the meat was 2%, and posted a link to an article that you intimated supported that comment.
I went and read the 15 year old article you linked, and could not find any mention of a 2% gross profit.
I will happily stand (or sit) corrected if you can show me where it is.
The closest i could find was Woolies saying they get 1.70 per kilo gross margin.
It also states that the live weight per kilo farm price at the time was 1.68.
Depending on lots of variables, the live weight converts to about 65% of the live weight, so to compare apples to apples, that equates to 2.80 carcass weight.
If the farmer is only a beef producer, then all of his costs are going to come out of that 2.80 per kilo.
he has no loss leaders, no home brands etc to spread his costs over.


How do you know the margin on meat is closer to the average?
D o you have anything to back it up?
If it was indeed true, then the margin would be closer to the 26 to 30% margin that is quoted in the intelligent investor article.
As someone who raised cattle for a few years, I can tell you that the gross margins for the farmer is even in a good year is less 10%, and in some years you make a loss, especially if buying store cattle to raise rather than breeding your own.
Mick

Right on the money Mick even 10% is being a bit generous.

 

[InsvestoBoy]

The supermarkets poorest cuts prices are not anywhere near what we get as a whole and their top of the range cuts are right up there.
Of course we don't buy meat and have the luxury of having the very best on our table when we want it.

Let me try to simplify my point for you and @mullokintyre with a simple question ...if you guys think the supermarket meat prices are excessive due to greed or whatever, do you think the prices at the three local small business butchers near me (all slightly more expensive than supermarket pricing) are also guilty of the same greed/gouging/whatever behaviour?

Just a yes or no.

 

[mullokintyre]

Let me try to simplify my point for you and @mullokintyre with a simple question ...if you guys think the supermarket meat prices are excessive due to greed or whatever, do you think the prices at the three local small business butchers near me (all slightly more expensive than supermarket pricing) are also guilty of the same greed/gouging/whatever behaviour?

Just a yes or no.

Straw man. You brought up the supermarkets, you brought up the 2% gross margin, without any proof, and now having shown to be knowing nothing about beef farming you want me to justify another unrelated question?
Listen, investorchild, go to your room and do your homework first.
mick

 

[farmerge]

Let me try to simplify my point for you and @mullokintyre with a simple question ...if you guys think the supermarket meat prices are excessive due to greed or whatever, do you think the prices at the three local small business butchers near me (all slightly more expensive than supermarket pricing) are also guilty of the same greed/gouging/whatever behaviour?

Just a yes or no.

Can't be a yes or no. Simply put individual butchers do not buy in the volume that a supermarket does.
This I know because i used to supply a local butcher with three bodies a week.
The supermakets buy on farm and at auction
If you are a regular at the auctions it is well known who are the buyers for the supermarkets are.

 

[farmerge]

Let me try to simplify my point for you and @mullokintyre with a simple question ...if you guys think the supermarket meat prices are excessive due to greed or whatever, do you think the prices at the three local small business butchers near me (all slightly more expensive than supermarket pricing) are also guilty of the same greed/gouging/whatever behaviour?

Just a yes or no.

Investor boy you seem to me to something of an expert in this field
Just a simple yes or no, have you ever been involved in the red meat industry as a producer ????

 

[Smurf1976]

From the perspective of consumers, you'd have to be doing reasonably OK financially to be buying steak anywhere these days.

As for small shops versus supermarkets, not all but a decent portion of consumers are going to be seeking out whoever's cheapest given the current overall situation with inflation etc.

 

[Belli]

From the perspective of consumers, you'd have to be doing reasonably OK financially to be buying steak anywhere these days.

As for small shops versus supermarkets, not all but a decent portion of consumers are going to be seeking out whoever's cheapest given the current overall situation with inflation etc.

My concern as a consumer is if the local butcher went out of business.

Then I'd be forced to buy the awful, so-called cheaper meat from supermarkets.

The horror of even thinking about that.

 

[moXJO]

Petrol stations tend to make their money by price gouging on the items inside the store with often above 300% mark-ups. The petrol is the hook.

Also we have shrinkflation going on with groceries. There are simply popular items they will get a better profit on as well.

Admitted it's just capitalism in action. But the last two years there was gouging going on imo.

 

[moXJO]

My concern as a consumer is if the local butcher went out of business.

Then I'd be forced to buy the awful, so-called cheaper meat from supermarkets.

The horror of even thinking about that.

The meats terrible at supermarkets.

I was buying in bulk and trimming my own cuts. Not to save money, just to get enough steaks because I'm too lazy to shop all the time. Same with making my own chicken schnitzel. It tastes better, or I get a better cut of meat that way.
One day a month I'll do a bunch.

 

[dyna]

The meats terrible at supermarkets.

Not when you can sometimes get it for as low as , 1/10 th the price. ( sic ) You have to write down the use-by dates and then rock up every weekday an hour or so before closing time . ( It's profitable walking time for this cheapskate ! ) Like my favourite fishing spots , this info, I like to keep to myself.
I would have to be the only tightass in this posh neighbourhood and none of these nobs would even know, how to live below their means.

 

[InsvestoBoy]

Investor boy you seem to me to something of an expert in this field
Just a simple yes or no, have you ever been involved in the red meat industry as a producer ????

No I haven't, but what difference does it make?

We started down this rabbit hole because you said the supermarkets are pricing meat excessive based on the evidence of the price you receive at the farm gate.

My point is that it's not excessive and that this common misperception makes no sense when accounting for the other costs a supermarket pays aside from the price of the meat itself.

So help me understand, what are you basing the excessive on, as someone involved the red meat industry as a producer? Woolworths gross margin like @mullokintyre ?

 

[InsvestoBoy]

But the last two years there was gouging going on imo.

Prices went up. It's undeniable.

But there's only three possibilities:

- Prices went up proportionately with costs: consequently margins didn't change much
- Prices went up more than costs: consequently margins went up a little
- Prices went up and costs stayed the same: consequently margins went up a lot

Only the last one is really gouging or excessive, right?

Even if it's your opinion, you must be basing it on something...it probably shouldn't be something asinine like "I drill oil and I sell it for $0.5/L but I see at the petrol station it costs $1.5/L, the petrol station must be gouging the price".

I'm basing my opinion on the data. What seems obvious to me is that net margins haven't been spectacularly different to pre-pandemic times when inflation was a lot lower.

 

[sptrawler]

My opinion and it is mainly anecdotal is, Woolies and Coles are struggling with an outdated legacy operating model, Aldi is eating their lunch where they are in direct opposition.
It is a bit like all long established businesses, adapting to rapidly changing technical disruptors and reducing you workforce appropriately when there are well established and entrenched work practices, isn't an easy feat.
I notice in Aldi, personnel is cut to the bone, variety and options cut to the bone, most of their trolleys are coin operated therefore returned.
I'm also noticing similar low staffing levels in a new local shopping center pub, minimal staff, that have to pull drinks, clear tables, take and deliver food orders, they never stop moving.
But they are busy as hell and sell the cheapest beer in town, so very well patronised as compared to the older established pubs.

 

[Value Collector]

Are you comparing farm gate prices to the price for a retailer that has to rent a large store, pay 10-50 staff, have food trucked in every 1-3 days, energy costs for refrigerating 1/4 of the store etc and expecting them to be closer to your asking price?

The title of the thread isn't "the state of the economy at the farm level"

I just googled "how much margin does woolworths make on meat" and found this article from 2008, farmers think stores making >100% margin on mince, woolworths reckons they make a bit less than 2% gross margin before accounting for all the costs of running a store.

A beef with pricing

Finger pointed at Coles and Woolies for high Australian beef prices.

www.smh.com.au

Yep, if you check the annual report Woolies and coles operate on about a 3% profit margin on sales once all other factors are considered, and that’s considered pretty good in that industry.

It’s a bit like some people see the oil price go down 30% and they expect the petrol at the bowser to go down 30%, because they don’t factor in all the other fixed costs of transport, refining, retailing etc

 

[Value Collector]

My opinion and it is mainly anecdotal is, Woolies and Coles are struggling with an outdated legacy operating model, Aldi is eating their lunch where they are in direct opposition.
It is a bit like all long established businesses, adapting to rapidly changing technical disruptors and reducing you workforce appropriately when there are well established and entrenched work practices, isn't an easy feat.
I notice in Aldi, personnel is cut to the bone, variety and options cut to the bone, most of their trolleys are coin operated therefore returned.
I'm also noticing similar low staffing levels in a new local shopping center pub, minimal staff, that have to pull drinks, clear tables, take and deliver food orders, they never stop moving.
But they are busy as hell and sell the cheapest beer in town, so very well patronised as compared to the older established pubs.

Aldi is good, I like the onion rings from the frozen section. But I couldn’t do my full shop there. They don’t have the brands I like.

But they are great to have in the community as a low cost option.

 

[mullokintyre]

Yep, if you check the annual report Woolies and coles operate on about a 3% profit margin on sales once all other factors are considered, and that’s considered pretty good in that industry.

It’s a bit like some people see the oil price go down 30% and they expect the petrol at the bowser to go down 30%, because they don’t factor in all the other fixed costs of transport, refining, retailing etc

Its a bit like some people don't read the original thread message that started all this.
The investor kid used the word gross profit when he said it was 3%, not profit after interest, depreciation, and taxes.
I pointed out that the gross profit margins are closer to 29 to 30%.
The comparison between farmgate price, which is the price the farmer gets before any of his inputs are taken out, and the 3% margin that the supermarkets is a fake comparison.
If we want to compare the 3% net the supermarkets get to something equivalent to the farmer, you have to take into account all his expenses, including tax to get a valid comparison.
Plus the farmer does not have a whole bunch of other business(liquor sales, petrol sales, credit cards , phones, loyalty points systems, clothing sales, etc) that the two majors have to spread their costs over.
Mick

 

[moXJO]

Even if it's your opinion, you must be basing it on something...it probably shouldn't be something asinine like "I drill oil and I sell it for $0.5/L but I see at the petrol station it costs $1.5/L, the petrol station must be gouging the price".

No. But you fail to mention the petrol station is in fact gouging the price on in store items.
There's gouging going on. Just not looking at the metrics you are using.
I don't know what accounting tricks they are using in net profits.
What's the revenue doing year on year?

 

[InsvestoBoy]

No. But you fail to mention the petrol station is in fact gouging the price on in store items.

Speaking as someone partial to a 2AM servo meat pie, that's been the case since long before COVID. You are just describing the business model, not a recent change in pricing behaviour to take advantage of people.

There's gouging going on. Just not looking at the metrics you are using.

What metrics should we use?

I don't know what accounting tricks they are using in net profits.

Maybe they aren't using any tricks and they're just - now, as always - a low margin business?

What's the revenue doing year on year?

What would it matter? The net margin is what matters if you think they're gouging, right?