Real Inflation hits 16.7% for chocolate lovers

vivatifosi

In the name of research - ahem - I went to Sainsbury last night and looked at choc prices. It is possible to buy a four pack of Lindt choccie bars for almost the same price as a 4 pack of Dairy milk, though the Lindt bars are a bit smaller. There's a real risk that if Cadbury ups its prices or shrinks bar sizes unilaterally that it will push its product into the price bracket of the tier above and lose share.

julieq

Lidl chocolate is pretty good, and most inexpensive. Proper chocolate there too.

This is an interesting subject for lots of reasons. Firstly let's be clear that no supplier is going to reduce margin when raw material prices are increases unless they're desperate. This is to do with business management, not Kraft pulling a fast one where Cadbury's would have taken a loss because they're nice and used to be Quakers.

Does anyone remember that story from a while ago about someone cornering the chocolate market by the way? Looking like a smarter move than even GOLD now.

The interesting thing to me is that the most important factor they're considering is the price point. In previous inflationary periods, prices were allowed to rise. This time round, with increases being externalised and internal inflationary pressure being low, there isn't more nominal cash chasing goods so price point is paramount. Therefore we're suffering deflation in relative global terms, in other words the value of what we do is falling relative to the value of what the rest of the world does.

Cadbury's have been caught out a little here, this is not great PR. But we'll see this more and more with other goods I suspect.

Milarky

Loughton_Monkey wrote: »

2. Secondly, does anyone know if Cadbury's Chocolate is a constituent of the official RPI/CPI index? And if so, will the index reflect this 16.7% price rise or do what most of us do, and buy an alternative brand that has not increased as much.

Maybe it won't; 'substitution' effects are used to re-weight the index. This notional behaviour is taken into account by 'geometric' scaling back of the price increases - to impute that when the price of a constituent rises too quickly we buy less of it. But if the bars on sale just get 'smaller' the scaling back can be imputed simply by our failure to purchase extra ones.

3. Thirdly, isn't this rather an 'expensive' way to introduce a price rise? It is brainlessly obvious that the cost of producing a chocolate bar must include not only a cost of the ingredients, but additionally a 'unit cost per bar'. On top of this, there must be additional costs to Cadbury for a bit or re-tooling, re-design, etc. associated with the change in bar size. So it appears to me that instead of simply passing on the additional cost of ingredients in the form of, say, a 10% price increase, they deliberately choose to increase unit costs to the extent that they now require a more substantial rise of 16.7%

I'd have thought they will be making more bars at the 'smaller prices' just in order to spread fixed costs - otherwise it could be self-defeating.

Generali

Just so we can all prepare, tin hat style, I don't know how much news time the situation in the Cote D'Ivoire has had.

Basically there was an election there a while back and the old dictator is refusing to step down in favour of the man who will no doubt become the new dictator.

According to these guys, the Ivory Coast exports 40% of the world's cocoa and this is the main source of money for the Ivorian Government. Cut off the money and you cut off the source of the old guy's power. A lot of exports have been stopped and the big exporters are, in many cases, refusing to take new sell orders presumably because they reckon New Guy will be able to displace Old Guy and so they want to suck up to New Guy. Half of exports will be shut off (ie 20% of supply) if New Guy gets his way.

Loughton_Monkey

Milarky wrote: »

Maybe it won't; 'substitution' effects are used to re-weight the index. This notional behaviour is taken into account by 'geometric' scaling back of the price increases - to impute that when the price of a constituent rises too quickly we buy less of it. But if the bars on sale just get 'smaller' the scaling back can be imputed simply by our failure to purchase extra ones.

Right! Your eloquent response has encouraged me to compute the "Loughton Monkey Index" - otherwise known as LMI. Every day, I am to be found (sun having gone down over the yardarm of course) enjoying two rather large Gin & Tonics.

Now don't worry about the cost too much, because as I discovered last Tuesday, P&O Ferries are offerring Litre Bottles of Gin at 2 for £22. That's £11 each. I bought 4 cases, of course.

Now I find that a litre bottle lasts exactly a week. Two small cans of tonics cost 50 pence so that's £3.50 a week. I find that a 22 pence bag of McVitie's Mini Cheddars can be an excellent compliment and so that's £1.54 a week. Now £11 plus £3.50 plus £1.54 is £16.04. So I will normalise my base index at these prices by dividing by 0.1604 to arrive at my LMI of 100.

Once all my gin has gone, I will need to buy some more. Horror of horrors, I might find that they have 'pulled a fast one' and that now all I can get is a 70cl bottle of Gordons for £11. As you'd expect, I will of course give verbal abuse to P & O Ferries, Gordons, and The French but I will not trade down to any cheap Spanish or French muck and in the end I will cough up, come home, and not change my habits.

Hence my 'basket' of consumption will not change. I will still drink 1 litre of Gordons a week. So it will cost me £15.71 precisely. Add £15.71 to £3.50 and £1.54 and I get £20.75. This normalises to my new LMI of 129.36. Phew!

Now in my book, that's an 'inflation' of 29.36% precisely.

But I have two neighbours. One of these shrugs his shoulders, and decides to reduce his daily intake of gin to reduce his own cost from £15.71 to, say, £13.71. Saving £2. So had I done the same, my cost would be £18.75 - giving an LMI of 116.89

The other one is less discrimating (bit of a rough diamond to tell the truth) and buys some cheap Spanish substitute that costs £12 a litre. If I did the same, my cost would be £17.04 giving an index (LMI) of 106.23

If I could prove that the behaviour of the three of us were to be 'representative' of the population, then what would you consider to be the 'True' LMI - as might be calculated by ONS?

I would argue a 'true' LMI of 129.36
I infer that you suggest it would be the average of the three (about 117.49)?

[Please don't worry too much about my plight, I only made the price increase up. It may not happen. But I can afford it if it does, by simply curbing Mrs Loughton Monkey's appetite for Champagne. She drinks too much of the stuff anyway].

rockitup

Loughton_Monkey wrote: »

Ever tried Herschey's?

That must be the worst in the world and would have you screaming 'Come back Cadbury's all is forgiven!'

Well said LM, being stuck over in Philippines at the moment I have a problem obtaining even decent chocolate here.

Them Yankee boys invaded the Philippines years ago and bought their damn Hershey choc bars with them, now I know why they left behind:rotfl::rotfl:

If I take a 8 mile drive into the City shopping mall, I can get Cadburys. Mars, Twix and Snickers Bars but no Galaxy. Oh well that's why I lost 55 Lbs weight last year.....

And a Mar Bar sell for between 63p and 75p each over here, small ones at that but I ain't gonna eat that Yankee or Philippine attempt at chocolate.

Loughton_Monkey

Generali wrote: »

Just so we can all prepare, tin hat style, I don't know how much news time the situation in the Cote D'Ivoire has had.

Wow!

Dangerous stuff!

I remember the '70's - with all the strikes etc. where there were lots of shortages. A right 'pain in the @rse' since most stories were exaggerated - and some pure fiction. But the whispered words "Sugar shortage" would have the world and his wife buying dozens of packets like there was no tomorrow - thus a self-fulfilling prophesy!

So instead of my usual Saturday lie-in, I am now forced to get up at sparrow's fart, get down to Sainsbury's and empty the shelves of Milka, Toblerone, and Easter eggs?

Thanks a lot! Wish you'd kept it to yourself.

Loughton_Monkey

rockitup wrote: »

Well said LM, being stuck over in Philippines at the moment I have a problem obtaining even decent chocolate here.

Never mind. Everything has its compensations. I remember a holiday in Cebu. Nice place. Wonderful hotel. Nice 'band' in the lobby - they can hold a tune, can't they? Three girls. Many's the warm evening I sat enjoying a very large G&T listening to their renditions:

"Wouldn't it be rubbery...."
"Cabalet.."
"The rady is a tlamp..."
"Fry me to the moon...."
"The way you rook tonight..."
"Tie a yerrow libbon...."

Those were the days!

Running_Horse

Just think, you could have sold your house, bought chocolate, and bought 16.7% extra houses with the profit.

rockitup

Loughton_Monkey wrote: »

Never mind. Everything has its compensations. I remember a holiday in Cebu. Nice place. Wonderful hotel. Nice 'band' in the lobby - they can hold a tune, can't they? Three girls. Many's the warm evening I sat enjoying a very large G&T listening to their renditions:

"Wouldn't it be rubbery...."
"Cabalet.."
"The rady is a tlamp..."
"Fry me to the moon...."
"The way you rook tonight..."
"Tie a yerrow libbon...."

Those were the days!

Yeah LM, I know them 3 dollys and they asked if you can bring them some ruvvery chocorate when you come back to Cebu