Business Monday

Turkey prices tend to defy supply-and-demand

SNITZER
SNITZER

The impact of supply and demand on prices is well understood in the consumer marketplace. It’s like a law of physics, or gravity. When demand goes up, prices go up. When demand goes down, prices go down.

We see it all the time. When the Heat and the Dolphins are winning, more people want to see the games and ticket prices go up. Want to catch an Uber ride on Saturday evening? Prepare for “surge” fares. Want to stay at the Ritz Carlton on South Beach over New Years? Book early, and brace yourself for scorching sticker stock.

But perhaps the most infamous of all supply and demand dynamics involves airline travel over Thanksgiving weekend, one of the busiest travel weekends of the year. A flight from Miami to Chicago from Nov. 26th to Nov. 30th is selling for $407, and rising. That’s $110, or 37% percent more than the following weekend.

When they’re in hot demand, flights on those silver birds get real expensive. So it’s inexplicable that prices for those other Thanksgiving birds, the venerable turkeys, actually go down at Thanksgiving.

That’s right. According to the U.S. Bureau of Labor Statistics, which compiles the monthly Consumer Price Index, in 9 of the last 10 years, the per-pound price of turkey has been lower in November than in the preceding two months.

So what’s behind this reverse supply/demand phenomenon? The question has been put to a host of experts including economists; officials from the U. S. department of agriculture, and spokespeople from the American Farm Bureau Association who represent the turkey industry.

Opinions are mixed.

Economists rally around something they call the “substitution” effect. The average price of turkey comes down around Thanksgiving, they claim, because frozen turkey, the least expensive variety, makes up a higher percentage of overall sales and drives down the average price. That seems to make mathematical sense. But then economists go on to explain that people buy the least expensive turkey because they’re less concerned about what they feed their Thanksgiving guests than they are about what they feed themselves and their families during other times of year. But that doesn’t quite ring true to me.

The Department of Agriculture officials point to retailers that use turkey as a “loss leader” to drive store traffic. This theory says that grocers like Publix and Winn Dixie put turkey on sale, at prices below cost, in order to capture the greatest share of shoppers who will then spend heavily on all the trimmings: stuffing, sweet potatoes, pumpkin pie, cranberries, and carts full of other goodies.

And the turkey industry has a third theory. They say the industry has gotten so efficient at raising turkeys and so good at estimating demand that there’s plenty of Thanksgiving turkey for everyone and therefore no reason for prices to take off skyward.

So what they’re saying is essentially this: As a nation — at Thanksgiving — we don’t have enough airplane seats to go around. But there is plenty of turkey for everyone; even though statisticians estimate that nearly 90 percent of American households will eat turkey, at an average weight of 16 pounds per bird. That’s close to 750 million pounds of turkey on one day (or two days if your count leftovers.)

I’m not sure which of these three theories is correct. But I will tell you this: Turkeys bred for our Thanksgiving dinners can’t fly. So unlike most other birds, they can’t defy the laws of gravity. But they sure do defy the laws of the American commercial marketplace. And that’s one more thing to be thankful for when you’re reaching for your favorite piece of turkey on the fourth Thursday in November.

Happy Thanksgiving everyone!

Adam Snitzer is a revenue strategy expert and president of Peak Revenue Performance, a Miami consulting firm that specializes in designing and executing innovative pricing strategies. He can be reached at adam@peakrevenueperformance.com, or via the company’s website at PeakRevenuePerformance.com.

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