Oct 28, 2008

Student wallets, meet Wal-mart

by Katy Palmer

Since taking on the role of “off-campus college student,” my necessities for survival have become more primitive. Simply put, I need two things: gas and food.

The recent spike of gas and food prices, however, has made the essentials not so essential. Like most college kids, I assume, I constantly ran my tank down to “E” before I went to the gas station. On top of that, I never completely filled up. Until now, the concept of lower gas prices was an “I’ll believe it when I see it” situation.

I’ve found myself forfeiting Panera Bread and living off of $2.50 Stouffer’s paninis. I now resort to good ol’ drip coffee instead of Starbucks espresso. What used to be a weekly trip to La Carreta after church has become a luxury for when the parents visit.

Yet, my gas traditions have transitioned with the surprising drop in prices. In response to the lowering oil prices, gas has dipped down to below $3 a gallon for the first time in months. Now, I don’t feel so drained each time I drive away from Sheetz.

The drop eased the withdrawals from my bank account. Unfortunately, this extra money has gone elsewhere: to aid my hunger. Food prices have hit a stalemate, and from what I can see, for no apparent reason.

Previously, economists blamed the rise of food prices to the increasing price of oil. Obviously, the necessity of gas to transport food products led to the rise in price. With oil steadily dropping, consumers now wonder why food prices have not done the same.

Companies are hesitant to play with food prices because consumers will opt for a competitor’s product if he/she is unsatisfied with the price. Simple economics would suggest that once companies start to lower their prices, their competitors would follow suit.

Lower prices typically lead to an increase in consumer demand. Logically, this would be a no-brainer for companies. Yet, as I have gathered information, I have learned that companies are fearful of a drop in price, for it could lead to a drop in profit.

In 1996, cereal powerhouses Post and Kellogg’s cut their prices dramatically. Post moved on its prices first; Kellogg’s followed suit in fear of losing customers. By slashing prices over 19 percent, Kellogg’s profit plunged about 41 percent within three years. Near the end of 1998, the company opted to raise cereal prices about three percent to combat loses. No company wants to repeat history.

Understanding this fear imbedded in the food market, it becomes more apparent why prices remain elevated. For us as consumers, the question is how long must we wait for much-needed relief. If it is anything like gas prices, we should prepare ourselves for a rough ride. Just like gas, food is essential to survival. We cannot stop buying it simply because the prices have soared.

I suggest we all get accustomed to the frozen dinner section at Wal-Mart.

 


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