Sunday, June 17, 2012

A Guide to Saving Money at the Supermarket the Everyday Economist Way

Good morning all! I decided to write this post after a discussion I had with a colleague this morning about food item prices at supermarkets. In the post "Time is money" I talked about "coupon mining" and the way that American families lower their food and drink budgets. So without further a due, here is the guide of the Everyday Economist with regards to grocery shopping:

 Step 1:

Preparation at home. This entails two things. Firstly, go through your pantry and fridge and decide what you need to buy and make a list. You need to stick to that list at all costs! Supermarket managers count on buyers NOT sticking to their list. They will make several items to appear attractive (sometimes by offering them at low prices) but you need to ask yourself whether you actually need them. Chances are, that if they were not on your list to begin with, then you don't. Stick to the list!! This is important.

Secondly, you need to convince yourself that you may need to visit more than one supermarket or grocery store in order to buy all items on your list at acceptable prices. Remember that you need to trade convenience with money savings. This is your opportunity cost according to economic theory. You need to be prepared to give up convenience in order to save money. Oh, and since we are talking about convenience, avoid going to the supermarket on Saturdays and save yourself the effort of long lines, no parking etc.

In general, you need to KEEP AWAY from your neighborhood grocery store unless you are buying your daily bread or milk. These stores are competing using the Hotelling spatial competition model in economics. In other words they are counting on capturing nearby households and if there are no other stores around, they have what we call a spatial MONOPOLY. They have higher than normal prices because they offer the option of convenience.

Step 2:

Prepare your budget. Check your monthly income and decide how much you would like to spend on grocery shopping. The budget also depends on how many times you visit the supermarket. You can then allocate your money accordingly. It may be a good idea to do your shopping once or twice a month. Visiting the supermarket more times than that would be overkill, wasted effort and chances are that you are not sticking to your budget.

You can allocate the grocery money based on the special offer leaflets that you can find outside your door! Go through the special offers and decide what you want to buy and where from. DO NOT give in and buy everything from a single supermarket. You are NOT minimizing your budget.

Another way to minimize your budget is to avoid buying complement items from a single source. Notice the special offer leaflets. You will see that most of the special offers and discounts are given on basic food items such as rice, potatoes and pasta. This is because these items are used in almost every meal. Grocery stores are willing to sell these items at ridiculously low prices because they know that they can make money on their complements. Two items are complements when they are used together. For example, pasta and tomato sauce. So you will find a low price on pasta and a high price on tomato sauce.

You need to somehow break this complement relationship between items. Instead of going for the tomato sauce, why not go for fresh tomatoes so that you can prepare the sauce yourself? It will be healthier and a whole lot cheaper. This is entirely up to you.

Finally if you do go over budget, try to set an "over budget" spending limit in advance, for example 10% of the total spending money. Leaving your credit cards at home may be a good way of keeping your budget.

Step 3:

You are now at the supermarket with your list and your coupons. Here is another tip. LOOK DOWN. Most of the cheaper items are located on the bottom shelves. This is because suppliers are competing for shelf space. The shelf spaces at eye level, are the most expensive and logically they display the more expensive items. You can find a lot of cheaper substitutes by just looking at the bottom of the shelves. Trust me, you will save a lot of money this way.

Also, avoid walking around the supermarket without purpose. You will be tempted to buy items that you do not need and for God's sake, NEVER GO TO THE SUPERMARKET FEELING HUNGRY. Eat a cereal bar before shopping. Otherwise you run the risk of buying the entire store!!!

Step 4:

Once your shopping is complete store the items in your pantry and fridge and ration them over the predetermined time period. Here the key is to avoid wasting food because this is the same as throwing your money away.

So in short here is the list again:

1) Make a list of what you need
2) Prepare your budget
3) Once at the supermarket LOOK DOWN
4) Ration the items appropriately 

What do YOU do to save money at the grocery store? Have a high utility day!

5 comments:

  1. Thank you for this very informative blog! such advice is handy to all of us :-)

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  3. Very important tips for a student who studies abroad. Thank's Constantinos.

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  4. It is very true, from experience :-), that when you shop on an empty stomach you end up buying more!!!

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  5. When I was a student I developed two useful habits which I still have today; buying 'durable' consumer goods in bulk when on sale and splitting them with room-mates/friends.

    If I need detergent powder and it happens to be on sale, then I buy more than what I immediately need (provided I have enough room to store it). This way I will have bought something non perishable at bargain price and I would definitely use it up.

    Second, if family-size pork chop packs were on sale, I would buy the 3kg package, store the chops in individual ziploc bags and store it in the freezer and bbq. Sometimes I would buy in bulk and then split the bill with my room-mates; one 3kg pack of pork chops
    is much cheaper than 3 1kg packs.

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