Lab Supplies and Groceries
Inflation has gotten a lot of press in this presidential election cycle. Specifically the price of groceries. I have written a number of blog posts during and after the Covid-19 pandemic related to this topic. The most recent was Outlook for Price Increases in 2024. So I was particularly interested to see what specific government policies caused inflation to spike post pandemic and why, with supply chain issues resolved, they have not come back down.
I coined the term “price ratcheting” to reflect what I observed in our industry: Prices go up due to supply chain problems but once those are resolved, there is no incentive to bring them down.
Another reason that lab supply prices on Chinese manufactured goods did not go down was due to the 10% tariff that was imposed on August 1, 2019 by the Trump administration. Importers' first reaction was to absorb the tariff but when supply chain disruptions happened, they immediately made up the losses and more - especially if they were able to get inventory during the pandemic. The Biden administration left the tariff in place.
After doing some considerable online reading of why grocery prices went up so much, experts all seemed to have a different idea on the main cause. Avian flu caused egg prices to spike. Climate change impacted other commodities such as orange juice, and Russia's invasion of Ukraine caused major shortages of grain and other agricultural products which persists to this day. The cost of producing food is heavily dependent on the price of fossil fuels. From diesel fuel to power tractors to fertilizers, (which are in increasing demand to keep crop yields up as climate change drives soil depletion), food prices are inevitably tied to petrochemical prices.
How ignoring a law passed in 1936 caused inflation to flourish
I would encourage you to familiarize yourself with the basics of the Robinson-Patman Act of 1936. The second paragraph of this article states:
“Large corporations and businesses receive substantial discounts from their wholesale suppliers. If smaller businesses do not receive the same discounts, they cannot offer the same products at competitive prices. Eventually, these small businesses will be forced out of the market. For example, a giant hardware depot locates itself in a city that has two similar but smaller stores. To acquire a controlling share of the market, the megastore continuously undercuts its two competitors by offering much lower prices on popular high-volume items such as supplies and tools. The smaller businesses cannot match the advertised prices of their competitors because they cannot sustain persistent losses in their operating revenues.”
In the grocery market, the big players are well-known names such as Wal-Mart, Amazon, and Costco. Prices on foods at these large retailers are often far below the wholesale price of independent grocery stores. Independent grocery stores serve a large portion of rural areas, such as tribal lands in South Dakota. While the nearest Wal-Mart may be 55 miles away, people will make the drive to make their food dollars go further, placing the independent grocery store in peril of going out of business. This “megastore” issue is the primary reason the Robinson-Patman act was passed!
An even more interesting phenomenon is the rise of Dollar stores. These stores are erected in poor areas, and sell products at what appear to be cheaper prices. But on a per unit basis, consumers often pay far more! Many don’t even realize they are actually spending more by buying a box that contains 25% less.
The problem is that for many years now, the Justice Department has not been enforcing the Robinson-Patman act. Without enforcement, grocery wholesalers, as well as big lab supply manufacturers, are free to price smaller dealers out of markets they wish to control. If smaller distributors and resellers had access to the same wholesale prices you would be paying a lot less. Why? Because they would be faced with competition.
Will a future U.S. Administration actively enforce Robinson-Patman? Not likely.
Will Prices of Lab Supplies Come Back Down?
The only reason prices change is through competition. So the short answer is that the only way you will obtain lower prices is if competition returns. The wholesale prices will not change. Large distributors serve large customers who buy $1,000,000 or more in lab supplies annually. With tariffs set to increase on Chinese made goods no matter who wins the election, and with no domestic manufacturers entering these markets, prices are headed in only one direction.
Final Thoughts
The lab supply industry differs from the grocery business in one significant way. There is no Wal-Mart or Costco of lab supplies. There ARE huge distributors with well-established names, but unlike Wal-Mart, their prices are in two tiers - Big customers get big discounts. Small to mid-sized customers pay the advertised price or very close to it.
LPS exists to help our clients be savvy shoppers. Our cost plus model ensures that you will always pay a fair price. When you need an item, we spend all the time necessary to find that item at the best price from the best source with the lowest possible shipping costs.
We also do our best to ensure you never get fooled by the “Dollar Stores” of our industry. Our mission is to work by your side to increase efficiency, decrease your lab spend and find the products you want from the best possible supplier.
