Cost markup is standard in retail. In some products, it seems extreme. The economics of a favorite snack.
Frank Morrison grows the popcorn that Americans bring to life in their microwaves, pop on their stovetops, and stuff into their mouths at movie theaters and amusement parks across the country.Skip to next paragraph
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In 35 years of farming, he's witnessed popcorn retail prices expand like an inflating kernel.
Americans now commonly plunk down more than $2 for a box of microwaveable popcorn. Movie theaters often charge about $3.50 for a medium portion, compared with 15 cents in the mid 1950s - or 95 cents when adjusted for inflation.
The rising prices don't mean that the popcorn itself is any more expensive. Just ask Mr. Morrison. The value of his prepopped crop hasn't risen one cent since the 1960s.
"We're getting less for popcorn now than we did 35 years ago," says Morrison, who grows a variety of beans and corn - yes, popping corn is a specific variety - on his Clearwater, Neb., farm.
The gap between the value of Morrison's popcorn after harvest and the price most people pay for it is a testament to the bewildering balance sheet of popcorn economics.
This snack food became an American staple during the Great Depression, primarily because it was just a little more expensive than air.
Consumers' bank accounts are comparatively flush now. But people still buy popcorn in enormous quantities - and pay what many in the industry admit are extremely high prices. (This summer alone, Americans will spend an estimated $450 million on popcorn.)
A three-package box of microwaveable popcorn contains about 10 cents' worth of kernels. Additional costs include 10 cents for the box itself, 10 cents in labor costs, 15 cents for oil, and 15 to 20 cents for the microwave-ready bags. Shipping costs vary from a few cents to a quarter.
Overall, the kernels make up a very small percent of the final price tag, which averages $2.14.
According to the United States Department of Agriculture, the "farm value" of an average food product in the US accounts for 20 percent of its final cost. The farm value for popcorn is less than five percent.
With material costs so low, and efficiency on the farm improving each year, popcorn vendors make higher margins than do many other food manufacturers.
About 40 cents on each dollar sale generally goes to the manufacturer, wholesaler, and retailer as profits and compensation for marketing costs.
Big-name brands draw significantly more. Ramsey Popcorn, the ninth-largest vendor of microwaveable popcorn in the US, says that its Cousin Willie brand costs 60 cents to produce but usually sells for about $1.30.
The additional cost results from a 15 percent markup for Ramsey's profits, and about a 40 percent markup for store profits, says Jason Sieg, Ramsey's sales manager.
Nearly $2 of the $2.70 bill for a three-package box of Orville Redenbacher microwave popcorn, other producers estimate, goes to the manufacturer and the retailer in the form of profits and to subsidize in-store advertising.
And in many cases, the added cost does not translate into a high-quality popcorn. According to David Urban, a professor of marketing at Virginia Commonwealth University in Richmond, the same manufacturers that harvest and process popcorn for national brands, such as Ramsey, commonly supply generic labels, too.
But fancy packaging and a familiar brand name are not the sole underpinnings of high prices. Popcorn manufacturers charge more because consumption of the snack food in the US is a near given, based on perennial high demand. Popcorn is a sure-fire product within a sure-fire segment of the comestibles market.