Popping profits

Cost markup is standard in retail. In some products, it seems extreme. The economics of a favorite snack.

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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.

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.

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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.

To account for that success, many experts point to Americans' peculiar snack-food psychology. Consumers equate snack foods with relaxation, they say. The food forges an emotional connection, largely because people consume it during memorable events - from birthday parties to Super Bowl gatherings.

"If you look at sales, snack foods go up whenever there's a holiday or sports event," says Ann Wilkes, spokeswoman for the Snack Food Association in Alexandria, Va.

Snack foods even draw regional loyalty. Ms. Wilkes cites central Pennsylvania, where the local Herr's and Utz potato-chip brands have become cultural institutions.

Allegiances seem to run even deeper with popcorn.

The snack food rose in prominence during the 1930s and World War II, when families rationed sweeter, more-expensive products. Popcorn was affordable to nearly everyone, says Andrew Smith, author of "Popped Culture: A Social History of Popcorn in America."

It's a fact that seemed to jibe with the nation's democratic values. The low price brought popcorn into baseball parks, circus tents, and movie theaters - venues that drew Americans from every class.

Seniors and baby boomers are now the most ardent purchasers.

"Everybody I knew went to movies when I was young. There's a psychological connection to the popcorn experience [for us]," says Mr. Smith.

The nostalgia has built to the point where multiple generations of Americans will now pay $4 for popcorn without thinking twice, according to Professor Urban.

"There are certain things that people learn through their lifetimes that they're socialized to do, says Urban. "Perhaps one of them is to pay $3 or $4 for a tub of popcorn, because that's just what's done."

Popcorn pricing is not entirely unreasonable, some defenders say. They suggest that customers in the theaters and supermarket are not just paying for kernels, but for convenience.

According to William Harris, an economics professor at the University of Delaware, most consumers are not aware of the intangible costs of popping their own kernels. Self-popping requires more time, the use of an oven and other kitchen supplies, and a cleanup component.

"If you take all those costs, you raise the cost of homemade popcorn considerably," says Mr. Harris, who studied snack-food inflation in his essay "Captive Audiences and the Price of Popcorn," published in the Pennsylvania Economic Review.

The price of popcorn at an event takes into account similar burdens, including employee theft, labor costs, machinery, and the liability of leftovers, he says. At ball games in particular, popcorn is more difficult to sell because it is bulkier and harder to carry in large quantities than hot dogs.

Harris adds that moviegoers are a captive audience, and that the theaters have a monopoly on concessions. In 1999, the average price of a medium popcorn in New York City theaters was $3.65. The average cost of a large popcorn was $4.39.

Still, Harris believes high popcorn prices are a consequence of theaters' need to cover overhead and compensate for marginal ticket profits, rather than a baldfaced effort to drain moviegoers' wallets.

The studios' take amounts to about 50 percent of theater ticket sales per film, according to Paul Dergarabedian, president of Exhibitor Relations, a Los Angeles firm that tracks box-office receipts.

To stay in the black, theaters pump up the price of soda, candy - and especially popcorn.

"They buy their concessions for whatever wholesale prices they can," says Mr. Dergarabedian. "Whatever they can get over what they paid is where they're going to make most of their profits."

(c) Copyright 2001. The Christian Science Monitor

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