A friend and his wife recently took a trip to Paris where, among other sites, they visited one of the famous designer goods shops. While browsing, the wife was approached by another customer, a Chinese lady, who asked her if she intended to buy a handbag. To my friend’s great relief, his wife said no. The Chinese lady then explained that purchases of handbags were restricted to one per customer and this rule was managed by the presentation of a passport. If my friend’s wife would loan the Chinese lady her passport then she would be able to buy a second $15,000 crocodile skin handbag.
The elite fashion houses of Europe are the gold medal winners in the game of managing the Law of Supply and Demand. First they use their creative genius to design products that every woman in the world is desperate to own, and then they carefully manage a shortage of supply to generate spectacular profit margins. Voila.
In the Beef Central article on $5 mince recently,( 5kg-mince-battle-defies-logic ) Kerry Melrose says that using beef as a loss leader “defies logic”. Sadly, for Australian cattle producers, the $5 campaign is a very logical example of the exercise of two universally accepted laws, Supply and Demand and the Survival of the Fittest – also known as the Law of the Jungle.
The supermarkets are not targeting producers by offering $5 mince; they are simply exploiting an opportunity that is too good to miss. If you are going to develop a new loss leader campaign to get more punters through the door then it’s best to use an extremely attractive product as the bait. You won’t get a flood of people heading for the shops to buy cut-price biscuits or very cheap tins of baked beans. Milk and bread have already had the guts cut out of them so that leaves magnificent Aussie beef at stupid prices as the perfect tool to attract more of the independent butchers customers to defect.
Back on the station, the dingoes use the Law of the Jungle every day, by attacking the weak, baby calves and skinny cows bogged in the dam. In the corporate world, the apex predators design their attacks on the opposition in the same way to minimize risks and maximize damage and reward. When the horrendous drought delivers big-retail an opportunity to buy ultra-cheap beef and use it as a first class loss leader without the usual heavy financial penalty then they naturally use this rare chance to squeeze some of their independent competitors at the same time as increasing customer traffic. Win-Win for the King of the Jungle. $5 mince is primarily a threat to the small butcher trade with the unfortunate beef producers simply the vehicle for the attack and the subject of some down stream collateral damage. As they say in the mafia movies, it’s not personal, it’s just business.
If the big players are as well informed about the future of the global beef market, as they should be, then they will recognize that this could be their last chance to use the best beef in the world as the bait in their loss leader tactics on the competition. Once the drought breaks properly, beef will suddenly move to a brand new position behaving exactly as dictated by the Law of Supply and Demand. The new, higher prices for cattle will make the use of beef as a loss leader commercially prohibitive.
While delicious Aussie beef will never achieve the extreme end of the supply and demand curve enjoyed by designer handbags, a decent, wide spread wet season is all that stands between cattle producers and a brilliant future where global Supply will never, ever, get close to meeting global Demand again. I know, from a distressed producers perspective, this sounds too good to be true considering today’s very depressing situation, but the universal laws dictate that this proposition is both logical and tantalizingly close.