There was a fascinating article yesterday in the New York Times entitled , which looked directly at the real-world ways consumers alter their spending at the retail level. In other words, the authors, Michael Barbaro and Eric Dash, actually went to a supermarket to watch and learn how spending was changing because of recession fears. A few elements really stood out to me.
Recession Spending Habits
Buying the Cheap Stuff
At Save-A-Lot, a discount grocery store in Cleveland, Teresa Rutherford, 51, chided her sister-in-law, Donna Dunaway, 44, for picking up a package of Sara Lee honey ham (eight ounces for $2.49).
“We can’t afford that!” she said. “Get the cheap stuff.” They settled on a 16-ounce package of Deli Pleasures ham for $3.29, or 34 percent less an ounce.
Here, Teresa is clearly advocating buying a cheaper type of cold cut ham, presumably for sandwiches. Yet I’m left with a biting question here: what’s really behind this switch from the high-end ham to the middle-of-the-road ham?
Clearly, the belief here is that price is directly related to quality, and because of that, many people when in corner-cutting mode will simply settle on a cheaper version of the product they’re already buying when they see it on store shelves rather than asking more fundamental questions. To me, this is the equivalent of buying a new GM car instead of a new Lexus without even looking at the late model used options – it’s settling on a mediocre option because you’ve already self-limited your options.
Cutting corners by just buying the slightly less expensive version of the same item isn’t really cutting corners at all. In the book Predictably Irrational (which I enjoyed and reviewed a while back), Dan Ariely (the Sloan Professor of Behavioral Economics at MIT) dug into this phenomenon repeatedly from different angles.
Ariely argues on page 4 of his book that when people make buying decisions, they are looking for information, and in most buying situations, the easiest available information is the sticker price. They want guidance, so they use the highest price and the lowest price as “runway lights,” guiding them into a safe place in the middle where they feel like they’re not spending too much, but not buying something cheap, either. Teresa in the ham-buying example is using these runway lights – the high-end ham is too expensive, but she doesn’t go for the low-end Carl Buddig ham for less than $2 a pound, either.
Obviously, marketers are aware of this and thus price accordingly. They want to ensure not that those middle prices are a good deal, but that the fattest profit margins are connected to the item that sells the most. Thus, quite often the items in the middle tiers at a grocery store are the worst bang for the buck you can buy – they’ve got the highest profit margin for the store.
Similarly, people often judge what a “fair” price is based on the first price that they ever associate to a given product – that becomes the anchor price for all future buying decisions and an anchor price is very difficult to do away with, as Ariely describes on page 30.
In this ham-buying example, Teresa and Donna likely have different anchor prices for ham in general, but they also might not be anchoring on the same item, either, and this is probably likely given how different they thought the acceptable price for ham was at the beginning. One person’s definition of acceptable ham is different from another’s, so Teresa might go home and find the cheap ham to be completely unacceptable. The best solution would have been to buy a small amount of the cheaper ham and a regular amount of the usual ham and actually find out whether the cheaper one is acceptable.
My question is why is $3.29 a pound ham a necessary purchase at all? If you’re truly being frugal with your money and didn’t necessarily put a premium on the quality of your ham (which, if you’re willing to compromise while standing at the store shelf, is likely a given), why not try the lowest-end ham and work up from there? Or, even better, drop the ham entirely and eat leftovers for lunch?
Another quote from the story really shook me:
Ms. Dunaway, a homemaker, used to splurge on the ingredients for homemade lasagna, her husband’s favorite, before food prices began to surge this year.
“Now he’s lucky to get a 99-cent lasagna TV dinner, or maybe some Manwich out of a can,” she said. “I just can’t afford to be buying all that good meat and cheese like I used to.”
Ms. Dunaway was willing to make homemade lasagna, which means that food preparation time isn’t that big of a deal – she has ample time to prepare meals. Yet she’s replaced this with a 99 cent lasagna TV dinner or some Manwich out of a can? That’s cutting corners in the short run, but adding a lot of cost over the long run due to the consequences of an unhealthy diet.
The problem is clear – when the economy is bad, people cut corners, but cutting corners on food not only often undermines what you’re trying to accomplish, but can have bad long-term consequences for your health.
The Solution: A Cheap and Healthy Diet
If you want to “cut corners” when buying food, don’t turn to the junk food aisle and don’t “settle” for middle-of-the-road inferior versions of other foods, either. Instead, make a sensible plan and stick to it. Here’s what you do.
Use your grocery flyer
Each week, grab a flyer for the upcoming week at the grocery store. Look at what fresh produce, fresh meats, and healthy staple foods are on sale in the upcoming week.
Make a meal plan
Using those items, figure out what meals you’re going to eat over the next week. Focus on simple stuff that you know how to make and tasty stuff that you know you’ll be interested in eating.
Focus on inexpensive staple foods
If you’re looking for foods to supplement what you have, look at inexpensive staple foods, especially anything that can be bought in large quantities and stored. Beans come to mind – a pound of dried beans can be purchased very cheaply, provide a lot of nutrition and protein, and can go a very long way.
Choose the high-end version of a frugal item
For example, once you’ve made the decision to give beans a serious try in your diet, you can choose organic beans or fresh herbs and spices to give them a rich flavor. Choices like these are quite frugal – you’ve already made a great cost-saving choice by going with beans and flavoring them up the way you like them best is a great way to keep yourself eating them.
Avoid the junk temptation
It’s cheap and tasty now, but has long term consequences. For most people, it’s a lot easier for the moment to just say, “Why bother?” and head down the junk and prepackaged food aisle for some easily prepared and rather tasty meals. Resist that temptation at all costs. Stick with staple foods and fresh foods – you’ll be much better off over the long haul.
Once you know what you’re eating, make out a grocery list containing exactly what you need for the coming week – and only what you need. When you get to the store, only put stuff in your cart that appears on the list. Do that and you’ll be in great shape at the checkout aisle.
Use what you learn – and don’t lie to yourself
Many people give this a sincere try and wind up preparing foods that they frankly don’t like too much. If you don’t like a dish, don’t blame the process – blame the dish. Just simply note that you didn’t like it and try something different. Many people give up on an ingredient or a process simply because they didn’t like the first permutation. You know what? It’s the anchoring problem from earlier in the article all over again.
Make meals in advance
If you find something really tasty on sale, make a bunch of meals with that food, freeze them, and enjoy them later. That way, you don’t just get to enjoy the benefits of the sale now, but for as long as the meals last in your freezer.
Afraid to cook? Many people are trying to cut back right now, but don’t have the basic kitchen skills needed to make things work. My suggestion is to head down to your local library and pick up Mark Bittman’s . Make some very simple recipes using some very simple ingredients. Learn a little bit at a time. Pay attention to what you like that also happens to be healthy (for me, tomatoes and onions and garlic are right up on that list, for instance). Use those in abundance, especially when they’re on sale.