As inflation soars, how is Arizona iced tea still 99 cents?

https://www.latimes.com/business/story/2022-04-12/az-iced-tea-inflation-99-cents

by sharkweek • 4 years ago

150 223 4 years ago

slackfan• 4 years ago

It's 1.29 now.

Not in the US, the tiktok was of a can priced in canadian peso: https://twitter.com/DrinkAriZona/status/1351916465889406976

magneticnorth• 4 years ago

The article is from 2 days ago, and Arizona's tweet about it seems to confirm they're still $.99 in the US https://twitter.com/DrinkAriZona/status/1513958532328030208

I think in Canada they're $1.29 now, though.

dwringer• 4 years ago

I haven't seen one priced at 99 cents for a couple of years now. The best price in convenience stores where I live (US) is typically 2/$3.00. The cans don't even say 99 cents anymore, they seemed to start phasing that out after that episode of Atlanta someone else linked.

bluedino4• 4 years ago

They're still 50 cents a lot of the time at Walgreen's. Not quite that low, but I bought 3 for $2 today.

goosedragons• 4 years ago

The Canadian cans used to be 99 cents too. They also used to be bigger. I haven't seen the 680ml Arizona cans in a while. Now I think they are 473ml.

__s• 4 years ago

In Canada: https://www.reddit.com/r/ontario/comments/u320hi/i_no_longer...

pvm3• 4 years ago

MSRP is $0.99, however, retailers can set their own price [1].

[1] https://drinkarizona.zendesk.com/hc/en-us/articles/150000325...

colinmhayes3• 4 years ago

https://www.youtube.com/watch?v=fMUZ2sVjLfY

Slow_Hand• 4 years ago

My hero. Came straight here to post this.

mc32• 4 years ago

I mean, it's mostly (cheap) sweetened water... They may take some small margin hits but keep or grow market share.

onemoresoop• 4 years ago

Sweetened water? Probably contains some tea too? It should probably be cheaper than that and at the same time not even worth ingesting.

happytoexplain• 4 years ago

The negativity here falls a little flat - water, sugar, and tea isn't really something I think of turning my nose up at. Of course I assume it has a lot of sugar and is therefore unhealthy, but your ingredient list isn't exactly offensive.

cbg0• 4 years ago

I don't think the idea was to make it offensive, just to say that it's cheap to make.

kart23• 4 years ago

that’s what coca-cola is too. and they’re a pretty successful company.

janitor61• 4 years ago

"Groceries are 8% higher than last year. Dollar stores: now dollar-and-a-quarter stores." - so, is it 8% or 25% ?

Fatnino• 4 years ago

We need an 8 cent coin.

Maybe put the faces of several recent/current presidents on it.

edgyquant• 4 years ago

This may help you: https://en.wikipedia.org/wiki/Compound_interest

LegitShady• 4 years ago

I think the dollarama around here is up to $4-5 now.

etempleton2• 4 years ago

In college I would buy a can of Arizona Iced tea at the local drugstore and then walk over to the McDonalds and buy two Cheeseburgers for a dollar each. You can still-almost-do this over a decade later (a cheeseburger is usually over a dollar depending on the state).

colpabar• 4 years ago

You may actually be able to get more mcdonald's with the same amount of money now. Their app has all these deals like "free cheeseburger on orders of $1 or more", meaning if you spend $1, you get a free cheeseburger. I guess that requires a smart phone which isn't free, and of course the app will be taking as much data as it can access. But if you enjoy mcdonald's food, it seems to be cheaper than ever.

stonogo• 4 years ago

In the early 2000s McDonald's hamburgers were 39 cents on Wednesdays. I would never have survived grad school without it!

Workaccount2• 4 years ago

I can often get food cheaper from McDonalds than if I had made the equivalent from base ingredients at my house.

scruple2• 4 years ago

I was recently looking at a McDonald's drive-thru menu for the first time in probably a decade (road trip, forgot to pack a bite to eat). A Big Mac meal was $11. A large french fry was $4.99. It shocked me a little bit.

I've been scratching my head for the last day and a half wondering how the McDonald's drive-thru near me is always packed. Your comment is illuminating to me because I didn't know that I needed a McApp to get McDonald's prices, though I am not at all surprised.

kingcharles• 4 years ago

The app is crazy. This last week I've been getting two-for-one on sandwiches. If you pick McDouble you can get two of them for $2.19 total (+tax depending on jurisdiction). The large fries are always $0.99 on the app. Plus you get points from it which converts into more free stuff.

And if you're super friendly with the little old Mexican lady who works there, she'll sneak free pies into your bag too.

ja27• 4 years ago

App / coupons are a decent way to have a little elasticity on price and maximize revenue from people that will pay more and still appeal to a bargain-hunter. At least here there is always a 20% off the total order deal available in the app so that's an immediate discount for a relatively small effort.

Locally they did recently drop their long-time $1 any-size soft drink but it seems to be back now after a few weeks.

gigaflop4• 4 years ago

I keep multiple food delivery apps on my phone, despite having the $MEMBERSHIP_NAME for one via my credit card(fees on card are cheaper than the membership itself).

This 'pays off', in that I have my default choice, and can choose to use any of the other apps when there's some combination of coupons and deals to be had that make it feel worth it.

Yesterday, I used a "$15 off $22" coupon(for some reason, they gave me two, and I plan to use the other this weekend), combined with two bogo deals from an instance of a small chain restaurant, and paid $20 delivered(fair tip included) for what would have been at least $30 had I driven over and ordered in person, since both deals were only available on the app. As a bachelor, it's enough food to count as dinner for at least 2 days in a row.

I don't know how $COUPON_GIVING_APP can make money while footing that kind of coupon deal, but hey, I'd be dumb to not make use of it if I was already looking to spend some money.

There was also a promotion only on $COUPON_GIVING_APP from Wendy's for a free sandwich of theirs, so long as cart subtotal was at least $15. The discounted sandwich counted towards that, and I ended up feeling very fat and happy with a price of $12 delivered.

hedora2• 4 years ago

You can still buy the 20 piece chicken nuggets. They cost less than the five piece package (so the cost of nuggets 6-20 is actually negative).

BenjiWiebe• 4 years ago

McDonald's usually has free WiFi, so you can even use the app without having a data connection. Just wait till you arrive to use the app.

fundad• 4 years ago

McDonalds starting selling their drinks for $1, I remember the reading the bus ad on my bike ride to the station.

"Bebidas $1 Cualquier Tamaño"

RcouF1uZ4gsC• 4 years ago

One place where you can get a lot of food cheaply is Costco.

You can get a hot dog and drink for $1.50 and a whole rotisserie chicken for $5.

geranim0• 4 years ago

and don't get me started on their poutine

dboreham2• 4 years ago

This has been covered before in the context of how Coke was 5c for 75 years. I think there was a Planet Money episode on it.

notriddle• 4 years ago

https://www.youtube.com/watch?v=Bcz0BJGEVUY

rhino3693• 4 years ago

Some of that is just that inflation fundamentally changed when we floated the dollar in 1971. We now purposely try to inflate our currency 2% every year. Before then there was inflation and deflation, but not a single trend. A dollar in 1800 was worth essentially the same as it was in 1933--though there were long periods where it was less and long periods it was more.

dboreham2• 4 years ago

Interesting. Didn't know that. I'm more familiar with the UKP which only goes down in value :(

monetus• 4 years ago

In a can and still usually cheaper than bottled water.

Ekaros2• 4 years ago

Just shows how massive the margin was before... Still cheaper than water is slightly interesting, but I guess the sugar might work as preservative...

verisimi• 4 years ago

"Water? You mean like in the toilet?"

https://www.youtube.com/watch?v=-YZnORoAWkA

RicoElectrico• 4 years ago

Kind of ironic that its price in Poland is crazy high.

Overtonwindow• 4 years ago

Cost of aluminum and flavored water, it’s not terribly expensive to produce.

JohnWhigham• 4 years ago

“I don’t want to do what the bread guys and the gas guys and everybody else are doing,” Vultaggio said. “Consumers don’t need another price increase from a guy like me.”

Integrity like this is rare in the American business landscape. His successor most likely won't feel this way though.

brk• 4 years ago

IMO it is more Marketing than Integrity. I would be surprised if this article was completely organic, most likely their PR department reached out to journalists to do a story on how great this CEO/company is.

Not saying he is not due his earnings for the product, but if his concern was fair pricing to consumers the product would likely be about 20 cents, maybe even less.

Also, as the article notes, the company sells more than just these 99 cent cans, and they have not held all prices constant.

It's a nice feel-good piece, but this guy and his sons are not worth $4B because they are looking out for the best interests of their customers above all else.

Jamie9912• 4 years ago

Maybe they will start selling it as a loss? Gets people through the door

Digory2• 4 years ago

The gas stations that sell this stuff need margin. Gas is closer to a loss-leader/break even for most.

gigaflop4• 4 years ago

Having worked at a gas station, most of the money comes from snack and drink sales indoors. Gas itself netted <$0.05 per gallon, I think.

mdasen• 4 years ago

Prices are sticky and they're betting that their costs will come back down in the future. They don't want to hike prices, ruin their brand and market positioning, just to see things like aluminum prices come back to normal in 6 months and for customers to have moved on.

While other drinks may have hiked prices over the years, I haven't noticed spikes in the price of other soft-drinks over the past few months. Their costs are rising too. I think most companies don't want to alienate their fans over what they're hoping will be transitory cost increases. If Coke hikes prices and people start trying Pepsi, will they come back? If Arizona hikes prices, do they lose the "just a buck" cliff that makes them seem a lot cheaper than anything more than a dollar? Does $1.50 look a lot closer to $2.50 than $1 does to $2? Do people buy a $1.79 Snapple or $1.99 Gold Leaf if Arizona is $1.29 (even if it is still both cheaper and larger)?

Given that they're a private company and the owners are multi-billionaires, it seems reasonably wise to eat some margin over the short-term. It's not like they're struggling and it's not like they have lots of shareholders to appease on a quarter-by-quarter basis. I don't think people expect the cost of aluminum to stay at double long-term and if the Ukraine/Russia war ends, it seems like fuel prices will likely ease (and long-term it seems likely that Europe now has very strong incentive to reduce its dependence on Russian fuel). If costs remain high, they can re-evaluate this decision in 6-18 months while potentially missing out on a small amount of profits.

$43M in increased aluminum costs over a year doesn't seem that much compared to a $4B net worth - especially if you're still making money, just $43M less. If I were them, I'd weigh it out: raise prices and potentially damage the brand long-term and risk a good bit of what the family has built over decades; or keep prices steady, potentially lose out on profits that would make us 1-2% richer, and still be able to re-evaluate this decision in a year. If I had $4B, I'd much rather keep consumer sentiment thinking that I'm the small quirky outsider offering them great value.

gruez2• 4 years ago

I haven't noticed spikes in the price of other soft-drinks over the past few months. Their costs are rising too

I haven't noticed any "spikes" in soft drink prices, but I have noticed that sale prices have edged up around 15%. This is for name brand drinks, multi-packs, sold in grocery stores. I don't pay attention to regular prices so I don't know whether it's limited to just sale prices or to regular prices as well.

Supermancho2• 4 years ago

I haven't noticed any "spikes" in soft drink prices,

From fountain soda to 2-liter there have been spikes.

https://fred.stlouisfed.org/series/APU0000FN1101

Walmart: https://www.walmart.com/ip/Pepsi-Cola-Soda-Pop-2-Liter-Bottl... (1.98)

The midwest happens to have a couple gas-station quickmarts that have deals like pay $7/month for a free (any size) soda or coffee per day that many people take advantage of, but in the supermarket the price changes are evident.

The real spikes have been in restaraunt/fast food drinks. It's not uncommon to see over $2.75 for a relatively modest drink cup. This has been primarily a tactic for low-margin food businesses to avoid raising their consistently low prices, in comparison to their competition.

Ironically, this has led some market losers (like Burger King) to leap ahead of competition (Carl's Jr/Hardees) as they had to raise prices to survive, leading to incidentally higher quality meals. ie Compare the mc-donalds cardboard quality Carl's Jr famous star to a Burger King burger today.

But that's just my observation.

ortusdux• 4 years ago

The stores near me are phasing Arizona products out for higher priced competitors. I'm assuming they make a better profit off of identically sized $1.99 cans of Monster green tea.

mywittyname2• 4 years ago

I've been drinking Arizona tea since the 90s. Something they aren't saying they do, but I'm certain they are, is watering down the product. It's the beverage equivalent of shrinkflation. Their green tea in particular lacks flavor.

I kind of wish they would bite the bullet and make a can $1.99 and bring back the full flavor 90s version.

flatiron• 4 years ago

In high school in the 90s I worked at a place that hired lifeguards and then staffed things like condo and hotel pools etc so they didn’t have to. Sometimes we would get stuff like birthday parties and such.

I was a lifeguard at a party for the ceo of Arizona iced tea. Never seen a house like that. Crazy how much money you can make selling sugar and water. From that experience they aren’t lacking.

cnasc• 4 years ago

I’m pretty sure we grew up in the same town

gigaflop4• 4 years ago

Add enough sugar to a flavored drink, and some American[0] is going to say they love it. Make it cheap, and they'll keep coming back for it.

[0]No ill will, just an observation and generalization.

hn_throwaway_992• 4 years ago

I find this very difficult to believe. The actual tea that is in an Arizona iced tea I'm guessing maybe costs ~5c or so, if that? Surely the packaging, water, sugar, transportation and storage costs are the vast, vast majority of the cost.

bombcar2• 4 years ago

Once you realize that Arizona Ice Tea is basically just a taller can with water in it when compared to a can of pop, it makes more sense how it can still be $.99.

The main additional costs are a bit more aluminum and some more water, everything else is comparable.

And the 99 cents is really tied to their brand; if they break it they get hurt more, so they'll push it as long as they "can" - likely introducing a smaller or larger can at some point.

mywittyname2• 4 years ago

You find it hard to believe that a company would cut cost by reducing the amount of product they use?

Tea, even if it is cheap, is still much more expensive than corn syrup and water. So if you want to cut costs, it makes sense to reduce the amount of tea and make up for it with more sugar.

If you do it a little bit over 30 year years, few people with notice. You get a panel of taste testers compare the current version with a slightly watered down version and see if they can tell the difference. If most can't, you make the change and pocket the savings as profit. It's like making a copy of a copy on a copy machine, you can't tell much difference between the two, but repeating the process over multiple generations and the small differences adds up to be dramatic between the original and the 30th generation version.

This exact situation happens for many food companies. They gradually reduce quality and costs over the years. And once the people who remembered the original product die off or forget, it can be hard to re-establish yourself as anything but a cheap brand.

Five cents is a big cut of a $0.50 product.

zardo• 4 years ago

Taste sensitivity tends to decrease with age. It could be the exact same beverage, and taste different to you because you're 30 years older.

rhino3693• 4 years ago

They might also have found that people just want sugar water. A lot of mass market food products get bastardized by being made blander and more sugary.

nonamenoslogan• 4 years ago

I miss the cobalt-blue bottle of ginseng green tea they used to have for $1.19.

nimbius• 4 years ago

I suspect the answer to this question lives deep in the supply chain in the form of sugar subsidies. Your taxes work to subsidize the production of overwhelming quantities of corn syrup. other flavours of iced tea like watermelon are sourced from GRAS (generally regarded as safe by the fda) aroma chemicals, similar to the ones in air fresheners. these are cheap to source and efficient to use.

m3kw9• 4 years ago

Increase water to tea ratio

raspyberr• 4 years ago

I thought the whole thing with soft drinks is that they cost basically nothing to make but we're all used to paying 1000x their value.

wly_cdgr• 4 years ago

Why not? It used to cost 1 cent to make, now it maybe takes 2 or 3....they can afford it

orev2• 4 years ago

I’m not sure if there’s a formal name for this fallacy, but it’s pervasive in almost all financial reporting: the sticker price has nothing to do with the cost of materials; it’s driven only by how much people are willing to pay.

As a manufacturer, if the cost to produce something is higher than what customers are willing to pay, then you simply don’t sell it.

There are commodities where this doesn’t apply as much because there’s enough competition keeping downward pressure on the price so it floats just above the actual raw materials price, but other than that, this concept applies to most products.

EGreg• 4 years ago

But of course, the money surplus has to go SOMEWHERE... and eventually someone would defect, and take a loss to make up on volume.

I have asked wholesalers this (who produce cars, lighters, etc.) and they say that they have a licensing agreement and can just kick out retailers who sell below MSRP too much. So those retailers would have to then get the goods from other retailers.

RustyConsul2• 4 years ago

kick out retailers who sell below MSRP too much

i've worked alot in a bunch of company's when i was selling NSN's and mostly it works by your volume. You can sell at whatever price point you want but this is your price based on volume.

Jobber: 500, at $1.30 distriibutor: 1000, at $1.20 wholesale: 10000, at $1.10 partner: 1000000, at $1.00

Sometimes it makes sense to sell some inveentory at a loss to ensure you maintain the 'bucket' and happens all the time.

simulate-me2• 4 years ago

I don’t know if you’ve even seen a supply and demand graph, but there is a price a supplier is willing to sell at, and a price the buyer is willing to pay. The supplier’s price is based off of their costs. Saying the price is only determined by the buyer makes no sense.

Clent• 4 years ago

Economists love their supply demand graph.

This article is saying the graph isn't enough. This seems obvious on its face, reminds me a friction in physics, where you can ignore it until you cannot. But physics is not incapable of measuring the friction.

The concern is if economists able to account their model's friction.

kbelder• 4 years ago

And yet...

points

Arizona Ice tea. Unchanging price, changing costs.

I think what everybody is missing is the 'tends' qualifier. Price tends to rise with increased demand; price tends to drop with increased supply. It's true, but simplified, and can be influenced by a near infinite amount of other factors, like most other behavioral laws.

Kranar3• 4 years ago

The fallacy is you stating something that's just plain wrong. The basic law of economics is that price is determined by BOTH supply and demand, whereas your statement is that price is determined only by demand.

The cost to manufacture a product is one of the key components that determines the supply of a product; the higher the cost to produce, the lower the supply and hence assuming demand doesn't change then the price will increase. Of course demand may not stay the same, could increase or decrease.

garbagetime• 4 years ago

I think the point he was making is that change in supply doesn't necessarily lead to a change in price. I don't know if that's what they teach in basic economic s, but it's certainly true.

Spooky233• 4 years ago

The point of Arizona iced tea is volume sales, and they maintain or increase that volume by pricing under Coke/Pepsi. Bigger can, smaller dollars.

That business is all about scale. They probably make more per unit than coke as they spend zero dollars on marketing.

I did this with an email service. We had runway and sold at 30% under cost. After about two years in our little niche, we had pushed enough volume that we were making a healthy profit. Then we sold the business to a bigger fish.

thwayunion6• 4 years ago

The basic law of economics

It's not a law. It's a model. A very simple model. Of a very complex system.

Computer Scientists never invoke Turing machines or the simply typed lambda calculus in debates about specific pieces of hardware or compiler implementations, except in cases where those models are actually applicable and in ways that comport with the pieces of those systems for which the model is usefully faithful.

The Econ 101 "supply & demand curve" is way simpler than TMs/lambda calculi, AND it's modeling a much more complex system than a computer/compiler. Yet, somehow, the model is constantly invoked.

There's a really good reason that every single financial analyst in the world goes directly to "pricing power" whenever they are asked to analyze the effect of "supply chains".

LeifCarrotson• 4 years ago

That's what basic economics theory says, yes, but not what happens in practice to make Arizona Iced Tea $0.99. Nor why a baggie of 5 screws at Lowes costs $2.99. Supplier costs are important in commodities, especially where easily compared alternatives are readily available, but that's not true of all products.

There are a lot of factors that go into pricing, but for many consumer goods the vendor is able to set prices pretty much independently of the costs.

kube-system4• 4 years ago

The supply curve you are thinking about exists when you are talking about a market with multiple suppliers. If we’re discussing a single product from one supplier, the supply curve becomes a vertical line.

CraigJPerry3• 4 years ago

> price is determined by BOTH supply and demand

Most of economics teaching is about exploring just how wildly wrong econ101 is.

E.g. who passes on insulin since the last price increase?

E.g. why does a basic black and white rolex daytona cost around £12k at an authorized dealer? (For non-watch people there’s a 10 year wait list to buy at that price but you can buy 2nd hand immediately for a LOT more)

tj-teej• 4 years ago

"The basic law of economics is that price is determined by BOTH supply and demand"

That is one basic law of economics, but in some markets price isn't only determined by supply and demand.

I think a similar/analogous example for the price on the can is minimum wage. Yes, in a lot of cases wages are set by the intersection of supply and demand, but if that intersection is below a minimum wage then the "price" of labor (the wage) is the minimum wage. Now there's economic implications of that too, but at the end of the day in the US you can't pay a McDonalds employee $2 an hour and a corner store can't sell an Arizona tea for $2.

hedora2• 4 years ago

Arizona Iced Tea's unit per-economics are closer to software than to food.

They both have ridiculously high incremental profit margins, so talking about finite supplies doesn't make sense.

shalmanese• 4 years ago

That law of economics applies to a market of products and assumes that supply decreases as additional manufacturers of the product find it less profitable at a given price and drop out of the market.

When applied to a single consumer packaged good product, the supply curve is 0 at a point below the manufacturing cost and then rises to infinite at some point shortly above that price.

eg: If I an providing dollar bills and it costs 10 cents for me ship one to you, I will sell you an infinite quantity of them if you're willing to buy them at $1.11.

Coca Cola's willingness to supply Coke at $2 is infinite, if demand doubled overnight, CC would build whatever factories it needs to meet that demand and would do it for each successive doubling until it started hitting material planetary constraints like consuming all of the world's sugar.

spoonjim• 4 years ago

Yes but in a modern industrialized economy if there is a profit to be had the supply will create itself, without barriers to entry. However in beverages there is a big barrier to entry in consumer brand awareness and in retail shelf space especially for refrigerated products.

bko5• 4 years ago

Cost definitely impacts the price. In a perfect competition, the price would be the marginal cost to produce an additional unit. This would result in maximizing the revenue. Even in a monopoly, the price is where the marginal cost and marginal revenue intersect, but the price charged would be the average revenue. In both cases cost impact the price charged.

There are other things that affect price, including consumer demand. But cost is absolutely a factor. Saying "the cost is what people are willing to pay" is a tautology and not very useful.

http://www.sanandres.esc.edu.ar/secondary/economics%20packs/...

ncmncm6• 4 years ago

Except there is no perfect competition, and none for Arizona Iced Tea: only Arizona sells it, no one else.

They are, of course, engaged in competition with Pepsi, and also with water, food, and rent. If they were to raise their price, some number of people may decide they don't need any Arizona Iced Tea.

RustyConsul2• 4 years ago

i remember learning this in college. It's absolutely false now though. Late-stage capitalism has different ideas as those basic graphs don't take into account any amount of game theory. There's perfect competition in coffee but marginal cost the the end user does not anywhere approach marginal cost.

kortilla2• 4 years ago

Cost sets a floor on the sell price, nothing more.

kube-system4• 4 years ago

Individually modeling any single actor in a market (whether a monopolist or not) accurately is tough, because they can make decisions for reasons other than profit maximization. As your source mentions:

http://www.sanandres.esc.edu.ar/secondary/economics%20packs/...

Economic models are more descriptive of behavior than they are prescriptive of behavior. It is possible that a factor in a model is not considered by the participants. Vanishingly few, if any, companies are going to be drawing profit maximization curves to make pricing decisions. Most of them don't have the information to draw it even if they wanted to. For most companies that do follow that model, it's by an accident of the invisible hand, not because they made a decision that way.

lumost• 4 years ago

There is no perfect market for "Arizona ice tea". Arizona Ice tea is available in most locations, has a consistent flavor, and is easy to access.

The customer isn't deciding which tea to buy based on price, they are deciding whether it's worth buying an Arizona ice tea at the current moment of time. Changing the price of Arizona ice tea will influence this decision, but so will marketing, and shelf placement.

benp84• 4 years ago

Counterexample: Suppose I'm selling a product with zero cost and I've determined the profit-maximizing price to be $1.00. This means profit as a function of price is maximal and therefore the slope is zero, i.e. raising the price by 1% makes sales go down by 1% and vice versa.

Now suppose my cost to produce goes from zero to $0.99 per unit, which drops my profit to $0.01. Now that 1% increase in price that only drops sales by 1% is well worth it because my profit per unit doubles. The profit-maximizing price is now likely well over $1.

ddingus• 4 years ago

Then one must still consider demand and how buyers value the product.

Max profit becomes far more complex!

A second order view might be:

Say at $1.99 one gets X sales, Y sales at $2 (and yes, that is a real thing), Z at $3, $5 etc...

Clearly, selling for the $5 maximizes profit per unit sale, but if volume is more than double at $3.99, overall profit will be maximized by far higher unit sales.

The buyers will weigh product benefits vs their time, liquid dollars and competing products.

Fewer of them see a favorable value proposition at $5 than do at $3.99. Maybe more see it at $2.50, but not enough more to make more profit over the life of the product.

And a third order strategy could be:

One layer above that is time. Early on, if the product is well differentiated, has a strong value proposition, max money may in fact linked to a price ramp downward.

Start at $5, then drive new sales at $4.50, etc, until late in the cycle to sell against competition, one is selling down at $1.99. While this is being done, cost reductions and other product enhancements can keep margin high.

OJFord4• 4 years ago

Or perhaps even clearer: go to the other limit, cost of $1; drop in sales while going from break even to profitable.

jedimastert2• 4 years ago

I think what would be closer to the truth is that the worth of the product to the customer is independent of the cost of manufacture of the product.

tomrod• 4 years ago

Correct. This is why supply is modeled separately from demand.

Supply shocks affect prices differently from demand (typically, preference) shocks as well.

orev2• 4 years ago

Yes, this is what I (thought) I was saying, but you seem to have expressed it more clearly. Thanks.

However, the fallacy I’m referring to is related to how they report on these things, usually saying something like “the price of the materials went up, therefore the price to the consumer will also go up (by some corresponding amount)”. In reality, the price will only go up if the seller thinks the consumer will pay it. It makes one wonder if this type of article is a move by the company to preemptively plant the justification for the price increase in the public consciousness.

bluedino4• 4 years ago

Remember when Walmart had the vending machines in the front of the store? Sam's Cola was 25 cents while Coke/Pepsi were a dollar.

WalterBright8• 4 years ago

The cost of materials is often only a small part of the final cost - there's the cost of manufacturing and all the other costs of running a business.

Grossly underestimating these other costs is a major reason why new businesses fail.

throwaheyy• 4 years ago

It’s not so much a fallacy as it is a further relationship between prices and supply or demand, called elasticity.

A change in prices will produce differing marginal changes in demand for different goods/services, depending on many factors such as whether the good is an essential or a luxury, the availability of substitutes, competition in the marketplace, and others.

This relationship is part of the information used when deciding MSRP, so it’s not entirely unexpected that an increase in costs doesn’t translate to an increase in retail price, if profit margins allow it.

redorb• 4 years ago

I've worked at a company now for 14 years - where we change what it cost plus a margin to make a fair living. Other competitors have started to 'charge based on the value made by the product'. We're winning by becoming the more 'fair and honest value' brand.

I think 'looking into customers wallets' and charging them for the value they will create with your product is a bit lame. I understand my opinion is in the minority of at least other high level managers or owners of companies.

tedunangst• 4 years ago

It would be great if a journalist called up the company to ask so we don't all have to guess.

beaconstudios• 4 years ago

The author did exactly that:

“I’m committed to that 99 cent price — when things go against you, you tighten your belt,” Vultaggio said on a Zoom call in early April from his headquarters on Long Island, N.Y.

Blackstone4• 4 years ago

Becaused it is sugar and water!?!?

ilamont• 4 years ago

One of the primary target markets appears to be tweens and teenagers, judging by the soft drink buying patterns of my kids and their friends. 99 cents means a lot to them (still).

This brand offers frequent discounts ... I've seen them discounted to 75 cents at the local CVS, but that was during the early part of COVID when sales tanked.

bitshiftfaced• 4 years ago

What's not as obvious is that the retailer is shouldering some of the burden of the margin cut. Unless they want to argue with customers, they have to sell it at 99 cents like it says on the can. So even though they'd rather sell it at a higher margin as they do with other cold drinks, they have to accept less in order to carry it at their store.

The only real alternative is not to stock it (or only stock the plastic bottle ones that don't have the price on the labeling). But if they do that, their customers might shop elsewhere next time. I'm guessing that Arizona knows this, and they want to hold onto this "retailer shares the reduced margin" advantage for as long as they can.

blamazon• 4 years ago

unless they want to argue with customers

"The price is on the can, though"

https://youtu.be/hWObybWWGW4

DavidPeiffer• 4 years ago

Unless they want to argue with customers, they have to sell it at 99 cents like it says on the can.

Thank goodness for a couple companies marking their product like they do. Back in college, if you lived on campus, you were required to get a few hundred dollars of what amounted to University Currency. USD -> University Currency (CyCash in the case of Iowa State) was 1:1, but CyCash expired at the end of the school year, could only be spent at vendors on campus, and only on food or items at the convenience stores.

Cosmic Brownies were like $1.29 as marked on the box. A box of Oreos was around $7, with all other pre-packaged item being 100-200% of a normal retail price. I bought a lot of Cosmic Brownies for exactly that reason.

RainaRelanah• 4 years ago

Ours just opened the boxes of little debbie products so they could sell individually one for the price of a box.

aidenn0• 4 years ago

They can put a sticker over the price, which solves some of the problem. Some people will still be jerks and peel the sticker off then argue.

grumple• 4 years ago

I've been to shops selling Arizona cans for $1.99. I don't think it's uncommon.

izzydata• 4 years ago

Their margins must have been very high to begin with. Your margins decreasing from 700% to 680% probably doesn't matter too much as long as you aren't strapped with corporate debt from trying to expand relentlessly year over year.

kylehotchkiss• 4 years ago

Last time I got a 99 cent arizona tea, there was some slimy chunks at the bottom. Maybe mold? That's probably why

paxys• 4 years ago

99 cents for a can of soda is pretty standard, and ultimately that is what this is. The real question should be – how did they get away with overpricing it for so long.

jedimastert2• 4 years ago

A can of Arizona is about twice the volume of a normal can (680ml vs 355ml)

asciimov• 4 years ago

15 Years ago, a 20oz bottle of soda was a $1 and 12oz cans were 50¢. The decade before that 12oz cans floated between 25-35¢.

So 15 years ago, the 23oz can was still a good value compared to the 20oz bottle of coke.

The real question should be – how did they get away with overpricing it for so long.

Your question is framed wrong, it should be how have coke bottlers been able to keep the price so high. After transportation costs, the bottle, cap, and label are the most expensive parts of the thing (the can in Arizona's case). The liquid inside is stupid cheap.

qiskit• 4 years ago

It's not rocket science is it? They are either dilute or they hedge against commodity/inflation.

The cynic in me says this is just paid advertising for Arizona Iced Tea. Every time there is a hike in inflation, we get a story about the 99 cent iced tea. Or maybe they keep it at 99 cents for the free publicity.

I guess one could take an arizona tea from today and find one from 5 years ago and send it to the lab for easy analysis. But I'm too lazy for that and so is the journalist apparently.

nakmachine• 4 years ago

Looking through the comments I'm surprised at how many people it seems are still able to buy them for 99 cents. I haven't seen one sell for the actual can price in years. To the point that it was already a joke in 2016 (https://www.youtube.com/watch?v=fMUZ2sVjLfY).

racl101• 4 years ago

Usually food that doesn't change is not affected by price changes tends to be some of the worst and unhealthiest.

Arizona iced tea being a prime example. They should just call it diabetes in a can.

Others are the Mickey D's cheese burger or the taco bell tacos.

It's so tasty and addictive but so bad for you. I'm not surprised it still costs the same.

russellbeattie• 4 years ago

I accidentally discovered how to make pretty great iced tea at home:

1) Boil water. Pour into cup with tea bag.

2) Walk away and totally forget all about the tea for a few hours.

3) Walk back into the kitchen for something else, realize you now have a glass of cold black liquid that is undrinkable.

4) Remove teabag and pour the black ooze into a liter container, fill with cold water and sugar to taste and maybe half a lemon from a nearby tree if you have one.

Made the most smooth, delicious iced tea I've ever had.

Borrible• 4 years ago

So, it was a highly overpriced hype brand back then?

conductr4• 4 years ago

Yes - if memory serves me 99c was actually a high price for a drink in the 90s convenience store setting; or maybe on par with a 20oz soda. They came in big cans to make it worth the cost.

antattack• 4 years ago

Their margins are sky high! Cost of water is less than 1c, flavor probably another 1c.

hoppyhoppy2• 4 years ago

The aluminum can or plastic bottle, too, though that's still not the most expensive part. Unless you're driving to the Arizona bottling plant to buy it, there are warehouses and trucking companies and retailers involved who also have to cover their costs of operation and turn a profit.

ramesh31• 4 years ago

Sugar water is really really really cheap. It wouldn't surprise me if the total cost to produce a can of Arizona was under 5 cents, with a vast majority of that being the aluminum can. Management is just smart enough to accept making a little less margin in exchange for maintaining the brand.

HWR_14• 4 years ago

That's nothing. Coca Cola was famously a nickel from it's first bottling until 1960. That was 70 years of inflation.

All because they had vending machines based on taking a nickel.

gurjeet• 4 years ago

TFA mentions that, and the reason why, as well.

julianlam• 4 years ago

AriZona has been committed to 99 cents since 1996, when it started printing the price directly on cans to stop retailers from raising prices on their own.

At some point between 2010 and now, shops in my area (southern Ontario, Canada) basically ditched following this.

I haven't paid $1.13 for a can of AriZona for years now...

syshum• 4 years ago

99Cents is US Pricing, from the story

"when photos of its Canadian cans — which sell for $1.29 Canadian — make the rounds online, people tend to freak. A tweet that said, “If this world is coming, I don’t want to live in it,” with a photo of a $1.29 Canadian can, went viral in 2021. The company had to take to Twitter to reassure its customers, explaining the concept of exchange rates. “Don’t worry fam,” the iced tea company wrote. “We still got you.”"

mawadev• 4 years ago

I like the statement and welcome it. Boundless expansion is pointless, isn't it? What I noticed is how package sizes go down, how ingredients change so it's taste is altered and so on... I just wonder how long we will keep doing that.

What happens when you sell more package and less of the actual product, so people need 3 cans instead of 1 for the same effect, but you just produced 2-3x the trash?

egberts1• 4 years ago

Los Angeles Times should stick to reporting on their area’s inflation.

It’s 2.25 for a tall Arizona Ice Tea at 7-11, Malibu.

chrismcb• 4 years ago

Because it is mostly water? And I don't think the price of water has changed much. Sure distribution costs have risen. But the cost of my soft drink hasn't changed much either

As inflation soars, how is Arizona iced tea still 99 cents?

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