Tuesday, January 01, 2008

From Politics to Popcorn

January 1, 2007, 10:15 p.m.

Taking a Popcorn Break from Politics

I just saw four political commercials in a row. Many of the candidates are going to be in Iowa City tomorrow. By Thursday night it will all be over -- even if the inconclusive results (three leading candidates in a virtual tie) makes them wonder if the last year's effort and costs were worth it. We'll pretend we're glad they're gone by Friday, but I suspect we're going to have some withdrawal symptoms as well when they stop sending us mail and leaving phone messages. Like the rest of America we'll be ignored, left to just follow the race on television.

Anyhow, I thought we might take a break from politics and enjoy a little popcorn -- or perhaps merely the economics and politics of popcorn.

As a child, my first awareness of business practices and consumers' need for skepticism was an outgrowth of my observation that the doubling of the price of candy bars (from 5 cents to 10) was accompanied by not only a failure to double the amount of candy but an actual reduction in the size of the candy bar.

I was reminded of this the other evening at one of the Marcus Theaters where I witnessed the same profit-driven phenomenon: more money, less popcorn.

The price of a "regular" container of popcorn, smaller than it used to be, had somehow increased to $4.75.

I like popcorn. It's part of going to the movies. I also make it at home. I didn't know, offhand, what I was paying at the store for the amount of popcorn it would take to fill that container, but decided to find out.

Rather than toss the container in the trash, I took it home with me. It turned out that the amount of popcorn it would take to fill it, once popped, was something less than one-half cup.

Next time I bought popcorn I checked the price. Two pounds of popcorn from a local supermarket (HyVee) is $1.18 -- 59 cents a pound. It turned out the old adage "a pint's a pound the world around" is pretty close for popcorn. Which means that, if Marcus bought its popcorn two pounds at a time at retail rates, once popped the amount of popcorn in that container would cost them about 15 cents. ($1.18/two pounds = 59 cents a pound = pint = 4 half-cups = 59 cents/4 = 15 cents.) That's a $4.60 profit on a $4.75 sale and ingredients worth 15 cents -- a total sale of $19.00 for 59 cents worth of popcorn.

(In the Reuters story, below, you'll see that 30% of the 4 billion gallons of popcorn we consume each year we buy in theaters. That's 1.2 billion gallons, or 19.2 billion one-half cups. At a profit of $4.60 on each half-cup, that's $88.32 billion for the theaters from popcorn sales.)

But of course Marcus Theaters doesn't buy its popcorn at HyVee. (I recall many years ago looking at a movie theater trade association publication and noting that it contained more discussion of popcorn futures than future movies.) It buys popcorn in bags containing 50 pounds of popcorn -- and $950.00 in profits.

Here are a couple of randomly selected examples from the Internet.

Instawares' Web site indicates that "today's price" for "Weaver Gold" is $22.55 per 50-pound bag (45.1 cents per pound). Sunglo advertises a 50-pound bag for $25.95 (51.9 cents a pound).

At 45 cents a pound that's a little over 11-cents worth of popcorn in that $4.75 container. And I would suspect that if a movie theater chain were to buy those 50-pound bags in carload lots they'd be even cheaper.

In fairness, there's more cost to that $4.75 container than the popcorn it contains: the container probably costs more than the popcorn, there's the labor cost for those highly-paid teenagers, and a variety of overhead costs. Moreover, there's a level of competition from television (including the explosion from a three-network economy to 300 channels on cable), videotape and DVD sales and rental (including Netflix by mail, and Internet delivery), video games and distribution of video material to hand held devices and cell phones that simply didn't exist 50 years ago. And my impression is that a disproportionate share of the ticket sales ends up with the studios rather than the theaters.

Nonetheless, it still seems to me a little excessive to be charging $4.75 for that little container holding a half-cup of popcorn worth 10-to-15 cents -- made possible by filling all those little kernels with air.

And the prices look like they're going up -- at least in part as a result of Iowa's turning its corn into ethanol. Here's a story explaining why, along with a description of this food chain (and profits) from popcorn farmers, to middlemen, to distributors, to theaters, to you.

WASHINGTON (Reuters) - A trip to the local Cineplex may become even pricier soon thanks to surging popcorn costs.

U.S. popcorn prices have risen more than 40 percent since 2006 as soaring demand for feed corn to fuel the ethanol boom has spilled over into the favorite snack of American movie-goers.

Companies that purchase popcorn each year, as opposed to larger crops such as corn and soybeans, are confined to choosing among a relatively small number of suppliers. This makes it important for popcorn companies to offer competitive prices and forge good relationships with farmers.

"I think (ethanol is) going to have a uniform effect on all geographical areas that produce popcorn," said Dennis Kunnemann, president of AK Acres Popcorn, which buys, processes and then sells popcorn to distributors, packagers and snack-food retailers.

"This year, we've paid the highest price ever that I've contracted for, 13 cents a pound," compared with 9 cents per lb last year, Kunnemann added.

The family-owned company in Imperial, Nebraska, has passed its increased cost on to customers by signing new contracts for between 18 and 20 cents a lb, up about 40 percent from 2006.

AK Acres also has helped in the ethanol boom by selling land next to its facility for the construction of an ethanol plant slated to begin later this year.

Americans consume 4 billion gallons of popcorn annually, totaling 13.5 gallons per person, according to the Popcorn Board, which promotes the industry. An estimated 70 percent of the snack food is consumed in homes, with the remaining 30 percent eaten at theaters, stadiums and schools.

Since most of the world's popcorn is grown in the United States, it seems fitting that American movie-goers and retail shoppers consume more of the snack than their counterparts in any other country.
Christopher Doering, "Popcorn Prices Popping Thanks to Ethanol Boom," Reuters, July 10, 2007.

So go to the caucus, literally "stand by your man -- or woman," and then come home, pop some popcorn, watch the results on television, and savor your do-it-yourself enormous popcorn savings.

Happy New Year!

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2 comments:

Anonymous said...

I worked for a couple of summers in college at a movie theater. The manager made no bones about the fact that a movie theater's profits are in popcorn and soda, not movies. In fact, movie theaters make very little money on ticket sales, and often lose money. Kind of like gas stations--the convenience store makes the money, not the gas.

KL Snow said...

Nick,

Thanks so much for giving me something else to think about for a few minutes on caucus day.

KL