When the dessert menu was brought out and one of the group decided to go for the “banana split” dessert an interesting discussion started.
According to the marketeers around the table, bananas are considered to be “known value items” by the large supermarkets. These items are considered by the supermarkets to be products where the average customer has a reasonable knowledge of how much they should cost. These include items such as bread and milk (and bananas!).
They are therefore always priced competitively by the supermarkets as it is the price of these products that customers most commonly compare between the supermarkets. If the supermarkets can attract customers to their shops with attractive pricing of these “known goods” then they can maybe be more relaxed with the pricing of other goods!
According to a recent report in the trade magazine, the Grocer, banana prices are heading towards the critical point of £1 per kilo. This is approximately 35% higher than the price one year ago. This is a huge increase in percentage terms and customers are noticing.
And the reason for the increase in prices?
Well, this was where the finance people around the table suddenly came into their own. Apparently, there are two main reasons for the increase in prices.
Firstly, the increase in oil prices. Shipping companies that transport the fruit over to Europe have been hit by the increase in their shipping fuel costs as a result of the increase in oil prices.
Secondly, banana importers have been hit by the weakness of sterling. As a dinner companion put it succinctly, “the bananas are more expensive as it’s simply costing the importers more pounds to buy the same amount of bananas they were buying for less pounds last year”.
Luckily for my dinner companions though, just as I was about to start talking about exchange rate risk and hedging facilities the desserts arrived and we suddenly forgot all about the price of bananas!