I was watching a YT video in which an American in Lagos, Nigeria showed how much food could be purchased with $1 U.S.
$1 US = 900 Naira at the exchange rate of the time the video was filmed.
Of course, it turned out he was able to purchase enough tasty-looking Nigerian street food to feed himself for an entire day. But what kind of surprised me is that he was able to buy what looked like a 12 oz. Coca-Cola for 100 Naira, which is just a hair over 11 cents US at that exchange rate.
Which made me wonder something I’ve wondered about in the past. Is the profit margin so obscenely marked up in the US, and perhaps other richer nations, that companies are able to still make a profit in poorer nations selling at a fraction of the markup? I know this is true for things like prescription drugs, and Coca-Cola is flavored sugar water that probably costs only a few cents per bottle to manufacture.
I think for other products that can’t be marked down profitably, but can be resold, like American automobiles, there’s only a used market in poorer nations. I believe I heard somewhere that old Jeeps sometimes get shipped to African countries to be resold.
So, I’m guessing that many corporations, of course and especially pharma companies, and to a lesser extent companies like Coca-Cola, treat the US as a HUGE cash cow, and other, poorer, nations as ‘better than nothing’ in terms of profit margin. Fantastic to get over a $1 profit on each bottle of coke in the US, but they’ll settle for a few cents of profit in Nigeria. Or is there something more complicated, economically, going on?
Your theories are a big part of it. But it can also be 1. Costs lower in the third world (third world employees are paid a lot less). and 2. Companies don’t have to meet the high safety and environmental regulations in the third world as in the U.S. and western Europe (I am thinking about cars, etc. here).
Coca-Cola in Nigeria is produced in Nigeria using Nigerian employees. It’s also advertised using Nigerian advertising costs. So most of the primary inputs to the cost of the product are much lower in other countries than they are in the US.
I would imagine the profit margin (as a percent of cost inputs) is roughly the same.
I don’t believe that in a relatively open market like soft drinks that the US is getting gouged (on a percentage markup basis) relative to other countries. It’s not analogous to drug pricing where there are external factors influencing the market price.
And I’m not sure, but I think that sugar is also cheaper to produce in tropical climates. American Coca-Cola needs to either import sugar, or use more expensive domestic sugar sources, either of which increases the raw material price.
Though yeah, it’s probably still mostly about it having an extremely high profit margin in the US.
And for that matter, it’s not too rare even in the US to find off-brand soft drinks (that still have the same actual costs to the company) at $1 for a 2-liter bottle. That works out to about 18 cents per 12-ounce serving, and I’m sure that Fanta or RC or whoever are still making decent profit margins on it.
This makes sense, and I had assumed lower advertising costs, but hadn’t so much considered the fact that some items are more cheaply manufactured in the countries in which they’re sold.
But this wouldn’t apply to everything. iPhones, for example, are manufactured in only one place (cheaply, in China), then sold at what must be a huge markup in the US compared to other countries.
I think some of it must be profit analyses that corporations do. Similar to stores like T.J. Maxx, Big Lots, or overstock.com. The myth is that companies oversell or over-manufacture items, and the overstock is sold at a discount at stores like these. But the reality is, there is no ‘overstock’; companies know exactly what they’re doing; they’ve calculated that a certain segment of the population are willing to pay top dollar for product X and would not be caught dead in a discount store. Another segment is perfectly fine shopping in discount stores and would never, ever, pay top dollar for product X. A similar calculation must be done among consumer countries.
(ETA: weird, overstock.com must be defunct-- the URL forwards to Bed Bath & Beyond, yet another defunct company).
There is also the fact they will target a different market segment. MacDonalds being the classic example of this, in much of the world rather than being the absolute cheapest of the crappy fast-food options, its a luxury item and is priced (relatively) as a high-end product. E.g. in Nigeria a Big Mac Meal is about 5000 Naira, thats about 6 dollars. Thats only about half the price of the US.
Well, maybe, maybe not. Coca-Cola has a lot higher advertising costs than RC, and with those higher advertising costs, it might not be profitable to sell Coke at $1 for a 2-liter. Of course, that advertising is also the reason why they can sell Coke for three times as much as RC, so…
So, some items, especially comparative luxury items, are not priced according to international market segments? A million Naira would be over $1000 US, or more or less exactly what it would cost retail without a phone plan in the US.
I guess that makes sense, or else a black market would spring up of people buying bulk iPhones cheaply in countries like Nigeria, and reselling at a discount, yet still at a profit, in more affluent countries. Though companies like Apple probably would install some sort of international anti-jailbreak technology to try to prevent that if it were the case.
Yeah the mobile phone market is completely artificially controlled by phone companies and makes no sense at all. There is absolutely no reason mobile phones are expensive as they are, except Apple, et al, want them to be and can get away with controlling the market.
What do you mean by “controlling” here? It’s certainly not a monopoly. They don’t gatekeep network access. There are multiple producers, including low-cost ones.
I think it’s more that people are willing to pay an extremely high price for the features of a top-notch cell phone, even though they can get one with a smaller feature set basically for free.
Yes. Pricing and cost don’t really have much of anything to do with each other. They’ll sell a Coke for $0.80 because people will pay that, not because of anything to do with the costs involved with producing, transporting, and selling that Coke. In Nigeria, people won’t pay $0.80, but they will pay $0.11. And Coke makes a profit on that.
Nearly everything works like that- the only place where cost matters is when the market price is too close to the cost for a profit to be made.
Iphones are high, because there’s ONE maker. You can get an iPhone from Apple, and that’s it. Android phones have a whole constellation of manufacturers, especially worldwide. They’re considerably cheaper overall as a result, although a Samsung Galaxy S23 Ultra is still going to be pricey because of what it is.
Yeah, when people talk about the cost of cell phones, they always focus on the cost of the most expensive cell phones. And yes, those top-end models are more capable, in various ways, than the cheap ones… but the cheap ones still exist, and are much cheaper than the expensive ones, and in many cases are at least close in performance, by practical measures, to the expensive ones.
I theorized that the difference would be the cost in labor to move Coca-Cola around (i.e. delivery trucks to different stores) but that is apparently minimal. I calculated less than half a cent per can in cost for delivery assuming a worker with a wage of $30 an hour. While a Nigerian worker would be massively cheaper, the price per can is too small to make a difference because you can move so many cans together.
We could also try to calculate the cost of land (and thereby warehousing fees) per can but given that you can stack so many on such a small footprint and they move so fast, I’d also expect that to be negligible.
I guess that I see now why Warren Buffet was always so bullish on soda.
It’s the main reason McDonald’s is trying out this CosMc concept restaurant. Focus on beverages that sell for $2-$5 while costing much less. 50% margins are a conservative estimate on those. If it works, anyway
Yes, rent, materials (cans/bottles still cost money), labor, etc will cost more but not enough to explain the entire difference.
In the US, a lot of the recent increase has really just been because they can charge more. That won’t be true everywhere but it does explain relative price disparities aren’t entirely driven by costs. Here’s an article from a few weeks ago that went into some of it: