I lived in the Atlanta area in the late 1980’s. More specifically, I lived in Cobb County which is just northwest of the city. If you ask for directions to anywhere in Cobb County, the reply you receive will invariably include The Big Chicken. The Big Chicken is a locally-famous KFC restaurant that sort of looked like a big chicken. Want to get to the mall? Turn left at the Big Chicken. Trying to find your friend’s apartment? Go past The Big Chicken and turn left on Windy Hill Road.
But I’m not here to talk about that Big Chicken. I’m here to talk about a different Big Chicken. But first, I need to talk about something else.
I’ve heard people complain about companies making a profit. Their argument is that the big, bad corporations shouldn’t make so much money when so many people are down on their luck. I guess on the surface that may sound like a good thought. But it’s not. Not completely.
Big companies typically have investors. Investors can be, either directly or indirectly, people like you and me. And those investors expect a reasonable return on their investment. Notice I said “reasonable”. We’ll get back to that in a bit.
The point is, if a company does well, then a lot of other people do well too. So I have no problem with companies making a profit. That’s why for-profit companies are in business and that’s why people invest in them in the first place.
I’m not an economist but I have spent a fair amount of time thinking about economics. For example, I have a theory about a phenomenon I call an “Inflation Buffer”. It works like this:
Let’s say that the price of beef fluctuates a bit. When you go into McDonald’s the price of a Big Mac doesn’t go up and down daily. It stays pretty much the same. If the higher beef prices last long enough, McDonald’s may have to increase prices to cover their additional costs. But, for the most part, when the price of beef goes up and then goes back down again, McDonald’s eats the difference so the average consumer isn’t really aware what the beef market is doing.
I’m pretty sure that real economists have a term for what I just described. But I’m not motivated enough to do the research to discover what it is. Even without knowing the name, the observation is still sound.
Before McDonald’s had the digital menus on display behind the counter, it was probably too much of a hassle to change the prices on any kind of regular basis. But even now when they could change the prices at every restaurant in the world with a single push of a button, they still keep prices fairly even.
It’s not just McDonald’s or other fast-food restaurants that act as inflation buffers. There are lots of other examples. Grocery stores are another good one. Like McDonald’s, the stores can change their prices quite quickly, but they have the additional hassle of having to reprice every shelf in the store. This benefits consumers because if the price of pinto beans goes up and down, the cost of a can of baked beans stays pretty much the same.
The point is, big companies can temporarily absorb market fluctuations because they have literally tons of inventory in their warehouses that was acquired before prices went up. They might not be immediately raising prices because it’s too big of a hassle, or because they’re confident the market will spring back. But for whatever reason, big companies can and do help to keep inflation in check.
I think you probably get my point and, if you’re like me, you can come up with a lot of other similar examples on your own.
Which is why I don’t understand gas prices. If I hear on the news that the price of a barrel of oil went up, the price at the pump goes up the very next day. Now, the gas companies aren’t refining the oil the day it comes out of the ground. No, it might take weeks for oil to get to the refineries.
Considering only the oil that comes from northern Alaska, it takes nearly three weeks just for the oil to move from one end of the Alaskan Pipeline to the other. Then it has to be loaded on oil tankers and floated to wherever the refineries are. If the price of oil increases, there’s more than a months’ worth of oil pumped out of the ground at the lower price already on its way.
I don’t understand why gas prices should change in lock step with the price of a barrel of oil. Well, to be completely accurate, it’s not quite lockstep. If the price of a barrel of oil goes up, the price at the pump immediately increases. But, if the price of oil goes down, it might take weeks for the price of a gallon of gas to go down as well.
So, the gas companies are able to charge more for gas made from oil they had obtained at the lower price. Then they keep the price high while the price of oil remains high. And when the price of oil drops, they continue to keep gas prices high until they run out of expensive crude and the gas made from the recently lower-priced oil finally makes it to the pump.
Gas companies make out like bandits every time the price of oil rises. Not only do gas companies provide no inflation buffer, consumers end up paying higher prices so the gas companies can make more money by charging customers more for oil they already had.
Which brings us back to Big Chicken.
But it’s not The Big Chicken. I’m talking about Big Chicken as in “Tyson Foods”. Tyson not only makes chicken products, they also do beef, pork and vegetables.
A couple of weeks ago Tyson published their financial results for the end of last year. During the time when millions of Americans are out of work and inflation is running rampant, Tyson doubled their profits from the quarter before.
Yes, doubled their profits. Remember before when I ask you to remember the term “reasonable”? Well this is not an example of that. An example of reasonable would be keeping profits at or near the level of the previous quarter. I’d even be OK with a percent or two increase. But double?
Tyson said it raised meat prices to offset higher costs for labor, transportation and grains used for animal feed.
But remember, we’re not talking about revenue. We’re talking about profits. If their expenses increased, I think it’s perfectly reasonable to increase price of chicken wings to cover those costs. If Tyson had raised prices to pass the increased costs on to consumers, their profit level would have stayed about the same as the previous quarter.
But that’s not what Tyson did. Tyson raised their prices so much they were able to put twice as much money in the bank than before. In a time when people are already struggling to put food on the table, Tyson made certain that doing so became even more of a struggle than it already was.
As a large company, Tyson could have acted as a buffer for their customers. But Tyson didn’t help shield consumers from inflation. They didn’t raise prices to cover increased costs. They raised prices to double their profits. And by doing so, they made an already bad problem even worse for millions of people.
And that, in my opinion, is unreasonable.
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