Price Increase Plagues Discount Shoppers
The major discount chain increased its prices by as much as 15 percent.
July 24, 2008— -- There may be nowhere left to hide from rising prices. In today's tough economy, food and commodity prices, which have long been directly affecting consumers, have begun to take a toll on big discount chains.
"Big-box" stores like Costco have tried to resist passing on their cost increases to consumers, but they cannot provide discounts as they did before. Costco has announced that it will have to raise its prices, on some items by as much as 15 percent.
"It's tough because we're already on a budget," said Nikky Hughes, a mother of two who shops at Costco. "I don't want it to go up. It makes budgeting harder."
Jim Sinegal, president and CEO of Costco, said that Costco's current price increase is unprecedented for the company.
"This is the first time in our history since my partner and I started the business 25 years ago that we've had this type of situation where we've had inflation," Sinegal said. "It's difficult, but we will have to deal with it."
Increasing prices place a burden on Costco shoppers, who come to Costco specifically searching for the best value.
At Costco, the cost of diapers is up by 7 percent, and the price of poultry has increased by more than 10 percent this year. Holiday items will cost about 12 percent more than last year.
And it's not just Costco that's responded to tough economic times by raising prices. With months of skyrocketing prices in the stores, bulk discounters everywhere have done the same.
"It's going to be harder to buy food, harder to buy everything," said J.K. Palmer, also a parent of two who shops at Costco.
The U.S. Department of Agriculture predicts that all food prices will increase by as much as an additional 5 percent in 2009. Kraft Foods, Kellogg's and Tyson -- some of Costco's suppliers -- have said they may be forced to raise prices on some items by more than 20 percent, citing higher energy costs.
With rising food and gas prices colliding, Costco's price increase is not by choice. Nevertheless, consumers have been hit hard by the change.
Another Costco shopper, Arsi Nazarian, the mother of two sons, said her family spent twice as much on their vacation as it did last year, largely because of the increased cost of fuel. She was not surprised that increased costs have hit the aisles of Costco.
"Food, trucks, gas -- it has effects on everything thing," Nazarian said. "We have to cut down on the little extra stuff."
Costco and other bargain retailers have benefited from their discount-seeking clientele in tough times. But the company could no longer maintain such low prices and stay afloat.
Analysts, like Michael Tarsala at Thomson Reuters, point to Costco as a sign that discounts will continue to evaporate.
"You have rich people that shop at Costco; you have not-so-rich people that shop at Costco," Tarsala said. "So if prices widely are increasing there, I would say prices are increasing pretty much everywhere."