I get asked this question about milk a lot. It has made me realize just how important it is to share and explain it. Unless you work in retail there is no reason why you would know how sales work. Today I am sharing why milk is put on sale for such low prices and why it isn’t a bad thing.
If you walk into a grocery store and you see milk for 99 cents a lot of questions can come to mind. For example, how can the store be making any money? How can the farmer be making any money?
When these sales are happening a gallon of milk is a loss leader. A loss leader is a fancy, gargon-y word for a sale. A store puts something popular on sale. That brings in lots of customers. Behind the scenes, the grocery store pays a set amount for the milk. When they move more gallons of milk than normal they might get a volume discount. However, that price isn’t as low as the sale price. They are losing money on the gallon of milk.
You are probably wondering how they make money and don’t go out of business. Well, they make profit by making up with the other products you buy through the store. On everything else you buy, they have small amounts of profit built in to cover what it costs them to put milk on sale. The milk processor and dairy farmers are not taking a big hit in payment because milk is on sale at your favorite grocery store. Depending on your state, you may have never found a gallon of milk on sale. Some states have a law that set a minimum price for a gallon of milk. One of the states I know definitely has this is North Dakota.
What else have you ever wondered while you are walking through the grocery store? I would love to answer any questions you might have!