We are all aware of inflation and have surely heard older relatives’ tales of paying 10 cents for ice cream, a nickel for a bag of sweets or 1 mark for a bar of chocolate. The good old times with ridiculously cheap prices (mind you, from today’s perspective) often cause heavy sighs of nostalgia. But wait a second – in Germany, as long as the Mark existed (until 2001) you could still get a 100g bar of chocolate for around 1 Mark! And even today, you’ll find an average chocolate bar for 80 Eurocents (translating roughly to 1.60 D-Mark before the currency change). In fact, the price of chocolate has remained stubbornly persistent in Germany since the 1950s. Welcome to what the Süddeutsche Zeitung calls “the most stable currency in the world”.
If you look into this fascinating history of food price inflation, you realize that chocolate is definitely an anomaly: From 1950 to 2002, German overall prices had inflated by 322%. Thus, one liter of milk cost 0.35 Mark in 1950 and 1.32 Mark in 2002; the price of one kg of beef rose from 3.25 to 12.32 Mark; and the price of potatoes even rose by 900%, from 0.37 to 3.40 Mark. And chocolate? Had it followed the normal price path, it should have cost 4.22 Mark on the last day of the D-Mark, December 31st 2001. In reality, it cost what it had always cost: 1 Mark.
Explanations of these phenomena come mainly from consumer behavior theory and supermarket pricing schemes. First of all, the German article explained that there are certain items with “threshold prices” that retailers don’t like to go over: e.g. 1.00, 10.00, 100.00. That is why you will see so many offers for 0.99, 9.99, 99.95 etc. – it gives consumers the feeling that they are paying less than they actually are.
Then, consumers will often pick a couple of items in supermarkets that they know an easy reference price for and base their judgement of the overall price level of the supermarket on these items. In industry jargon, these are called “known value items“. They are so critical for retailers to maintain customer loyalty and attract new clientele that supermarkets often choose to run really low – or no – profit margins on these items to protect their image, and try to get higher margins on other goods. In the U.S., known value items include 1 gallon of milk, 1 dozen eggs, or 1 pound of bananas, for example.
And in Germany, some miraculous coincidence had led to a 100 g bar of chocolate becoming both a known value item and being under the threshold price of 1 Mark – and thus becoming practically immune to inflation.
An interesting test to the theory occurred in 2002, when Germany transitioned to the Euro (which was exchanged 1 Euro : 2 DM) – would the rule continue to hold? In fact, chocolate manufacturers and retailers have used the bit of upward flexibility to quickly edge prices for one medium-quality chocolate bar up to now 0.79 to 0.89 Euros (though it was worth 0.50 Euros in 2002) – but since then, it has stabilized again. Apparently, the 1.00 Euro threshold continues to hold. A price expert quoted by the Süddeutsche assures us that this rule could remain in power for years to come, despite the fact that cocoa prices might be rising, since cocoa is actually only a minimal contributor to the overall price of the chocolate itself. German chocolate consumers may heave a sigh of relief.
(Note: fair trade and organic chocolate brands – my purchases of choice -, as well as high quality brands such as Lindt, are the exception to this rule and are significantly more expensive; what this interaction says about the industry’s ability and willingness to engage in more fair sourcing practices might be an interesting topic for another time…)
Bonus: This topic reminded me of a related Planet Money podcast on the sticky price of Coca-Cola and how the company had negotiated and branded itself into a corner with regard to pricing and didn’t change its price for 70 years. Also a fascinating story.