Why Doesn't The Price Of Ice Cream Change Very Often?
RACHEL MARTIN, HOST:
It is the first day of June, which means it's almost summertime, which means we're all going to start buying more ice cream. But if you sell ice cream, you have a problem. It's really hard to change the price of a scoop. From our Planet Money podcast, Brendan Greeley visits his hometown ice cream shop in Annapolis, Md., to figure out why the price of ice cream hasn't changed in years and why it might go up this summer.
WALTER GIERA: Speed is incredible here. We have lines out the door most weekends in the summer. Like I tell everybody here, ice cream melts.
BRENDAN GREELEY, BYLINE: This is Walter Giera. He owns Annapolis Ice Cream. He looks like an ice cream guy. He wears red suspenders. But Walter has a problem. It is expensive to make great ice cream from scratch, and his costs are going up. There was a drought in West Africa this season, and it raised the global price of cocoa. So Walter can't get chocolate chips from his normal suppliers, and he's paying more to buy them somewhere else. But Walter's big cost right now is labor, that speed he was talking about. He has to train high-productivity workers, and he has to pay them more.
So you feel like scooping ice cream is a high-skilled position?
GIERA: For us it is, yeah, because we're very demanding.
GREELEY: For example, Walter has colored tags by flavor in the front that show what's available in the back.
GIERA: The problem arises where they don't change the tags in the back, and people go back there and stand and look at freezers.
GREELEY: Overall in America, wages are rising at about 2.5 percent a year. But since 2016, wages for leisure and hospitality workers - ice cream scoopers - have been going up much faster. Also this year, Maryland raised its minimum wage. So to hold onto his trained fast scoopers, Walter has to pay them even more. And yet the price of a scoop hasn't been moving. Here's Brent Meyer. He studies inflation for the Atlanta Fed.
BRENT MEYER: There are some prices that are sticky, that don't change very often.
GREELEY: I'm sorry to interrupt. Are you saying that ice cream prices are sticky?
MEYER: It's the case that prices of a cup of coffee don't change on a day-to-day basis. I suspect that the price of an ice cream cone doesn't change from day to day.
GREELEY: I checked. He's right. The price of ice cream is sticky. Every month, the Department of Labor checks the prices on a basket of goods, the stuff most of us buy. Some prices are volatile, they change every month - gas, milk. But some prices stick. And the price of ice cream hasn't moved since the summer of 2012. Brent Meyer says some prices have what economists call an implicit contract.
MEYER: The idea is that it's sort of an invisible handshake between firms and customers, and the firms are going to do the best they can to not upset their customers.
GREELEY: And that's pretty much how Walter the ice cream guy sees it. Sometimes you're even trusting the store with your kids.
GIERA: They usually come in with a small amount of money. I don't want them having to go in there and dig up more money from mom and dad or something like that. I like predictability.
GREELEY: Which is why last month as a customer, I noticed a sign on every display freezer, a note from Walter. His costs are up, the note reads, and he's raising his prices by 25 cents. It's finally happening. He's renegotiating the implicit contract. He's unsticking.
GIERA: I hate price increases. I hate them when I go to the stores. I hate them when I go to the grocery store. I hate them when I go for gas. So I wanted to let people know that this is a last resort. We don't have a choice here.
GREELEY: What he didn't put on the note was the other law of his trade. It's not a great business to begin with.
GIERA: Well, let's put it this way. Unless your name is Ben & Jerry's, you don't get rich on ice cream. That's a simple fact.
GREELEY: For NPR News, I'm Brendan Greeley.
(SOUNDBITE OF DORENA'S "THE ALL-CLEAR") Transcript provided by NPR, Copyright NPR.