I went to Rite-Aid the other day to get some Aleve. I was away from home, in a rural area more than 100 miles from the nearest Costco, and not at a place where I could get same-day delivery from Amazon (270 Aleve tablets for $18 ($0.07 each).
I had several choices:
–100 generic (naproxen sodium) tablets for $9 ($.09 ea.),
–200 generic for $14 ($.07 ea.)
–100 Aleve for $11 ($.11 ea.),
–200 Aleve for $20 ($0.10 ea.), or
–270 generic for $14.50 ($0.05 ea.).
I took the 270.
What really struck me was the fact that I got the final 70 tablets for a total of $0.50. That’s $0.007 each. Assuming that Rite-Aid wasn’t paying me to cart them away, the most it could have paid for the tablets was $0.007 apiece. Multiply by 270 and you get about $1.90.
Doing the analysts’s mountain-out-of-a-molehill thing, and assuming Rite-Aid buys from the manufacturer, I conclude that $1.90 is the most it could have paid for the container of tablets I bought.
The $12.60 that remains is the cost of packaging, distribution, promotion …plus profit. (Overall, Rite-Aid isn’t making money, even though it has a positive gross margin of about 22%. SG&A pushes it into loss, so delete “profit” from the packaging… list.)
That Rite-Aid can’t make money despite a 600%+ markup says a lot about the company. But it also says something about bricks-and-mortar retail, the way Rite-Aid gets its products in front of customers.
This is the AMZN success story in a nutshell: all it has to do is deliver a $2 item to a customer and spend less than $12.60 to do it.
My trip to Home Depot tomorrow.