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In this update we take a look at the old saying that buying in bulk saves a lot of money. The question is whether this is actually true?
With South African fuel prices reaching record highs, economic growth declining by 2.2% in the first quarter of 2018, now is the time to use hard earned money wisely. So is buying in bulk cheaper than not buying in bulk? We investigate this using the average prices supplied by Statistics South Africa's Consumer Price Index (CPI) division. |
Rice paddy
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Is buying in bulk cheaper?
The bar chart below shows the average price per kilogram of various sizes of Rice bought in South Africa over the last number of years. And the bar chart makes for pretty telling reading.
So what exactly is shown by this graphic? We recalculated 500gram rice prices to work out what it would cost to buy a kilogram worth of rice. And the same was done for 2,5 and 10kg rice prices. Essentially we are expressing how much it would cost to buy 1Kg of rice of you bought 2 500g packets, or divide a 2kg price in 2 to calculate the per kilogram price.
And from the bar chart above it is pretty clear, that the bigger the packet of rice you buy, the cheaper the rand price per kilogram becomes, across all the years in our analysis. It is obvious that using rice as an example it does hold true that buying in bulk is cheaper. Readers might wonder why this is the case? Fancy economics term for this is economies of scale, basically the more you produce the cheaper it becomes to produce 1 unit of an item. And why is this? Well whether you package 1 packet of rice of 1000, your fixed costs such as rental of a building, municipal rates, insurance etc all remain the same, whether 1 unit is produced or a lot of units are produced.
So baiscally the more is produced the more costs are spread over a greater number of units produced. And this is why retailers and wholesalers can sell bulk goods at cheaper rates. As the rice example shows the price per kilogram of rice when buying 2, 500gram packets works out to R16.26, yet the per kilogram price when buying a 10kg packet of rice works out to R12.04. Thats a massive saving of 25.9% per kilogram of rice, when buying a 10kg packet instead of 2, 500gram packets.
In coming days we walk take a look at a few more examples in order to determine whether buying in bulk is indeed cheaper for other product categories. For now we can definitely say that buying rice in bulk is a lot cheaper than buying smaller quanities.
So baiscally the more is produced the more costs are spread over a greater number of units produced. And this is why retailers and wholesalers can sell bulk goods at cheaper rates. As the rice example shows the price per kilogram of rice when buying 2, 500gram packets works out to R16.26, yet the per kilogram price when buying a 10kg packet of rice works out to R12.04. Thats a massive saving of 25.9% per kilogram of rice, when buying a 10kg packet instead of 2, 500gram packets.
In coming days we walk take a look at a few more examples in order to determine whether buying in bulk is indeed cheaper for other product categories. For now we can definitely say that buying rice in bulk is a lot cheaper than buying smaller quanities.