Many people believe that grocery stores keep their milk in the back corner of the store for a nefarious reason. By making you go all the way to the back, you’re forced to pass by a bunch of other items that you might not otherwise buy. Because a lot of people buy milk, goes this argument, that’s a great item to lure people into covering a good chunk of real estate they otherwise would ignore if the milk were near the front.
I have a different explanation.
The Bottom Line
My idea is that competition forces grocery stores to put the milk more or less where we the customers would like it to be. If customers wanted the milk near the front of the store, then groceries stores would offer that convenience. Or someone could come along and create a new grocery store built on making customers happy rather than exploiting them. They’d make a killing.
We prefer the milk to be cheaper and a little farther away.
But how can I argue that customers actually want the milk near the back? That seems crazy. Do customers want to be lured to the back of the store? Do they want to be forced to pass all the other enticing offerings? Is it for the exercise?
The answer for why customers want the milk near the back is cost. Grocery stores could put the milk near the front but it would be much more costly and those costs would end up being passed on to customers. So we prefer the milk to be cheaper and a little farther away.
Why is it costly to put the milk near the front? Milk has to be kept cold. It arrives at the loading docks at the back of the store in refrigerated trucks. If the coolers are in the back, the length of time the milk has a chance to warm is minimized. It’s less likely to spoil. It also takes little time to stock the milk shelves. The milk in inventory is kept in a refrigerated area just behind the coolers accessed by customers.
If milk were at the front of the store it would have to be more expensive to cover the costs of earlier spoilage and time to re-stock. I suspect it’s also a lot more expensive to build large free-standing coolers and to keep them cold rather than having them along the back wall. Stocking the milk from the back does not interfere with customers the way it would if it were in the front of the store near the registers.
Finally, there are apparently safety issues, as commenter Evan Downie noted in an Econtalk episode I did on this topic with Mike Munger of Duke University:
Though I’m not a designer, nor engineer, I do install automated control systems in large commercial properties. There are a variety of factors in placing a refrigeration system such as thermal load (windows and other heat sources), humidity, and other environmental issues. But in my experience there are basic determining facts surrounding placement that I will try to briefly sum up.
Most commercial refrigeration systems tie together to one location. Because of this all displays and storage units are placed close to that central location. Which reduces runs of lines and cables, and simplifies labor. This is the first factor of placement, to reduce initial cost. Installation of refrigeration systems represent one of largest initial expenses in this type of construction. The second factor is accessibility/serviceability. Very important in reducing long term costs. The third, and most important, factor is safety. Safety above all determines where displays are located.
Refrigerant as well as being an environmental hazard, is also a poison. It travels at extreme temperatures, under pressure, through the system. So the goal is for the lines, and equipment, to be as isolated from the general public as possible, but also accessible to service personnel in the event of a leak. Thus the back of the store is the most practical, and safest, location for the support equipment to retail milk.
Of course, these safety issues could be overcome or at least minimized but that would just add even more to the cost.
Helping, Not Exploiting
Sodas are not as vulnerable to changes in temperature as milk.
My claim is that the convenience of having milk at the front of the store would not be of sufficient value to overcome the higher price supermarkets would have to charge to cover the costs of putting the milk near the front.
A piece of evidence in favor of my claim would be convenience stores. The coolers are on the back walls. It’s hard to argue they’re doing that to make me walk the fifteen feet past two shelves and entice me to buy more stuff. I can pretty much see that other stuff from anywhere in the store. I suspect it’s simply a matter of cost.
They do however put sodas in simpler coolers near the front (as do supermarkets). Sodas are not as vulnerable to changes in temperature as milk. The coolers are not as intense or complex. So convenience stores and supermarkets do that to make my life easier if all I want is a soda.
Am I right? Some people find it hard to believe. Don’t supermarkets exist to make profit? Don’t they want me to walk through the store and find other things to buy?
Yes and yes. But what is hard to see is that competition forces that profit-making urge in the direction of helping customers rather than exploiting them. As Walter Williams of George Mason once explained it – “I don’t tell my grocery store when I’m coming. I’m willing to pay a small premium to avoid disappointment. I don’t tell them what I’m going to buy or how much of it I want to buy. But if they don’t have what I want, I fire them,” meaning I choose a competitor.
So stores stock extra inventory even though it’s expensive. They pass those costs on to me of course, but I am happy to pay those extra costs because empty shelves mean a wasted trip. I’m willing to pay a small premium to avoid that disappointment.
In this vision of how an economy works, retailers and manufacturers are constantly guessing how much I value things. Those that do it well, thrive. Those that don’t, lose money either by incurring costs that they cannot cover with higher prices or by failing to add things to their products that I would happily pay a premium for.
Maybe I’m wrong. Maybe there is a profit opportunity to put milk coolers at the front of the store and attract customers who resent having to go all the way to the back. It’s possible. Maybe I underestimate the costs of putting the coolers in the front or the benefits of finding the milk quickly at the front. It’s possible. But that means someone is missing a chance to make money. That happens. But it’s not where I’d want to start when looking for a general explanation of a universal phenomenon.
Even a thoughtful manager may not understand the underlying power of competition. It’s also possible that there isn’t enough competition to encourage retailers to be vigilant about the tradeoffs between cost and convenience. Opening a supermarket in Montgomery County where I live is a time-consuming political process that requires permissions, permits, and palm-greasing, I suspect. That impedes the full power of competition. But competition is still there, just not quite as effective as it otherwise would be. And even in cities with less onerous land-use regimes where competition is healthier, the milk is in the back of the store.
Finally, someone on Twitter suggested settling this dispute about why milk is in the back of the store by asking a manager of the store. Curiously, perhaps, this is unlikely to work. No manager is going to admit that it is done to exploit customers. And even a thoughtful manager may not understand the underlying power of competition that leads to various expectations and standards of performance.
Michael Pollan disagrees with me about the role of competition. You can listen to our conversation on the topic here along with some responses from managers.
Reprinted from Startup Grind.